The History of Corporatocracy - Part III Credit and the Credit Card
If there's a way to make money ...
Corporations have the power to change our lives forever
Let us look at the “Bible” of economic theory – the supply and demand curves and how they determine the”fair market price”. It also can be manipulated by the corporations and banks; of course, in their favor. The classical economic model of supply (s) and demand(d) curves teaches that when production exceeds demand, prices will fall until demand increases and s and d are in equilibrium. The executives running the multinationals came up with a modification (Milton Friedman would be so proud!); they responded to the increasing production dilemmas not just by lowering prices – the traditional approach – but by expanding markets, opening new ones – let us go overseas! Why don’t we peddled our goods and services to India, China, Southeast Asia and Latin America. Demand shot up. They boosted production and then open new markets like Africa.
Many of the goods and services they sold catered to purely materialistic desires rather than meeting the real needs of feeding and clothing impoverished people, cleaning up polluted environments, or discovering nonpetroleum sources of energy.
“Trinket capitalism” is what the multinationals came up with. The marketing plan was to create an economy based to a large extent on aggressively marketing things no one really needed and that ultimately such an economy was doomed to failure.
The multinationals realize they could make more profits by moving their manufacturing plants overseas where the laws are slack or nonexistent, the labour was cheap and plentiful, and the raw materials were already easily available. Of course, the executives insisted they were opening “shop” to help the Third World countries to raise their standard of living. They pushed (marketed?) the idea we will provide jobs for these poor people. By providing a living, these people will become consumers and we will provide the “necessary” provisions of life – as long as they purchased them (if they can afford it!)
Well, these “words of wisdom” were nothing but lies. The workers in these “sweatshops” were paid very little, would work very long hours – 12 to 20 hours a day, sometimes seven days a week, working in very unhealthy, unsafe environments, handling toxic chemicals and fumes with no protection, and no recourse for legal actions. Some multinationals would hire children to work and sometimes, there were physical , violent abuse to workers who couldn’t “perform”.
What the improvised people didn’t realize that the real marketing plan was shipped the final products back to home country. So, many of the “provisions” never reach the poor. Instead, it became a huge market for the “Wal-Marts” of the First World countries. The “invasion“ was marketing in reverse. Suddenly, the manufacturing companies in the First World began to lose business. The demand fall and so did the production of American goods and services. It wasn’t long before we felt the consequences of this reverse marketing plan. Americans were losing their jobs. Of course, the Republicans made sure that the unions were no longer in power, and that, instead of finding employment, companies encouraged people to go “into business for themselves” . But without money and capital, few people could even start a business, and even if they could, they would be competing against the larger companies.
Eventually, markets around the world approached saturation. The superstar executives reacted in accordance with Milton Friedman’s principles. Rather than tempting to develop new products that reflected true needs, they opted for the quickest means of making more profits. They hit upon a creative solution: Expand the money supply and the consumer’s ability to purchase. With the help of the banks, they invented new forms of credit, as a way of raising the d curve. (Uncle Friedman would be so proud).
Individuals and companies were encouraged to accept loans that previously would never have been approved. Laws against usurious interest rates were dropped; people began to pay as much as 35 percent on their credit card debts (brilliant way for banks to become rich or richer). It did not take long before thousands defaulted, then millions. One business after another stumbled into bankruptcy.
Laws were advocated deceiving borrowers into believing they were getting low interest rate loans when in fact the opposite was the case: Balloon payment and adjustable rate mortgages and other complex loan packages were created to confuse consumers. The higher overall rates made it increasingly difficult for those with credit card and home equity to pay off their loans. It happened to people regardless of income level.
As noted by a well-known psychiatrist living in Palm Peach County, Florida: “I thought I was sitting pretty. I took out a mortgage and brought a house for $1.5 million. A few years later, it was appraised at $2.3 million. I took out another loan, based on the increased value (home equity loan), and bought myself a boat. A year later, the housing market crashed. They tell me now my house is worth about 50% of what I paid. My business has fallen off. I’m going to have to file for bankruptcy. I’ll probably lose everything.”
Laws passed as a result of the Great Depression capped interest rates and effectively protected us against “the evil banker”. All that changed with a 1978 Supreme Court decision (Marquette National Bank vs. First of Omaha Service Corp.) that was used a few years later, under the Reagan administration, to overturn anti-usury laws. Beginning in 1981 with Citibank, credit card interest rates begin to climb. The trend continued for the next twenty-seven years. Neither Democrats nor Republicans did anything to discourage it. By 2008, banks were charging as much as 35% annual interest on credit card debt. Others were charging much more legally.
An example was the payday loans. These are very small, short-term loans with extremely high interest rates that are effectively advances on o borrower’s next paycheck. They’re typically obtained when a borrower goes to a check-cashing outlet or an online equivalent, pays a fee, and writes a postdated check that the company agrees not to cash until the customer’s payday. Finance charges typically amount to annual interest rates in the triple digits, around 400 percent, and can go as high as double that!
Is there a solution?
Our obsession with lending money and earning high interest rates has impacted the fundamental structure of the American economy. The nation has suffered under a massive exodus of funds from manufacturing into the financial sector. Because returns on stocks declined while those from loans skyrocketed, the economy flip-flopped from production to paper shuffling. The business of mergers, acquisitions, derivatives and hedge funds rose while the auto, steel and other industries collapsed.
As consumers, it is our job to let the corporations know that we want better controls. As voters, it is our responsibility to demand legislation that protects us and our progeny from the types of abuses that are causing so much suffering around the planet today. We have the power to make it happen. Maybe, this is what the Wall Street protestors are trying to tell us, but we need leaders with the passion and talent to make it happen.