Over the past five years, I've spent more hours than I wish to count talking to homeowners within the blast zone of the great housing meltdown of the late 2000s. I'm thinking about the ones who lost their homes to foreclosure, or offloaded them quick and dirty in a short sale, or battled a lender or loan servicer or crooked attorney in court. Most of the people I interviewed had this in common: after the market bottomed out, they owed more on their mortgages than their houses were worth. It's called being "underwater." By November 2011, 14.6 million borrowers were underwater on their mortgages, the total amount of negative equity in America pegged at $1.15 trillion. A year later, as the housing market plodded along on the path to recovery, there were still 14 million Americans underwater.
That included, until recently, my parents. The house I grew up in, the only one my parents have ever owned and in which they still live, is a modest, two-story Cape Cod with a generous lawn on a boring street where rows and rows of apple trees once grew. Boring in the best ways: quiet, free of crime, pleasant neighbors, the ideal place for a restless kid to burn through summer days carving blacktop on a skateboard or juggling a soccer ball. As a reporter, I've visited neighborhoods in California and Florida and Nevada, not unlike the one where I grew up, ravaged by the housing crisis -- homes abandoned, windows smashed, empty living rooms tagged with graffiti. But thanks to some private version of magical thinking, I never imagined that the meltdown could reach my childhood corner of suburban Michigan. Why would it? What did my old neighborhood have to do with no-doc subprime loans, BBB-rated mortgage-backed securities, or collateralized debt obligations?
The crisis came anyway. Last December, as we hopscotched around town buying last-minute Christmas presents, my mother told me how, for years, they'd been underwater on the house they'd owned for nearly as long as I've been alive. Five thousand dollars underwater, then $10,000, then $20,000... The local housing market sagged along with the nation's, and there was nothing they could do about it. This angered me more than anything I can remember: first, you're a "homeowner"; then, it turns out that you're over your head in debt by no fault of your own; and, in many cases, the most you can do is hunker down and wait until the market rebounds.
By last Christmas, when I visited, the market's gradual rebound and a refinance deal 18 months in the making had lifted my parents' house out of the debt morass. Selling it, as my folks soon hope to do, will prove a challenge, but at least they stand on dry land. That's more than can be said, as TomDispatch regular Steve Fraser writes, for millions more Americans staggered by student loans, home loans, credit card debts, and so many other forms of indebtedness.
In his latest excavation of crucial parts of this country's history that no one ever taught you in school, Fraser, author of Wall Street: America's Dream Palace, explores debt and insurrection as the most American of traditions. This essay will appear in print in the next issue of an invigorating new magazine, Jacobin, recently touted in the New York Times. (To subscribe to it, click here.) Special thanks go to its editor, Bhaskar Sunkara, for letting TomDispatch post it now. Andy Kroll
The Politics of Debt in America
From Debtor's Prison to Debtor Nation
By Steve Fraser
[This essay will appear in the next issue of Jacobin. It is posted at TomDispatch.com with the kind permission of that magazine.]
Shakespeare's Polonius offered this classic advice to his son: "neither a borrower nor a lender be." Many of our nation's Founding Fathers emphatically saw it otherwise. They often lived by the maxim: always a borrower, never a lender be. As tobacco and rice planters, slave traders, and merchants, as well as land and currency speculators, they depended upon long lines of credit to finance their livelihoods and splendid ways of life. So, too, in those days, did shopkeepers, tradesmen, artisans, and farmers, as well as casual laborers and sailors. Without debt, the seedlings of a commercial economy could never have grown to maturity.
Ben Franklin, however, was wary on the subject. "Rather go to bed supperless than rise in debt" was his warning, and even now his cautionary words carry great moral weight. We worry about debt, yet we can't live without it.
Debt remains, as it long has been, the Dr. Jekyll and Mr. Hyde of capitalism. For a small minority, it's a blessing; for others a curse. For some the moral burden of carrying debt is a heavy one, and no one lets them forget it. For privileged others, debt bears no moral baggage at all, presents itself as an opportunity to prosper, and if things go wrong can be dumped without a qualm.
Those who view debt with a smiley face as the royal road to wealth accumulation and tend to be forgiven if their default is large enough almost invariably come from the top rungs of the economic hierarchy. Then there are the rest of us, who get scolded for our impecunious ways, foreclosed upon and dispossessed, leaving behind scars that never fade away and wounds that disable our futures.
Think of this upstairs-downstairs class calculus as the politics of debt. British economist John Maynard Keynes put it like this: "If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours."
After months of an impending "debtpocalypse," the dreaded "debt ceiling," and the "fiscal cliff," Americans remain preoccupied with debt, public and private. Austerity is what we're promised for our sins. Millions are drowning, or have already drowned, in a sea of debt -- mortgages gone bad, student loans that may never be paid off, spiraling credit card bills, car loans, payday loans, and a menagerie of new-fangled financial mechanisms cooked up by the country's "financial engineers" to milk what's left of the American standard of living.
The world economy almost came apart in 2007-2008, and still may do so under the whale-sized carcass of debt left behind by financial plunderers who found in debt the leverage to get ever richer. Most of them still live in their mansions and McMansions, while other debtors live outdoors, or in cars or shelters, or doubled-up with relatives and friends -- or even in debtor's prison. Believe it or not, a version of debtor's prison, that relic of early American commercial barbarism, is back.
In 2013, you can't actually be jailed for not paying your bills, but ingenious corporations, collection agencies, cops, courts, and lawyers have devised ways to insure that debt "delinquents" will end up in jail anyway. With one-third of the states now allowing the jailing of debtors (without necessarily calling it that), it looks ever more like a trend in the making.