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From the Mirage of a Middle-Class Life to the Slavery of Debt
By Joshua Holland, AlterNet
Posted on March 24, 2007
AMERICA IS A VERY wealthy country, but one has to wonder how much of
our wealth is in fact a chimera, spun of a consumerist ideal and
given the appearance of solidity by a flood of easy credit? How much
poverty and real economic pain is covered up by an endless succession
of pay-day loans and EZ-finance rip-offs that eventually just bury
people under mountains of debt from which they have little chance of
digging themselves out.
Today's bankruptcy rate is ten times what it was during the Great
Depression, foreclosures are at a 37-year high and the United States
has a negative savings rate, yet we're told every day that the
economy is going gangbusters.
George W. Bush often points out that more Americans own their own
homes today than ever before. He doesn't mention that they also have
less equity in those homes than ever before. Every day brings news of
the potential scope of the emerging "sub-prime" loan scandal -- what
Robert Kuttner called "deregulation's latest gift" -- and new
indicators that the housing market that's driven so much of the
economy for the past five years is a bubble that's begun to burst
right before our eyes.
Compounding our personal debt problems are our representatives,
equally profligate spenders who are just as happy to run up enormous
budget deficits and who reflexively guarantee and subsidize trillions
of dollars of new loans to already strapped American businesses and
It's a pretty good time to ask ourselves just how we got here.
Writer and film director James Scurlock does just that in the
documentary, and now book, Maxed Out: Hard Times, Easy Credit and the
Era of Predatory Lenders. The film is a sprawling look at the seamy
underside of the American credit industry -- an industry whose
practices have changed dramatically since deregulation, and not for
the better -- and at those who end up caught in a trap of their own
The film is not perfect. Its view is broad but lacks depth; while it
makes its point with some really effective storytelling, the
documentary acts on an emotional level but lacks the kind of
narrative power that makes Michael Moore's films, for example, such
controversial cultural touchstones.
What Scurlock's camera does brilliantly is lay bare an issue that
affects millions of working Americans but is usually buried under
layers of shame and taboo. The film tells the individual human
stories that lie behind the bankruptcy statistics, behind the
foreclosure numbers. The book, released this week, follows up with
much of the narrative power and depth that the film missed.
AlterNet caught up with Scurlock by phone this week to talk about his
project and the country's emerging debt crisis more generally.
Joshua Holland: You really tapped into something at the right moment
-- people have become aware of the issue of debt, and we're now
hearing about it described as an emerging crisis.
James Spurlock: When I started the project a lot of people didn't
even know what bankruptcy reform was, but most do now. A few weeks
ago, nobody knew what "subprime" meant and now because of this whole
mortgage fiasco I think everyone knows what that means. So here we
are, two years after the start of the project and everything
discussed in the film and the book has gotten worse. As we talked to
people for the film, it became pretty obvious that things were just
totally out of control and there was this sense that at some point
the chickens are coming home to roost and that's largely what's been
happening. I'm not gloating about that -- it's really tragic.
But my sense -- and I've talked to a lot of people since the
project's been done -- is that the really big system hits are yet to
come. There are a lot of bad mortgages out there; there are a lot of
these "liar loan" mortgages out there; there are a lot of credit
cards and people used to paying off their bills by refinancing their
houses every year.
Holland: Debt -- or credit -- has always been an important part of
the economy; it allows people to invest and it encourages
entrepreneurship -- all the standard things we learn about in Econ
101. But one thing I came away with is that we're looking at a very
different credit industry in the last couple of decades than what we
experienced earlier. What's different between the credit industry
today compared to, for example, the industry during my parents'
Spurlock: The biggest change, by far, is how the financial industry
sells debt -- how it sells credit cards and mortgages and all these
different products. A generation ago, you'd go to the bank for a
personal loan and that was a very rigorous process. You had to
provide them with proof of earnings -- your tax returns -- and you
gave them references and really had to work for it. The flip side of
that was that if they gave you a loan, you got it at a reasonable
interest rate. Now we're in a situation where we're getting 17
billion hits of direct mail encouraging us to borrow at often very
high interest rates; we're getting e-mails every day encouraging us
to refinance our homes; we get offers of credit for every conceivable
thing from plastic surgery to automobiles -- there's a credit card
now for gambling and one to pay off your taxes. Everything. Small
businesses never used to use credit cards at all. They'd go to the
bank and get a small business loan with a fixed payment. Now they're
primarily using credit cards.
