Debt watch: America and the triumph of usury

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by Rich Broderick | May 16, 2009 • During last fall’s Presidential campaign, the Rightwing noise machine tried to pin blame for the financial collapse not on predatory lending practices, greedy mortgage brokers and corrupt ratings agencies but on, naturally, the poor, in particular the urban (read Black) poor.

In this tortured narrative, the collapse stemmed ultimately from the passage of the 1977 Community Redevelopment Act, a federal law that, at long last, banned the time-honored practice of redlining minority neighborhoods – i.e., systematically refusing to approve mortgages for applicants seeking to buy homes in minority neighborhoods.

As I said, this little piece of hatemongering never really caught on. But at the time, I wrote a blog here at the Daily Planet arguing that the financial collapse did indeed find its ultimate origins in the Carter Era, though not with passage of the CDA. No, the real culprits, I proposed, were Supreme Court rulings and other pieces of federal legislation that repealed the ban on usury.

Prior to this critical turning point, the cap on interest rates that banks and credit card companies could charge consumers was around 10 percent, with slight variations from state to state (the caps were imposed by the states; the courts and Congress essentially relieved states of jurisdiction over such matters). In Minnesota, as I recall, the cap was 10 percent.

Well, _mirabile dictu_, the repeal of the ban on usury led to that wonderful period of several decades just now coming to an end when every day mailboxes across the country groaned beneath the weight of “pre-approved” credit card applications and telephones rang off the hook during dinner hour with telemarketers calling to offer miraculous introductory teaser rates on that Visa, Mastercard or American Express card. Before long, credit card representatives were showing up on college campuses, ensnaring students in a trap of lifetime indebtedness and, for all I know, eventually standing outside plasma donor centers, employment agencies, penitentiaries and county lockups hawking pre-approved applications.

All organized societies possess normative institutions – institutions that enforce, in one way or the other, the norms that tell individuals what is expected of them (that is, what is “normal”) for membership in their society as opposed to some other society. In Western culture, one of those normative institutions – increasingly one of the most, if not the most powerful – is the mass media.

But the mass media differs in one critical way – a radical difference, really – from other normative institutions such as schools, churches, synagogues, mosques, fraternal organizations, families, and neighborhoods. The American media is the first normative institution in the history of the world driven exclusively by the profit motive. Yes, money may exchange hands in our other normative institutions, but none, except the mass media, has as its _primary_ goal, its very reason for existing, maximizing shareholder return by maximizing profit.

It is the role of normative institutions to ensure the continuation of things as they are – of what is normal – by modeling behavior and promoting values that, in turn, militate in favor of us behaving in certain ways. As a profit-driven normative institution, the mass media can only be expected to promote values and model behavior that ensure the continuation of the consumer capitalist system that is the source of its profitability. And profit, in a consumerist economy, depends upon consumers buying stuff – goods or services – compulsively, heedlessly, without regard to whether any of it can be paid for. What matters is today’s cash receipts, not tomorrow’s reckoning.

Over the past three decades, a combination of “easy” consumer credit, stagnating real wages and the non-stop $300 billion a year propaganda campaign that is our country’s advertising industry led to a state of affairs in which the average American carries 13 credit cards and thousands of dollars in unpaid – and probably unpayable – credit card balances. The gradual acceptance of these conditions – our socialization into them as “normal” – lay the groundwork for the raging no-doc, low-doc, liar’s loans, sub-prime mortgage morass that culminated in the housing bubble whose collapse precipitated today’s economic crisis.

In the April issue of _Harper’s_, Thomas Geoghegan’s extraordinary article “Infinite Debt: How Unlimited Interest Payments Destroyed the Economy” goes much further than I did in my blog last fall. He argues – persuasively – that not only did the repeal of usury laws lead to our financial crisis, but it is also at the root of the wholesale de-industrialization of the United States – our transformation from an economy largely based on industrial production to one based largely on the FIRE sector (finance, insurance, real estate) – with its concomitant loss of millions of well-paying blue collar jobs, and the abovementioned stagnating real wages. In a country where banks and other financial organizations know they can realize returns of 15, 20, even 30 percent through consumer lending, what incentive is there for them to invest money in the industrial sector, with its meager 5 to 10 percent rates of return?

The result has been a massive reallocation of financial resources from industry to – finance, insurance, and real estate – and our transition from a capitalist society to a consumer capitalist society.

One answer, then, to our economic woes is not propping up zombie banks or “jump-starting” consumer spending (spending that causes a host of additional nasty problems like, say, the destruction of the ecosystem), but to return to the days when usury was banned.

Really, this should not be that hard for us to get our minds around, given how we like to boast about our proud Judeo-Christian heritage. Usury, after all, is condemned by the Old and New Testaments, as well as the Quran.

On the other hand, I certainly wouldn’t hold my breath waiting for usury bans to be reinstated. The sad truth is, as Sen. Dick Durbin recently confessed, the banks own Congress.

And increasingly, it is clear they hold a big fat mortgage on the Obama White House, too.