<nettime> Brits in hock--or, Atlas shrugged again

[Brian Holmes <brian.holmes@wanadoo.fr>]

Hey y'all, I just read an amazingly interesting piece of news trivia. 
It's an article with one of those lurid yellow-press byline 
titles: "Debt-Gorged British Start to Worry That the Party is Ending." 
New York Times no less. All the puzzle-pieces finally fall into place.

Some backgrounders: Reading a book called "China's New Consumers"--where 
you find out that by comparison to the West, there really aren't any--I 
was totally intrigued to discover that not only the Americans, but also 
the Australians and yes, the Brits, fulfill the role of "consumers of 
last resort" on the world market, eagerly ingurgitating the floods of 
goods pouring out of Guangzhou Province and seemingly everywhere else 
on the Chinese seabord. Naive and incorrigible culturalist that I am, I 
just thought "Hmmm, no doubt those rich Anglophone countries are 
particularly exposed to the fantastic publicity machines built up 
during the Fordist period to make national populations consume their 
own production, and so now they are pursuing that role in the world 
society." Never for a moment did I make the slightest inquiry into 
where the money comes from.

But now I discover the enlightening news that the British population as 
a whole is even more in debt than the Americans! Those weary Brit 
consumers are  "£1.4 trillion in debt ($2.8 trillion) — more than the 
country’s gross domestic product," and apparently it's a world record. 
So when you read below about Alexis Hall and her 50 pairs of designer 
shoes and handbags (most of which undoubtedly also come from Shenzhen, 
by the way), remember the miracles of the banking system that made such 
splurging possible.

This has been a phenomenon of the expansive financialized economy of the 
last decade, which caused people at the epicenters of funny-money 
growth to give up any worries about anything, not only because the 
neighbors were moving out to a new mansion in some upscale London 
borough due to a killing in futures and options, but also because the 
local banker, credit-card hawk or buy-now-pay-later plan was basically 
offering you a romp through the shopping mall where fantasy becomes 
reality even without the windfall profits. Now I don't wanna moralize 
about the consumers and I truly hope that everyone has enjoyed, 
seduced, partied, traveled and generally made whatever extravagant 
jouissance that is possible in life feel particularly deep-down good on 
the back of all that free money. What's interesting today is how 
integrated world capitalism works and what the consequences will be 
from it.

It's not surprising to learn in the same article that the American banks 
Citicorp and CapitalOne kicked off the lending spree in a deregulated 
British credit market where the principle of competition forced all the 
other banks to follow. Well, forced is maybe not the best word, because 
aren't we finally beginning to understand what lending actually means 
when there is no longer any difference between transnational investment 
banks and bread-and-butter savings-and-loans? What it means is that the 
banks, rather than having a debit on their balance sheet (the 
outstanding loan) instead have a new asset to sell to investors, 
namely, the loans bundled into fancy securities which can be sold to 
all kinds of pension funds around the world (or more precisely, to 
other international bankers who in their turn sell them to pension 
funds). And of course, those same somewhat risky securities plus the 
insurance policies that go with them and theoretically render them 
risk-free can also be sliced, diced and resold again by any of the 
partners in any of the deals, because structured finance is what makes 
the money-world go round. So with all the income-streams that 
generates, the banks can go on lending forever from the underlying pool 
of (not just Western, but also Asian) retirement funds, multiplied by a 
million dodgy resale operations--that is, they can go on lending 
forever, IF they can find enough income-earning borrowers as a basis 
for their pyramid schemes. So that means that you, dear Anglo-Saxon 
consumer, are the Atlas of the global economy. How does it feel to have 
the world on your shoulders?

Though I read it long ago, I have never forgotten the discussion of how 
credit-based consumption began in the US, in Daniel Bell's  book 
on "The Cultural Contradictions of Capitalism." If I remember it right, 
he shows how difficult it was to get a population of petty merchants 
and small-town farmers to actually take the money offered by the banks, 
and how extensive consumer borrowing, which was precieved as eminently 
desirable by industrial interests from the period of the Great Slump in 
the late nineteenth century onwards, only just started to get into gear 
in the 1920s. An entire culture, that of the Protestant work-ethic, had 
to be changed to get industrial production really rolling. The rest is 
obviously history, because the world growth model of hyperconsumption 
and overdevelopment has increasingly been fueled by credit-based 
purchasing since that time. After the war there was a first Great Leap 
Forward based on new consumer durables in the expansive 50s and 60s, 
followed by a qualitative spatial leap into postmodern sign-consumption 
that began in the mid-1980s with US deregulation, then gradually 
extended itself wherever governments would permit, and wherever the 
cultural reticence to borrowing could be overcome -- that is to say, 
pretty much nowhere in Asia, and not even much in a place like Germany, 
but the sky's the limit in Merry Old England!

Now, what's gonna happen in the mega-recession that is currently on the 
horizon? Not only are banks going to stop lending, and people are going 
to stop borrowing, because it has become basically impossible to think 
there will always be finer weather in the future--but even more 
importantly, people who start losing their jobs when the recession sets 
in are obviously going to have to default on their 50 designer 
handbags, new Bentley, McMansion or whatever it is they borrowed for. 
And so who's gonna hold up the world in the future? 

