The interview with Diane in the video on the NYT website features a women who admits to using spending as therapy for divorce, loss of job, etc., and who got in too deep. Morgensen tries to tie Diane's problems to predatory practices by the lending industry, but doesn't make a convincing case. Moreover, Diane is presented as a lower middle class woman who can't control her spending (and admits as much). But what about middle class people who spend not on jewelry or clothes, but for college and necessary home maintenance? Do they deserve to be cut off by the lending industry when their debt load becomes too much?

Ultimately Tanta thinks everyone should be treated the same, just like all home mortgages should now be considered sub-prime rather than making artificial distinctions among prime and alt-A mortgages. Tanta is probably correct here, but it will be difficult to achieve.

There used to be simple guidelines for lending, some of them imposed by regulators, 25 years ago. Your debt service couldn't exceed a maximum percentage of disposable income. Down payments were 20% minimum. No one could finance a down payment - it had to be cash. Home equity withdrawals were permitted only with proof of use, which was limited to home improvements or college tuition. Everyone had the same rules, but exceptions could be made occasionally because the bank knew the customer and their circumstances personally. Banking was local and loans were kept until maturity.

Securitization has removed the connection between the bank and the borrower. Consequently, we are going to see stricter rules; 20% down payments are now mandatory in many states. Exceptions simply won't be permitted. Diane won't get to spend for jewelry, and responsible middle class borrowers will be limited to how much can be taken down even for tuition or emergencies.

Is the psychological warfare that consumers have to deal with every day from marketers. Individual consumers are facing increasingly sophisticated techniques that are designed to overcome good intentions on spending that strapped consumers may have.

Retailers are funding studies like these to get people to make bad decisions for themselves:

http://news.yahoo.com/s/livescience/buyerbewarethemanywaysretailerscantrickyou

Buyer Beware: The Many Ways Retailers Can Trick You

Robert Roy Britt
LiveScience.com Mon Jul 21, 8:50 AM ET

Shoppers do crazy things. And retailers bank on it.

Several studies reveal how Americans shop in irrational ways, and increasingly scientists are figuring out how easily we can be duped. Retailers in turn use these tricks to get inside our heads, encouraging window shoppers to become real shoppers, driving purchases of sales items regardless of real value, and helping buyers feel good about the things they walk out with ... often for no good reason.

* * * * *

Tricks of the trade

There are many ways retailers encourage you to open your wallet. None is more obvious than putting things on sale.

Researchers have known empirically for more than 20 years a "50% off" sign leads consumers to assume a price is attractive, even if they have no knowledge of the original price or reasonable prices for that product.

In fact, shoppers as a whole seem quite clueless about sales values.

Studies have also shown that frequent but modest discounts - such as the constant sales at a car dealership - lead to perceptions of greater value than less frequent but deeper discounts.

And when math is involved, most of us can't cope. For example: See if you can calculate the total savings in the setup: 20 percent off the original price plus an additional 25 percent off the sale price. How much is that item marked down? If you said 45 percent off, then you're math skills are as pitiful as the 85 percent of college students who also got this wrong in a study last year by researchers at the University of Miami and the University of Minnesota. The right answer: 40 percent off.

More tricks

Other tricks, such as this one documented in a study last year, are more subtle:

A salesperson can totally alter a window shopper's inclination to buy something by simply asking the right question. When a salesperson asks a shopper which of several items she prefers, the shopper tends to skip the whole "Should I buy it at all?" question and go straight to the "Which one should I buy?" phase. The study was done in simulated tests and in real-world retail situations.

"Stating a preference appears to induce a which-to-buy mindset, leading people to think about which of several products they would like to buy under the implicit assumption they have already decided to buy one of them," wrote Alison Jing Xu and Robert S. Wyer, Jr. of the Hong Kong University of Science and Technology. "Consequently, they are more disposed to make a purchase than they otherwise would be."

Amazingly, the gimmick worked even in selling unrelated products. Just 2 percent of a control group bought candy in one test. But in a group who had been asked to indicate their preference among mp3 players, restaurants, and mobile phones, 28 percent bought candy.

Some tricks are downright nasty. One sales technique is called "disrupt-then-reframe."

Frank R. Kardes at the University of Cincinnati and colleagues found that by presenting a confusing sales pitch (such as telling a potential customer that a candy bar costs 300 cents) then restating the pitch in a more familiar way, they were able to increase sales of a candy bar in a supermarket. The same trick increased students' willingness to accept a tuition increase or to pay to join a student interest group.