How debt came to be sliced and diced
Debtor Nation: the History of America in Red Ink by Louis Hyman, Princeton University Press, 2011
The US's addiction to debt was responsible in large part for its economic downfall over the past three years. The rhetoric of the financial crisis was complex, but the underlying truth of it was simple: people borrowed too much. They were overly optimistic that rises in wages and economic growth would be sufficient to pay off their supersize debts - an attitude that financial firms and the US government were only too eager to reinforce.
In Debtor Nation, Louis Hyman builds a wider frame around that situation. To be sure, he dwells with relative brevity on the current condition of the US economy and the country's new generation of cash-strapped consumers. But his book does a splendid job unpacking the origins and evolution of credit and debt in the US, an effort that should give news consumers a new and useful perspective on the American consumer.
Hyman starts with the origins of the modern debt economy in the 1920s, when credit to consumers was the province of small-time shopkeepers who offered it reluctantly and unprofitably. Loan-sharking made lending an increasingly attractive business, and the growth of the car industry and car finance made it a necessary one for some of the country's biggest companies.
That growth, in turn, pushed entrepreneurs to find new ways to use credit - and new ways to buy and sell it. Government regulation, coupled with government institutions and programmes that came with the New Deal, helped propel debt to new heights. The post-Second World War era saw the emergence of consumer debt on a mass scale. As the market grew, so did the creativity with which mortgages, credit cards and other forms of debt were diced, sliced and repackaged for consumers and investors alike.
Debtor Nation is an academic work, not a popular history. Nonetheless, Hyman tells the story of America's debt obsession engagingly and without an overabundance of jargon.
The Quote: Don’t let your mouth write no check that your tail can’t cash. Bo Diddley, the American musician
Published: August 17, 2011 04:00 AM