Young Borrowers Face A Life of Debt
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.
Danny Schechter, a veteran TV journalist and media critic, directed the new independent documentary "In Debt We Trust." With all of the pressing issues in the world, from the war in Iraq to climate change, he makes the case for paying attention to the perils of America's "bubble" economy and the debt bomb that may go off -- at theaters near you.
G. Pascal Zachary: Why debt?
Danny Schechter: "Economic issues are being ignored. Nobody is talking about the ever-expanding American debt. And how the conflict between lenders and borrowers is the new dividing line in America.
Zachary: Why now?
Schechter: We have an issue that goes beyond the partisan divide. The national deficit is growing. Every American is responsible for that. We're taking loans from China for the government to pay its bills. Adjustable rate mortgages are moving upwards, raising the cost of housing. College loans are on variable rates, so they're getting more expensive too. And credit cards have gone from a luxury to a necessity to a noose
Zachary: What's the central problem?
Schechter: There's a credit loan complex that's everywhere as insidious as the military industrial complex. And it's consolidating. Power in this industry is being held in fewer and fewer hands.
Zachary: What can be done?
Schechter: The first step is raising awareness. People don't usually talk about this problem. It's a point of embarrassment to be overwhelmed by debt. When you give people permission to talk about this, they pour out. We also need grassroots political action to promote responsible lending. We have to roll back the bankruptcy law changes. We have to fund counseling and advice. We need to make financial literacy part of our educational system
Zachary: Why isn't easy credit a good thing?
Schechter: It can be but we've gone overboard. The democratization of credit also means the democratization of dependency.
Zachary: Many civic groups, unions, even Working Assets, have pushed credit cards. Should those be cut back?
Schechter: The union affinity credit-card programs are among the most successful. Because people will feel the union will protect them But in many cases the unions have nothing to do with the card, they are just the broker, so members have to protect themselves.
Zachary: What about frugality, simple living, spending less? Is that one way to fight back?
Schechter: Its possible to spend less, but difficult because we're living in a time when its very hard to avoid rising prices. Young kids have to have the latest things. Business are charging more for something we used to get for less. We live in a culture where consumption is stimulated. It's hard to ignore.
Zachary: You suggest at times that there is a conspiracy to trap as many Americans as possible into crushing debt, simply in order for banks to boost profits. Is it really that bad?
Schechter: The card companies are a cartel. They collaborate as much as they compete. They use the same techniques. There are people who see techniques, and the companies who use them, as evil. I don't personally like those terms. But I think the card companies are insensitive. They are chasing revenue and they don't care how they get it. They go over the top.