The Economy | The American Dream and subprime loans

To make sense of confusing times, scholars say, turn to the classics.

And so I did, flipping on the Turner Classic Movie channel the other night, where I caught part of that great 1946 flick, The Best Years of Our Lives.

Fans know this as the movie that captures post-World-War II America like no other. But it also manages to teach a bit of economic history - and even shed some light on our own era.

I'm thinking in particular of the scene in which star Fredric March, playing a veteran who's come home to a job in his hometown bank, makes his first subprime loan.

Of course, they weren't called "subprime" back then. The borrower is another returning GI, an ordinary Joe who just wants to buy a farm.

March is torn. The guy has no collateral, just his two hands and a dream. Bank policy frowns on such loans, but March can't say no. He risks his job - his irate boss warns he's gambling with the bank's money - to demonstrate faith in the American future.

It's powerful stuff. And of course, it's largely what happened: With a new attitude toward credit in the 1940s and '50s, banks helped fuel an unparalleled economic expansion, which continues today.

But has banking evolved too much? The recent spike in mortgage delinquencies and foreclosures has to make you wonder.

If Hollywood made a latter-day version of Best Years, not only would that GI borrower get his loan without a hassle, it's doubtful he'd need to show up at the bank at all.

More likely, whoever played the Fredric March part would be out cruising and cold-calling for potential borrowers. He'd be offering mortgages with an astonishing array of attractions: Adjustable rates, flexible terms, quickie appraisals, and no money down.

Come-ons like these were part of the mortgage boom of the last few years. Lenders - who mostly weren't banks at all, but unregulated brokers funded by Wall Street - raced to book as many mortgages as they could.

Those loans were then sold to investment banks, where they were bundled, sliced up and resold to investors around the world.

Mortgage-backed debt securities are now a major global investment vehicle, just like corporate stocks, municipal bonds and commodity futures.

But is this a good thing? Does the worldwide mortgage business end up benefiting ordinary folks and neighborhoods? Or is it just a huge money machine, preying on the ignorant to feed itself?

The latest stories do create an impression of mortgage lenders as overly aggressive. For instance, Congress last week heard from a Philadelphia woman who said she was in danger of losing her home thanks to a refinancing that left her with vastly higher payments than she expected.

But while there may well be many like her, it's probably a mistake to think of all, or even most, subprime borrowers as hapless victims.

In fact, there are reasons people sign up for "nontraditional" loans. So-called "balloon" mortgages, whose rates jump after one or two years, can be appealing if you plan to buy a property and resell it within a short time.

Some people want to consolidate other debts, using low mortgage rates to replace credit card or auto payments. Still others need to tap the equity in their homes to meet unexpected costs.

Nothing, of course, excuses deceptive lending, and nobody should sign up for a loan that they can't afford or don't fully understand.

But it's important to recall how life was back when credit was not so easy to get.

Not every would-be homeowner was as fortunate as Fredric March's returning GI farmer. Lots of folks suffered back in the day because they didn't meet some banker's arbitrary standard of creditworthiness.

The current mortgage mess will likely lead to new lending rules, as it should.

But government needs to tread carefully, lest they make it harder for millions more Americans to get to their own best years.