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Rethinking Debt: Deadbeat Creditors

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Even more peculiar was the fact that two of the three borrowers depicted in the article were not "mom and pops" at all, but savvy real-estate investors who walked away from investment properties. A real-estate agent who defaulted on one of his properties said, "I am not going to be a slave to the bank."

Perhaps an investor has the choice not to be enslaved to a bank, but ordinary homeowners do not. Anyone who lives in a community where their kids go to school, their friends and family live and where they have put down roots for a life cannot just walk away from an underwater property. First of all, that investment is their home, not a dispensable luxury. Secondly, if they declare bankruptcy or default on their mortgage, who is going to rent to them with trashed credit?

For many "mom and pops" loss of income, a family business and long-term unemployment has become a nightmare of debt enslavement from which there is no escape but bankruptcy or default. You don't walk away from a home even if its value has decreased if you have no place to go. Bankruptcy limits one's options for home and job severely even in post-financial crisis America.

While it would be easier to believe that debtors are "choosing" to walk away from underwater homes, more likely than not, those losing their homes are trapped in a living hell. Foreclosure destroys marriages, families, neighborhoods, communities, careers and lives. It undermines the very foundation our nation is built upon home ownership and hard work.

While Streitfeld and Gunther call defaulting debtors "deadbeats" and "immoral," these people are actually our unemployed neighbors and friends who have been caught up in a mortgage securitization Ponzi scheme they could never have foreseen. The sad truth is that many defaulting borrowers have been caught in an ancient struggle for 21st century survival.

Debt Slaves

Debt slavery has a long history in human civilization dating back four thousand years. Back in the day when one's collateral was his or her own labor, things went from bad to worse for debtors. Ancient Mesopotamia just south of Hammurabi's kingdom was the birthplace of the first recorded "Wall Street" and home to a thriving debt slavery industry.

According to Yale's financial history wizard, William Goetzmann (and contrary to the common belief that only American consumers have gone to borrowing hell), the ancients were living their own credit and debt nightmare.
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Time is money and the ancient lenders figured out what modern finance understands all too well--your time and your money equal my profit. Evidence of a complex lending and loan trading industry in the Sumerian city of Ur (circa 1800BC) reveals that the oppressive system of credit and debt that evolved four millenniums ago has remarkable parallels to our modern credit-based economy.

Ancient bankers paid low interest on deposits and charged large interest for credit. Legal interest rates were limited to 20%, but savvy lenders figured out how to circumvent the rules and charged the limit on a monthly basis. (Congress circumvented interest rate limits in 1978. In the U.S., the sky, literally, is the limit on interest.) Lenders borrowed silver mina from the Temple at 20% over five years (3.78% annually) and made short-term loans to ordinary folks not fortunate enough to access Temple funds. (Nowadays big banks borrow from the Fed Discount Window under 1% and lend it to you at 29%.)

Longer-term loans were issued generally over five year periods based on a person's future production. Debt was commonly sold and borrowers were often obligated to repay someone they never met. (This is 2010 practice as well.) A largely agricultural society, borrowers offered future crops as collateral. Fisherman borrowed against the day's haul. If crops or fish did not manifest, borrowers pledged their freedom in return for necessary credit. In Ancient Mesopotamia, you could borrow from your neighbor and ultimately be enslaved to your worst enemy.

The ancient system of credit was a matter of survival. The uncertainties of nature could force hard-working people into debt. Floods, droughts, storms, insects, earthquakes and natural disasters could result in a debtor and his or her family becoming slaves of creditors.

The system of debt and credit quickly became a destructive force of oppression in Sumerian society. At one point, more citizens were slaves than were free. Just like the U.S. today, Ancient Sumerian society could not function without the free flow of credit. So the Babylonian King, Rim-Sun had no choice but to cancel all the debts. Creditors were not happy, but debt slaves were freed and the Ancient City of Ur flourished once again.
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Debt Slavery in America

It is time to understand that the system of debt and credit in post-subprime mortgage America has become a destructive force of oppression in modern society. Many debtors in today's economy are victims of the outrageous and callous actions of a few hundred thousand mortgage brokers, lenders, underwriters, securitizers and finance pros. I hate to break it to Mr. Gunther, but we are already paying for the sunrooms of several thousand CDO traders as well as their Porsches, swimming pools and Hampton homes. Yet in a democratic society, this is how it is. We pay for each other's mistakes. That is why we create laws to prevent them.

Since September 2008, the rules have changed on debt and credit. When the top tier financial institutions (i.e. creditors) reneged on their debts, all bets were off for the rest of America. Many of today's debtors are former prime borrowers--people who had long-term secure jobs, solid incomes and perfect credit scores. People who were never late paying a bill and would have found it unthinkable to do so now field calls regularly from aggressive collectors--the same creditors that created the credit crisis in the first place. Streitfeld writes:

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Monika Mitchell is the Chief Executive Officer of Good-b (Good Business International)a leading new media company xcelerating the movement for better business for a better world.

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"Deadbeats" are no longer debtors in post-crisis A... by Monika Mitchell on Thursday, Aug 19, 2010 at 12:22:34 PM
What a great piece. Brava! I too have noticed that... by Chaz Valenza on Friday, Aug 20, 2010 at 2:35:48 PM
This article didn't stay up as Headlined long enou... by Debbie S on Saturday, Aug 21, 2010 at 1:38:46 AM