Category Archives: credit card debt

Privatized Austerity: Why Silence=Debt

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The new report on debt from the Federal Reserve Bank of New York presents the case for a decline in household debt. Which is true, if you exclude bankruptcy, foreclosure, and student debt all of which are up. And forget trying to get a new mortgage at those nice low rates you hear about: the banks aren’t lending at all. What we’ve got here is a privatized austerity that’s affecting individual lives every bit as much as its nation-state implemented partner in Europe. In this privatized form, debt-driven austerity presents less of a political target. Silence=Debt. Which is why we strike debt.

Let’s look at the Fed’s own numbers. With student loans, the news is all bad, explaining in part why, of all debt topics, attention continues to be centered on student loans:

• Outstanding educational debt stood at $914 billion as of June 30, 2012 [previous Fed figures had it at $870 bn]

• Since the peak in household debt in 2008Q3, student loan debt has increased by $303 billion, while other forms of debt fell a combined $1.6 trillion.

• Student loan delinquency rates increased for the second consecutive quarter; The percent of student loan balances 90 or more days delinquent increased to 8.9% from 8.7% during the second quarter of 2012.

Note that the delinquency rate here is across all student loans, including those currently in deferral. The Fed itself has reported that 27% of loans not in deferral are in some stage of default. The increase in student debt is a direct consequence of the impossibility of declaring bankruptcy or defaulting on these loans.

So we need to be careful about the assumption that the numerical decline in bank reported debt means that people’s situations are improving. To the contrary, as bankruptcy and default increase, banks move debt off their balance sheets, making their situation appear better. For the debtor, the situation is in fact worse.

Here we can see that more people are being pursued by debt collectors for larger sums than ever:

This chart suggests that about 14% of consumers are in collection and the amounts are climbing steeply to an average of $1550.

As we might expect from this, bankruptcies are up, while foreclosures are running back at 2011 rates, despite the 5 million people who have already lost their homes

So how can total household debt be lower? Here’s the giveaway detail. Foreclosures and bankruptcies allow banks to remove that debt from their balance sheets. The people concerned are now invisible, statistically unaccountable and therefore (it is hoped), politically neutralized. Here’s the Fed’s visualization of that for mortages:

The red section of the bars refers to “charge-offs” meaning defaulted or foreclosed loans. The more these increase, the lower total mortgage debt becomes as you can see here, as represented by the black line.

Notice also that the blue bars depict new loans and mortgages that are actually paid off by the homeowners. This number has now declined to irrelevance. If we assume that some folks are in the course of time managing to pay off their 30-year loans, then the amount of new mortgage lending is very low indeed. That would accord with the anecdotal sense that, despite notionally low interest rates, mortgages are now impossible to get. The federal funds set aside to help underwater mortgage-holders have been little used, not because people don’t want them, but because banks put so many obstacles in the way of refinancing.

Unlike European austerity that is visibly punishing the 99% to recoup the excesses of the one per cent, this silent austerity has come with relatively little political consequence. A Wall Streeter whose entire enterprise rests on forcing companies into debt and then cashing out, leaving them to pay off the debt, is at 50% for the presidency. He’s only doing to companies what the banks are doing to all of us.

Strike back. Strike Debt Assembly at 1.30, followed by Life After Debt: A Gathering of Debt Refusal at 4pm, this Sunday in East River State Park in Williamsburg.

There’s A Debt Strike Going On

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There’s a wildcat strike against debt going on. The numbers are remarkable. By definition, a wildcat strike can’t be organized and, in this case, can’t really say speak its own name. That’s why OWS has a Strike Debt campaign: to articulate the crisis, to end people’s shame at being in debt and to encourage them–us–to speak out. Send us your story to strikedebtresearch[at]gmail. No contact details will be released.

Numbers

27 percent of student loans are in default and that number is rising.

$1.2 trillion of mortgage debt is underwater (debt exceeds value of property) or about one-third of all properties.

5 million homes have been foreclosed and 5 million more are under threat of foreclosure, meaning that owners are in default or behind on payments. 300,000 people had a foreclosure notification added to their credit report in the first quarter of this year.  27% of mortgages are seriously delinquent–ironically, a slight improvement. 300,000 more people went bankrupt.

The average credit card debt per household has fallen from $17, 936 in 2009 to $14,336 now: because of mass default. In 2010, credit card companies had to write off fully 10% of all debt.

Numbers Don’t Tell the Whole Story

So although we see delinquent debt totals falling, it’s not just because people are striving to pay it back but because it has been written off or put into foreclosure. Adding all this up, the Federal Reserve Bank of New York estimates:

As of March 31, 9.3% of outstanding debt was in some stage of delinquency, compared to 9.8% on December 31, 2011. About $1.06 trillion of consumer debt is currently delinquent, with $796 billion seriously delinquent (at least 90 days late or “severely derogatory”).

Student debt is more indicative in this regard. Using their own calculation on student debt, which has it at $904 billion, the Fed indicate how serious the student debt issue has become relative to other debt:

Since the peak in household debt in 2008Q3, student loan debt has increased by $293 billion, while other forms of debt fell a combined $1.53 trillion.

That decline in other debt includes write-offs, bankruptcies and foreclosures, options that are not available for student loans. In this sense, student debt provides the clearest picture of what’s happening, precisely because it cannot be manipulated off the books like other debt.

Lenders know this and have cut back credit. Mortgage originations for the first quarter of 2012 were down 17.4% from even 2011, let alone 2007. Try and get a credit card with an interest rate under 15% once the “grace” period expires. The average credit card rate is now 16.94%. This is usury in a time when bank interest rates are at all-time lows, on average 3.25%. That’s a 500% mark-up, even before you get to fees, memberships and so on.