Now that Atlas has shrugged again (call it the subprime moment) it's 
abundantly clear that to keep the fractally expanding pyramid-schemes 
from crashing with a tremendous world-shattering bang, the biggest and 
most stable pyramids of all are going to have to step in, namely the 
national states. And if you have not yet observed how both the American 
and British central banks are effectively nationalizing relatively 
large percentages of their private banking systems (somewhere over 10 
percent already in the US), well, check it out, because it looks like 
the beginning of trend. A trend that will inevitably have consequences.

What are nationalized Western economies with no more financial frenzy on 
the horizon gonna do with their disappointed, unemployed and bankrupted 
citizens? Enigmatic and troubling question! We saw some answers in the 
1930s but the new ones will probably be different. And here's yet 
another enigma: how are the consumptive Western countries going to 
persuade the productive Asian ones to keep funneling their goods across 
the oceans, even when there is no more illusory hot-money payback? 
Well, Japan was persuaded to do exactly that from the 1990s onward, 
when it became clear there would be no substantial payback for all the 
money they ship out (and that's still the biggest single capital inflow 
to the US, mostly from private Japanese banks, not the state). But 
Japan, mind you, is a small, aging country where everyone is already 
more or less in their stable place, without any roiling social change 
on the horizon. If you like the excitement of unruly future events, 
keep your eyes peeled on the Chinese jugernaut! Will they succeed in 
reorienting their economy so that their citizens actually begin to 
consume what they produce? Or will the whole export-driven growth model 
collapse into some new period of chaos?

Personally I am not such a big better on chaos-collapse predictions 
anymore. Both the world economy and the national societies are so 
intensely managed at this point, that economic chaos and the 
large-scale wars that you got back in the good'ol twentieth century now 
appear less likely (though who knows?). The more banal and troubling 
question is how are people gonna come down from a ten- or even 
twenty-year binge of consumer ecstasy-rush, to face the changing 
conditions of a world that has globalized its way into ecological 
crisis, compounded by the political difficulties of a fully 
transnational economy? 

What's ultimately determinant is how the members of societies, and not 
only politicians, find ways to deal with such changes. Not for nothing 
did Bell's book speak of the "cultural contradictions" of capitalism. 
One can see in retrospect why the post-68 Leftist culture that hoped to 
gain ground from that contradiction actually lost all purchase, as easy 
money killed the ideology market and set people to chasing all those 
facile and lovely dreams that a credit card can offer. Those old 
stories about labor and solidarity were just a joke to the 
hyperconsumers! As for the new ones about desire and expression and the 
imagination in power, wasn't that what was happening all around us? Why 
fuck around with a molecular revolution when the bank itself is 
offering 50 pairs of everything for everyone? 

But now in these changing times, when those same people--and that's us, 
hypocritical reader, my brother/my sister--now when we have to look for 
some unlikely thread to guide us through the social labyrinth, what 
will it be? Millennarian religion? Instrumentalized nationalism? 
Corporate lifeboat? Transnational empire? Job opportunities in a new 
hyperindividualized and hypersurveilled bureaucratic police state? Or 
is there any slim chance, I wonder, to begin collectively thinking 
again about a new expansion and metamorphosis of that ancient and 
marvelous political chimera called equality?

How 'bout we meet outside the pawnshop for a little discussion group!

In the meantime, best from the heartland,

Brian

****

http://www.nytimes.com/2008/03/22/business/worldbusiness/22debt.html

March 22, 2008
Debt-Gorged British Start to Worry That the Party Is Ending
By JULIA WERDIGIER

LONDON — At one point, Alexis Hall had more than 50 pairs of designer 
shoes and handbags. It never occurred to the 39-year-old media 
relations executive from Glasgow that her £31,500 in debt ($63,000) 
would be a problem.

“It was so easy to get the loans and the credit that you almost think 
the goods are a gift from the shop,” she said. “You don’t fully realize 
that it’s real money you are spending until you actually sit down and 
consolidate your bills and then it’s a shock.”

As the United States economy weakens, many Americans are being 
overwhelmed by personal debt, but Britons are even more profligate. For 
most of the last decade, consumers here went on a debt-financed 
spending spree that made them the most indebted rich nation in the 
world, racking up a record £1.4 trillion in debt ($2.8 trillion) — more 
than the country’s gross domestic product.

By comparison, personal debt in the United States is $13.8 trillion, 
including mortgage debt, slightly less than the country’s $14 trillion 
G.D.P.

And while the Federal Reserve in Washington has cut interest rates, in 
an effort to loosen lenders’ grip on credit, the Bank of England’s 
interest rate increases last year are trickling through to mortgages at 
the very time home values are dropping and banks are becoming more 
reluctant to lend.

Until now, debt has mostly been a good thing for Britain. In the hands 
of free-spending consumers, it fueled economic growth. The government 
borrowed heavily in recent years to invest in infrastructure, health 
and education, creating a virtuous cycle: government spending led to 
job creation, which led to greater consumer confidence and more 
spending, which, in turn, stimulated growth.

