debt – dowackado

Hillbilly heroin, the crazy check, “fee income” and a moderately symbolic shark tank

By timmukyPosted on August 22, 2012Posted in debtTagged chris hedges, hillbilly heroin, joe sacco, moe tkacik, poverty, west virginiaNo Comments

I would like to recommend two great articles to tide my two dozen readers over, while I steel myself to actually return to writing for this here blog again:

1. A World of Hillbilly Heroin: The Hollowing Out of America, Up Close and Personal, by Chris Hedges, with illustration by Joe Sacco, creator of the fantastic Footnotes in Gaza.

sacco1

Amazing, heartbreaking stuff:

The clinic handles federal and state black lung applications. It runs a program for those addicted to prescription pills. It also handles what in the local vernacular is known as “the crazy check” — payments obtained for mental illness from Medicaid or SSI — a vital source of income for those whose five years of welfare payments have run out. Doctors willing to diagnose a patient as mentally ill are important to economic survival.

“They come in and want to be diagnosed as soon as they can for the crazy check,” the nurse says. “They will insist to us they are crazy. They will tell us, ‘I know I’m not right.’ People here are very resigned. They will avoid working by being diagnosed as crazy.”

2. The Unconstitutional 40 Years War On College Students, written by the feisty and always worth reading Moe Tkacik for Reuters, and reproduced on her wonderfully titled blog daskrapital.

And as they became more steadily impervious to the usual laws of credit and debt, [college loans] became bigger and more profitable. In the years since the Bankruptcy Reform Act passed, the nominal price of college tuition has risen more than 900%. Over the same period the median male income—again, nominally—has risen 165%. And since the percentage of the workforce boasting a bachelor’s degree has expanded from less than 20% to nearly a third, I don’t have to convince you that the median de facto ROI on those diplomas has diminished greatly over the same years. Which brings us to the second way in which the student debt bubble differs from all the others you’ve seen. It is legally impossible to pop. By law it can only grow very fast or even faster.

….

Naturally, this story has its brighter side of enterprising corporate leadership generating shareholder value. The finances of Sallie Mae, the former government sponsored enterprise formally called SLM Corp. are a bit difficult to divine, but the operating profit margin is over 50%. It will surely surge higher if CEO Albert Lord executes on his current strategy of turning the $700 million “sweet spot” that is its “fee income” division into a billion dollar business. “Fee income” means collections, but student loan collectors “do things that no other industry could get away with,” a veteran debt collector named Joseph Leal told Student Loan Justice. They stalk, threaten family members, and jack up loan balances by thousands of dollars at whim, and they do it all with impunity because they are legally entitled to garnish your wages.

Fee income is not just a sweet spot for Sallie. Premiere credit, formerly the collections subsidiary of its fiercest rival Nelnet, is so flush it keeps a 3,800-gallon saltwater shark tank in its main lobby, as explained above. The margins on college loan sharking are so grotesquely fat that the government even rakes in a juicy cut: in 2010 the Department of Education reported collecting $1.22 for every dollar in defaulted student loans it had guaranteed—and that’s after the sharks and their shareholders and the obligatory outright fraud had taken their first round of cuts. Between a quarter and a third of about $850 billion worth of federally guaranteed loans are already in default, so this is real money we are talking about. Given the $23 trillion worth of other securities the federal government has pledged to guarantee over the past few years, we can only expect the default rate to surge higher.

When I started this post, I intended to comment on how these two pieces have little to do with each other, but now I’m not so sure.

“The horribly anti-democratic nature of all this”

By timmukyPosted on November 4, 2011Posted in bailout, debt, greek debt crisisTagged greek referendum, ian welsh, kevin drum, papandreou, the facebook ruleNo Comments

I really liked Ian Welsh’s “What passes for smart on the Greek Debt Crisis,” a response to a Kevin Drum piece, in which Welsh makes a convincing case that Drum kind of didn’t really know what he was talking about.

