Both America's homeowners and Greece used risky financial products to hide financial problems and mask a lack of earnings growth, leading to expensive rescues:As for home equity lines of credit: I think the arguments will eventually converge to the argument that HELOCs were primarily used to synthetically create household earnings growth over the 2000s, where the middle and working-classes used a derivative-like structure to push out the full realization of stagnant earnings growth after all other options (working more hours, in their case) had been maxed out, in order to buy themselves some breathing room, just like any other number of failing companies. And countries now, if you include Greece.
This, from a smart post by Mike Konczal, is just right. The last decade saw historically low wage growth among the bottom 90 percent of earners, and a perfect storm of pernicious financial innovation and a housing bubble created incentives for homeowners to strip equity from their homes; we're still suffering from the consequences.
-- Tim Fernholz
