Running the Economy on Debt Growth is Making Society a Clawing Jungle
W.K.
The compulsion to grow is certainly no exercise in higher morality. To begin with, who is to do the growing and at the expense of whom? Most of the problems that underlie the increasing violence in the world – of humans against the environment, of one nation and culture against another, and of classes within countries, can be traced back to this agenda. That formula applied in a limited setting with restricted resources can only be pursued at the expense of other groups, classes or nations, by taking over part of its territory, polluting the environment, blocking its trade, undercutting its prices, denying it credit except at usurious rates. Clearly feeding their own impoverished could hardly be a formula for obligatory growth.
As usual the reporting columns of The Wall Street Journal (27/06, “Blizzard of Deals Heralds New Era of Megamergers” by Dennis K. Berman and Jason Singer) are helpful:
“A new era of megamergers is under way. In less than 100 hours starting last Friday, $110 billion of acquisition deals were sealed world-wide in sectors ranging from natural gas, to copper, to mouth wash to steel, linking investors and industrialists from India, to Canada, to Luxemburg, to the US.
“The deals – which included the marriages of Arcelor SA to Mittal Steel Co., Phelps Dodge Corp. to both Inco Ltd. and Falconbridge Ltd., and Johnson & Johnson to the consumer brands division of Pfizer Inc. – provided striking evidence that 2006 is on pace to be the most active merger year in history, as measured in absolute dollars. The figure tops $3.5 trillion by year end, based on Thomson Financial figures.”
The Curse of Perpetual Growth as a Survival Need
“As was the case during the merger frenzies of the 1980s and the 1990s, the latest boom is being fueled by cheap credit, changes in technology and global competition.”
That is a fair summary but it leaves out the main point. The increasing gap between country and country and between the top executives and the working staff of our large corporations did not come into being with a heavenly injunction “You shall grow ever faster, to justify the future growth of profits and salaries that have already been incorporated into your share prices and the derivatives of growth.” It doesn’t matter what economic theories the professors in our economics departments dream up about trickle down, the basic fact is that corporations must grow, not as an option but as a survival need. For by its very nature the modern corporation and those who head the corporative packs are hunters lavishly paid in advance for rounding up and bringing in the kill. The only alternative in that game and in the setting the gamesters have created, has become financing consumer credit at home and abroad. But that is another game, that combines poorly with the ever higher interest rates, that has become the key means of distinguishing the hunters from the hunted. And growing consumer debt to create artificial market growth for consumer goods, like the allegedly risk-free bonds that the banks were allowed to load up with, combines badly with ever higher interest rates. For credit card and consumer debt, already stretched to the breaking point, becomes bad debt that jeopardizes the ability of the economy to qualify as a hunter rather than one of the hunted – an object for takeover at ruinously low prices because of its debt load, barely serviced or already defaulted on.
Hence it become mandatory to collect some of the bad debt, real or imagined, or perish.
What banks or financial corporations do not tackle themselves is the tough collection jobs. Like Capone, they, too, have their arm-breakers. Where there is a demand there will always be a supply. And the demand is certainly there for bringing in as high a percentage of the debts gone bad as possible. No matter by what means.
New specialties amongst debt collectors have arisen to look after this need. The New York Times (5/07, “An Outcry Rises as Debt Collectors Play Rough”) tells a sordid tale: “The rise in American consumer debt has been accompanied by a sharp increase in complaints about aggressive and sometime unscrupulous tactics by debt collection agencies, a phenomenon that has government regulators increasingly concerned.
“In February the Federal Trade Commission, which enforces the federal law that governs debt collection practices, reported that it received 66,627 complaints against third party debt collectors last year – more than against any other industry, and nearly six times the number in 2000.
“The agencies often buy the debt from more established companies for pennies on the dollar and seek to collect even if the debt has been paid or never was valid to begin with. Sometimes consumers pay because they are worn out by threats from companies and fear damage to their credit rating.”
