Over the last five years I have written books and lectured around the country about the real estate and credit industries -- particularly those sectors that apply to consumers.
And I have had an up close and personal vantage point to observe (and reflect on) whether there is any merit to Adam Smith's "invisible hand" or Ayn Rand's "hands-off" capitalism -- specifically whether institutions acting selfishly will eventually result in a fair and productive economy.
Although I wish it were so, it just ain't.
The problem is the tremendous disparity between corporate power, influence and wealth -- and that of the average consumer. This disparity causes disruptions in the invisible hand which presumes a fairly even playing field.
When corporations are doing what they should do -- maximize profits -- they have no vision for the consumer. The drive to maximize the bottom line and shareholder value takes precedent over a sense of fair play. Since all institutions are similarly motivated, the idea that the consumer can move from one provider to the other, and find differences in treatment, is theoretical but not practical.
That is why we had many people in mortgage loans they should never have been sold. That is why we have lots of people in credit card debt who should have been treated differently well before a crisis arose. Mortgage lenders -- both banks and nonbanks -- steamrolled their way to profits, let the buyer be damned. Credit card issuers spent hundreds of millions of dollars on tremendously clever marketing campaigns yet next to nothing on educating consumers about the risks and dangers of credit and debt.
The free-wheeling "invisible hand" can only work when there is a relative equality between the players in the game. When the consumer is up against a slew of behemoths, the consumer will lose.
At the same time, shame on the consumers who did not expend even the minimum amount of time and energy to educate themselves about mortgage products, home-buying conflicts, credit card protocols and the risks and rewards of debt. An educated consumer can at least keep the institutions at bay. Still, the wealth and power that the big lenders have is hard for any individual to keep up with. Powerful marketing campaigns, confusing loan products, non-responsive customer service and changing protocols will be too much for almost any of us.
Jim Randel is the founder of The Skinny On book series, a concise and entertaining approach to an understanding of consumer products. His first book, The Skinny On the Housing Crisis was just awarded the Gold Prize in a book competition sponsored by NAREE (a group of 650 journalists). Randel received the award last month at a ceremony in Washington, D.C.