November 18, 2006
Young Borrowers Face A Life of Debt
By G. Pascal Zachary, AlterNet
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
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
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
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
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
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
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
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.
G. Pascal Zachary, a frequent contributor to AlterNet,
is the author of Endless Frontier: Vannevar Bush,
Engineer of the American Century.