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Let Them Eat Credit: Why Raiding Home Equity Remains So Tempting

David Callahan
Here we go again: Home equity lines of credit are on the rise -- with a 16 percent increase forecast this year -- as more homeowners borrow against the value of their homes. The reflexive question might be: Didn't Americans learn anything from the housing bust? But the better question is actually: Will ordinary Americans ever be able to rely on just their wages to make ends meet? 

The popular media story about Helocs during the last boom was that homeowners tapped rising equity to go on spending sprees. And, sure, there was some of that. But the bigger problem was flat household incomes even as the cost of key necessities like healthcare, housing, and college tuition kept climbing upward. Without easy credit, these trends might have led to some kind of reckoning. Instead, that can was kicked down the road as political leaders, regulators, and banks made it a lot easier for people to borrow money, starting back in the 1980s. 

In effect, easy credit was used to buy off a public that might otherwise have raised hell about a withering American dream. Financial elites scored a double reward: They encountered scant opposition to their rising power and they enjoyed growing profits as Americans shelled out ever more money for interest payments on debt. Not a bad deal. 

Seemingly, the music ended in 2008. But this may turn out be just be an intermission judging by the fact that easy credit is starting to flow once more. And just in time, too, with Americans showing near-record high concerns about economic inequality and the power of banks and corporations.

Two years from now, incomes may still be flat, but if banks can round up a few trillion dollars from the Chinese or whoever to lend to needy Americans, than that should paper over the economy's structural problems for another spell -- neutering reform efforts. Good times will be here again!