Eight years ago my mother went into a nursing home after it became obvious that she could not manage on her own. When I began working on her house to get it realtor ready, I got calls almost every morning from one collection agency or another. Over a 5-year period at least, she had begun using credit cards to make ends meet and racked up about $8000 in debt. My first reaction was consternation since I had inherited my father’s hatred for owing money. My next impulse was to try to figure out a way to pay off the debt but an attorney friend told me that I was not really liable. Despite that knowledge, I was reluctant to tell the collection agencies that I was her son and crafted a new persona for the phone calls. Using an upstate NY drawl, I became “Lenny”, the handyman hired to work on the house who advised that Missus Proyect was in the nursing home, on Medicaid, and poorer than a church mouse.
About a year ago one of my oldest and closest friends, who is just a week younger than me, learned that he had Parkinson’s. After trying unsuccessfully for over two years to get a sales job, he was now part of the permanently unemployed. Tremors in both hands were bound to exclude him from a profession in which appearance counts for about 75 percent when closing a deal. Recently I learned from him that he is about $30,000 in debt from various credit cards. Like my mom, he uses them as a way to make ends meet. When I asked how he would be able to pay off the debt, he told me that he could only pay the monthly minimum. At this rate, he will be paying about $300 per month for the rest of his life. With only $2200 per month in Social Security as income, that’s a massive expense. I should add that he lost about 50 percent of his retirement savings in 2008.
As they say, the personal is political. I think of these people who have been very close to me when I recall the points made at a 2012 Left Forum panel discussion on After the Crisis, is a New New Deal Possible? Do We Want One? where the chairperson Eric Pineault drew a distinction between the 1930s and today. I wrote:
In drawing a contrast between the Great Depression of the 1930s and the Great Recession of today, Pineault referred to the different forms that the attack on the working class took. In the 1930s, the problem was obviously massive unemployment but today working people are being crushed by debt much more than by joblessness. He used the term debt peonage to describe the problems faced by millions as they confront home foreclosure and collection agencies trying to get a worker to pay for a huge Visa or Mastercard bill.
In the 1930s, layoffs in a place like Detroit or Chicago would affect workers as a social layer. Since this was at a time when workers tended to live near the factory and even walk to work in many instances and when they hung out at the same saloons or parks, they tended to think in terms of joint action.
But today someone in debt will tend to see himself or herself as an individual whose adversary is another individual at a bank or a collection agency. Since going into debt often strikes people as a personal failing, they will also tend to blame themselves rather than larger social and economic forces.
Although my mother and my old friend were not blue-collar workers at any point in their lives, I could not help but connect them to Pineault’s narrative, especially my mother who was probably ashamed to admit that she had become a “deadbeat” in the collection agencies’ eyes as well as unwilling to share her pain with me. It was almost as if she were hiding an addiction.
I was reminded of this when watching the powerful 2006 documentary “Maxed Out” on HBO about a month ago. It can also be seen on Netflix streaming (the film was co-produced by Red Envelope, a Netflix subsidiary) and on Amazon.com for only $2.99. Among the interviewees is Kathi Ballew, a resident of New Albany, Indiana. Her mother, Yvonne Pavey, had disappeared months before and the initial worry was that her $20,000 credit card debt had forced her to run away. Daily phone calls from collection agencies had threatened her with loss of her house, jail time and other woes. At the end of the film, we learn that she had committed suicide, as we see her car and body being dragged from the bottom of the Ohio River.
We also hear from the parents of two college students who had killed themselves as well over credit card debt. I had never thought much about the Citibank and Chase Manhattan tables set up in front of Columbia University in September each year but obviously they should be seen in the same light as crack dealers in front of high schools.
As serious the topic, the film is leavened by humor, some of which is unintentional. Dave Ramsey, the AM Radio “financial adviser”, is one such example who insists on telling his frantic and indebted callers that they should do everything in their power to pay up. He says that he is a living example of recovery from debt since he too once owned tens of thousands of dollars. The point is made implicitly that his recovery owes a lot to self-help books that are sold to his credulous fan base.
More explicit humor comes from Louis CK who riffs on trying to get a loan from a bank. They tell him that he can only get money if he has money. Laughing bitterly on stage (Louis CK was financially in bad shape earlier in his career, like all stand-up comedians), he tells the audience that the fucking banks are only interested in lending money to those who have it already.
