How the Biden administration can free Americans from student debt


High levels of corporate debt are, we should not forget, one of the reasons we are in this mess. For more than a decade, companies have taken advantage of low interest rates and gorged themselves on credit, often using the funds to buy back stocks and pay dividends to shareholders, rather than raising employee wages or paying dividends. ‘save for rainy days. These over-indebted companies have made our economy more vulnerable to the shock of the coronavirus. And yet their behavior is rewarded. In the spring, the Federal Reserve decided to buy corporate debt, including junk bonds, or riskier debt, issued by companies whose investment ratings had fallen due to the pandemic – the so-called – saying fallen angels. Ordinary debtors, on the other hand, seldom display such charity; instead of being advertised as divine, they are nicknamed bad payers.

By offering more support to corporate borrowers and lenders, the Fed has strengthened the bond market in an unprecedented way and further encouraged the bad behavior that brought us here, potentially paving the way for greater disaster. The world’s biggest companies have rushed to take advantage of the new deal, with entities like Alphabet and Apple (which in August became the first company to be valued at over $ 2 trillion) borrowing billions from ridiculously low rates. “Junk” debt has also been boosted, with some companies considered risky investments now able to repay less than 3% of their bonds, Alexis Goldstein, senior policy analyst at Americans for Financial Reform, told me. For businesses, we’ve seen a remarkable drop in the price for borrowing money, but we’ve seen nothing like it for people on the fringes of our financial markets – or some municipalities who are in desperate need of funds. “We’ve seen a lot of people being able to refinance their homes, but these are people who tend to be in good financial shape,” Goldstein explained; they own their homes instead of tenants and have the stable income needed to benefit from low rates. “People who need a payday loan don’t see payday loan rates going down. The people who have to use their credit cards to avoid eviction, the people who are most at risk of financial ruin right now, are not seeing interest rates coming down. If you look at your credit card information, you’ll find that your interest rate is probably not 3%.

The Fed calmed nervous markets, but at what cost? There was very little conditionality attached to its acquisition of corporate debt, meaning that while Wall Street was backed, no guaranteed benefits were paid to workers in need. the CARE The law gave the Fed the discretion to “force companies receiving bailouts to keep jobs, uphold collective agreements, ban dividends and share buybacks, and limit executive pay.” , wrote Amanda Fischer of the Washington Center for Equitable Growth. But the Fed did not impose such conditions on corporate borrowers. Instead, the Fed bought the debt of companies like Tyson Foods, a meat processing company that has become infamous for its Covid-19 outbreaks, and ExxonMobil, which chose to lay off workers instead of reducing payments to shareholders. These actions create a real moral hazard in terms of debt, protecting companies from the inconvenience of their recklessness by ensuring that the public foots the bill.

The question of whether debts should be repaid is always also a question of who will pay them. Will creditors and landlords at the top of the income scale be able to collect the full amount, or will debtors and tenants at the bottom of the scale get a stay? In “Debt,” David recounts that in the ancient world, poor harvests and war repeatedly pushed farmers into debt and even debt, threatening social stability. To avoid total calamity, the Sumerian and Babylonian kings announced periodic amnesties. “In Sumeria they were called ‘declarations of freedom’,” David wrote, noting that the “Sumerian word enlarged, the first word recorded for “freedom” in any known human language, literally means “return to mother,” since that is what the released pips were ultimately allowed to do. Economist Michael Hudson points to the Code of Hammurabi, dating from 1750 BC. or if their crops have failed due to pests or drought.

As historical records show, debt relief is not a utopian demand. In the modern age, over a million loans have been made by the Home Owners’ Loan Corporation to save homeowners with troubled mortgages during the Great Depression. Today, a full student debt jubilee would be an obvious place to start. Eileen Connor of Harvard Law School is unequivocal about President-elect Joe Biden’s ability to eliminate all student debt through executive action: “The legal authority is there. And the moral justification is there too. She noted the “growing recognition that student loan debt rooted structural inequalities, especially racial inequalities.” Research shows that a full student debt jubilee would help close the racial wealth gap, as the student debt burden falls disproportionately on borrowers of color. (A 2019 study reported that, twenty years after starting college, the median white student owes six percent of their cumulative federal student loans, or about a thousand dollars, while the median black student still owes four- twenty-five percent, or roughly eighteen thousand five hundred dollars.) There are also urgent economic incentives for widespread debt relief. The total cancellation of student debt, according to a 2018 analysis, could potentially boost the economy by up to one hundred and eight billion dollars a year, with benefits reaching far beyond the nearly forty-five million people directly. affected by student loans.

