Taking matters into our own hands may be the only way to break free from the bonds of debt created by credit lenders.
Every kind of personal debt—whether medical, student, housing, or credit card—is now sold, securitized, and collateralized. As a result, overleveraged streams of interest and principal can end up anywhere, owned by rentiers many times removed from the original lender and the real underlying assets.
Nearly everyone has some sort of debt. In Creditocracy and the Case for Debt Refusal (OR Books, 2013), Andrew Ross argues that we are in the, ever tightening, grip of creditors. As the finance industry takes policy into its own hands and citizens are pushed to purchase loans merely to acquire basic necessities in life, Ross outlines ways to break free of the debt demon. In the following excerpt from “Moral Economy of the Household”, Ross suggests that the bonds of debt can only be broken by refusal.
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Making loans that clearly can never be repaid in full is a more delinquent act than being unable to pay. Making a killing off vital common goods like education and healthcare and public infrastructure is venal, anti-social conduct, to be condemned and not indemnified. The money we borrowed from banks was not theirs to begin with—it was created as interest-bearing debt, only when we signed the loan agreement. The long record of fraud and deceit on the part of bankers disqualifies their right to be made whole—it is more moral to deny them than to pay them back. The banks, and their beneficiaries, awash in bonuses, profits, and dividends, have already been paid enough. Since the creditor class produces phony wealth, fake growth, and thus no lasting prosperity to society as a whole, it deserves nothing from us in return. Loading debt onto the citizenry inflicts grievous damage on any democracy, no matter how durable it appears to be. When a government cannot—or will not—respond, then taking debt relief for ourselves, by any means necessary, may be the most indispensable act of civil disobedience. Asserting the moral right to repudiate debt may be the only way of rebuilding popular democracy.
What lies beyond immediate debt relief? The hard task of building a successor economy around the principles of socially productive credit, as opposed to one run on predatory debt. For as long as Wall Street draws its strongest profits from trading derivatives built around dodgy consumer loans, selling the associated risks, and multiplying its own assets through the “miracle” of leveraging, banks have no incentive to make investments in tangible goods or productive enterprise that might create jobs, income, taxes, and thereby generate public benefits. When hedge funds rake in cash by exploiting differences in market prices, when investment banks profit from transactions on purely financial bets, or when commercial banks issue credit to consumers simply to assist with existing debt service, the fantasy of money creating more money is tantalizingly close at hand.
The dream of realizing some of this phony wealth was extended to all in the course of the pre-2008 credit bubble. Now we know that Wall Street’s mathematically complex methods for dispersing risks turned out to rest on one simple principle—the ultimate underwriter of these risks would be the taxpayer. The bills are still arriving on our laps, whether directly, or having passed through the austerity-generating filter of public debt en route. But the final leg of this cycle is the cruelest, because the bills can only be paid by taking on more household debt. That is why it is a recipe for future debt peonage. Our governments are not in a position to break that cycle. They have had five years to do it, and the power of the banking giants has only grown. The task of breaking the bonds of debt is for us to take on, and it is the all-important step toward forging new social bonds among ourselves.
The financial bonds, we are often told, are too knotty to untie, because the relationship between household debtors and creditors has become more and more indirect. Every kind of personal debt—whether medical, student, housing, or credit card—is now sold, securitized, and collateralized. As a result, overleveraged streams of interest and principal can end up anywhere, owned by rentiers many times removed from the original lender and the real underlying assets. Thanks to the practice of drawing pension funds into the finance marketplace, workers themselves have become de facto creditors—and so the line between creditors and debtors, we are told, has become too blurred. Through securitization and derivatives, Wall Street has created what Robert Kuttner calls a “doomsday machine”; even if we wanted to cancel housing debt, it may be a “legal and logistical impossibility,” he argues, to turn mortgages back into their original form. It turns out that Wall Street’s academically gifted “quants,” the “best minds of their generation” who flocked to work for Goldman Sachs, Lehman Brothers, and Merrill Lynch, could only take apart contracts, they could not put them back together into formats that reflected recognizable human relationships.
It’s all too plain that this debt-money system without accountability was not created, nor is it maintained, for our common welfare. Its web of obligations does not serve the vast majority who are forced to borrow for basic needs, and we know it is constantly being re-engineered to trap us ever more tightly in its threads. To the degree to which a creditocracy provides little benefit to us or to society as a whole, perhaps we should decide that we owe its real beneficiaries nothing at all.
This excerpt has been reprinted with permission from Creditocracy and the Case for Debt Refusal by Andrew Ross and published by OR Books, 2013.