March 9, 2007
[PHOTO FROM HARPER'S MAGAZINE FEATURE, MAY, 2006 "The New Road To Serfdom"]
This week the Senate Banking Committee has begun an investigation of credit card companies and that industry’s lending practices of which Chairman, Carl Levin of Michigan said, "Millions of families…are kept in debt and are in over their heads not just because of their own purchases…but because of the abusive practices and excesses of the credit card companies." Simultaneously, MSN’s Money Markets Editor, Jim Jubak, published an enlightening piece "Debt Pyramid Threatens To Topple Markets" in which he analyzes the gargantuan February 27 sell-off in world markets and its continuing reverberations throughout the global economy. Whether personal or planetary, a tornado of foreclosures, bankruptcies, missing money—now arriving on the world stage as a housing bubble, soon devolving into a credit bubble—is ripping through the United States economy and world markets and will ultimately shatter, splinter, and shred, not only the fiscal fabric of America but is likely to catapult the global economy itself into massive meltdown. Consequently, I’m not holding my breath that Levin or his committee will have any influence on the debt cyclone and the industry that has set it in motion.
An extraordinary and timely documentary "In Debt We Trust" written and produced by Danny Schecter, is a most illuminating—and chilling—must-see exploration of the debt issue. Starting from the standpoint that our society is set up to keep us struggling for our entire lives, saving almost nothing, and remaining in perpetual debt, the documentary proceeds to reveal the impossible shell game that is perpetrated on players in the debt game by a credit industrial complex which cannot exist or profit without debt, and specifically, losers in the game.
Debt doesn’t "just happen"; it is consciously, carefully engineered by the debt industry to begin in childhood with the Saturday morning cartoon consumption-fest of products aimed at children, including "Credit Barbie Dolls" and "Shopping Barbie Dolls" that make the sounds of credit card transactions when they complete their imaginary purchases in "Barbie Land." A few years later, the same child, now in college, is deluged at freshman registration with a plethora of credit card offers which although they may begin with only a $500 limit, are soon increased if the student makes regular payments. While as a college professor I have long been aware of the financially lethal consequences of college students holding three or four credit cards at a time, I was unaware that the average college student graduates with $20,000 in credit card debt. I am well aware, however, that the same student is likely to graduate with an additional $30,000 + debt in student loans. Thus, it is not unusual for a college graduate to commence his/her career, in debt to the tune of $50,000. Still more frightening is the reality that for that graduate, and indeed for most of the working and middle-class U.S. population, indebtedness never ends! As credit card customers get older, their diminished consumption needs must be replaced by younger customers whose "buy now, pay later" illusions are unchallenged by life experience.
In the documentary, Schecter reveals that the debt industry sets up consumers to be in debt from cradle to grave by getting them dependent on credit cards, carrying student loans, making car payments, and buying a house which then necessitates myriad additional purchases, leading in a majority of cases, to re-financing or the proverbial turning of one’s house into an ATM machine. Whereas in the old days, a "deadbeat" was a person who never paid his debt, in today’s debt industry, the term means just the opposite. In fact, what lenders hate more than anything is the consumer who regularly pays off her debt—so much so that within the industry, these people are called "deadbeats" because they are of no value to the industry. Only those consumers who perpetually carry debt have value for the debt industrial complex. In other words, from the standpoint of the debt industry, risk equals profit.
Not only does perpetual indebtedness serve the American financial system, it serves the political establishment as well by making it exceedingly difficult to protest that establishment when one is over one’s head in debt. As a matter of fact, perpetual indebtedness serves to make the consumer subservient not just because his credit rating might be used against him should he choose to organize politically, but to a certain extent, the consumer, particularly if he/she is uninformed, often feels a certain sense of "gratitude" for those pieces of plastic and the "privilege" of owning one’s own home. Debt industry propaganda markets not only the very expensive use of someone else’s money, but an idea, an image, and philosophy—that is, the notion that this is America, and where else in the world can one have what one wants so instantly? Notice Mastercard’s use of the word "priceless" in many of its commercials that depict families enjoying an expensive evening at a restaurant or baseball game courtesy of Mastercard. What’s "priceless", of course, is not what is consumed, but sacred family time. The logic of Mastercard’s ads communicate the message that since no price can be put on family time, why would you not want to charge the expenses of that time with Mastercard? You may be in perpetual debt, but wasn’t it all worth it to have those priceless moments with family? Whether by way of playing on "family values" or using some other manipulative tactic, all debt industry marketing strategies are designed [in the words of that industry] to encourage consumers to "accept more debt."
