This article is a part of our ‘Debate:’ series, a pair of op-eds published monthly in the Boston Occupier. This month’s topic was ‘Debt Reform or Revolution?’.
Debt, whether originating from student loans, credit cards, mortgages, or healthcare, has become a serious problem in the United States. The mortgage crisis, and by extension the housing crisis, was a debt-driven catastrophe: it was the result of widespread inability of Americans to pay their debts in the face of predatory lending and job loss. In student loan debt alone, Americans owe over $1 trillion. When this sum is combined with debt from mortgages, credit cards, and medical expenses, we have a massive and rapidly growing debt problem in the USA, with no agreed-upon solution. The United States is rapidly becoming, if not already, a nation of debt. A large portion of the population is locked into a cycle of failed repayment and mounting interest, with no way out.
What should be done? I would argue that there are several initiatives that could widely ameliorate the negative effects of debt in the USA: adjustments of principle balances and interest rates for mortgage debt; punitive forfeiture of debt balance if a lender is shown to have engaged in fraud; federal assistance to students with loan debts upon graduation and the possible removal of student loan debt in bankruptcy; and finally, increased regulation of interest rates to reduce the prevalence of predatory lending. I will consider each of these in greater detail.
One effective way to mitigate mortgage debt, thus allowing people to remain in their homes, while allowing the banks to retrieve some of their money, would be to legislate a deal in which banks adjust the principle loan and interest rates so that they are in line with the actual value of the property. By reducing the principle loan and interest rates, more people would be able to afford to keep up with their mortgages, thus would be able to keep their homes. This would, in turn, increase the value of the surrounding houses and improve the general health of the housing market in the United States. The federal government could compel such a deal between banks and the banks homeowners by threatening to return to banks their toxic mortgage assets, as allowed for in the current agreement between Fannie Mae and the banks, thus swamping them if they refuse to renegotiate mortgages.
In addition to this renegotiation with banks, there should be serious consequences for any lender who engages in fraudulent activity. I support total forfeiture of both the remaining principle loan and interest in any case where the bank engages in fraud. Banks should not be allowed to benefit from illegal practices, and people should not have to bear the costs of fraud. Practices that should cause forfeiture include, but are not limited to, the intentional misleading of prospective borrowers into high-risk mortgages, intentionally inflated interest rates, foreclosure despite up-to-date payments, and the use of robo-signing (systematic signing of loan papers by people who had no involvement in the process). By instituting severe monetary punishment on perpetrators of fraud, we can disincentivize fraud, as well as help its victims recover their rightful assets. Currently banks profit from fraud. We need to rewrite — and enforce — laws to ensure that fraud does not pay.
Student loan debt is a crippling weight on many graduates today. Unless a student comes from a wealthy family or receives a scholarship, it is likely that any private university (and many public universities) will cause thousands in loan debt. Because of a 1976 change to bankruptcy law, this debt is incapable of being removed through a declaration of bankruptcy, thus making it impossible to escape even in the event of financial ruin. In order to address this situation, I suggest several policies. First, student loan debt should able to be removed by bankruptcy, just like most other types of debt. Second, the federal government should create a national education fund in order to assist with the loans of all students who successfully graduate and qualify for assistance. This would be similar to Pell Grants, but on a much wider scale. Finally, student loan debt repayment should be capped at a percentage of annual income so as to increase the affordability of loans. Education increases the productivity of our entire society. When education becomes more affordable, everyone benefits — even those who do not directly receive debt assistance.
Banking institutions which give out loans must be heavily regulated in order to prevent abusive practices. Unfortunately, current laws are almost universally too lax and require a review. Banks should not be allowed to charge extortionate interest rates or hidden fees. Terms of use should not be misleading. A complete review of banking laws by experts, not lobbyists, would allow our government to identify future troubles and prevent the perpetuation and worsening of our country’s debt crisis.
While there are numerous ways to deal with a debt crisis, some argue that debt forgiveness (or “debt jubilee”) would be the most effective way to deal with the issue of debt facing Americans today. These people are correct, in that the solution is immediate and direct. However, the side effects of such an action would likely be devastating. Indiscriminate debt forgiveness, legislated by the government would destabilize the entire lending market. Lenders would have no reason to make new loans. If those who lend money have no certainty that they will get their money returned, with a modest profit, they simply would not lend money, especially not to the poor or middle class, who need loans the most. This characteristic of the market disqualifies total debt forgiveness as a viable option for solving our country’s debt problems, at least as long as we intend to maintain a lending system similar to the one we have now.
Debt is an issue that must be dealt with, and quickly if we hope to mitigate long-term damage to our country. A comprehensive plan, which prioritizes the economic health of the average person over that of the banker, is the only course that will stabilize our debt situation in the short term and avoid long-term catastrophe.
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We Could Own the Banks
JAY JUBILEE JUNE 3, 2012
This article is a part of our ‘Debate:’ series, a pair of op-eds published monthly in the Boston Occupier. This month’s topic was ‘Debt Reform or Revolution?’.
