Debt

It’s been a long wait, we’ve had to slog through a lot of bad TV, but finally, finally, the world is right again: Mr. Robot is back on the air.  Or rather, on the cable since Mr. Robot is on the USA network, part of your friendly package of basic cable channels.  And the day after the season 2 premiere, the show’s first season was rewarded with 6 Emmy nominations, including best drama, best writing for a drama, and best actor for Rami Malek.

A side note here—Saturday Night Live got 6 acting nominations—Supporting actress in a comedy series, two best guest actor in a comedy series, and three best guest actress in a comedy series.  This makes no sense to me.  First, these are the “Prime Time Emmys” and last I checked 11:30 PM on Saturday wasn’t Prime Time (and the show famously called its cast the “not ready for prime time players); second, the show technically isn’t a comedy.  And not just because it stopped being funny in 1986, but the show is generally nominated in the area of variety shows.  It is nominated for best directing for a variety series, outstanding sketch variety show, and so on.  So why are the performers nominated in the comedy show category?  There are serious actors playing actual characters on sitcoms, and this show sucks up 6 nominations for people in sketches.  Someone explain this.

Anyway, there are two overarching themes in Mr. Robot, both touching on a keystone of modern life.  One is cybersecurity; how safe can you be when your password to all your accounts is 1234Five? The other is debt.  Angela is desperate to take a high paying job at the company that murdered her mother because she has nearly $200,000 in student loans.  Fsociety’s plan to free the world was to wipe out the debt that was forcing everyone to give up their freedom.  In the real world, you can’t turn on a radio or TV without hearing a string of commercials for bankruptcy help, debt relief, or payday loans.

How did we get here?  The start was a 1978 Supreme Court case called Marquette National Bank of Minneapolis v First of Omaha Service Corp.   At that time, states had what were called “usury laws” that prevented lender from charging more than 5 or 6% interest on loans, maybe going into double digits.  But nowhere near interest rates exceeding 20% like you see today.  But in the Marquette case, the Court held that state usury laws didn’t apply to national banks, which were governed by the state they were headquartered in.  Suddenly every credit card company moved to South Dakota, which essentially had no cap on interest than could be charged.

So, if you couldn’t pay off your balance, the result was not a small increase in your next payment but a huge increase.  And if you couldn’t pay that off, the debt escalated quickly, so that what started as a small financial hiccup could easily transform into an unbearable burden similar to indentured servitude.

The second factor is wage stagnation that has caused the standard of living to flat line for blue collar workers for the past 30-40 years after adjusting for inflation.  The baby boomers may be the last generation in America who had it better than their parents, or maybe the Gen Xers, but anyone after that is looking at a far tighter job market and few prospects for increasing his or her standard of living.

So if your wages aren’t going up, but you want to feel like you are doing better, what do you do?  Borrow!  You probably ignored the notice from your bank that you credit card interest rate went from 6% to 19%, so you just start using your plastic (which the banks are thoughtful enough to provide you). 

As The Motley Fool explained recently, people tried to keep up with the Jones by going into debt.  From 1960 to 1980 household debt held steady at 60%, but it was 80% by 1988, 90% by 1996, and 125% by 2007.  Around the same time banks started handing out mortgages to anyone with a pulse, to help with the American Dream of owning a home.  If you want to know more, watch (or read) The Big Short.

Oh, I forgot to mention that while banks were busy making money loaning money to people who couldn’t afford it, they were also busy hiring lobbyists and lawyers to attempt to gut bankruptcy laws to make it more difficult for people to get out from under their debt burden.  This is why most advertising for bankruptcy lawyers often contains the line, “Bankruptcy laws may be changing soon.”  Hint--they won’t change in debtor’s favor; who do you think has more money to influence Congress, banks or people in debt?

This is why we are now seeing the twin political movement of Tea Partiers and Bernie Sanders supporters.  The system has been rigged against individuals with no impulse control, and now the debt hole is so deep most people can’t get out.  Students graduate with tens of thousands of dollars in student loans, loans which can’t be discharged in bankruptcy.  By the time they are out from under that, they’ll have a mortgage, a bigger car than they need (maybe two), and tiny mouths to feed.  If they are lucky they’ll die before their 401(k) run out.

Tea Partiers live in a naïve world where we can ignore globalization and have an industrial-based economy where people with high school degrees had good paying jobs; to do this we need to seal our borders (from both people and goods) and have the government take less out of every paycheck/  Sanderites live in a naïve world where the government can provide free things to people efficiently so there is less pressure to buy stuff. 

Both we be disappointed by the results of the 2016 Presidential election.