Infinite Debt: How Unlimited Interest Rates Destroyed The Economy

[KamaAina]

Tom Geoghegan, who just ran for Rahm Emanuel's seat in Congress, has a piece in Harper's, which, of course, I have not seen, because it's pay. He did, however, talk about it with Amy Goodman on Democracy Now!:

http://www.democracynow.org/2009/3/24/thomas_geoghegan_on_infinite_debt_how

Tom Geoghegan, you talk about how, with no law capping interest, the evil is not only that banks prey on the poor—they’ve always done so—but that capital gushes out of manufacturing into banking. When banks get 25 percent to 30 percent on credit cards and 500 or more percent on payday loans, capital flees from honest pursuits like auto manufacturing. Now, I've just come back from Grand Rapids this weekend, and going through Detroit, they're in a dire situation—...

Well, we took that stuff off, the thing that was kind of an instinct in human and legal civilization, from the time of the Code of Hammurabi up to the present, and we created all these incentives for money to go into speculation, derivatives, because we addicted the economy to very, very high rates of return by squeezing money out of people. And the way in which we disinvested from the economy was, in my view, not so much globalization or trade as the fact that we had preteens in shopping malls who were running up, you know, debts where they were paying 25, 30 percent interest, when investors could only get five, four, three percent from our globally competitive industry....

So where does labor fit in in all of this? People lost the ability to get wage increases and got the ability, an incredible ability, really unknown in previous times, to get credit cards with which they had high rates of interest. So, unable to get wage increases, people—or unable to get union cards, really, people got credit cards and began running up these great debts, which addicted the country to high rates of return in the financial sector, so that people were kind of spending their way out of the real economy, pushing more and more money, by the fact that they were going into debt, into this virtual financial sector economy. So, really, the inability of people to raise their own wages and the incredible ease with which they could get credit instead helped create this flow of capital out of manufacturing and into finance. You know, we, the little people in this country, helped finance the bloating up of this financial sector and really the downsizing of our own jobs in the real economy. We sent the signals, you know, to investors to put money into the financial sector and not into the manufacturing sector....

But then that all went by the by, and then it was anything goes. And soon you had the most predatory behavior going on without any kind of check into moral character or otherwise, which was the fig leaf to allow this deregulation to occur at the state level. And then came Marquette Bank, where it became pointless to try to regulate it at all, because all the states were effectively preempted when they're dealing with the big Chase and Citibanks and out-of-state credit card issuers. So that's how it happened.

So hard to pick just four paras. Pity he didn't get to say this on the floor of Congress.

[leftstreet]

1. More Pay, not More Debt!

K&R

[Stellabella]

2. I remember back in the 1980s when the American family needed two incomes.

I also remember thinking 'this is going to keep progressing, what are we going to do when three or four incomes isn't enough'?

First people got more jobs, then they started refinancing their houses, then credit cards exploded. All because people were not and are not being paid a decent living wage.

[fasttense]

3. What it really comes down to is good middle class JOBS have disappeared.

You can get crappy McJobs all day long. Minimum wage jobs with no sick leave, regular leave, or anything resembling a benefit.

Time to start working for yourself if you can because crap is all that remains in the US job market. Unless you're born to wealth. Then you move right on to the million dollar jobs as a criminal CEO or even get appointed to be pResident by the Dancing Supremes.

[DCKit]

4. "...that capital gushes out of manufacturing into banking."

What a brilliant observation.