The Mortgage Radar: the Tax on Stupidity, a New Credit Crisis

November 15, 2010


In 1996 British political scientist David Runciman wrote an essay entitled The Plot To Make Us Stupid; David Runciman on the National Lottery.  As part of his thesis Runciman argues that the lottery which was first described as a tax on stupidity given that the odds of winning are 14 million to one (Lotto 649 style) was marketed by the government in such a way that it is acceptable to be stupid. Think about it? If I were to invite you to play a game with me where the odds were stacked 14 million to one in my favor would you want to play against me? Runciman observed that…

the lottery was created and then energetically marketed, with government support and endorsement, it wasn’t so much that it was a tax on stupidity, more as if stupidity were now seen as an important natural resource, something that needed to be encouraged and protected and lovingly nurtured.

Back in August of 2010 I wrote a little rant, The Offer I Could Refuse. I wrote the post after a banker tried to convince me to switch banks by offering me a $20,000 line of credit as if he was doing me a huge favor. As a mortgage broker I am intimately involved with my client’s finances. Last week I worked with a struggling family who 18 months ago refinanced their home to pay off all of their debts and start a new debt free life. Their creditors were so happy that they turned around and increased all of their credit limits and lowered their interest rates. In just 18 months they owe more than $70,000 to outside creditors again.

I see this same trend from lenders, financial institutions and credit card companies offering more and more credit to consumers who just can’t help themselves. You can’t turn a corner without being offered more credit; just a little here to buy that TV, a smudge over there to make your purchase with a 10% discount (who doesn’t like a discount?), a dab over there because if I sign up I get this fabulous looking toaster oven.
Much like the government energetically marketed the lottery (aka tax on stupidity) to make it ok to play a game where the odds are 14,000,000 to 1 against you, banks and creditors have made it ok for you to go into debt and play a game with money where the odds are also stacked against you.
But don’t distress not all is doom and gloom. I found an encouraging report last week. A clear sign that consumers are fighting back. Last week Gregory White wrote a short article on about the new credit crisis; America Is Facing A Brand New Type Of Credit Crisis.

The Fed is desperately trying to incent banks to lend more money by reducing the yield on cash and reducing risk.But it’s clear now that lack of lending isn’t the problem: lack of desire for credit is.

Yesterday, two credit surveys were released by the Federal Reserve that told readers roughly the same thing: Americans now hate debt.
How did this happen? Only 3 years ago, Americans were in love with their credit cards, holding massive mortgages, and finding new ways to take out loans for reckless purchases.
Then, bang, the crisis hit and everyone is tapped out and retrenching.
While some may see this as a responsible turn by Americans, it is evidence of the paradox of thrift, where consumers prefer to pay down debt and save rather than spend. And if people and businesses aren’t spending, the economy isn’t growing, and job growth can’t take hold.


Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too. He’s a second generation mortgage broker. Following in his father’s steps he joined the family mortgage business straight out of university.