Fool us twice?
A loan crisis occurs when too many banks make too many loans to too many unqualified borrowers. When these loans begin to default, the risk spreads into mutual funds, pension funds and corporations — causing some or even many of them to default or go bankrupt.
I am not discussing the criminal actions of banks in 2007 and 2008. No, that was 11 years ago. No one blames the banks anymore because the economy is just bob-bob-bobbin’ along, right? Besides, movies like The Big Short put sunlight on this kind of problem, right? It couldn’t happen again, right? Lenders aren’t that greedy, right? Right?
In addition to the idiocy of lending money indiscriminately to unqualified borrowers, the Great Recession (I prefer “Fiscal Suckage,” a phrase coined by a community representative from a bank in Seattle) also revealed a striking and obvious issue among arts nonprofits. During times of hardship, nonprofits that directly serve the underserved are likelier to receive a gift than those that indirectly serve the underserved. Arts nonprofits were thus the last in the sector to rebound from our last period of pecuniary peril — and many arts nonprofits still have not fully recovered. Most arts nonprofits still do not, as their primary reason for existing, directly serve — that is, tangibly serve — those in need.
Let me be clear: the case for arts funding in general stands strong, but the case for funding individual arts organizations sits weakly when you compare them, for example, with local food banks, shelters, social justice organizations and other charitable groups that offer more immediate help to people in times of financial stress. When potential donors simply have less to donate, they are going donate to people who are starving, homeless, beaten and damned.
In this light, it is especially discouraging to read Inside Philanthropy’s recent prediction of lower levels of giving to the nonprofit sector overall in the years to come:
Looking back over several years, IRS data reveals that people under age 55 significantly reduced their giving during the Great Recession, and they have not fully resumed their support of charities.
I wince as I write this, but better from me than a stranger, because it appears that we may have another economic bubble about to burst. According to a story by Heather Long in the Washington Post, a record seven million Americans are currently more than 90 days late on their car loans:
…Non-prime and subprime auto loans increased from 28 percent of the market in 2009 to 39 percent in 2015, a reminder of how aggressively lenders went after borrowers who were on the margin of being able to pay.
And why did this happen? Because of pitches like this one from Edmunds, one of the leading car research companies. And because of TV pitches like this:
“I don’t even own a car — I take public transportation everywhere,” you say in 2019?
“I don’t even own a house — I rent an apartment,” you said in 2008.
“What do I care about the automobile industry?” you ask in 2019?
“What do I care about the housing industry?” you asked in 2008.
“Stupid people shouldn’t buy cars they can’t afford. That’s on them,” you declaim in 2019?
“Stupid people shouldn’t buy houses they can’t afford. That’s on them,” you declaimed in 2008.
“How can a car loan crisis affect my arts organization? I don’t see the connection,” you ask in 2019?
“How can a home loan crisis affect my arts organization? I don’t see the connection,” you asked in 2008.
Perhaps there is no connection between 2008 and 2019. Indeed, as Long noted in her story, automobile lending is a $1 trillion industry, as compared to the nearly $9 trillion home loan industry.
In an interview with Long, she told me that the auto loan market “is much, much smaller than the mortgage market. So this is not expected to destabilize the financial sector.” She added, “Another key…is that the mortgage market, pre-2008, had a lot of securitization going on (so mortgages packaged and sold on together). That’s happening a little in the auto market, but it’s a much, much smaller amount of the action.
“In my mind,” she continued, “the impact of this auto loan deterioration is really on the individuals. It’s more of a story of personal devastation. It could have some wider impact on the economy if Millennials…[can’t] afford to buy homes or do other economic activities because their credit scores [may become] ruined for years.”
Perhaps there is a connection. After all, the phrase “only a trillion” should send shudders down our collective spines, shouldn’t it?
When credit scores go down, borrowing becomes more difficult and more expensive for all of us, including Millennials. When more Millennial money goes to interest, less disposable income becomes available, including money that might have gone to charity. When that happens — and I would say when, not if — the pool of donors to arts nonprofits, which is already pretty narrow, will narrow still further, down to the super-wealthy (and/or their children) who are also, by the way, the bulk of ticket-buyers. And round and round we go.
No one will likely go to jail for predatory lending — except, potentially, borrowers. Again.
Financial service leaders will likely get generous bonuses. Again.
Charities will likely struggle. Again.
Greed wins. Again.
Shame on us. Again.