Despite the joke, it seems that the opposite is true. The ideal credit card customer is someone like my old friend who is paying the minimum each month until he dies in a kind of modern-day “debt peonage”. Elizabeth Warren, who is probably the country’s leading expert on consumer debt and passed on by Barack Obama for a post that would have enabled her to make a real difference, says that a vice president of MasterCard once told her that they love people who’ve declared bankruptcy because they can’t declare it again and have what he termed “a taste for credit,” meaning they are “willing to make minimum monthly payments forever.”
If “Maxed Out” is unavailable to you through the channels mentioned above, I also strongly recommend a 2004 PBS Frontline Documentary Secret History of the Credit Card that can be watched online. It was produced by Lowell Bergman, a veteran of “60 Minutes” and a throwback to when Frontline was capable of challenging the powers-that-be. Bergman also conducted the interviews with assorted victims of credit card loansharking and various experts on the problem, including the ubiquitous Elizabeth Warren who made Michael Moore’s “Capitalism: a Love Affair” so compelling.
Bergman also convinced some of the dirtbags responsible for predatory credit card lending to come out of the shadows and defend their practices, including the oleaginous Andrew Kahr who serves as a consultant to Visa, Mastercard and company.
NARRATOR: In fact, the industry was reaping huge profits from Andrew Kahr’s intuition about people’s behavior. But then, in the late ’90s, Kahr says he had a new insight. Customers were being flooded with competitive offers for low-interest cards.
ANDREW KAHR: People were offering 12.9 percent interest for the first six months, 10.9 percent on balance transfers, and I convinced the client to go straight to zero percent as an introductory rate. It gave them competitive advantage. It led to, of course, the others also going to zero percent.
NARRATOR: Kahr knew that even though the zero percent offer could easily change, people would still be attracted to the bait.
ANDREW KAHR: When you’re getting something in the mail several times a week that offers you zero percent for six months— they look at the headlines of the solicitation in the mail, they spend 30 seconds on it, and, “OK, I’m going to be better off at the beginning. They’re going to give me something. They’re going to give me a zero percent rate.” People believe what they want to believe
LOWELL BERGMAN: “Zero percent APR”— what does this mean? I mean, you’re saying that’s meaningless.
This zero percent rings a bell, doesn’t it? That’s essentially the same kind of come-on that led so many people to sign up for subprime mortgages using almost no money down and interest-only payments at the outset.
My reaction to “Maxed Out” and “Secret History of the Credit Card” was a heightened awareness that the United States is basically run by crooks not much different than the characters on “The Sopranos”. Kahr’s business about people believing what they want to believe, Goldman-Sachs’s reference to those it rips off as “muppets”, the Walmart briberies in Mexico, and just about an article a day in the NY Times with such revelations remind me of Woody Guthrie’s famous verse in “Pretty Boy Floyd”:
Yes, as through this world I’ve wandered
I’ve seen lots of funny men;
Some will rob you with a six-gun,
And some with a fountain pen.
As good as these films are, the most jaw-dropping revelations can be found in the recently published “Borrow: the American Way of Debt” by Louis Hyman, a history professor at the Cornell University School of Industrial and Labor Relations.
The book is a deeply informed and elegantly written combination of cultural history and economics. In a nutshell, Hyman traces the development of consumer debt historically focusing on a kind of tripod that was essential to American capitalism: the auto loan that originated in the 1920s, the federally backed mortgages of the 1930s and the postwar evolution of credit cards out of the department store installment plan. While each one of these was seen as boons to the blue-collar worker, they all ended up ultimately as serving the atomization of the very same workers. The key contradiction of contemporary American capitalism might be seen as the erosion of these kinds of consumer credit “benefits” but the lagging of consciousness that makes collective action possible.
In a kind of throwaway line in his remarkable new book titled “Debt: the first 5000 years”, David Graeber states: “Henry Ford once remarked that if ordinary Americans ever found out how the banking system really worked, there would be a revolution tomorrow”.
Louis Hyman puts this into a context that was new to me and to most people, including those on the left, I imagine. In a chapter titled “Everybody paid cash for the Model T (1908-1929)”, he discusses Henry Ford, a car manufacturer who came out of a Wall Street hating populist movement.