The Morality Question

All this data is public knowledge. What we need to make public is that people are clearly making the choice to refuse repayment of debts. While the PR machine of the debt industry has long asserted that debt refusal is immoral, the ongoing debtors revolt proposes that it is compulsory endebtedness that it is immoral.

What I mean to suggest is this: lenders are actively deceitful. Playing by the rules as presented to us as consumers leads to massive shortfalls. Students were told to contract debt as a means of getting high-paying jobs that are not available, homeowners were encouraged to borrow and refinance as much as they could because house prices never went down. These are people trying to play by the rules, only to discover that the game is fixed.

For corporate persons, as the Supreme Court has it, this kind of utter imbalance has been rectified by debt forgiveness, restructuring and other finagling. Miss a payment on a credit card or a student loan and you get hit with a penalty fee, increased interest rates and a shot credit rating. MF Global used $1.6 billion of its clients’ money to try and save their firm–and they “could face a negligence charge.” Morality has nothing to do with debt.

What we have seen with debt, as with other areas of social life, is a secularization of Catholic doctrine. In this way, confession became secularized as therapy, for example. St Thomas Aquinas, the fearsome medieval theologian, argued that there is a debt of punishment for sin that cannot be expunged:

sin incurs a debt of punishment through disturbing an order. But the effect remains so long as the cause remains. Wherefore so long as the disturbance of the order remains the debt of punishment must needs remain also.

Of course there was a way out: you could purchase an “indulgence” allowing the debt of punishment to be bought out. In the secularized form, being in debt is seen as punishment for the failure of the debtor to be sufficiently wealthy. As capital now is the highest form of value, sinning against debt is the worst sin of all.

The Credit Rating Scam

Many people are afraid to speak out about debt because they fear it will impact their credit rating. These ratings are scams. As we’ve already seen, lenders are pre-emptively withdrawing credit and increasing rates and fees. If you don’t have a loan and it’s not student debt you’re after, the credit rating score required to get the “best” deals has become so high that no-one who really needs a loan is likely to qualify. So the loan you will get will already have punitive levels of interest.

How Can You Join In?

You don’t have to refuse to pay your own debt to join the debt strike. Here are some ideas:

Speak out. Debt is immoral, not debt refusal. Challenge people who say “they borrowed it, too bad, they should pay it back.” If you’re in higher education, talk to your colleagues about debt, emphasize the risks involved and think of alternatives.

Research. In your area, what’s happening? Do you have a story to tell? Email strikedebtresearch [at] gmail

Take action. Create debtors assemblies where you live. Look for the online materials coming from the Strike Debt campaign to help you. Create a Tumblr or other off-the-shelf websites. One idea that has floated is to collectively buy and forgive loans in default. There are websites where you can buy defaulted loans for a small percentage of the face value. The commercial loan market operation hopes to recover more than that percentage and so make a profit. It’s real bottom-feeder stuff. So even if we can’t actually afford it, let’s expose this kind of scam.

Remember: Debt Is Fucked Up and Bullshit. You Are Not A Loan.

 

Space, Observation and Strike Debt

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In the past weeks since the Debt Assemblies began and led to the formation of the Strike Debt campaign, my relationship to this writing project and to OWS has begun to shift. For a long time, I wrote from the participant observer position. I was there, in the room, often in the square or on the march. But I was not taking decisions or influencing people very much, although I might make the odd comment here and there. Honestly, Occupy and direct democracy were quite a steep learning curve for an academic.

It’s also a somewhat comfortable position, of course, allowing the writer to perhaps imply criticism, although I have always tried to do the harder thing of trying to look for the optimistic or hopeful outcome. Over the past few months since I’ve begun working more closely with Occupy Theory and now Strike Debt, that safety barrier is gone. I find myself questioning whether I have the right to report certain discussions or issues, Or better put, whether I should, not from the point of view of this writing but from the point of view of the movement.

It’s not that I’m party to any secret decisions or that I’m in any way, shape or form a “leader” because there really are no leaders. It’s that I’m not sure exactly what my role is now. Some other writers I know call this “observant participation.” Key here is the acknowledgement that you are writing about the movement as you are also active in it. Unlike most of these people, I’m writing about things as they happen, more or less, rather than for a dissertation, article or book project. It’s not a moral question, although I do respect security culture within the movement and I don’t name people who have not made their writing public. It’s a writerly question: what’s my perspective on this now?

Two other developments impinge on this repositioning. One is that there are fewer people active on a day-to-day basis in OWS now than there were at May Day. A good deal of this is the summer diaspora from New York, and with the climate-changed 97 degrees it was today, no wonder. There are students back home or doing research travel and activists. Others have dropped out, burned out or moved on. So it’s easier to get a sense of the movement than it was when it seemed to be limitless. Perhaps that’s also a coming-to-terms with the sheer difficulty of actually changing this deeply entrenched system.

Finally, it’s the debt campaign itself, which is a re-orienting of my own position. We are all “in” debt, or I certainly am. Mortgage, credit cards, refinanced mortgage. It’s a place of some shame and embarrassment: isn’t a middle-aged, more or less successful person (in their field) supposed to be past all that? Maybe, but I’m not, given a commuting work situation that requires two households in one of the world’s most expensive regions. I assumed getting “out” of debt was a combination of personal discipline and professional success, a Houdini-like escape trick that has eluded me so far.

Now I can see that getting “out” of debt requires getting into public space. It means striking debt so that if a corporation is a person and must be bailed out, guess what, I’m a person as well. It’s realizing that if there are 5 million households still under threat of foreclosure, 27% of student debtors behind or in default, and $800 billion of revolving credit card debt, there’s a massive debt strike already taking place. We just haven’t dared to admit it. You are not a loan.