Pluralistic: 02 Oct 2021


Today's links


A cell in a debtors' prison, captioned 'Pray remember the poor debtors having no allowance,' behind the bars is a map centered on South America, Asia and Africa.

How the IMF loan-sharks the global south (permalink)

When you take out a loan or get a credit card, the headline figure is the "APR" – the annual percentage rate of interest. But anyone who's ever borrowed because they were poor and needed money has learned the hard way that APRs are pure fiction.

To get the true APR (what economists politely call the "effective" APR) you have to factor in the fees, penalties and other gotchas that turn reasonable seeming interest rates into perennial, inescapable debt-traps.

Take student debt. During the 2020 presidential campaign, we had a debate about student debt forgiveness, whose opponents frequently cited the "unfairness" of allowing people to "escape their responsibilities."

https://pluralistic.net/2020/12/04/kawaski-trawick/#strike-debt

In their telling, student debt forgiveness would reward fecklessness, allowing people who got the benefit of an expensive education to duck the costs.

Now, even if you ignore the farcical inflation in university tuition and expenses (for example, the 1000%+ hike in textbooks driven by ed-tech monopolists), that's still a highly selective account of how student debt works.

Student debt is negotiated from a position of weakness and naiveté, which allows lenders to attack the poorest grads with incredible fees and penalties. "Chris" took out $79k in student loans in 1982. He's paid back $190k. He still owes $236k.

https://taibbi.substack.com/p/student-loan-horror-stories-borrowed

That's not the magic of compound interest. It's the magic of loan-sharking. If you've ever used a payday lender (aka a "fintech startup" AKA a "loan shark"), none of this will be the least bit surprising. This form of usury is as old as Christ casting out the money-changers.

A.N. Mironov's painting of Christ casting the money-changers out of the temple.

The payday lending industry didn't invent these tactics, but they refined, automated and industrialized them, then they spent millions at Trump hotels and (in a stunning coincidence) all those tactics were blessed by the US finance regulators.

https://www.propublica.org/article/trump-inc-podcast-payday-lenders-spent-1-million-at-a-trump-resort-and-cashed-in

The normalization of loan-sharking sent the entire finance sector into a race to the bottom. America's largest banks saw their profits soar during the pandemic due to record overdraft and other fees – in other words, collecting fines for being poor.

https://pluralistic.net/2021/04/22/ihor-kolomoisky/#usurers

The sums are jaw-dropping. In 2020, Jpmorganchase made $1.5b on overdraft fees, Bank of America made $1.1b and Wells Fargo made $1.3b. The biggest rake came from the worst months of the pandemic.

https://prospect.org/economy/big-banks-charged-billions-in-overdraft-fees-during-pandemic/

78.3% of all overdraft fees come from just 9.2% of bank customers. At $35 a pop, these fees turn the banks' overdraft facilities into loans with an "effective APR" of 3,500%.

Three thousand.

Five hundred.

Percent.

These are the cold, bloodless numbers of the debt trap. They conceal a vicious cycle in which those with the least pay the most, a cycled that can't even be outrun in death.

https://pluralistic.net/2021/05/19/zombie-debt/#damnation

Take a moment to (re)read Molly McGhee's Paris Review essay from May 2021, "America's Dead Souls," about her mother's death. McGhee's mom made less than $10k/year and suffered "debilitating depression while caring for aging parents."

https://www.theparisreview.org/blog/2021/05/17/americas-dead-souls/

Her mother was haunted by two warring clans of ghouls: debt collectors who harassed her through legal and illegal means, and con artists who located her through databases of struggling debtors and tried to sell her predatory consolidation loans.

48 hours after her mother's death, these blood-suckers switched to harassing McGhee, as she grieved her loss. Unlike her mother, McGhee had the resiliency and wherewithal (a credit card) to hire a lawyer, whose boilerplate letter reduced the debt by 90%, over $250k, poof.

If you can afford a lawyer, your parents' debts don't become yours. If you can't, you enter a cycle of intergenerational poverty, with each generation sinking deeper into debt.

When you have nothing and owe everything, debt collectors know that they have to terrorize you into putting their bills ahead of the others. The cruelty is literally the point – without it, you might pay your rent ahead of your mother's old credit-card bills.

To quote Umair Haque, "America is the the world's first poor rich country." an "advanced economy" where a sizable portion of the population lives in conditions typical of the global south.

https://eand.co/the-worlds-first-poor-rich-country-c411afc68539

Not for nothing. The same tactics that impoverish the vast American underclass also work to keep the world's poorest countries – rich in resources and talent – poor. The loan shark here is far more powerful than a payday lender or even JP Morgan – it's the IMF.

A new report from the Center for Economic and Policy Research dissects the way the IMF uses fees and penalties to trap the poorest countries in the world in unbreakable cycles of debt – fees that drive up the IMF's notional APR to dizzying, usurious heights.

https://cepr.net/wp-content/uploads/2021/09/IMF-Surcharge-Report-2.pdf

Like any predatory loan, these "surcharges" are levied against the countries that have the least ability to repay. They target countries whose debt:GDP ratio passes an arbitrary line. For the poorest IMF debtors, surcharges account for 45% of all non-principal repayment.

