Not ready for sub-prime players: borrowing's fine; debt's a national crisis.

EVEN CAVE-DWELLING, 15-year-fixed-rate-paying troglodytes were close to hysteria this spring, spooked by speculation that the debacle in the sub-prime mortgage industry, which had already sunk industry leaders like Ownit and AmeriQuest, was on the verge of torpedoing the entire American economy. Senate Banking Committee Chairman Chris Dodd (D-Conn.) proposed a bailout of the multi-billion-dollar industry. Presidential hopeful Hillary Clinton called for a "foreclosure timeout." A bill aiming to stop "predatory lending" practices is still moving through the Senate.

Strangely, though, homebuyers in Southern California, the epicenter of the sub-prime quake, don't seem to have heard the news. Actual closing prices continued to climb throughout the industry crash.

The sub-prime meltdown comes in a context of debt panic--specifically, of other-people's-debt panic. Liberal economists, values conservatives, and hug-the-middle moderates are in full agreement on this one: Poor people's access to debt is driving them to fiscal ruination or worse. James D. Scurlock's celebrated documentary Maxed Out collects horror stories--including youngsters driven to suicide by credit card debt--to prove the thesis that "banks and credit card companies are setting their customers up to fail." Anya Kamenetz, author of Generation Debt, envisions debt-ridden young professionals as the new serfs. (The hard-luck bio on Kamenetz' website includes the Dickensian detail that she "graduated from Yale seven months after the 9/11 attacks.") Ambitious politicians and math-unencumbered reporters are in hot pursuit of the culprits: predatory lenders, indifferent regulators, Madison Avenue captains of consciousness--everybody except people who borrow large sums of money with no intention of paying it back.

The conventional wisdom used to say the poor didn't have enough access to debt. One of the earliest products of Franklin Roosevelt's New Deal was the Home Owners Refinancing Act, which provided mortgage money to more than a million borrowers over a three-year period. Harry Truman's record shows a consistent effort to expand the amount of debt available to willing borrowers.

My favorite artifact of the period's pro-lending mood is Fredric March's great "collateral" speech from the 1946 film The Best Years of Our Lives. March, playing a rising bank middle manager who has just returned to his job after serving as an Army NCO in the Pacific, reads a rambling riot act to a banquet of porcine small-town bankers who have criticized him for providing loans to bad-credit-risk veterans. If we'd fought like bankers, seeking collateral for every risk and a guarantee on every expenditure, we'd have lost the war, he argues.

We can dispute the wisdom of federally guaranteed loans and mortgage purchasing, but it's notable that the new economy March wanted helped to create one of the greatest booms in the country's history: the postwar suburbanization of America, which is now derided by our own bien pensant classes, who claim there's too much ready credit out there. The difference now is that it's coming from the market rather than a package of government guarantees, from an industry that expanded to fill a demand and is now contracting as the demand shrinks.

In a sane world, we'd say this is a market behaving as it should, and marvel at an economy where so many people who were once locked into the renters market have gotten a chance at homeownership. Some of them have blown their chance by exhibiting the same kind of behavior that made them bad credit risks in the first place. But most have not. In fact, about nine out of every 10 sub-prime borrowers are still making their payments.

So our grandparents solved the not-enough-credit crisis, and Sens. Clinton and Dodd are well on the way to solving the too-much-credit crisis. What will they think of next? Whatever it is, there will be plenty of deadbeats, politicians, and people who can't do math to cry that the sky is falling, even if home prices are not.

Tim Cavanaugh ([e-mail]) is an editor at the Los Angeles Times.