Getting Out of Debt – And the Debt System
Sharon March 1st, 2010
A joint essay by Keith Farnish, Guy McPherson, Dave Pollard and Sharon Astyk
Indebtedness pushes us into a form of servitude, and in extreme cases, can leave us imprisoned. Consider, for example, current rates of interest, usurious compared to what savers earn on their savings in the same banks that charge that interest. Many religious organizations loath interest rates as immoral and criminal because of their human cost. According to all four gospels in the Christian bible, even the normally passive, peaceful prophet of Christianity got so worked up about usury in a temple he started acting like Bobby Knight on the sidelines of a basketball game. Jews were once prohibited from charging one another interest – it was something you could do only to people who you didn’t like very much anyway. In both faiths, the profound consideration that religious texts give to the implications of indebtedness is largely erased from discussion due to its ubiquity today – we worry a lot about who has sex with whom, but not at all about who owns whom.
Purchases by consumers (this awful word is used here only because that’s what we have become — involuntarily) drive the world’s industrial economy. And purchases by consumers depend on the confidence of those consumers, so that consumer confidence underlies commercial success. If a potential consumer has no confidence in his ability to purchase an item, then he won’t. If enough potential consumers lose confidence in their abilities to purchase and pay for any particular item, the sales of that item will plummet, causing the manufacturer and sellers of that item to fail.
Considering the current financial situation, which is likel to crash again and harder, we can help create a situation that will both change behavior for the better and prevent people from getting into financial trouble. The latter portion is vital to getting wide support, and will be a huge challenge for hopelessly optimistic, reality-challenged members of the industrial economy.
How do we convince people they definitely cannot afford to take out loans to buy things? More impact will be realized by targeting luxuries such as houses, cars, and appliances than small “goods.” The Obama administration recognizes this, and has therefore rewarded people for purchasing houses, cars, and — most recently – appliances, by giving them huge financial incentives (i.e., taxes on other Americans who might not even be tempted to play the “consumer” game). All of this has operated to keep us indebted – and to serve the stock market at the expense of the people.
Loans are required for most people to purchase these “durable goods” (which are often no longer durable or good). Loans traditionally are seen as safety nets, but it has become clear as our incomes decline and as we can no longer count on the myth of endless economic growth, that they really represent traps. Never mind the psychological or ecological implications of consumerism — there exists no evidence suggests anybody has minded them so far 
— the focus here is on the trap into which each potential consumer falls by taking out a loans that require us to pay many times the value of what we receive. Most loans are a bad deal for the borrower, although credit cards represent the largest trap (even with the new rules).
The system needs you to keep borrowing. If you stop borrowing, then who knows what could happen. What can you do to get out of debt, and to help others get out? Not all of these responses will be appropriate to everyone, and some of them involve some legal risk, so understand what the risk is before you do it.
No risk:- Don’t take out a loan for anything. If you need it — and probably you don’t — save your money and buy it, or barter for it.
- Encourage others to join you. Start by sharing your car, your garden, your yard, and your lawnmower. Pass stuff on. Give it away. You don’t need that loan, and neither do the people you care about. Caveat: Sharing leads to liability.
- If you already have loans, and most recent students and homeowners do, then seek deferral under economic hardship. Odds are pretty high you’re actually experiencing economic hardship, so this is no big deal. And even if you’re not, there’s no sense feeding the beast if the beast defaults down the road. Caveat: If you lie about economic hardship, your claim about hardship is legally fraudulent.
Low risk but more Radical:
- Start a “misinformation” campaign (from the point of view of the loan companies).
1) Via snail mail, send out false press releases from loan companies and banks to media outlets such as local radio stations, local press and even the nationals if you are brave enough. These press releases should discourage people from taking out loans because, after all, people don’t really need all the toys they buy on credit. If you make the “press releases” as complete as possible, and word them so that responses are not required, then there is a good chance they will be run without questions being asked.
2) Do a bit of subvertising, on the internet or (for a little higher risk) on billboards: focus on loans companies and banks changing the messages to emphasise the theft aspect of loans. Alternatively, just remove loan adverts entirely. For more information on techniques, read this post.Other potential actions along these same lines include:
Obvious satirical routines can be developed for a variety of venues. This strategy should hold particular appeal to artists.
Medium risk:Walk away from your mortgages, as suggested by Dave Pollard: Many Americans are now living in homes with mortgages that are greater than the value of their property. Why would anyone continue to pay a debt that is higher than the asset it secures, unless the home provides them with substantial other value? After all, big corporations view pulling the plug on unsuccessful ventures and sticking the debtholders and shareholders a key business strategy.