Collecting Debts that Never Were
“One New York City victim, Judith Guillet, complained and filed a police report in 2003 after receiving a Chase credit card bill for $2,300, including five charges from Amoco gasoline stations in the Bronx. She has never owned a car or had a driver’s license.
“The bank agreed that the charges were not valid, but the debt case hung on because the bank had turned it over to a collection agency. Last November, that agency obtained a court order to freeze Ms. Guillet’s bank account even though it could not demonstrate that the debt was valid.
“‘I feel helpless,’ said Ms. Guillet, 57, retired as a nurse on full disability. ‘I couldn’t pay my rent, buy food, or pay my electricity bills.’
“Officials in New York City, which has some of the most stringent consumer protection laws in the country, said the number of local complaints about debt collectors more than doubled in three years – to 900 in the 2006 fiscal year which ended on Friday, from 774 in 2005, 309 in 5004, and 422 in 2003.
“The City’s Department of Consumer Affairs recently subpoenaed records from eight companies with the most complaints and is considering whether to propose tougher regulations. And last month, New York’s attorney general, Eliot Spitzer, sued a national debt collection company, accusing it of trying in thousands of cases to collect on debts that could not be verified.
“The Federal Trade Commission enforces the Fair Debt Collection Practices Act, the 1977 law that prohibits abusive, deceptive, and unfair tactics by collection agencies. Last July, the commission won $10.2 million – its biggest judgment for illegal collective practices – in a case against National Check Control of Syracuse, NJ. The company, now out of business, overstated the amounts consumers owed and threatened them with arrest and prosecution.
“In its most recent annual report on the act, the commission identified tactics that have become particularly common: misrepresenting the nature, the size and status of a debt; making constant harassing and abusive phone calls at all hours; contacting the debtor’s relatives, employers and neighbors; failing to investigate claims by consumers that a debt was paid, expired or fraudulent; and threatening to sue or seek prosecution. (Such threats are illegal unless the collector has both the legal basis and the intent to take such action.)
“In addition to filing complaints with regulators, a growing number of consumers are suing over debt collection abuses, according to the National Association of Consumer Advocates.
“Stephanie M. Clarke, 36, and her husband sued the Triad Financial Corporation of Huntington Beach, Calif., in August 2004 and Verizon Wireless in Federal District Court in Santa Ana, Calif., in August 2004. After they fell behind on their car payments, the suit alleged, Triad hired a collector who threatened them with arrest, posed as a Verizon Wireless employee, changed the password on their cell phone account and obtained their cell phone records. The collector called dozens of the couple’s relatives, friends and business associates, posing as a law enforcement officer and telling them there was an arrest warrant for the Clarks.
“In June, 2005, before the case was to go to trial, the companies settled with the Clarks for an undisclosed sum. (Both companies said they could not disclose the settlement because of a confidentiality agreement.)
“Eric M. Berman, a lawyer in Babylon, NY, and an officer of the National Association of Retail Collection Attorneys, whose members represent creditors, said complaints filed with the government were not always legitimate. For example, he said some debtors complain when debt collectors will not accept partial payments on the same installment terms that the original lender provided.
“‘People need much more education about credit accounts and what they’re getting into,’ Mr. Berman said. ‘In addition, there is a small minority who are scammers – people who will run up credit with no intent of paying and then try to negotiate their way out of it.’
“While consumer advocates say that abusive collection practices have a disproportionate effect on poor people with limited English, the rise in complaints seem to span the social and economic spectrum.
“Mary H. Monroe, 71, a retiree in Williamsburg, Brooklyn, received repeated calls last year from Diversified Collection Services, part of the Performant Financial Corporation of Livermore, Calif., insisting that she owed more than $5,000 in tuition and fees at a beauty school that she had never attended. ‘I thought they had to be kidding,’ she said.
“She said the calls continued, despite her protests that the collectors had the wrong person. ‘I finally got a lawyer to write to them, and they haven’t bothered me since,’ she said.”
Running the world on the accelerating growth of debt, not only guarantees bigger and better busts, but turns society into a clawing jungle.
W.K.
– from Economic Reform, August 2006