Heather Reid

ENGL 101 Section X

Essay 2 “ The Broken Social Contract”

“Who Wins in the Game of Blame”

Pertaining to the current crisis involving rising numbers of home foreclosures and

personal bankruptcy claims, Time magazine introduces a disposition in the article, “House

of Cards.” It is expressed as the following quotation, “Their bitterness stems from a feeling

that they've held up their end of the social contract, but now the terms of the deal have

been rewritten by malign forces.” This quote is in respect to the relationship involving

consumer and lenders. It was effortless for me to devise a summary upon reading this

quote. Aside from my understanding, and subsequent to researching involved topics, my

opinion supports this contention. The quote seems to be gracefully stating the obvious, in

my opinion.

This quote represents perhaps a neighbor you had for years, an immediate relative,

friend, and maybe even you. I cannot justifiably generalize the spectrum of people this

crisis entails. I am unable to satisfactorily come to a conclusion that summarizes reasons of

default to be within the control of each consumer(s). If perhaps I were to assume the

reason being irresponsibility of each consumer, then I would expect this result to have been

caused by some significant “force”.

Directly or indirectly, consumers are very aware of the dismal economic state we are

living in. Being conscious of such mishaps cause an almost natural reaction to lose

confidence in an entity that is incapable of providing a return. When we have committed

to making a purchase, it is because we are convinced it is a good investment, it has some

sort of return or use to being purchased. But in a recession we don't have security in
spending. The perspective changes as a consumer and you make a conscious decision to be

subjected to loss. Prices hike as business's sink, in efforts to stay open.

This chain reaction has been led to staggering numbers of unemployment. Time

magazine reports 3.6 million job losses following the onset of this recession. Those affected

by unemployment are now faced with the inability to pay their bills. This is only a piece of

the compounding reasons that factor into facing foreclosure. Our economy depends on

taxpayers, the working class. The government has offered aid by way of distributing

stimulus checks, in hope of prompting economic growth. Mark Lieberman, Senior Economist

says the results were limited and unable to provide a self-sustaining solution the economy

needs. Only 40% of the stimulus dollars were circulated back to the economy. Lieberman

says the reasoning behind the moderation in spending these dollars might have been related

to the way in which they were disbursed. If funds are directly deposited into a checking

account, they are less likely to be spent.(FOX business.com)

Another element contributing to home foreclosures, are banks lending subprime

loans. Implementing subprime loans, along with unemployment is creating a two-headed

monster. Subprime loans have no other purpose than to offset a promised financial

hardship. These loans are granted to persons that do not qualify for prime loans , or fixed

interest rates. The rates inevitably will fluctuate based on market value and in addition to

faulty rates, the loan also subjects you to “balloon payments”. So you might be on a

consistent, affordable monthly payment amount in the beginning, but this time is limited

and once expired, payments increase to a significant amount. Miller, points out a detail

that is often overlooked when it comes to loan modification and interest rates. The

interest rates are not determined by the bank, but by investors in stocks, equities, and

bonds. In order for interest rates to drop, we would need to see an increase in the bond
markets. This means it would be necessary for stockholders to have an incentive to invest

in a more secure, but less profitable option of bonds (The Atlanta Tribune). It is

improbable the stock markets will ever cease to exist.

One solution to these loans is modifying the terms of the loan. There have been

attempts to make such modifications available. One program called, "Hope Now" was

enacted but caused no significant reduction in home foreclosures. Grow, states in

Business Week, "Hope Now is really just a vehicle for collecting and marketing

information to the treasury, people on the hill, and news media"(pg.35). These

modifications have a major setback of payment increases of up to $1000, reported in, "The

Home Foreclosure Fiasco" in a Business Week article. It seems it is going to take extreme

measures in regards to loan modifications in order to maintain stability. The banks mindset

will be the priority of bottom-line profit, not an individuals best interest.

It is necessary at this point, to put the responsibility on the "Malign Forces" banks.

We need banks, they are a necessity to the world in which we live, but have we sold our

souls to the devil? It seems many proposals have been made to cause law changes that

theoretically would alleviate this mortgage meltdown. The Los Angeles Times reports

that In April 2008, Sen. Richard J. Durbin proposed an amendment giving judges handling

bankruptcy the power to modify its' terms initially listed within the loans. It was thrown

out by a 58-36 vote opposed by mortgage lenders, and a majority of republicans(Richard

Simon).

It seems a hopeless endeavor to get beyond the banks' tunnel vision of money-

making. The malign forces filtrate into congress, they are lobbyists, and house

representatives who secure an unwavering presence at every counsel meeting. I am no

politician, or economist but it seems to me that we are becoming enslaved by the

government, buried in mass debt, we may not be so much obligated, as we are reliant.

With reliance on something, comes a certain duty of being accountable.

MLA CITATIONS

WORKS CITED:

Von Drehle, David, and Maya Curry "House of cards. (Cover story)." Time 173.9(2009):22-

29. Academic search premier. EBSCO. Web 25 Oct. 2009.

Miller, J.. "Loan modifications: likely not the solution. " The Atlanta Tribune

1 Mar. 2009: ethnic News Watch (ENW), ProQuest. Web 25 Oct. 2009

Richard Simon. "CONGRESS; Supporters champion tax break for builders; An

amendment to add bankruptcy law change to a Senate bill addressing the housing

meltdown is defeated, "Los Angeles Times 4 Apr. 2008,Los Angeles Times,

ProQuest. Web. 25 Oct. 2009

Brian grow, keith Epstein, and Robert Berner. "THE HOME FORECLOSURE FIASCO"

Business Week 23 Feb. 2009: Research Library, ProQuest. web 25 Oct. 2009
Mark Lieberman, "Did stimulus checks help the economy?" FOXbusiness.com 11

June 2009 Research Yahoo 26 Oct. 2009