The whole idea of “risk capital” is that the interest and other fees you earn for lending to risky borrowers compensates you for the risk, so that if the borrower defaults you accept the loss and chalk it up to experience. Yet for some reason homeowners feel some moral obligation to throw good money endlessly after bad. This of course is exactly what the corporatists, who have no such moral compunction, are counting on, what economists call moral asymmetry. The logical response would be to tell the lender to write off the excess of the mortgage beyond the property value, and refinance the mortgage accordingly. Apparently in some US states (called “recourse” states) this moral asymmetry is institutionalized — that is, lenders can go after a mortgagee’s personal assets if they default. There is, of course, no recourse when the corporatists walk away from debts, offshore their operations, and stiff the taxpayers whose subsidies and bailouts paid for the corporatists’ ventures.
Where is the sense of outrage here? Have the education system and media so dumbed down the citizens that they can’t see this scheme for the cruel and criminal con it is? If everyone with a mortgage greater than the value of their home either walked away from it, or was legally empowered to require the excess to be written off as the “bad debt” it is, then of course there would be many bank failures and plunging profits. That’s how the market system is supposed to work. The lenders, of course, want it both ways, and Obama and the citizens consumers seem blithely willing to let them have it.
Walking away from your mortgage entails medium risk because it will damage your credit rating. Additional risks vary among states, up to and including loss of assets for every person named on the mortgage. Via electronic communications, send out false press releases from loan companies to media outlets. These press releases would discourage people from taking out loans because, after all, citizens don’t really need all the toys they buy on credit. This scheme requires technical expertise: The instigator will hide behind an alter-ego and fake domain.
High risk:
Taking a step beyond abandoning your underwater mortgage, don’t pay off your mortgage even if you’re not underwater. Simply default but continue to occupy your house. Ditto for other loans (but kiss your car goodbye when the repo man does his job). In many cases, lenders can ill afford to tell their stockholders about toxic loans, so — if you avoid undue attention and your loan is too small to “bother” with — the borrower gets the loan for no payments while the lender gets stuck. This point was viewed as radical as little as a year ago, but the idea has been receiving plenty of attention from the media, and even CNBC is on board.
These actions are high risk because they could bring criminal proceedings related to fraud. Probably they won’t. But stranger things have happened, so we issue the following disclaimer:
Recognizing that even civil disobedience is illegal, the authors and the host of this web site do not condone any actions that break the law under the jurisdiction where the described activity is taking place. But let’s be clear – this is civil disobedience, and in a system that is weighted, it deserves serious consideration.Which, of course, doesn’t mean you shouldn’t do them at your own risk – but understand your risk and do it with your eyes open.What we’re trying to do here is help bring down a house of cards: People feeling forced to pay debts far greater than the real value of the assets that secure them. People seduced into getting into debt needlessly. People paying usurious interest rates and fees because the banks own the politicians. It’s a debtors’ prison without locks and doors, and it’s immoral. Please help us bring an end to it.
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- Comments(60)
Sharon, thank you for elucidating your position. I think it’s true that we do see contracts differently to a degree. But I don’t think that prevents us from seeing eye to eye here. With your further explanation of your point of view, I think we’re pretty close. I agree with you that what is right is not always what is legal. I’m glad for the opportunity to tease out these issues through polite debate.
I interpreted this article to be claiming that voluntary default by those able to continue paying is an ethical decision. Your explanation clarifies and partly corrects my interpretation. As I understand it now, you are saying rather that those who would seriously jeopardize their family’s wellbeing by continuing to pay, or those who know that they will be unable to continue paying in the future, are doing nothing unethical by defaulting. I would largely agree with this, though I agree that the latter case especially is a grey area. Those who know for a fact that they will inevitably default at some point and choose to default sooner rather than later are not really acting out of an ethical conviction, but out of calculated self interest. Provided they give up the mortgaged property, I see no ethical problem with this, and agree that they are acting within the terms of the contract. Were I in that situation, I’d probably do the same.
It seems to me now that you are *not* at all advocating that those who can easily afford to keep paying should voluntarily default as an act of civil disobedience. If I’m not mistaken, you would probably say that that would not be an ethical choice, but please correct me if I’m wrong in this.
