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The Pursuit of (Past) Happiness? Middle-class Indebtedness and American Financialisation

2009; Taylor & Francis; Volume: 14; Issue: 1 Linguagem: Inglês

10.1080/13563460802671196

1469-9923

Johnna Montgomerie,

Economic Theory and Policy

Click to increase image sizeClick to decrease image size Notes The author would like to thank Karel Williams for his helpful comments on earlier drafts, Adriana Nilsson for inspiration and the anonymous referees for their pertinent advice on revisions for this article. Of course, the usual disclaimers apply. Two very different accounts of the role finance played in the recovery of US economy in 1990s, one from French Regulation School scholars: Michel Aglietta & Regis Breton, 'Financial Systems, Corporate Control and Capital Accumulation', Economy and Society, Vol. 30, No. 4 (2001), pp. 433–66; Robert Boyer, The Future of Economic Growth: As New Becomes Old (Edward Elgar, 2004), and a more mainstream account by Joseph Stiglitz, The Roaring Nineties (Penguin, 2004). Ewald Engelen, 'The Case for Financialization', Competition & Change, Vol. 12, No. 2 (2008), p. 111. Julie Froud, Adam Leaver & Karel Williams, 'New Actors in a Financialised Economy and the Remaking of Capitalism', New Political Economy, Vol. 12, No. 3 (2007), pp. 339–47; Johnna Montgomerie, 'Bridging the Critical Divide: Global Finance, Financialisation and Contemporary Capitalism', Contemporary Politics, Vol. 14, No. 3 (2008), p. 233. Ismail Erturk, Julie Froud, Adam Leaver, Sukhdev Johal & Karel Williams, Financialization at Work (Routledge, 2008), p. 34. Gerald A. Epstein, 'Introduction', in Gerald A. Epstein (ed.), Financialization and the World Economy (Edward Elgar, 2005); Greta Krippner, 'Financialization and the American Economy', Socio-Economic Review, Vol. 3, No. 2 (2005), pp. 173–208. Robert Boyer, 'Is a Finance-led Growth Regime a Viable Alternative to Fordism? A Preliminary Analysis', Economy and Society, Vol. 29, No. 1 (2000), pp. 111–45. Robert Aitken, '"A Direct Personal Stake": Cultural Economy, Mass Investment and the New York Stock Exchange', Review of International Political Economy, Vol. 12, No. 2 (2005), pp. 334–63; D. Marron, '"Lending by Numbers": Credit Scoring and the Constitution of Risk within American Consumer Credit', Economy and Society, Vol. 36, No. 1 (2007), pp. 103–33; Michael Pryke & Paul du Gay, 'Take an Issue: Cultural Economy and Finance', Economy and Society, Vol. 36, No. 3 (2007), pp. 339–54. Paul Langley, 'The Making of Investor Subjects in Anglo-American Pensions', Environment and Planning D: Society and Space, Vol. 24, No. 6 (2006), pp. 919–34; Paul Langley, 'Uncertain Investor Subjects of Anglo-American Financialization', Cultural Critique, Vol. 65 (Winter 2007), pp. 67–91. See Introduction in John M. Hobson & Leonard Seabrooke, Everyday Politics of the World Economy (Cambridge University Press, 2007). Bureau of Economic Analysis, 'Percentage Shares of Gross Domestic Product', Table 1.1.10 (March, 2008). Juliet Schor, The Overspent American (Basic Books, 1998), chs 3 and 4. Andrew Leyshon & Nigel Thrift, 'The Capitalization of Almost Everything: The Future of Finance and Capitalism', Theory Culture Society, Vol. 24, No. 97 (2007), p. 98. Robert Boyer, 'The Political in the Era of Globalization and Finance: Focus on Some Regulation School Research', International Journal of Urban and Regional Research, Vol. 24, No. 2 (2000); Julie Froud, Sukhdev Johal & Karel Williams, 'Financialisation and the Coupon Pool', Capital and Class, Vol. 78, Autumn (2002), pp. 119–51; Krippner, 'Financialization and the American Economy'. James Crotty, 'If Financial Market Competition is Intense, Why are Financial Firm Profits so High? Reflections on the Current 'Golden Age' of Finance', Competition & Change, Vol. 12, No. 2 (2008), pp. 167–83. Ibid., p. 174. Froud et al., 'New Actors in a Financialised Economy'. Shaun French & Andrew Leyshon, 'The New, New Financial System? Towards a Conceptualization of Financial Reintermediation', Review of International Political Economy, Vol. 11, No. 2 (2004), pp. 263–88. Pryke & du Gay, 'Take an Issue'. Nigel Thrift, '"Its Romance not Finance that Makes Business Worth Pursuing": Disclosing a New Market Culture', Economy and Society, Vol. 30, No. 4 (2001), pp. 263–88. Paul Langley, The Everyday Life of Global Finance: Saving and Borrowing in Anglo-America (Oxford University Press, 2008). Paul Langley, 'Financialization and Consumer Credit Boom', Competition & Change, Vol. 12, No. 2 (2008), p. 141. Marieke