An article in the New York Times draws further attention to the indebtedness of American consumers: focusing on the degree to which debt is harming the lives of individuals, as well as how the lending practices of firms encourage people to take on more than they can handle. While there is certainly a key regulatory role in preventing fraud and misleading advertising, it is less clear to me that the major fault here lies with companies. As a shareholder in a mortgage company, I might be annoyed that it had chosen to lend to people unable to make the necessary payments. As a member of the general public, it is less clear why I should be excessively concerned – nor why I should have excessive sympathy for those who choose to live beyond their means.
Financial conservatism – the deliberate choice to live below your means and set something aside for the future – is a mindset that is certainly at odds with consumer culture. That being said, it seems sensible for the onus to be on the individual to learn restraint, not for the system to change so that it is no longer required. The lesson that needs to be absorbed is that borrowing is generally only justified in order to invest or to smooth our financial fluctuations. Using it as an unsustainable mechanism for consumption spending will always be a bad choice, no matter what rules various lending organizations adhere to.
Yes, there are unexpected situations that arise and unfairly tax the finances of some individuals. This is one reason for which insurance needs to be equitable and widely available. At the same time, people who have chosen to drive themselves into debt with cars, houses, and consumer products they cannot afford cannot be held entirely innocent when a further financial shock overwhelms their short-term ability to cope financially. That may been like an unsympathetic judgment, but it seems like the only view that incorporates the right incentives.
Another NYT article discusses the compassion versus personal responsibility debate directly.