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Debtor Nation

Debtor Nation: The History of America in Red Ink

Louis Hyman
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    Debtor Nation
    Book Description:

    Before the twentieth century, personal debt resided on the fringes of the American economy, the province of small-time criminals and struggling merchants. By the end of the century, however, the most profitable corporations and banks in the country lent money to millions of American debtors. How did this happen? The first book to follow the history of personal debt in modern America,Debtor Nationtraces the evolution of debt over the course of the twentieth century, following its transformation from fringe to mainstream--thanks to federal policy, financial innovation, and retail competition.

    How did banks begin making personal loans to consumers during the Great Depression? Why did the government invent mortgage-backed securities? Why was all consumer credit, not just mortgages, tax deductible until 1986? Who invented the credit card? Examining the intersection of government and business in everyday life, Louis Hyman takes the reader behind the scenes of the institutions that made modern lending possible: the halls of Congress, the boardrooms of multinationals, and the back rooms of loan sharks. America's newfound indebtedness resulted not from a culture in decline, but from changes in the larger structure of American capitalism that were created, in part, by the choices of the powerful--choices that made lending money to facilitate consumption more profitable than lending to invest in expanded production.

    From the origins of car financing to the creation of subprime lending,Debtor Nationpresents a nuanced history of consumer credit practices in the United States and shows how little loans became big business.

    eISBN: 978-1-4008-3840-0
    Subjects: History, Economics

Table of Contents

  1. An Introduction to the History of Debt
    (pp. 1-9)

    It is difficult to consider debt as having a history, because it seems like debt might be that impossible thing in history, something that has existed forever. In 1917, one popular historian described debt as a “semi-slavery . . . [which] existed before the dawn of history, and it exists today.”¹ People, in a certain sense, have always lent money to one another: over the dinner table to a wayward brother; across a saloon bar to a good customer; over a lunch pail to a hard-pressed co-worker. But even by 1917, as that popular history was written, the ancient, personal...

  2. Chapter One Making Credit Modern: THE ORIGINS OF THE DEBT INFRASTRUCTURE IN THE 1920s
    (pp. 10-44)

    When the new institutions of the modern credit system took shape after World War I, its innovations frequently went unnoticed. Even to some trained financial experts, it appeared like nothing had changed at all. As one banker, Charles de B. Claiborne, later remarked in the 1930s, “We have always had installment buying, in my mind, for few ever bought for cash. The housewife bought and bought; she paid and paid, from month to month and from time to time.”¹ The “charge account” or “open book account,” where a retailer put a purchase on the books and a customer repaid at...

    (pp. 45-72)

    In Franklin Roosevelt’s 1933 inaugural address, he told Americans that the economic crisis they faced was both unprecedented and, at the same time, within the government’s ability to remedy. The problems besieging the economy were no “plague of locusts” sent by an angry god, but instead the result of the “stubbornness” and “incompetence” of the “rulers of the exchange of mankind’s goods.” Faith in bankers and business was slim. It was in this moment of doubt about the future of capitalism—borne of the frenzied speculation of the late 1920s and the subsequent Great Depression—that even greater government intervention...

  4. Chapter Three How Commercial Bankers Discovered Consumer Credit: THE FEDERAL HOUSING ADMINISTRATION AND PERSONAL LOAN DEPARTMENTS, 1934–1938
    (pp. 73-97)

    On Friday, May 4th, 1928, on New York’s East 42nd Street, in a little basement room containing only three desks, four employees, a dozen chairs, and a teller’s counter, National City Bank opened the nation’s first personal loan department.¹ Announced to the public with only one line in a newspaper, hundreds of applicants nonetheless overwhelmed the bank on its very first day.² The next day, in a vain attempt to contain the crowds, “shock troops from around the bank” along with a dozen desks, according to one bank employee, were moved into adjacent corridors.³ Carpenters and painters worked through the...

    (pp. 98-131)

    Reportedly in 1950, Frank McNamara, a businessman who had left his wallet in his other suit, in a flash of inspiration, conceived of the credit card while anxiously waiting for a bill. Diner’s Club International, purveyor of what has been called the first credit card, has claimed that McNamara thought to himself, “Why should people be limited to spending what they are carrying in cash, instead of being able to spend what they can afford?”¹ Historians, when they have remarked on the origin of contemporary credit, have largely gone along with this “great man” anecdote, attributing its conception to the...

  6. Chapter Five Postwar Consumer Credit: BORROWING FOR PROSPERITY
    (pp. 132-172)

    Many in the postwar United States achieved a material prosperity that, in debt’s absence, they could not have attained. Middle-class consumers with rising incomes shopped on credit for items that their wealthier neighbors could buy with cash.¹ Working-class Americans earned less than the professional class, yet lived very similar material lives. Even middle-class African Americans, though lacking the wealth of their white neighbors and facing racial barriers to some kinds of financing, could borrow the same amounts as white debtors and enjoy material abundance. Only the very rich and the very poor borrowed nothing. For the vast middle, borrowing and...

  7. Chapter Six Legitimating the Credit Infrastructure: RACE, GENDER, AND CREDIT ACCESS
    (pp. 173-219)

    By the mid-1960s, a two-tier credit system had emerged in the United States. The practices, technologies, and assumptions embedded in the credit practices of affluent and poor consumers could not have been more divergent. For middle-class Americans, credit had become an entitlement. Rather than a privilege, it was a right deeply imbricated with suburban material culture and everyday middle-class shopping habits. Home buyers borrowed their mortgages, financed their cars, and charged their clothes. To be denied credit went beyond an economic inconvenience; credit access cut to the core of what it meant to be an affluent, responsible adult in postwar...

  8. Chapter Seven Securing Debt in an Insecure World: CREDIT CARDS AND CAPITAL MARKETS
    (pp. 220-280)

    In 1978, Donald Auriemma, then the vice-president of Chemical Bankʼs personal loan department, doubted the wisdom of Citibankʼs aggressive expansion into the credit card business that had begun a few years earlier. Auriemma expected that the expansion would not pay off for Citibank since he believed that “the credit card business is marginal, [and] it’ll never make big money for banks.”¹ Yet within a few years, these marginal profits on credit cards would become the center of lending. By the early 1980s, credit cards metamorphosed from break-even investments to leading earners. With much higher profits than commercial loans, financial institutions...

  9. Epilogue Debt as Choice, Debt as Structure
    (pp. 281-288)

    Fortunemagazine, in an alarmist series of articles in 1956, declared that the “abnormally fast” rise in consumer credit since World War II would soon come to an end, since consumers “loading up heavily with fixed payments” and could afford no more debt.¹ Americans’ “debts increase[d]” while their “liquid assets . . . decline[d],” therefore,Fortuneconcluded, “everything portends a downturn in the long-term rate of debt increase.” Borrowing could not continue forever. Rarely hasFortunemagazine been so wrong. The postwar rise in indebtedness inaugurated a long-term trend of credit expansion in which we still live.Fortune’s cautionary imaging...