The collection industry, which thrives on confusion, issuing reams of unintelligible instructions with its credit cards, and essentially builds it industry on lending to poor risk customers, is hugely profitable. This astonishingly de-regulated industry has created a no-win set up for consumers with steadily increasing interest rates and a dizzying array of fees that Curtis Arnold, founder of cardratings.com, says can very quickly mushroom into unmanageability for even the most conscientious card holders who use their cards responsibly and pay off their balances monthly.
Our national personal debt at Christmas, 2005 was hovering somewhere around 8 trillion dollars and is now rapidly approaching 10 trillion which amounts to nearly $30,000 per household. A number of experts in the banking/credit card industry in Schecter’s documentary unequivocally assert that the debt industry functions as a group of loan sharks who use threat and scare tactics to demand payment from those consumers who are falling behind or are in over their heads. In fact, one banking executive stated shamelessly that the industry functions exactly like organized crime. Moreover, debt and debt collection are hugely profitable, especially when banks sell hundreds of billions of dollars worth of loan packages to larger banks and those assets are traded on Wall Street where obscenely wealthy CEO’s further gorge on the interest and finance charges of unpaid loans, and if those loans are insured or guaranteed, their feeding frenzy is further enhanced.
What makes the industry’s policies not only egregious but in fact, illegal, is the reality that by and large, it lends to people who it knows cannot repay their debt. In the world of finance, this is known as fraudulent inducement and is punishable with fines and imprisonment. Although difficult to prove in terms of motive, the debt industry’s behavior is replete with millions upon millions of instances in which poor risk consumers are deluged with pre-approved credit cards.
The industry’s argument, of course, is that people are not well-informed about their financial responsibilities and options. Just a little more financial literacy is needed, they assert, and people wouldn’t get themselves in dire financial straits. But consumer counseling experts contest that massive personal debt is not about information or education and that people who are drowning in debt cannot educate themselves out of it.
The U.S stock market has recently been reeling as a result of a colossal sell-off by Chinese markets and the bursting of the U.S. housing bubble which is essentially the illusion of wealth in that market due to over-inflated prices. Recently, several top mortgage lenders have begun hemorrhaging red ink which is likely to result in bankruptcy for them and increasing numbers of foreclosures for borrowers now squeezed between the costs of a mortgage payment, childcare, car payments, credit card debt, and health insurance benefit payments or medical emergencies not covered by benefits—all of these costs being worsened by inflation. Curiously, one of the major lenders is GM, already edging ever closer to bankruptcy with steadily decreasing auto sales.
Within the next months and probably no longer than two years, millions of American’s will be forced to say goodbye to the American dream of home ownership. I have argued for some time that this may be a fortunate and necessary step in downsizing and de-consumption which, while it is unlikely to enhance the nation’s economy, may well augment the personal resources and savings of those families and individuals who opt for renting. I highly recommend Matt Savinar’s excellent article "Who’s The Real Idiot?" which analyzes the pros and cons of renting vs. buying, as well as Michael Hudson’s May, 2006 Harpers Magazine article, "The New Road To Serfdom" which compares home ownership to debtor’s prison.
The next bubble to burst after the housing bubble may well be the credit bubble, and if the housing bubble initiates a financial bloodbath, a credit bubble burst is likely to be an economic Katrina unlike anything the American people have ever witnessed. Worse than the Great Depression? Unquestionably.
While "In Debt We Trust" ends as most documentaries and exposes usually do with "What is to be done?", the reality is that very little can be done collectively, but much can be done individually and within families. Schecter’s interviewees clarify that few politicians can get elected without the full support of centralized financial systems and the real estate industry. Politicians from both parties are bought by them and make deals with those industries in the restaurants, bars, and private clubs of Washington and elsewhere.
I am no trained financial advisor, but those individuals I know who have familiarized themselves with Tapeworm Economics as clarified by Catherine Austin Fitts, seem to discover a clearer map for navigating the perfect economic storm which we have only begun to enter. Likewise, Matt Savinar’s Life After The Oil Crash site offers a treasure-trove of information and options, none of which rely on politicians or government to fix an economic system that has essentially devolved into a criminal enterprise.
At the end of "In Debt We Trust", an African American woman is asked if people sometimes laugh at her for cutting up her credit cards and refusing to use any form of credit. Her response: "Yeah, well who’s laughing now? I’m out of debt!"