Although the Model T was the first car geared to the ordinary working person, it was a commodity that was not available on credit. Ford thought of himself as a mechanic first and a businessman last. In his youth, the farmers and many workers despised the Eastern banks as parasites. Using language that might be reminiscent of today’s rightwing populists, Ford lambasted financiers in a 1922 article on “the road to riches”:
Businessmen believed that you could do anything by “financing” it. If it did not go through on the first financing, then the idea was to “refinance.” The process of “refinancing” was simply the game of sending good money after bad. In the majority of cases the need of refinancing arises from bad management, and the effect of refinancing is simply to pay the poor managers to keep up their bad management a little longer. It is merely a postponement of the day of judgment. This makeshift of refinancing is a device of speculative financiers. Their money is no good to them unless they can connect it up with a place where real work is being done, and that they cannot do unless, somehow, that place is poorly managed. Thus, the speculative financiers delude themselves that they are putting their money out to use. They are not; they are putting it out to waste.
General Motors, by comparison, was a much smaller operation at the outset but after the Du Pont Corporation purchased it in 1920, a new approach much more friendly to finance was inaugurated and things took off. John Raskob, a Du Pont vice president and finance expert, hit on the idea of setting up a subsidiary called General Motors Acceptance Corporation (GMAC) that allowed cars to be bought on credit. Raskob understood that this strategy was not only good for GM’s profits but the health of the capitalist system generally. Consumer credit was “the dream haven of plenty for everybody and fair shake for all, which the socialists have pointed out to mankind. But our route will be by the capitalist road of upbuilding rather than by the socialistic road of tearing down.”
As sales dwindled in the face of new competition, Henry Ford grew increasingly bitter and began to scapegoat the Jews, a favorite rightwing populist target. In the “The International Jew”, Ford froths at the mouth over the Jew’s various offenses, including jazz: “Many people have wondered whence come the waves upon waves of musical slush that invade decent homes and set the young people of this generation imitating the drivel of morons. Popular music is a Jewish monopoly. Jazz is a Jewish creation. The mush, slush, the sly suggestion, the abandoned sensuousness of sliding notes, are of Jewish origin.” I don’t know. If I was a young person back then, the idea of abandoned sensuousness would have worked for me.
But the biggest problem was Jewish control over finance. Ford wrote:
Rothschild power, as it was once known, has been so broadened by the entry of other banking families into governmental finance, that it must now be known not by the name of one family of Jews, but by the name of the race. Thus it is spoken of as International Jewish Finance, and its principal figures are described as International Jewish Financiers. Much of the veil of secrecy which contributed so greatly to the Rothschild power has been stripped away; war finance has been labeled for all time as “blood money,” and the mysterious magic surrounding large transactions between governments and individuals, by which individual controllers of large wealth were made the real rulers of the people, has been largely solved and the plain facts disclosed.
Eventually Ford dropped the resistance to financing, the anti-Semitism and the populist baggage that went along with David Graeber’s reference to him. As a couple of Wall Street big-wigs once noted, Ford “talks like a socialist” but “acts like one of us”—adding that “he gets away with it”.
In the roaring 20s, when ordinary working class people could purchase an automobile that was formerly a luxury attainable only by the super-rich, they also began to become homeowners as well. Hyman explains that the housing bubble of the recent past had a precedent 80 years ago when real estate bonds were ubiquitous. Issued in denominations as low as $100, they were brokered by “real estate bond houses”. When Walter Stabler, the top investment analyst at Metropolitan Life, questioned whether there might be a real estate bubble in New York, a developer denounced the comments as “more to be feared by the community in which we live than the utterances of Bolshevists.”
When the market crashed, the housing market dried up overnight as the foreclosure rate hit one thousand a day. As the Great Depression showed no signs of relenting and as many working people began to show signs that they were far more interested in Bolshevism than Henry Ford at his most populistic, FDR decided to use Big Government to help the homeowner in a way that Obama, the great conciliator, would never dream of. He set up the Federal Housing Administration in 1934 that provided capital to be invested in housing.
James Moffett headed up the FHA and symbolized the marriage between the New Deal leftists and the big bourgeoisie. Moffett had been a vice president of Standard Oil and fiercely opposed to federally-subsidized housing of the sort that his rival Harold Ickes endorsed. As head of the Public Works Administration, Ickes urged the government to build “attractive houses at low interest”. Moffett called a press conference and denounced Ickes, stating that “such a plan would wreck a 21-billion dollar mortgage market and undermine the nation’s real estate values.”