Basically, Welsh says, Drum and other leading liberal bloggers accept without skepticism a number of conventional (and wrong) assumptions about the catastrophic things that will happen in the event of a country not doing what it’s told to do by the world’s banking establishment. Welsh points to the less-than-cataclysmic consequences of Argentina’s and Iceland’s default. And a commenter brings up another alternative to Playing the Game According to the Rules–Malaysia, which in the 90s, instituted currency controls as opposed to doing to IMF’s bidding.

Anyway, I’ll be honest: a detailed discussion of the economics is a little beyond me (and, as per Welsh, beyond Drum and Digby, among others), but the insightful part of the Welsh piece, and the chunk I’d like to share, is in his summation of “the horribly anti-democratic nature of all this.” I’ve highlighted the best, most quotable, bits…..

There is no actual democracy in any part of the world which is attached to the Wall Street centered financial system. Calls can run up to 1000:1 against TARP and it will pass. Strong majorities can be for or against particular policies and if the elite disagrees, that’s all that matters. There are no parties to vote for if you are against the current system.

In a sense, this is fair. Westerners thought that they could have consumer democracy: they didn’t have to participate in it except at election time, when they would vote for parties and platforms paid for and produced by someone other than them. Coke(tm)/Pepsi(tm) politics – you have a choice, you can choose either Coke or Pepsi! Politicians aren’t paid by you (their salaries are the least part of their real income) why would you think they care about your concerns?

You don’t pay for politicians or politics. This is the Facebook rule: if you don’t pay the freight, you aren’t the customer, you are the product. Politicians compete for the money and favors of the rich, and what they sell is the ability to wrangle you: to pass the austerity bills, to cut the benefits, to privatize the jewels of the public system, to force through the multi-trillion dollar bailouts. They control government for the benefit of the rich.

And the rich pay all the way down the line. They control the media, right down to the bottom, to make sure that what is discusses is what they want discussed, in the terms they want it discussed. That default isn’t that bad: forbidden. That currency controls mitigate damage in these circumstances: forbidden. That lenders will lend to defaulting countries almost immediately: forbidden.

That the mere mention of a directly democratic approach to Greece’s debt woes led to widespread panic in global markets tells you all you need to know about how robust, and how undemocratic (that word again), the system is.

Papandreou has recanted, sort of, and the Greek referendum is off the table. Temporarily, I think. Whatever his motivation, the Greek PM (or former Greek PM, depending on when you read this), has let the democracy Genie out of the bottle. I don’t think it will be easy for whoever takes over to refuse a referendum in Greece. And perhaps, perhaps, this is a precedent.

“What the ancients were most afraid of: a population of debtors skating at the edge of disaster”

By timmukyPosted on August 26, 2011Posted in debtTagged austerity, david graeber, debt crisis, IMF, myths of money and creditNo Comments

http://youtu.be/iZr2inQYV7M

“What is debt?”, an interview with David Graeber, author of Debt: The First 5,000 Years, is well worth reading from beginning to end. But for those who, like me, get a serious case of eyes-glazing-over when confronted with lengthy pieces about economics, I hereby offer a couple of key excerpts.

Philip Pilkington: Let’s move on to some of the real world problems facing the world today. We know that in many Western countries over the past few years households have been running up enormous debts, from credit card debts to mortgages (the latter of which were one of the root causes of the recent financial crisis). Some economists are saying that economic growth since the Clinton era was essentially run on an unsustainable inflating of household debt. From an historical perspective what do you make of this phenomenon?

David Graeber: From an historical perspective, it’s pretty ominous. One could go further than the Clinton era, actually – a case could be made that we are seeing now is the same crisis we were facing in the 70s; it’s just that we managed to fend it off for 30 or 35 years through all these elaborate credit arrangements (and of course, the super-exploitation of the global South, through the ‘Third World Debt Crisis’.)

