The Foundations of Credit Risk Analysis Book

Batchelder et al. set out to discover and discuss why Americans have become so in-debted to their lenders. They find the causes for severe debt and bankruptcy in higher costs of living coupled with random bad luck: we get catastrophically sick, we get fired, we get divorced. When faced with potentially disabling emergencies, many of us do not have sufficient reserves to absorb or cushion the blow. In desperate need of cash we allow ourselves to become victims of predatory lending practices. High interest rates, confusing lending agreements, and exotic loans -- once the tools of only shady moneylenders and hucksters -- have been adopted and even improved on by mainstream banks which are no longer regulated as tightly as they had been in the first half of the 20th century. The result? Americans as a whole spend more than they save ... and we're not buying luxuries, we're buying credit.

The solution? Legislation. "Policies that point us, on the one hand, toward dramatically higher standards of behavior for the lending industry, and, on the other hand, toward more broadly shared prosperity, with mechanisms of economic opportunity and security that reduce the pressure on Americans to borrow for important life needs." Batchelder and her co-writers offer no advice for their readers other than to become politically active and demand Congress to clean up the mess: lenders must cast their terms in clear, simple prose; regulatory bodies should be beefed up or created to stamp out abusive lending; the US needs a comprehensive savings and asset-building policy that would reward low- and middle-income citizens for saving; low-income earners need a fair source for obtaining reasonable loans; student grants should be increased and loans decreased; unions should be better supported; and the government should do as good a job of bailing out its financially strapped citizens as it has done in bailing out its bankrupt lenders.

The book's tone alternates between smug and strident, and it's argument is often one-sided and even manipulative: we meet a couple dozen people who have been abused by their lenders, and we come to sympathize with them; but most lenders are simply large, faceless institutions who are not given a voice to explain how they assess risk or why they charge the rates they do. If you enjoy 60 Minutes style reporting, often more accusatory than investigative, you might like this book. At other times it's consoling, arguing that we are all victims of forces far beyond our control. In some ways it's a sort of Chicken Soup for Folks who Signed on the Bottom Line without Reading the Small Print (or doing the math). But if you're looking for ideas on how to avoid falling into debt or how to dig out if you're already buried by it, you'd do better to find another book. As far as the authors are concerned we are all simply victims of The Man & the Suits, and only Uncle Sam, holding lenders on a tight leash and liberally doling out relief to the rest of us, can solve America's debt crisis.