Giving Credit Where Credit Never Comes Due…Priceless

policy matters, with credit to thomas geoghegan.

If Thomas Geoghegan is right in his eye-opening article, “Business as Usury,” then we need to rethink the ways in which decisions by the state determine economics and culture.

Typical analyses assume that deindustrialization and “globalization” are driving politics. The state struggles to keep up with the market. Culture lurks out there as a kind of vague factor: Americans have bad “moral character” for taking on too much debt. It’s their own damn fault. So the story goes as foreclosures and bankruptcies escalate.

Of Usury, from Brant's Stultifera Navis (the Ship of Fools); woodcut attributed to Albrecht Dürer

Of Usury, from Brant’s Stultifera Navis (the Ship of Fools); woodcut attributed to Albrecht Dürer

But Geoghegan notices how it is not cultural norms nor economic systems guiding this sad story, but rather governmental deregulation of loans and interest rates. Controlled or influenced by financial elites, governmental decisions about how credit and debt functions have reconfigured American life in the last forty years.

…when Visa and MasterCard came in, and banks could lend at 17 percent or 18 percent or higher, then only the bankers who still wore morning suits and spats wanted the “loan to be repaid.” Suddenly, with deregulation, the banks were no longer subject to interest-rate caps at all.

Surprisingly, instead of seeking to combat the turn toward usury by financial elites, liberals extended the reach of this new legal and financial paradigm in the 1970s.

Liberals on the Supreme Court hurried this deregulation along. In the 1978 Marquette Bank ruling, Justice Brennan struck down any state law that tried to regulate the interest rate on a Visa card from a “national” bank, subject to the National Banking Act passed at the time of the Civil War.

What has been the result? To Geoghegan, deregulation has utterly reconfigured American life.

Today, bankers don’t want the loans repaid. After all, if you can charge 700 percent on a $100 loan, do you want the loan repaid? That may be an extreme case, but everyone knows that the big banks offering Visa cards and MasterCards don’t screen for moral character. They don’t want good moral character.

In fact, in place of “good moral character,” Geoghegan points out, the post-1960s American way of life depends on bad moral character when it comes to money. Recalling Mr. Potter and George Bailey in the film It’s a Wonderful Life demanding that their loans be repaid, Geoghegan laughs at how dated the movie seems now:

Our way of life depends more and more on people not having good moral character. That’s why instead of dressing in our best to ask Mr. Potter for a loan, we get credit cards unsolicited in the mail.

But it’s not just a new cultural norm that deregulation of loans and interest has created; it’s not just the shift from the older fundamentals of thrift and responsibility to the new emphasis on indulgence and recklessness as the bedrock of our current way of life; it’s also epochal shift away from domestic manufacturing toward the financial industries. “Globalization,” the “information economy”; the “money” economy: Geoghegan implies that these not the engine powering American life, which is how many picture them; rather these cultural-economic forces are nothing more than the result of key shifts in the laws regulating economic life:

Yes, it explains why we’re all in debt. But it also explains why the investment of our capital has tilted away from manufacturing with its meager return and into financial services and banks, where rates can go up to, well, 700 percent. Is it any surprise that we’re de-industrializing? The left carries on about NAFTA but never dares to mention a cap on interest rates. We may be the first society since the Code of Hammurabi to be operating with no law against usury at all.

If Geoghegan is correct, then laws matter: they create the terrain in which economics and culture flow. And yet, what Geoghegan does not address is that without some shift in economic power and cultural norms, these laws cannot be changed.

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