Whats behind predatory lending? Too much capital, too much debt

People Before Profits With too much money on their hands in the early 1990s, Citibank and other big lenders dropped the requirement for parents to co-sign for their children’s credit card accounts, determined to ensnare even teenagers into credit card debt. Young U.S. adults aged 18 to 24 devoted 28 percent of their income to paying off debts in 2001, up from 12.7 percent in 1992, the Boston Globe recently reported. Their average credit card debt jumped 104 percent in the same period, to $2,985. The average student loan rocketed 66 percent just between 1997 and 2002, to $18,900.

Credit cards for 16-year-olds

With credit cards being offered to 16-year-olds, teenagers “are faced with the opportunity to ruin themselves financially before they are old enough to vote,” Harvard bankruptcy expert Elizabeth Warren told the Boston Globe.

Citibank hired Warren in 1990 as a one-day consultant, she reports in “The Two-Income Trap,” her insightful book on U.S. household bankruptcies. She thought her task was to teach Citi’s executives how to avoid lending to families in financial trouble. But after she finished her presentation, the bank’s senior executive curtly dismissed her, saying, “We have no interest in cutting back on our lending to these people [in financial trouble]. They are the ones who provide most of our profits.” With that, she reports, “I was ushered out.” Citi, Chase and other big banks soon expanded their predatory lending practices from credit cards to mortgages, Warren reports.

Why the recent push on predatory lending? “The country is literally awash in capital,” Babson College management professor J. M. Stengrevics has written. “The problem is that capital has no place to go ... The supply of capital is enormous and the truly good uses to which it can be put are scarce.” (Most of our readers could no doubt think of plenty of “truly good uses” for all that capital in fulfilling human needs, but as far as the capitalists are concerned the only “truly good use” for capital is one that brings in profit.)

Nowhere for capital to go

Stengrevics wrote about the problem of nowhere for capital to go in 1993. The “problem” has snowballed since. There is also “too much” food and “too much” auto production capacity along with “too much” capital. Not too much food for the world’s people to eat, but too much food to produce satisfactory profits.

Too much capital; too much debt. This is the clashing picture the capitalists face as their system inexorably charges toward another general failure

Role of bankruptcy bill

For the capitalists, the solutions to the problem of maintaining profits in the face of “too much” capital include cheapening labor by creating a pool of millions of debt-enslaved desperate workers. The lenders’ bankruptcy bill approved last month was drawn up rather explicitly to press debt victims into virtual indentured servitude, with no escape from the demands of high-interest debt.

At the same time, U.S. bankruptcy courts have moved to cancel billions of dollars in debts that corporations owe to workers. The most recent such outrage was this month’s ruling canceling United Airlines’ obligations to pay the pensions it owes to its unionized workers

For workers, for youth and households increasingly caught in the debt trap, the way out lies in organizing to cancel all debts to capitalists (not to workers or small businesses!), and to socialize large-scale production and capital. That includes canceling all student debts. Education is a social responsibility.

In addition to opening the path to global equality, prosperity and peace, these measures will also free capitalists from their justified worries about what to do with “too much” capital.