Where we might still have a minor quibble is in the situation where mortgage holders decide to voluntarily default and then sit on the property, essentially daring the banks to call their bluff. I think this is very murky ethical ground, because the homeowner is now using the general economic environment as a shield against a portion of the contract being fulfilled to his/her detriment. The article seems to advocate just that course of action, while your comments expressly do not. If one does this with money in the bank to pay one’s mortgage, I don’t believe this is ethical. The rich could do this in full confidence that if the banks took action they could probably bail themselves out, with legal representation if necessary, though probably just throwing money at the problem would suffice. That’s merely gambling for the advantage of enjoying your home while not meeting financial commitments you’re capable of meeting. If you’re squatting out of desperation after involuntary default then I don’t see that as unethical, but neither do I see it as an act of self-sacrificing civil disobedience.
Kate, I do think that organized collective default could be an act of civil disobedience, just as the MST’s acts of squatting on unclaimed land are acts of civil disobedience. I don’t think every voluntary default would qualify – that is, I don’t think that just not paying because you think the bank will be too busy to default without any attempt at an organized protest would not be civil disobedience, but I think it could be. I think if you could get enough people to default simultaneously, that would be quite a successful gesture of civil disobedience. I also, admittedly, think that’s unlikely and that more people will simply fall in the grey.
I don’t have an ethical difficulty with someone living in their house as long as legally permissable, or using “produce the note” techniques back on the bank – you can be absolutely sure that the bank will use every technique available to them, so I don’t have a problem with people doing everything that is legally available to them – regardless of the reason behind their default. Squatting in foreclosed housing after foreclosure could be an economic act of self-preservation, or again, if properly organized, could be a gesture of civil disobedience – it wouldn’t necessarily be, but it could be. I tend to support non-destructive squatting generally, because I think it benefits society to have properties be occupied. That doesn’t mean I’d think it was ok to do anything, but if the alternative were it standing empty, I’m not sure I’d take a strong stand on that matter. It is not squatting, however, until the full legal process of foreclosure has been completed.
For those who fully accepted their loans with their eyes open, was fully capable of understanding them and and who are simply chosing to default not as part of organized protest or from any real, perceived or immanent or likely potential economic harm, I’d tend to agree that’s unethical. But I tend to think that that’s probably not a majority of likely foreclosure cases – but radical minority.
Sharon
Kate,
I regret using the phrase “bad decision”. I know you don’t perceive it as such. People can rationalize the purchase of a home all they want, but it doesn’t change the fact that it IS an investment. It appreciates and depreciates, you pay property taxes, you pay maintenance, HOA dues, etc. It’s got a balance sheet. Of course, it’s your choice if you want to ignore the investment part of it. But I still believe you’re smart and that you didn’t ignore the investment part of it. So you’re feeding us a line when you say you, “bought a home, not an investment”, you’re really saying I don’t care if it appreciates or depreciates in value in the near term because you plan to live there long term.
There is a unspoken belief in our “growth” society that the home investment ALWAYS appreciates in the long term. This is a fallacy, and yet this is why you’re okay with the depreciation of your home asset right now, you believe it is temporary. I’m not sure you’re right.
I just want to speak briefly to contracts ethics and their purpose. We live in a dynamic world whereas contracts are static. When environments surrounding a contract change(such as the value of a home or the ability to pay a mortgage) it challenges the static nature of the contract. We have been raised like mindless drones that above all else the contract must be honored. It is a foolish notion imposed by those who benefit from contracts and contract law as a means to secure and acquire more wealth. Typically this benefits the aristocracy, it was afterall written into the constitution by them. It is the great and foolish notion our country was founded on….a protection of property and it’s owners, this is how we define freedom in its broadest sense. Only problem is folks we’re not all property owners, and this distinction becomes glaringly obvious during Depressions.
Kind regards,
Jason
Jason, you seem to be pretty smart yourself. But you’re awfully certain of what I believe, what I think, what I know, what rationalizations I entertain, and what motivated me when purchasing my home. Neat trick, that. I’ve known my husband intimately for 15 years and wouldn’t presume to make the assumptions about his state of mind that you make about a complete stranger.
For the record, I don’t think the market value depreciation for my home is temporary. I expect the value to fall again, and significantly, though I have no guess on the timing. I don’t at all rule out the possibility that we could end up underwater, despite our current 40% equity in our home. You are correct that we plan to occupy this home long term.
Kind regards,
Kate
Jason wrote:
“We have been raised like mindless drones that above all else the contract must be honored. It is a foolish notion imposed by those who benefit from contracts and contract law as a means to secure and acquire more wealth. Typically this benefits the aristocracy, it was afterall written into the constitution by them. It is the great and foolish notion our country was founded on….a protection of property and it’s owners, this is how we define freedom in its broadest sense. Only problem is folks we’re not all property owners, and this distinction becomes glaringly obvious during Depressions.”