These numbers add up. In Egypt, surcharges gobbled up $1.8b between 2019-24 – triple the cost of fully vaccinating the whole country. Small wonder that the world's 64 poorest countries spend more on external debt payment than they do on their own health care.

In its defense, the IMF offers the same tissue-thin responses that any arm-breaker offers. The claim that penalties and fees are a way to "incentivize" debtor nations not to overborrow, and to seek their credit from the private finance sector.

But these countries are borrowing to pay off their debts – often debts that date back to colonial times, in which the rich (white) world mercilessly looted their resources and fomented destabilizing political divisions.

This undermined domestic resistance to imperialism and allowed kleptocratic, corrupt leaders to thrive – leaders who borrowed heavily to finance vanity projects, corrupt enrichment of domestic elites, and militarized suppression of opposition movements.

All of that was funded by debts, often from the IMF, who tied lending to the dismantling and sell-off of state enterprises, from power to water to sanitation – which is how the world's poorest get gouged by the world's richest to drink their own water.

These countries don't borrow because they want to live outside their means – they borrow because they want to live. They don't borrow from the IMF because they're too lazy to ask a multinational bank for credit – they borrow because they can't get credit elsewhere.

But the IMF has another excuse for this: they claim that the fees they extract allow them to originate more loans, creating a virtuous cycle. But as the report makes clear, this is absurd on its face.

The IMF went into the pandemic boasting about $1 trillion in "firepower" (that's creepy-cutesey IMFspeak for "cash reserves"). Meanwhile, the annual revenues from these fees is $1b – that's three orders of magnitude less than that "firepower."

That means that the IMF could simply give up on these punitive fees, levied against the poorest people in the world, at an annual cost of 0.01% of its reserves. Literally, the cruelty is the point.

The point of all of this? The victims of usury are all in the same boat – in the USA and around the world. The same tactics, the same excuses, the same misery, from Cairo to the Caribbean to Cleveland.

Not all debt is created equal, of course. If you're Elon Musk or Peter Thiel, you can get sweetheart loans and roll overs that let you avoid almost all taxation through the fiction that you earn no income, even as you amass hundreds of billions.

https://pluralistic.net/2021/06/08/leona-helmsley-was-a-pioneer/#eat-the-rich

And of course, if you're a government with debts denominated in the currency you issue, it's not really "debt" at all – the only way the US government can run out of dollars is by ordering its employees not to type more dollars into existence in a central bank spreadsheet.

Indeed, you couldn't ask for a starker example of the difference between monetarily sovereign nations and postcolonial countries that owe debts in the currencies of their former conquerors. Venezuela can't spend its way out of US dollar debt by creating bolivars.

Like McGhee's mother, whose debts turned out to be fictions that disappeared as soon as a professional with credentials and access to the levers of power printed out a boilerplate letter, these countries' debts are cruel fictions.

The powerful and wealthy can indulge these fictions or ignore them, as they choose. For example, finance-friendly politicians can insist that the "debt ceiling" must not be raised, for political purposes.

When the US declines to do the trivial data-entry that would make the money to pay its sovereign "debts," the consumption that the money would have funded still takes place – financed not by the democratic state, but rather by a loan-shark.

National financial "prudence" interrupts the normal and benign process of sovereign money-creation, opening space for usury – private borrowing from the vampires and ghouls whose 3,500% APRs are redeemed through terror.

The cruelty is the point.

(Image: Sbw01f, CC BY, modified; А. Н. Миронов, CC BY-SA)https://creativecommons.org/licenses/by-sa/4.0/deed.en


This day in history (permalink)

#15yrsago Unpaid diplomatic parking tickets as index of national corruption https://www.theatlantic.com/magazine/archive/2006/10/primary-sources/305203/

#15yrsago Canadian deported to Syria for torture is cleared https://www.theguardian.com/world/2006/oct/02/worlddispatch

#10yrsago More than 700 Occupy Wall Street protesters arrested on Brooklyn Bridge https://www.theguardian.com/world/2011/oct/02/occupy-wall-street-protesters-brooklyn-bridge

#5yrsago Google: if you support Amazon’s Echo, you’re cut off from Google Home and Chromecast https://variety.com/2016/digital/news/google-home-amazon-echo-chromecast-1201874125/

#1yrago Call center workers pay for the privilege https://pluralistic.net/2020/10/02/chickenized-by-arise/#arise

#1yrago Apple kills RSS readers in China https://pluralistic.net/2020/10/02/chickenized-by-arise/#rss-ccp-rip


Colophon (permalink)

Today's top sources: Naked Capitalism (https://www.nakedcapitalism.com).

Currently writing:

  • Spill, a Little Brother short story about pipeline protests. Friday's progress: 251 words (21956 words total)

  • Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. Yesterday's progress: 1025 words (6513 words total).

  • A Little Brother short story about remote invigilation. PLANNING

  • A nonfiction book about excessive buyer-power in the arts, co-written with Rebecca Giblin, "The Shakedown." FINAL EDITS

  • A post-GND utopian novel, "The Lost Cause." FINISHED

  • A cyberpunk noir thriller novel, "Red Team Blues." FINISHED

Currently reading: Analogia by George Dyson.

Latest podcast: Breaking In https://craphound.com/news/2021/09/26/breaking-in-fixed/
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Upcoming books:

  • The Shakedown, with Rebecca Giblin, nonfiction/business/politics, Beacon Press 2022

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