At the same time, the way the credit industry behaves has just
completely transformed itself. Its underwriting standards have gone
way down and that's a big part of the reason we're seeing so many
Holland: That's a good transition point. I read somewhere that you
were voted the most conservative person in your class at Wharton
Business School …
Spurlock: Actually, in my high school …
Holland: OK, in high school. The reason I found that interesting is
that you give very short shrift to the traditional conservative
narrative around these issues. You don't focus a lot on "personal
responsibility" -- on the often really bad choices people make on the
way to getting into problems with debt. You focus on these
unbelievably predatory situations -- scenes like the mentally
handicapped guy with the low-interest government loan who you show
getting hoodwinked into this high-interest loan. Respond to that.
Spurlock: You know, everybody in the film and everyone in the book
will readily admit that they screwed up. They made a mistake: they
bought to many commemorative plates from Franklin Mint or they took
out cash advances to pay their mortgage or they bought one of those
Ab-tronic belts that are supposed to give you perfect abs in five
minutes or they built a 10,000 square-foot McMansion which they knew
they wouldn't be able to afford if interest rates were to go up --
which they did -- and on and on.
So that's all there, but what surprised me -- and what got a lot of
these people into such deep trouble -- is that lenders weren't asking
for their money back along with a reasonable return and maybe a fee
or two. They were asking for multiples of what these people had
originally borrowed. The line between a loan-shark and a reputable
bank has now become so blurred with these banks all writing high-
risk, high-interest loans and slapping on all these fees and coming
up with all these schemes like double-cycle billing and universal
default and on and on.
It's getting to the point now where people actually have a hard time
figuring out just exactly what they owe. There was one woman in the
film who had a gambling problem -- someone who was very
irresponsible, and no one would argue otherwise. But in one year her
$12,000 debt went to $50,000 and she didn't make any new charges.
There was a guy who testified before Congress recently and he had
borrowed $3,200 and had paid Chase back $5,000 or $6,000 and they
were still demanding another $5,000 from him.
And if you look at every study done or if you look at what New Year's
resolutions people make it becomes clear: people want to pay their
debts off. But they're increasingly getting into situations where
their $1,000 debts are becoming $4,000, or their mortgage payments
are doubling and they don't understand how that happened and in many
cases it's just devastating.
Now, there are two parties to these contracts -- that's absolutely
true. But the banks have the ability to change the terms and
conditions, at will, and these contracts have become so complex that
even the Harvard Law professor in the film has a hard time making
sense of them. Sometimes bankers can't make sense of the mortgages
they're selling. So, caveat emptor, yes, but you should be able to
walk into a major banking institution without worrying that you're
going to get loan-sharked.
Holland: Maybe you can explain something that I think would be fairly
counterintuitive for most people. You say in the book that the common
view many people have about bankers is that they're this conservative
breed who make their money by being cautious, by writing smart loans,
but in fact the real money is made by lending on the margins -- by
giving loans to people who are most likely to have problems paying
Spurlock: That's right, it is counter-intuitive. It's because it's
gone from a business based on a conservative business model where you
were loaning to people who could safely pay you back and you weren't
making a ton of money -- just a bit on the spread -- so you had to
look at all your risks very, very carefully in order to make money.
That model is now history, and the new one is that you charge a huge
amount of fees, and a very high rate of interest. So the trick is
actually getting people who will pay the most interest and the
Credit card fees went from $1.7 billion dollars per year in 1996 to
almost $18 billion last year -- an increase of more than a 1000%, and
that's where the money is. Now you take someone who pays their bills
on time, who has savings and pays their credit cards down each month,
well they're not going to pay those fees. They don't have to. And you
want someone who really needs the credit, who will be willing to pay
a very high price for it.
One thing you've got to understand is that we have a negative savings
rate in this country. Two out of three people can't pay their credit
cards off each month. At the same time, last year we cashed $800
billion dollars out of home equity. Trillions of dollars in the last
few years have been cashed out of people's homes and much of that
went to paying off credit card bills. And the cycle continues. So
it's a bit like Enron -- you've got some wishful thinkers, and then
there are these bankers making enormous fees and at the end nobody's
stepping in to stop the party.
Holland: To what degree do you see this as a kind of cultural
manifestation -- a reflection of how much value we as Americans tend
to put on material wealth, or how much we see material wealth as a
proxy for self-worth?
Spurlock: I think that has a lot to do with the taboo nature of the
problem -- a lot of people just don't want to about it. Until
Katrina, I don't think many people had really seen images of poor
Americans. There's this scene in the film where Robin leach of
Lifestyles of the Rich and Famous says nobody would watch a show
called "lifestyles of the poor and unknown." We just make poor people
invisible in this country and there's a sense that if you can't
afford something, you've failed.
And the truth is, there are a lot of people in this country who look
like they're middle class but in fact if you took away their credit
cards you'd see that they're actually quite poor.