Economists say Britain’s relationship to debt is complex, but at its 
core is a phenomenon more akin to recent American history than European 
trends. As in the United States, a decade-long housing boom and strong 
economic growth bolstered consumer confidence, creating a perception of 
wealth almost unknown in countries like Germany and Italy.

“Culturally, maybe also because of the defeat in the war, Germans remain 
reluctant to borrow and banks are often state-owned, pushing less for 
profits from lending,” said Alistair Milne, a professor at Cass 
Business School in London.

Since many younger Britons have never lived through a period of slow 
growth, few now see the need to hold back on borrowing, not to mention 
saving.

“The general mantra is spend now, think later,” said Jason Butler, an 
adviser at Bloomsbury Financial Planning. “It’s easier to get a loan or 
a credit card these days than to get a savings product.”

The average British adult has 2.8 credit or debit cards, more than any 
other country in Europe. A growing number are borrowing to pay for 
vacations, furniture, even plastic surgery. As a result, Britons are 
spending more than they earn, racking up a household debt-to-income 
ratio of 1.62 compared with 1.42 in the United States and 1.09 in 
Germany.

To her parent’s generation, Ms. Hall said, owing money beyond a mortgage 
was “shameful,” an admission of living beyond one’s means. Debt was 
also more difficult to get.

That changed in the late 1990s when American lenders, including 
Citigroup and CapitalOne, pushed into the British market with a panoply 
of new lending products. Fierce competition among banks meant potential 
borrowers were suddenly bombarded with advertising and offers for low- 
or no-interest loans and credit cards.

While Britain’s financial regulators watched the explosion of retail 
lending from the sidelines, their counterparts in Germany and France 
were more restrictive. As a result, the British market became the 
largest and most sophisticated in Europe.

The growth was also fueled by soaring demand for debt on the back of 
rising real estate prices and relatively low interest rates in the late 
1990s and early 2000s. Those who did not own a house rushed to join the 
homeowners watching their property triple in value.

The trend on the Continent was the opposite. Home prices in most 
European countries barely moved, mainly because markets were more 
regulated, there was more housing stock and renting was more popular.

Liz Bingham, head of restructuring at Ernst & Young in London, blames 
the obsession with homeownership on Britain’s “island mentality”: land 
is seen as a finite good and a valuable asset.

“The housing boom automatically made people feel richer than they 
actually were and people went on to use the equity locked up in their 
property almost as a bank account they can dip into every time they 
want to buy a new car,” Ms. Bingham said.

As the perception of wealth grew, the social stigma around debt 
disappeared. Borrowing became such an accepted part of life that today 
one in five teenagers does not consider being in debt to be a bad 
thing, a survey by Nationwide Building Society showed.

Debt levels increased further as it became easier to get loans, and 
retailers, like computer chain PC World, offered both goods and the 
loans to buy them. Consumers happily accepted, thinking that as long as 
they were deemed creditworthy, they were not in danger of defaulting.

Andy Davie is a case in point. Even after he had racked up £70,000 in 
personal debt trying to keep his fruit and vegetable business afloat, 
credit card issuers kept increasing his credit limits.

“You tend to use credit to pay for credit and as far as the banks are 
concerned you are fine,” said Mr. Davie, 41.

He was finally forced to declare bankruptcy. Though still painful, the 
process made the prospect of defaulting slightly less daunting.

“Rather than showing up at court you just fill in an online form and 
speak to someone on the phone,” said Mark Sands, director of personal 
insolvency at KPMG in London.

The ease of the bankruptcy process, the availability of debt, the 
property boom and strong economic growth, lulled consumers into 
a “false sense of security that is now coming to haunt us,” said James 
Falla, a debt adviser at London-based Thomas Charles.

“It’s all good as long as the economy is doing well, but if that changes 
people will really get caught short,” he added.

And things are changing. Growth has already started to slow this year, 
and the government lowered its 2008 forecast to 1.75 percent to 2.25 
percent, after 3.1 percent growth last year.

Home prices are falling, despite a dearth of housing and an influx of 
wealthy Middle Easteners and Russians, especially in London. Last year, 
housing foreclosures reached the highest level since 1999 and are 
expected to rise still further this year.

And more than one million homeowners have adjustable-rate mortgages that 
are expected to reset in the next 12 months — to significantly higher 
rates.

The prospect of rising costs has already prompted some consumers to 
change their spending habits. The camera retailer Jessops and the 
fashion store French Connection are among retailers feeling the squeeze 
and reporting lower sales since the end of 2007.

But changing spending habits will not be enough to solve the problem of 
rising debt levels, said Mr. Butler, the debt adviser. Consumers will 
also have to learn to save.

According to a survey for the Office of National Statistics, less than 
half the population saves regularly, and more than 39 percent said they 
would rather enjoy a good standard of living today than save for 
retirement. Ms. Hall said she was among that 39 percent. She recently 
took out new loans, planning to repay her existing debt. But she ended 
up spending the money on more luxury goods instead.

This year, she published a book about her experiences. She said she did 
not expect the book’s proceeds to repay her debts, but it may help the 
growing number of people in similar positions cope with theirs. 


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