A growing number of economists argue that we cannot afford not to write off debt. Like the title of a Washington To post op-ed by Hudson, in March, put it bluntly, “A debt jubilee is the only way to avoid depression.” Richard Vague, the Secretary of Banking and Securities for the State of Pennsylvania, recently presented concrete proposals to restructure mortgage debt, student loans, health care debt and small business loans. “Whether you call it ‘restructuring’, ‘pardon’ or ‘jubilee’,” writes Vague, “this is the only possible way to reduce private sector debt when it accumulates to overwhelming levels in financial institutions. corporations, and the only harm to the economy.

Biden – a former senator from Delaware, the credit card capital of the world, and one of the driving forces behind a controversial 2005 bill that deprived student borrowers of bankruptcy protection – will need to be pushed to stand up for bankruptcy. debtors. Popular pressure is intensifying for this purpose. In June, the Movement for Black Lives called for the discharge of student loans, medical debt, mortgage payments and rent; tenant unions across the country are mobilizing to cancel the rent. In July, the Poor People’s Campaign, co-chaired by Rev. Dr. William Barber and Rev. Liz Theoharis, released a “jubilee platform” which includes various forms of debt cancellation. On the first day of the new Democratic administration, the Debt Collective will launch a student loan strike, the Biden Jubilee 100, building on the success of our previous strike campaign and demanding that the president immediately abolish all federal loan debts. students by compromise. -and-settlement authority. Why should ordinary people honor their debts when the rich walk away from theirs without remorse? If businesses are people, why should they be more entitled to debt cancellation? Instead of going down and struggling alone and in shame, debtors are starting to pull a page out of the creditors’ playbook and lobby for their common interests, to challenge the false morality that maintains an untenable status quo.

The month before David Graeber died, I reread “Debt,” in anticipation of a dialogue we had planned to record and release in September. This time around, I found the radical and uncompromising vision at its center even more striking. “Debt” more than challenges the reader to rethink the old saying that all debt must be paid off – it challenges the very notion of debt itself.

“On some level, the difference between a bond and a debt is simple and obvious,” writes David. “A debt is the obligation to pay a certain amount of money. As a result, a debt, unlike any other form of obligation, can be quantified with precision. This allows debts to become simple, cold and impersonal which, in turn, allows them to be transferable. Although obligations to family and friends are not transferable, a fixed interest rate loan is an asset that can be securitized and traded. By adhering to the logic of compound interest, debt crowds out more indefinite obligations, commitments that cannot be repaid in cash and can only be honored with respect, gratitude, generosity, and care. Many of us feel indebted to our parents, for example, but that doesn’t mean we can write them a check as a refund for bringing us into the world.

We are all, David reminds us, caught in relationships whose balance sheet is never fully settled, both debtors and creditors, in countless small exchanges. Our everyday language reveals it: English “much obliged” and Portuguese “”obstructed“mean” I am indebted to you “, while the French”You’re welcome” and Spanish “You’re welcome»Assures others that it is nothing. To say “my pleasure” is to pretend that an action is, in fact, a credit – you have done me a service by giving me the opportunity to be kind.

Credit, of course, is the flip side of debt. Etymologically, the term evokes confidence; spreading trust in others is the basis of sociability. “The story of the origins of capitalism,” writes David, “is not the story of the gradual destruction of traditional communities by the impersonal power of the market. Rather, it is the story of converting a credit economy into an interest economy. What if, instead of believing in the myth that we are guilty debtors, we also see ourselves as creditors, as human beings entitled to a dignified, secure and flourishing life? What if our societies really owe us an equal life?

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