Jason, what are you trying to say because what you wrote is far from accurate and misleading. It is not unconstitutional per se under the US constitution to default on a contract. The constitution does not require that a contract must be honored. Contract law is generally common law or statutory law, not consitutional law unless the state(government) is trying to take your (broadly defined) property away (5th and 14th amendments) or you are being denied contract rights because of an improper reason (5th and 14th amendments plus the civil rights statutes). What our founding fathers meant by “property” is still hotly debated, but generally it meant a lot more than real property and included your inherent right to your own body (if you were a white male), your clothes (which had a far greater value in colonial times than today) and household possessions, your wages, and your rights to any portion of the bundles of sticks that make up real property including the right to mortgage a parcel of land and rent it out and hold it as tenant.
Voting rights were originally tied to land ownership (and many other restrictions)
I’m with Kate rather than Jason on the property value issue. To me, our house is purely security for me and my family: a roof that no landlord can refuse to allow our beloved cat under, a back yard in which we can grow whatever food and medicinal plants we like. I have no expectation whatsoever that it will ever increase in value again, or that we will sell it for a profit one day. That being the case, even if we went underwater I would not voluntarily default.
OTOH, if I then lost my job and knew that I was going to be forced into foreclosure, I most certainly would not feel any moral obligation to keep paying the mortgage as long as I had “money in the bank” with which to do it. That last piece of savings with which you could make a couple of extra payments could also be first and last month’s rent and damage deposit on an apartment – as most landlords require, and without which you could end up homeless. You are under no obligation to leave your family destitute to minutely increase some bank’s profits.
[...] Getting Out of Debt – And the Debt System Indebtedness pushes us into a form of servitude, and in extreme cases, can leave us imprisoned. Consider, for example, current rates of interest, usurious compared to what savers earn on their savings in the same banks that charge that interest. [...]
This post and the comments have kept me awake more than any other post here and that’s saying something because I always have some food for thought after leaving this space.
The idea that its okay to walk away simply because your house is worth less than you paid for it, bothers me so much. I have friends and neighbors who’ve provided owner financing to homes in good faith and with reasonable interest rates and to know that the buyers of their places could just simply walk away and in the process leave good people hurting and in financial turmoil is sad. The fact that those buyers could walk away and feel justified in doing so is heartbreaking.
Its not just heartbreaking because innocent people, not just corporations, get hurt; but also because of the larger ramifications this has on community for me personally. My husband is always saying that “you can’t trust anyone,” and I’m always trying to prove him wrong. Yet some of the very ideas put forth here prove his point. What does this idea do to the fabric of our communities? Communities that this blog espouses (and I believe) to be vital to our very survival in the days to come. How can we trust one another when we say its ok to just pick up our toys and go home when things aren’t going our way?
(Just to be clear, I’m not addressing situations that include some sort of trauma. I have compassion and understanding for illness, job loss, etc. not for wasteful and irresponsible spending.)
One of the premises of secured debt is that you can walk away from the debt by surrendering the security. All other forms of debt are “servitude” as there is no other way to get out of the debt. This is one reason people in Debtors Anonymous, DA, http://www.debtorsanonymous.org/
choose not to have any unsecured debt. (For those in any kind of financial trouble, DA can be a lifeline.) If you have a secured debt and still can’t walk away, you are enslaved as was any indentured servant who mortgaged their labor for passage to the colonies.
As Elizabeth Warren has pointed out about credit cards, signing a contract with an institution that may have hundreds of lawyers while the citizen has none might easily lead to terms which are egregious for the citizen. In one instance, I heard Warren describe in a interview that she had a class of 80 near-lawyers who couldn’t between them figure out the terms of a credit card contract.
The only way to avoid servitude or the functional effect of debtor’s prison is to allow people to discharge debts through bankruptcy. Prohibiting both student loans and credit card debt to be discharged through bankruptcy has created a second, lower class in society, the always indebted.
Kathie, the authors weren’t saying to not pay on a debt to an individual. They made it clear, to me at least, that they were talking about debts to large corporations. I recall Sharon saying in previous posts on her blog to make every effort to pay back debts to local businesses and to individuals if you can do so. I don’t think the situation you describe – owner financing of houses to other people, in lieu of bank mortgages – is a subject of this piece. In fact, individuals making loans to each other would, in my opinion, be one way to resist the economic tyranny of corporations. Some people occasionally need more cash than they have on hand, and some people have more cash than they really need. Getting those people together in a mutually satisfactory way would reduce the obscene power that corporations currently wield.