Young Borrowers Face A Life of Debt

By G. Pascal Zachary, AlterNet. Posted November 18, 2006.

Financial insecurity is one of the staples of American life, and fuel for our nation's politics as well as cable TV shows. Once the elderly worried endlessly about money matters, athough now people over 65 count as the wealthiest group of Americans. Rather, today the biggest worriers about what's euphemistically called our "financial future" are the young, and especially people under 25 years old.

For new college graduates and people out of school for only a few years, financial worries are enormous. Home prices, even if they are starting to fall, remain very high relative to ordinary incomes, and higher mortgage rates are no balm to money worries either. All Americans carry more debt on average than in the past but the increase for young people is most striking since young workers generally earn the least. Between college loans and car loans, people in their 20s are amazingly burdened financially compared to earlier generations, especially compared to my own generation of late-stage baby-boomer.

If in the 1960s and early 70s, my college friends and new graduates shouted, "Burn baby burn," to signify their desire to tearing down the status quo, youth today embrace the credo, "Borrow, baby, borrow" because of their dependency on cheap credit without which their chances of building a decent middle-class life seem poor to none.

If you wonder why borrowed money fuels the lifestyles of all ages, turn on a new documentary, "In Debt We Trust," by the veteran dissenting TV journalist and media critic, Danny Schechter. "In Debt We Trust" vividly shows how Americans get ensnared in a web of debt spun by a "credit industrial complex" that almost seems to function like a conspiracy to drive people into financial servitude. Schechter's central insight is bold, provocative and timely. As he quotes a Brooklyn consumer activist, "Debt is profitable."

Out of this kernel of truth comes Schechter's fascinating tour of the various ways that lenders earn money, chiefly through short-term loans through credit cards. While the abuses of card companies are well known, Schechter sheds light on some emerging credit practices that will inspire outrage in his viewers. One of the most insidious is a service by H. & R. Block to loan money against future tax returns at very high rates.

In narrating the 90-minute documentary, Schechter generally maintains an even tone, cogently making the case for how credit-card companies promote "excessive debt" and the costs of becoming addicted to revolving-credit, whereby a customer pays off only the interest on a loan each month. He also smartly finds common ground between progressives and conservatives who both preach against the perils of dependency on borrowed money. There really is bi-partisan support for clamping down on companies that suck the financial blood of debt-ridden consumers. And more broadly, the perils of too much debt are real, both for individuals and the national government, whose borrowings have reached record levels and continue to mount because of supersized-budget deficits greatly worsened by unwise tax cuts.

A day of reckoning is not out of the question; the debt bomb may yet explode, taking American prosperity with it. Housing values are falling, most everywhere now, and that's perilous for American consumers who, as "In Debt We Trust" shows, have used home-equity borrowing as a piggybank for years. On a national level, the bubble can burst too. The size of the federal debt, and the growing dependence on China to cover this debt through purchases of Treasury Bills, could lead to a collapse in the value of the dollar and a sharp, steep rise in interest rates, choking off the very lending that fuels economic activity and bringing about severe economic contraction, along with job losses and wage declines.

When Schechter preaches about "American before the big bursts," he means a calamity along these lines. Predicting financial plunges is tricky business, and Schechter fails to make a compelling case for an approaching apocalypse. However, even if the debt bubble doesn't burst, "In Debt We Trust" delivers a powerful wake-up call to consumers, especially young ones. Most important is the film's insistence that debt isn't purely personal but wholly political too. The excesses of the industry built on personal debt deserve a political response and "In Debt We Trust" gives an introduction to how the political backlash against personal debt may unfold.

Unfortunately, Schechter says too little about the contours of the coming backlash, though he wisely examines the recent revisions to the law on personal bankruptcy. He quotes Rep. Sheila Jackson Lee calling the law an "atrocity." Lee's hyperbolic language (and there is much more of it in the film) is justified. The new bankruptcy law greatly assists credit-card companies by making it far more difficult for ordinary people to escape debts that they have no chance of paying off. The new Congress should roll back this new bankruptcy law, restoring a fair playing field for borrowers who aren't solely responsible for their debts (lenders are too; they took the risk of lending in the first place, remember).

Federal regulations over credit companies, too loose for many years, should be tightened too. Card companies need to lower interest-rates, cut late-payment fees and make their messages to consumers clearer and simpler. A single strong piece of progressive legislation can remedy many of the misdeeds by card companies depicted in "In Debt We Trust."

There is an irony here of course. In most parts of the world, credit is scarce, especially for ordinary people. Homes are paid for in cash, and small businesses can't expand unless a relative of the owner lends money on a personal basis. Bias in banking systems is rife. I often travel abroad and I am constantly remind of how open and liberal credit is in the U.S. and how many people benefit from such openness. On my last visit, to the southern Africa country of Malawi, one of my hosts proudly invited me to his new home near the center of the capital and nervously told me that the rate on his mortgage tops 30 percent!

In the style of a crusading journalist, Schechter never points out the benefits of America's love affair with cheap credit. Americans get to their live their dreams in way few can in some other countries. But "In Debt We Trust" stands with the people for whom cheap credit has turned into an American nightmare.

See more stories tagged with: youth, economy, debt, credit, loan

G. Pascal Zachary, a frequent contributor to AlterNet, is the author of Endless Frontier: Vannevar Bush, Engineer of the American Century.

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