Debt That Lasts Forever: The Finance Industry Gambles With Human Lives

If you're perceived as a risk, the market sets you up to fail.If you’re perceived as a risk, the market sets you up to fail. (Image: Nikada / iStock / Getty Images Plus)

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Production or prediction? Healthy risk taking or dangerous betting? What are the implications of a society based along the lines of Wall Street?

When Karl Marx looked out at what produced profit in his day, he saw grinding factories producing things. Today, what dominates is Wall Street — finance — and not just investing and trading, but betting, on crops and countries and commodities, and also, in a sense, on each other.

We call all that ranking of risks and comparing of credit “playing the market,” but it’s not really playing when you’re gambling with people’s core needs, like housing and pensions and education. Many have known this for generations, and others discovered in 2008 when the market crashed, taking their savings and their mortgages with it.

Author Ivan Ascher has written about all this in his new book, Portfolio Society: On the Capitalist Mode of Prediction. I sat down for a talk with him and Strike Debt activist (and WBAI Morning Show host) Pam Brown.

“Finance is a risk that not everybody bears in the same way. Certain people are taking risks and other people are at risk,” says Ascher.

You can watch this conversation — and many more like this — on the Laura Flanders Show, or subscribe to the free podcast: @lfshow

Laura Flanders: Welcome both. Glad to have you. Obvious question, what is the Portfolio Society, Ivan?

Ivan Ascher: It’s a phrase I actually borrow or lift from someone else, Gerald Davis, who is a sociologist at Michigan, who uses it to describe basically capitalist societies that are dominated by finance.

Haven’t there always been markets?

That part is not new. What I think is new is the fact that it’s taken such a dominant place in organizing our lives and also as a source or a site of profit making. Not just profit making: As you said, a disproportionate amount of money now gets made in the financial world, but it also just governs our relations or shapes our relations in ways that it didn’t before.

I’d love you to elaborate a bit on that. In what ways does being a risk and credit-based society affect our relations with one another?

In the 19th century, in the industrial era, people spoke of a bourgeois or civil society. The Portfolio Society I understand to be the contemporary version of this. We’re still organized around exchange and production, but on top of this we have these financial markets that increasingly encroach or shape the way in which we produce and buy and sell things. A simple example would be the use of credit cards when you go to the market. You no longer use cash, but certainly if you buy anything online, your transaction is mediated by credit cards, which means all kinds of things in the way that people have access to markets and the way in which we have to produce ourselves is in a certain kind of way subject [to whether we are deemed as] somebody who is credit worthy, somebody whose probability of default can be measured….

This gets to some of the work that you do and have done over years, Pam. When you hear about a credit-relation-based society, what bells go off in your head?

Pam Brown: I was just thinking about the transition that happened earlier in the 1900s, really around 1934, with the Housing Act that did create kind of a debtor society because prior to that, when people bought property, the terms of a mortgage were very, very different. It was only in 1934 that you started to have longer mortgage terms. That allowed people to buy, in a sense, more property. There were lots of problems … I don’t want to state that there weren’t before that of course, but that was a real turning point for the way that debt was conceived. That was a point literally where the banks and the government became partners.

Prior to that, there wasn’t an explicit relationship, at least between the banks and the government in terms of insuring people’s debt, taking it off of the books. Banks didn’t want to lend to people because they would assume all the risk…. The government stepped in and said, “We want people buying houses, and we want to create this particular kind of subject.” At the time, people were thinking along the lines of communism. They were not that excited by capitalism. They were coming out of the Depression and people were pretty embittered. Giving them this opportunity … really fostered and set this whole process that you’re talking about into very clear motion.

That’s when we saw Fannie Mae and Freddie Mac, all of those.

Exactly.

But the idea was to make home ownership more accessible to more people.

Actually, really the idea was to give people jobs, to create an industry around construction, which is really fascinating. Debt and labor were always really, really connected. Then cut to student debt, which is where I started thinking about this, and you had the creation of Sallie Mae in about 1968 with the Education Act. That mirrors the Housing Act. That was how I ended up seeing that there was a relationship between the two. It was very clear that the result of Sallie Mae encouraging student debt would be rising cost of college, increased debt, a totally different subject: Someone who is thinking all the time about what they owe to banks, not what they owe to other people in our society, what they owe to these financial corporations.

The labor piece of this equation has almost totally dropped out. Is that fair to say, Ivan?

Ascher: Yes and no. It’s sadly dropped out of my analysis, but it hasn’t dropped out of the overall picture. There’s still labor involved. People are still working, but the thing that you mentioned earlier, the products are largely made beyond what is traditionally American capitalism. A lot of what we used to think of as labor no longer is visible to the eye. It’s not that it drops out, but it is displaced as a central category of financial economics by these measures of risk and so forth.

In its place, if you go by your book, is prediction. The predictive economy, as you write, has predictions, hedging and so on where production once was.