As I said Eurasian history, taken in its broadest contours, shifts back and forth between periods dominated by virtual credit money and those dominated by actual coin and bullion. The credit systems of the ancient Near East give way to the great slave-holding empires of the Classical world in Europe, India, and China, which used coinage to pay their troops. In the Middle Ages the empires go and so does the coinage – the gold and silver is mostly locked up in temples and monasteries – and the world reverts to credit. Then after 1492 or so you have the return world empires again; and gold and silver currency together with slavery, for that matter.

What’s been happening since Nixon went off the gold standard in 1971 has just been another turn of the wheel – though of course it never happens the same way twice. However, in one sense, I think we’ve been going about things backwards. In the past, periods dominated by virtual credit money have also been periods where there have been social protections for debtors. Once you recognize that money is just a social construct, a credit, an IOU, then first of all what is to stop people from generating it endlessly? And how do you prevent the poor from falling into debt traps and becoming effectively enslaved to the rich? That’s why you had Mesopotamian clean slates, Biblical Jubilees, Medieval laws against usury in both Christianity and Islam and so on and so forth.

Since antiquity the worst-case scenario that everyone felt would lead to total social breakdown was a major debt crisis; ordinary people would become so indebted to the top one or two percent of the population that they would start selling family members into slavery, or eventually, even themselves.

Well, what happened this time around? Instead of creating some sort of overarching institution to protect debtors, they create these grandiose, world-scale institutions like the IMF or S&P to protect creditors. They essentially declare (in defiance of all traditional economic logic) that no debtor should ever be allowed to default. Needless to say the result is catastrophic. We are experiencing something that to me, at least, looks exactly like what the ancients were most afraid of: a population of debtors skating at the edge of disaster.

And, I might add, if Aristotle were around today, I very much doubt he would think that the distinction between renting yourself or members of your family out to work and selling yourself or members of your family to work was more than a legal nicety. He’d probably conclude that most Americans were, for all intents and purposes, slaves.

It is only slightly good news that Graeber finds the current unrest rippling through Europe to be a positive.

DG: Well, I think this is a prime example of why existing arrangements are clearly untenable. Obviously the ‘whole debt’ cannot be paid. But even when some French banks offered voluntary write-downs for Greece, the others insisted they would treat it as if it were a default anyway. The UK takes the even weirder position that this is true even of debts the government owes to banks that have been nationalized – that is, technically, that they owe to themselves! If that means that disabled pensioners are no longer able to use public transit or youth centers have to be closed down, well that’s simply the ‘reality of the situation,’ as they put it.

These ‘realities’ are being increasingly revealed to simply be ones of power. Clearly any pretence that markets maintain themselves, that debts always have to be honored, went by the boards in 2008. That’s one of the reasons I think you see the beginnings of a reaction in a remarkably similar form to what we saw during the heyday of the ‘Third World debt crisis’ – what got called, rather weirdly, the ‘anti-globalization movement’. This movement called for genuine democracy and actually tried to practice forms of direct, horizontal democracy. In the face of this there was the insidious alliance between financial elites and global bureaucrats (whether the IMF, World Bank, WTO, now EU, or what-have-you).

When thousands of people begin assembling in squares in Greece and Spain calling for real democracy what they are effectively saying is: “Look, in 2008 you let the cat out of the bag. If money really is just a social construct now, a promise, a set of IOUs and even trillions of debts can be made to vanish if sufficiently powerful players demand it then, if democracy is to mean anything, it means that everyone gets to weigh in on the process of how these promises are made and renegotiated.” I find this extraordinarily hopeful.

Graeber’s conclusion. Things look good, 500 years down the line…..

For the long-term future, I’m pretty optimistic. We might have been doing things backwards for the last 40 years, but in terms of 500-year cycles, well, 40 years is nothing. Eventually there will have to be recognition that in a phase of virtual money, safeguards have to be put in place – and not just ones to protect creditors. How many disasters it will take to get there? I can’t say.

Read the whole thing, really, and do it with the Replacements’ IOU playing through your earbuds at full blast.