The average US household debt burden has reached oppressive and unprecedented levels. According to the Federal Reserve, in 2010, total US household debt stood at $13.5 Trillion. This calculates to over $44,000 per person, or about 122% of total disposable income. Increasingly Americans owe more than the own in this world (even as the top 1% owns more than ever). Why are people in so much debt in the first place? This rising debt is the effect of an exploitative and unsustainable system.
Contrary to those who moralize about “irresponsible” consumer spending, the single largest cause of the rising average US debt-burden is a rise in workplace exploitation. Despite working harder and more efficiently year after year, US workers—those of us who are “lucky” enough to find jobs—continue to see our wages stagnate, or even decline. Corporations and employers (aka “the 1%”) are getting more out of us, while paying us less. Profits have gone through the roof for capitalist firms, while workers have been compelled to borrow to maintain the markers of “middle class” life: a car, a house, a college education for their kids.
Rising college tuition and healthcare costs are important secondary causes of the debt-boom, as are government policies that have replaced federal educational grants with loans. (As recently as 1980 Pell Grants covered 69% of public college costs; now they cover less than 35%.) Federal “Student Aid” has ceased to be a subsidy for education, and become largely a subsidy for the Finance Industry.
Chart from the Federal Reserve Bank of NY, showing the breakdown of tool US Household debt. Click through twice to enlarge.
In this context of stagnating wages, the credit-debt complex came to the rescue as a double “solution,” at least for a time. On the one hand, credit served as a means of buoying consumer demand across the system (allowing people to buy more from businesses than they could without the loans). On the other hand, it gave finance capitalists one more easy way to profit (via interest) off of the very worker deprivation being created by heightened workplace exploitation.
But all this debt makes a volatile economic foundation. As we saw in 2007 with the sub-prime mortgage crisis and the bursting of the housing bubble, when poor and working-people become unable to repay their debts, the whole elaborate financial edifice can come crashing down.
What if we harnessed this power of debt refusal in a politically conscious way?
There is nothing like being deep in debt to make you feel completely alone and powerless. Increasingly, however, this isolation is an illusion. The numbers of people drowning in debt in this country is growing all the time, as is the amount of US debt per household. (The average college graduate now enters the “real world” already $30,000 in debt, the average graduate student, with far more than that.) There is potential power in these numbers.
There is a saying that goes: “If you owe the bank $100,000, the bank owns you. If you owe the bank $100 million dollars…You own the bank.” It is long-past time that those of us whose lives are crippled by chains of debt took this idea to heart. Student loan debt alone is estimated at over $1 Trillion. Together, we, the student debtors united, could own the banks.
The basic premise of collective bargaining, that workers can (only) gain equal power with employers by coming together and threatening to withhold the source of the employers’ profits (namely, our labor)applies to debtors as well. Banks are dependent on our debt payments. Thus, the debt that individually makes us feel helpless, if pooled and wielded collectively, can become the source of great power. Weakness, combined, can be flipped into strength.
Such a debt-refusal need not be an act of random sabotage, aimed simply at disrupting bank operations, or at “sticking it to the man.” Rather, our debtors union could project demands that would unite broad sectors of the 99%. We could force the Banks to reduce their interest rates, to cancel the principle they are “owed,” to renegotiate underwater mortgages, etc. We might even use this debtor-power to leverage more aggressive political demands: like getting the banksters to cough up the funds necessary to fund free public education (estimated at approximately $50 Billion per year). Compared to a traditional labor union, a debtors union could have the benefit of bringing together people across traditional workplace lines, while rallying the public against some of the most unpopular institutions in our society.
A student debt revolt can be the spark. Targeting those who are profiting from our financial slavery, we can help catalyze a broader debt resistance movement, one encompassing medical, housing, as well as education debts. The bonfire of student debt statements can light the sky, hearkening rebellion in other parts of this debt-chained world. Even fairly small groups of well-organized debt-resisters could have such a catalyzing effect, sparking broad conversation about the oppressive role debt plays in all our lives. Such an act might resemble the burning of draft cards during the Vietnam War; it moves beyond protest and complaint, towards resistance, courageously marking a refusal to participate in an oppressive and irrational system. And rallying others to do the same.
Fundamentally, the goal of such a debt refusal campaign should not simply be to “mess shit up” but to expose the inhumanity of the way the current system operates. Education, Healthcare, Housing: these are things that should be considered rights, guaranteed to all. Through our debt-refusal we will be dramatically asserting that people should not have to go into debt to have their basic human needs met. People should not be forced to go into debt to receive medical treatment, to have shelter over their heads, or to attend college (especially when attending college is considered a prerequisite for landing a job in the first place). A social system that provided these necessary goods to people as a matter of right would be one in which the sorts of debt burdens that fill our lives with dread and anxiety could be abolished for good.
With high debt loads and high unemployment rates facing most college graduates, let’s face it: many of us are going to be defaulting on student loans anyway. It is long past time that we shred the shame of default, that we recognize the systemic causes of this debt, and that we refuse to treat this dream-strangling system as legitimate. If we Occupy Student Debt and as one, we can burst the chains of mental slavery. Together, we can own the banks.