Ascher: I speak of prediction partly as this capitalist mode of production, but there’s also protection. Finance is a way for people to protect themselves against adverse effects or to take risks, but it’s a risk that not everybody bears in the same way. Certain people are taking risks and other people are at risk in a sense. Production isn’t eclipsed entirely, but it’s now mediated by these various forms of calculation of, “What are the odds that the currency will fluctuate in this way or that?”

How are class relations changed? To use a good Marxist phrase, we used to have workers and bosses or peasants and feudal lords. What do we have now?

Ascher: Metaphorically, I would say, they’re the people who are in a position to bet on the outcome of a race and then there are people who have to run the race. That’s one way of putting it. Other people speak of a casino capitalism, which is not a bad analogy in the sense that everybody is gambling and betting, but there’s really also a “house.” Neither metaphor really works in the sense that one of the things that’s so pernicious about contemporary financialization is that as people make bets on other people’s chances that they will, say, make good on their payments, they’re also affecting the chances that these people will make good on their payments…. If financial markets think that you’re going to default, you’re going to be given terms that will lead to your default.

Brown: Just an example of this actually is that credit is also given based on where you live. If you live near a payday loan place, believe it or not, just because of where you live … you will have probably about $7,000 less access to credit. The amount of credit that you have impacts your credit score.

They assume people living near a payday loan place are a low-income people and the neighborhood is somehow less worth lending in?

Brown: That’s a great question.

It sounds like good old-fashioned red lining.

Brown: It amounts to that because, of course, if you live in a minority neighborhood, where there are more of those places, regardless of anything that you could personally do, regardless of your job situation, your “credit worthiness,” which is a bizarre concept anyway, you’re still subject to their evaluation.

It is true that now on job applications, even for standard things like parking lot attendant, they ask your credit score.

Ascher: It’s true. It has come to play an inordinately large role. It’s like redlining, except it’s not quite the same thing. It’s under the radar in a sense.

Brown: Right, it’s a color-blind formulation, I think, of what was explicit redlining in the past. We still haven’t addressed, of course, the impact…. We’re not going back to the 1800s or the 1700s here. We only need to look to the 1950s, which is one generation. My dad was born in 1926. It’s really one generation to see the impact of this. If you couldn’t obtain property even if you had a middle-class job, because of your certain race, then obviously you don’t have the wealth. We have a 12 to 1 wealth ratio between Black and white in this country as a direct result of both the history and also the process that you’re identifying, which is this increased financialization, the increased reliance on money to make money. Money begets money. That separation is really, really growing.

Ivan, coming back to you, you start by quoting Steinbeck in Grapes of Wrath that, “Men made it, but men can’t control it.” He meant men and women too, I’m thinking. Who controls this and how do we change it, if you think it should be changed?

Ascher: We speak of Wall Street or finance in monstrous terms. In the 19th century, people spoke of vampires. Now we speak of zombies. I think that attests to the difficulty of exactly identifying the agency and also the way in which we are somehow implicated in the creation of this beast. How can it be changed, or what is to be done?

Sub-prime borrowers of the world unite?

Ascher: Not everybody is equally affected or implicated in these ways. We’re all borrowers in a fashion, but it plays out differently depending on whether you’re male or female, white or black or so forth, where you live. I think it’s important for us to tend to the ways in which finance does shape everybody’s lives. It shapes our lives differentially. For instance, you mentioned where you lived, your zip code and so forth.

I live in an affluent neighborhood, suburb of Milwaukee — an exceedingly segregated city. By dint of where I live, in a sense, I am complicit in rendering somebody else’s credit score lower because whatever I do, my neighbors are propping me up. What do I do with this knowledge? I don’t exactly know, but whatever it is that we are going to do, we’re going to be attentive to the ways in which we’re doing these things.

If we are looking at a global phenomenon, is there a global solution to any of this, given that so much of what you’re talking about has to do with non-concrete phenomena? Is it the economy that is based on global markets and global trading?

Ascher: We live in a globalized world, like it or not, but things again play out differently depending on where you are. I think we need to be attentive to the politics of financialization, be it in the European Union or in the US or in Haiti, so forth. No, I don’t imagine there would be a global solution, but maybe we need to acknowledge the politics of the economy. I’m not an economist. Perhaps this is my parochialism, but I don’t think that economists should have the claim over the discourse. It’s more about the politics of markets. Once we recognize that markets are made and that they’re relations of power, we have a better chance at … if not seizing control, at least acting in a manner that is coherent.

Final thought from you, Pam?

Brown: I guess thinking about this aspect of power and what people can really do, I think part of the role right now of activists and people in the media is to expose what is happening so that people can think about it, writers like [Ivan]. Without that knowledge, we can’t really do anything. We may not really be ready yet to make the next move, though we did see with Occupy Wall Street that these ideas came into the public in a whole new way. People weren’t really talking about student debt that much. Now you hear about it constantly.

I think that was really powerful. Maybe a new space needs to open up that people can come together and actually think together. How would we start to uproot some of the deep, deep problems that we have? I don’t know, without that kind of personal interaction.