Needless to say, FDR backed Moffett to the hilt. In short order, the FHA created a new entity to fund the mortgage named the Federal National Mortgage Association (FNMA), more commonly known as Fannie Mae. Acting as a middleman between large institutional investors and local lenders, Fannie Mae injected large amounts of liquidity into the system and allowed those workers lucky enough to be employed to get 30 year mortgages at a reasonable interest rate.
With this system in place, it became possible for Long Island, New Jersey and their counterparts in large metropolitan centers around the country to become a home to blue-collar workers. Fannie Mae made it possible to purchase a home and financing from the big automobile companies provided the transportation to get from home to workplace.
The last building block in the “American Dream” was the credit card that made furnishing the home possible, especially after WWII when a revitalized economy made such purchases possible.
The first breakthrough in generalized consumer credit occurred when Macy’s and other large retailers set up installment plans that allowed furniture, appliances and other household items to be purchased with no money down. Early on the main customers were from the petty-bourgeoisie who felt comfortable applying for a credit line from a snooty credit manager. If you earned that privilege, the reward was a metal charge plate that was the plastic of its day.
The next stage was discount stores that were located in the suburbs and much more amenable to working class families, including Kmart, a store that was originally Kresge’s, a Macy’s type store. Unlike Macy’s, Bloomingdale’s et al, these stores demanded cash on the barrel. But in the 1960s, a recent innovation made credit purchases at such stores possible—the bankcard. The first bank to get into the business were Bank of America that issued the BankAmericard. Then came Master Charge, a card issues by BoA’s competitors in California, including the Wells Fargo Bank. BankAmericard became Visa and Master Charge became MasterCard.
At the outset, the credit card was not the cash cow it is today. Anti-usury laws passed in various states prevented banks from charging the kinds of rates they charge today. In 1978, the Supreme Court decided that banks would no longer be subject to state laws and the roof caved in. All of this is described in great detail in the two documentaries and therefore will not be repeated here.
The obvious question for a blog titled Unrepentant Marxist is what this has to do with Marxist theory. Why has what some called financialization taken over the American economy, which provides the context for the massive expansion of consumer credit and the failure of the working class to get off a treadmill that both seduces and abandons it during the vicissitudes of the business cycles.
Although I have the highest praise for Louis Hyman’s book, I do wonder if his solution for the credit crisis is a bit utopian. Like many admirers of the New Deal, he wonders why finance “can’t serve the real economy, not the other way around.” He adds, “When it is more profitable to build an electric car than to invest in a credit card, then we will know the crisis is over.”
Alas, the crisis of the capitalist economy revolves around the falling rate of profit. There is little investment in “the real economy” because basic industry does not generate the kinds of profits it once did. After all, GM resisted making compact cars with high gas mileage because they were less profitable than SUV’s.
Unlike Henry Ford, who paid workers enough so that they could purchase the goods they produced, today’s bourgeoisie can care less about the workers of their own nationality. If profits are to be made in credit cards or derivatives for that matter, it does not matter if another 50,000 factory workers lose their jobs. The only thing that will reverse this trend is militant mass action of the sort that took place on Wall Street last year and that will be reenergized before long based on the most recent woeful GDP growth statistics.
Finally, I want to say a few brief words about a documentary titled “Payback” that is based on Margaret Atwood’s 2008 essay “Payback: Debt and the Shadow Side of Wealth”. From the title, I anticipated that it would have some connection to the documentaries discussed above but unfortunately it is much more about ethics than politics. Even more unfortunately, it is entirely unfocused, a result probably of Margaret Atwood’s fuzzily moralistic worldview.
I should add that I am not a big fan of Margaret Atwood, after learning that she went to Israel to collect a lucrative prize in utter defiance of the BDS campaign.
The film consists of related “stories” about payback, including a blood feud in Albania in which the antagonists are obviously are far below the enlightened realm inhabited by liberal Canadian novelists. There’s also a trip down to the Louisiana coast where we learn that BP has been doing bad things, to nearby Florida where Latino farmworkers are struggling for economic justice in the tomato fields, and finally to an Eastern Pennsylvania where we hear from a repentant burglar. Any one of these stories might have been the subject for a compelling documentary if it had been based in politics rather than moral introspection but that’s inevitable given the source.
The film ends with the various personalities reading from Charles Dickens’s “Christmas Carol” where Scrooge has become transformed into a good guy. That’s what you might expect from someone who denigrated the BDS campaign.