Could The Bible Have Saved Us From This Time Of Troubles? Sure... Or Hammurabi's Code

When activist/author Tom Geoghegan was running for Congress he came out to L.A. for a question and answer session with West Coast bloggers at BraveNewFilms. I was struck by the man's capacity to consistently refuse to fall into any boxes that trap even the most well intentioned political leaders. Tom is used to setting the agenda, not following someone else's. It's why so many of us supported his quixotic bid to capture a Machine-oriented Chicago seat held consecutively by three of the most disreputable characters in contemporary American politics: Dan Rostenkowski, Rod Blagojevic and, worse by far, Rahm Emanuel. And of all the outside-of-the-box formulations Tom laid on us that day, none made a greater impression than a discussion of usury.

When Obama was taking questions at his town hall meeting in Orange County last week, someone asked him about out-of-control interest rates. Obama isn't as hawkish on this as Geoghegan, but, clearly, he's thought about it. His comment pointed to a study by the chair of the Congressional Oversight Panel, Elizabeth Warren.

[S]he made a simple point… if you bought a toaster, and the toaster blew up in your face, there would be a law, a consumer safety law, that would protect you from buying that toaster. But if you get a credit card that blows up in your face, that starts off at zero-percent interest… and suddenly, it’s 29 percent; and if you’re late two days, suddenly you just paid another $30-- well, somehow that’s okay.

I think generally having some consumer safety, some consumer protection around credit cards, is important.

Geoghegan will tell you just how important in the new issue of Harper's Magazine-- How Unlimited Interest Rates Destroyed The Economy. It was for this kind of thinking I thought it was so important to elect a man of Geoghegan's intellect to Congress.

According to a front-page story in the Chicago Tribune last June, the number of collection cases before the circuit court of Cook County came to over 130,000. That’s double the number of cases in 2000, and well before the meltdown: obviously the number is even higher now.

...And then there are the home foreclosures, some 44,000 of them in 2008. The number of collection and foreclosure cases in this one county-- 174,000-- is equal to the total number of people in three entire Chicago wards: every man, woman, and child. I stress “child” in particular, since the banks give out credit cards like candy.

Yes, 174,000 cases-- and that was before the economy tanked. These are not old-fashioned collection cases either. Typically, the banks are enforcing arbitration awards handed down by “private arbitrators” who more or less work full time for the banks. So the banks can sue anyone anywhere in any court in America without having to provide a witness or prove a case.

The pain of all this may get much worse. If deflation comes (even in a mild form), it means each dollar of debt will be harder to repay. That’s why populists in the 1890s took up their pitchforks: deflation made it increasingly difficult to pay off the principal on their loans. But at least in the time of William Jennings Bryan, they were only paying back at 5 percent. While we deflate, credit-card holders will be paying off at rates of 20 percent to 35 percent, and 1890s-type deflation would make the rate feel more like 35
percent to 50 percent.

What’s the worst of all the legal changes that fill up collection courts? There are so many, but I’d pick the legalization of usury. It’s the form of deregulation that not only drove us into debt but also sped up the loss of the manufacturing jobs that created our middle class-- that, in short, brought about our current Time of Troubles.

...Some people still think our financial collapse was the result of a technical glitch-- a failure, say, to regulate derivatives or hedge funds. All we need is a better chairman of the SEC, like brass-knuckled Joe Kennedy, FDR’s first pick. It’s personnel-- it’s Senator Gramm’s fault. Or it’s Robert Rubin’s fault.

In fact, no amount of New Deal regulation or SEC-watching could have stopped what happened. Hedge funds in themselves did not cause Wall Street to collapse. Some New Deal–type regulation was actually introduced in recent years, but it failed to do much: think of the Sarbanes–Oxley Act of 2002, which made CEOs swear an oath that their financial statements were not fraudulent. No, the deregulation that led to our Time of Troubles was of a deeper, darker kind. The problem was not that we “deregulated the New Deal” but that we deregulated a much older, even ancient, set of laws.

First, we removed the possibility of creating real, binding contracts by allowing employers to bust the unions that had been entering into these agreements for millions of people. Second, we allowed those same employers to cancel existing contracts, virtually at will, by transferring liability from one corporate shell to another, or letting a subsidiary go into Chapter 11 and then moving to “cancel” the contract rights, inluding lifetime health benefits and pensions. As one company after another “reorganized” in Chapter 11 to shed contract rights, working people learned that it was not rational to count on those rights and guarantees, or even to think in these future-oriented ways. No wonder people in our country began to live for the moment and take out loans and start running up debts.

And then we dismantled the most ancient of human laws, the law against usury, which had existed in some form in every civilization from the time of the Babylonian Empire to the end of Jimmy Carter’s term, and which had been so taken for granted that no one ever even mentioned it to us in law school. That’s when we found out what happens when an advanced industrial economy tries to function with no cap at all on interest rates.

Here’s what happens: the financial sector bloats up. With no law capping interest, the evil is not only that banks prey on the poor (they have always done so) but that capital gushes out of manufacturing and into banking. When banks get 25 percent to 30 percent on credit cards, and 500 or more percent on payday loans, capital flees from honest pursuits, like auto manufacturing. Sure, GM is awful. Sure, it doesn’t innovate. But the people who could have saved GM and Ford went off to work at AIG, or Merrill Lynch, or even Goldman Sachs. All of this used to be so obvious as not to merit comment. What is history, really, but a turf war between manufacturing, labor, and the banks? In the United States, we shrank manufacturing. We got rid of labor. Now it’s just the banks.

And Geoghegan's solution to all this? His plan? A state owned bank in every state; a cap on interest rates (9%); public guardians on the Boards of Directors that the government has bailed out; a bail out by banks of unconscionable, usurious consumer debt; and "injecting equity directly into the accounts of working people rather than into banks."

The best way to do this is to announce a plan to raise the gross replacement rate of Social Security from 44 percent to something closer to 65 percent, which is still short of the rate in many European social democracies. We can afford this as much as or more than they can.

Like I said, Tom thinks outside the box. It's exactly what we need in this country-- a lot more Tom Geoghegans and a lot fewer Tom Prices, Tom McClintocks, Tom Coles and Tom Coburns. Meanwhile, at least a more prosaic congressional mind, NY Representative Carolyn Maloney's, has come up with the Credit Cardholders Bill of Rights which would, among other things, "ban unfair interest rate increases on existing balances and prohibit 'double cycle' billing-- a practice in which credit card issuers charge interest on debt that has already been paid during the previous billing cycle." Last time the bill came up (September 23rd, 2008) it passed overwhelmingly, 312-112, with 84 Republicans abandoning their corrupt leadership to cross the aisle and vote with all the Democrats except one, Blue Dog corporatist Stephanie Herseth Sandlin. It then died in the Senate. Unless Evan Bayh's anti-Obama bloc wants to commit mass suicide-- an attractive idea-- by crossing the aisle to the Republican side on this one, it will pass if it comes up in the current session.