Straight Story: Cut!
TESS VIGELAND: It’s time once again for our economics editor Chris Farrell to help us sort out what’s smart, what is stupid and what’s the Straight Story. And Chris, a couple of weeks ago, on this very show, I interviewed a guy named James Scurlock. And he made a documentary called Maxed Out, all about how the credit business preys on ordinary Americans. And there’s another movie hitting theaters this week about basically the same thing, it’s called In Debt We Trust. I know you’ve heard about it.
CHRIS FARRELL: Yes, I have.
VIGELAND:
Well, here’s a clip that’s gonna give everybody a pretty good idea of how the filmmakers feel about some credit lenders.
MAN: They’re making 54 percent net profit. That is evil. And they’re making it off the poorest members of our society. That is evil.
FARRELL:
Subtle. I would say very subtle.
VIGELAND:
But also kind of true. I mean, there’s this whole consumer culture that essentially promotes debt. Don’t you agree it’s gotten kind of out of hand?
FARRELL:
Well, you know, Tess, I know that there’s a circle of hell that is reserved for predatory lenders. That said, I don’t want us to get carried away. You know, debt except for in very, very literal sense is not a four-letter word. In fact, here’s the straight story, access to debt has paid off big by helping everyone from the poor to women to minorities participate in this economy. In fact, the American middle class was built on debt.
VIGELAND:
But how is that possibly a good thing to build your middle class on owing everybody?
FARRELL:
Oh, but Tess, if you go back, Randall Jarrell, wonderful poet. He was writing about, you know, America’s addiction to debt. And, you know, as he said, so imagine the Sistine Chapel, well, in America, what God would be holding up to Adam, you know, as a checkbook or a credit card or as he said a charge plate. Well, that was in the early 1960’s. And then you go back to the 1920s, this was just innovation called installment credit, there was this whole thing on debt, debt, debt. But the fact of the matter is you buy a home with debt, you buy a car with debt, you know, the people who really . . . about debt, they have a lot of money. They don’t need to borrow.
FARRELL:
And what debt is it’s the weapon of the poor and the working class against the wealthy because there’s a smart entrepreneur out there that doesn’t have a lot of money but has a good idea and with access to credit, they can create that product and upset the world. And the thing about that has happened over our economy, just take the past 30 years. Thirty years ago, you could’ve not got any credit card, Tess, you’re a woman.
VIGELAND:
But maybe that would have been good for me.
FARRELL:
Hey, that’s your choice. That should not be the choice of some banker deciding, hey, you know, you’re not a good risk or, you know, we’re not gonna lend to minorities.
VIGELAND:
I agree with you. It can be good for some things. But I would say that entrepreneurial debt that you’re talking about is completely different from putting all of our shoes and our groceries and our tax payments and everything on credit cards and then, if you miss one payment, all of a sudden, your interest rate goes up to 25, 30, 35 percent.
FARRELL:
All right. First of all, I disagree with you. I think that entrepreneurial debt is a lot more similar to investing in your home, even buying that car because they’re all investments. Now, buying your groceries, now, you and I can sort of agree. But we’re – I mean, I have friends who buy everything on credit cards. They pay it off at the end of the month.
VIGELAND:
Right. Well, good for them. But these, these movies are not talking about those people. They’re talking about the people who get in deep trouble aided and abetted by the industry.
FARRELL:
Okay. The way you painted the picture I would have to agree with you. I am no defender of the credit card companies and we need regulation. And by regulation, I mean, look, I’m not telling what rate you could charge me, but I wanna be able to understand what is going on here. What am I really signing on? And by the way, I don’t want to have to be a graduate of Harvard Law School to understand that agreement. That said, there are always people that are gonna fall into trouble. But why do they fall into trouble is not so much the debt, it’s that they get divorced or they lose their job or they fall into ill health. Now, if we talk about ill health, I’ll talk to you about universal health care coverage far more important than what’s going on with the credit market.
VIGELAND:
Yep.
FARRELL:
If we talk about the job market, I’m gonna talk about wage insurance. So I’m not gonna defend a lot of what the credit card companies do. But I do think that in the end, most consumers are reasonably smart with their money. There are tragedies, but when you look at the U.S. economy as a whole and the American middle class broadly defined, because most of us consider ourselves middle class, they’re not in deep financial trouble.
VIGELAND:
All right. The straight story from our man Chris Farrell. Chris, we are indebted to you as always.
FARRELL:
Thanks a lot, Tess.
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