Jack Cashill - Popes and Bankers: A Cultural History of Credit and Debt, from Aristotle to AIG

BOSTON IS THE HOME OF ONE MELONIE GRIFFITHS-EVANS. WERE SHE TO DIE unrepentant, which seems likely, she might well find herself in the fourth circle of Dantes Inferno among the prodigals. A word used less today than it ought, prodigal simply means given to excessive or imprudent spending. The prodigals have long been with us. For, as has been said, Aristotle writes in the Nicomachean Ethics, he is liberal who spends according to his substance and on the right objects; and he who exceeds is prodigal. Prodigals matter here because historically they have kept lenders in business. They still do.

The ethics surrounding credit and debitor debt, for our purposesfind expression in the oldest written records, those of the Greeks and the Hebrews. But the real history predates that, as the Mesopotamians kept records of borrowing and lending on stone tablets. And yet even when the terms of a loan were literally written in stone, people sought to evade them, most typically prodigals like the aforementioned Ms. Griffiths-Evans.

Fortunately for Griffiths-Evans, she has the sympathetic David Koeppel of MSN Money to chronicle her tale, not the judgmental Dante Alighieri. As Koeppel tells it, in 2004 Griffiths-Evans contracted to buy a $470,000 home in Bostons Dorchester section with no down payment. She claims to have been looking for an apartment, but those that suited her fancy cost about $5,000 to $6,000 a month. At that time, the amount was more than she could afford. Landlords, after all, demand rent. Lenders can be more flexible. Ambitious beyond her means, Griffiths-Evans heeded their siren song.

The first question the obliging Koeppel asks her in a recorded interview is, Was your loan a predatory loan? Griffiths-Evans answers without hesitation, It definitely was. To swing the deal, she took out a fairly standard 8.5 percent loan on 80 percent of the purchase price. Lacking the traditional 20 percent down payment, she took out a second loan at a whopping 12.5 percent. Her combined monthly payment ran roughly $3,500 a month to begin, increasing as the loan adjusted.

Historically, lenders would not have allowed that size of a payment for anyone making less than about $200,000 a year, presumably more than Griffiths-Evans earned as a part-time teacher. But lenders in the first years of this new century were encouraged to accommodate people like Griffiths-Evans. She got the money. Still, she claims her lender told her that she could soon refinance into a lower-cost, fixed-rate mortgage. That is where it became predatory, she reassures herself and Koeppel.

There is nothing unique about Griffiths-Evans. A million Americans just like her have unwittingly conspired to wreck the worlds economy. Writing twenty-three centuries ago, Aristotle sniffed out their ambitions:

They become apt to take because they wish to spend and cannot do this easily; for their possessions soon run short. Thus they are forced to provide means from some other source. At the same time, because they care nothing for honor, they take recklessly and from any source.

What changed over time, as shall be seen, was the nations willingness to oblige its prodigals. To fix her innocence, Koeppel asks Griffiths-Evans no questions about her elusive husband, her income, her seeming inability to save money, her job prospects, the alleged cost of rental housing, or any potential plans she might have had to surf the rising tide of real estate prices and flip the house for a profit, plans possibly swallowed in the subprime morass.