Did you know the credit crisis is part of the fallout from the Bush 1 S&L crisis?
The increasingly desperate financial crisis facing large sections of the American working class has been writ large in statistics...But a section of business has turned the growth of poverty into a gold mine. Standing behind the big banks are several layers of an increasingly complex and parasitic finance industry. In the middle of this food chain are the professional debt buyers and securitized investors. At the bottom are the collection agencies, the scavengers who relentlessly pursue individual workers...
One story behind these statistics was related last year on Credit and Collection World’s Web site. This industry source states, “Emilio Saladiages, 62, of Newark, New Jersey, asked to speak to a manager at Rent A Center about the incessant collection letters and calls he had been receiving...
“When no one would speak with him, he doused himself with lighter fluid and lit the fluid with a cigarette lighter, self-immolating in front of customers and employees of the store,” the Web site reported... Rent A Center, ubiquitous in poor neighborhoods, is notorious for its collection tactics....
While this is a particularly horrendous example, the size and scope as well as the brutality of the collection business has dramatically expanded. This business (known by the acronym ARM, for accounts receivable management) has grown nationally from 47,000 agencies to over 430,000 in the last 10 years... The Labor Department’s Bureau of Labor Statistics puts this industry’s growth rate at the number one position...
What is this business and how did it develop?
Enter the Supreme Court
Until the 1990s, credit card firms and other creditors rarely sold off unpaid debt. Instead, they hired third-party firms or lawyers to collect the bills, usually on a commission basis...State laws against usury prohibited banks from charging more than nominal interest until a 1978 Supreme Court ruling...
The Marquette Bank opinion permitted national banks to extend interest rates on consumer loans from the state where credit decisions were made to apply to borrowers nationwide. That decision allowed the banks issuing cards to circumvent state laws...and the credit card industry as a whole entered a decade of enormous profits...
In 1996, the Supreme Court made another decision that significantly increased profits for the credit card companies, allowing penalty fees, calculated at even higher rates, to be tacked on to consumers’ bills...
But it was not just the tremendous growth of credit card debt and usurious fees alone that created the debt-buying industry. It was the government’s bailout of the savings and loan industry in the early 1990s, under the elder George Bush...
Purchasing $125 billion in worthless S&L securities, the administration bailed out the wealthy speculators, then empowered the Resolution Trust Corporation, an agency of the Federal Deposit Insurance Corporation (FDIC), to sell large portfolios of the S&Ls’ delinquent credit card debt. These were purchased by new entities, which were to become the largest publicly traded ARM (accounts receivable management) firms...
As securitization boomed in the 2000s, banks sent out card offers to households with incomes below $50,000, a relatively new market. USA Today reported on October 6 that this initiative, which peaked in 2001 at a record 2.1 billion offers, became a source of dramatically increased revenue...
http://www.wsws.org/articles/2009/oct2009/debt-o14.shtmlMuch more on the history, tactics & profits of the debt industry.
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