de Goede, 'Repoliticizing financial risk', Economy and Society, Vol. 33, No. 2 (2004), pp. 197–217. Thrift, 'Its Romance not Finance'. Langley, The Everyday Life of Global Finance, p. 153. Christopher L. Culp, Structured Finance and Insurance: The ART of Managing Capital and Risk (Wiley, 2006). Laurie Brannen & John Cummings, 'Cashing In on Consumer Receivables', Business Finance, Vol. 11, No. 12 (2005). Johnna Montgomerie, 'Financialization of the American Credit Card Industry', Competition and Change, Vol. 10, No. 3 (2006), pp. 301–19. For further details see Mark Furletti & Christopher Ody, 'Measuring U.S. Credit Card Borrowing: An Analysis of the G.19's Estimate of Consumer Revolving Credit', Discussion Papers, Payment Cards Centre, Federal Reserve Bank of Philadelphia, 2006. Other consumer credit issuers, namely credit unions and finance companies manage loan pools without using securitisation. See Ronel Elul, 'The Economics of Asset Securitisation', Business Review, Federal Reserve Bank of Philadelphia, issue Q3 (2005), pp. 16–25. The significance of excluding 'foreign receivables' is relevant because most ABS are set up through Special Purchase Vehicles are located in foreign tax havens (improving tax efficiency), which makes distinguishing between foreign and domestic receivables an unclear task for those collecting the data. Hugh Thomas, 'A Preliminary Look at Gains from Asset Securitisation', Journal of International Financial Markets, Institutions and Money, Vol. 9, No. 3 (1999), pp. 321–33. Barbara Kavanagh, Thomas R. Boemio & Gerald A. Edwards, Jr, 'Asset-Backed Commercial Paper Programs', Federal Reserve Bulletin, Vol. 78, No. 2 (1992), pp. 107–18. Rose Sanford, 'The Coming Revolution in Credit Cards', Journal of Retail Banking, Vol. 12, No. 2 (1990), pp. 17–31. Arnaud de Servigny & Norbert Josef Jobst, The Handbook of Structured Finance (McGraw-Hill, 2007). See Tom Bisky, 'Securitisation Gives New Meaning to "Car Pools"', ABA Banking Journal, Vol. 78, No. 8 (1986), pp. 35–43; Michael R. Dean, Chris Mrazek, Richard C. Drason & Mark Sun, 'ABCs of credit card ABS', Securitisation Conduit, Vol. 2, No. 2/3 (1999), pp. 26–7; Jon D. van Gorp & Christopher B. Horn, 'Impact of Regulation AB on Auto Loan and Lease Securitisation', Journal of Structured Finance, Vol. 11, No. 1 (2005), pp. 81–31; Michael Liebowitz, 'Student Loan Securitisation Is Planned by Society Corp.', The Investment Dealers' Digest, Vol. 58, No. 51 (1992), pp. 34–9. Basel II has evolved with very detailed rules for capital on various types of asset-backed finance. For the first time, regulators have considered privatising parts of their supervisory responsibilities. The assessment of the credit quality of certain bank portfolios, including securitised deals and, thus, the amount of regulatory capital, will under Basel II be defined by third parties. In drafting revisions to the accord, central bankers chose to enlist companies, such as Moody's Investors Service, into their service as 'private regulators'. Even rating agencies disagree with this approach, suggesting that the use of third-party credit ratings may actually lead to increased regulatory arbitrage and potential ratings shopping among frequent securitisers eager to obtain the lowest amount of reserves. See D. Rausa Maurice, 'Basel I and the Law of Unintended Consequences', Bank Accounting and Finance, Vol. 17, No. 3 (2004), p. 26. Linda Punch, 'The Legacy of Card Bonds', Credit Card Management, May (1998), pp. 36–9. Ronald J. Faber & Thomas C. O'Guinn, 'Compulsive Consumption and Credit Abuse', Journal of Consumer Policy, Vol. 11, No. 1 (1988), pp. 97–109; M. Wallendorf & P. Anderson, Advances in Consumer Research (Association for Consumer Research, 1987); Dawn Burton, Credit and Consumer Society (Routledge, 2008), Robert D. Manning, Credit Card Nation: The Consequences of America's Addiction to Credit (Basic Books, 2000). See Faber & O'Guinn, 'Compulsive Consumption and Credit Abuse'; Wallendorf & Anderson, Advances in Consumer Research; Thomas, 'A Preliminary Look at Gains'. Zack Martin, 'Crossing Channels with Reward Programs', Credit Card Management, Vol. 17, No. 4 (2004), pp. 16–7. Lloyd Klein, It's in the Cards: Consumer Credit and the American Experience (Praeger, 1999), p. 89. Steve Worthington & S. Horne, 'Alumni Affinity Credit Cards: Making the Relationship Work', International Journal of Bank Marketing, Vol. 13, No. 5 (1995), pp. 24–30. George Ritzer, Expressing America: A Critique of the Global Credit Card Society (Pine Forge Press, 1995), p. 131. G19 is a proxy measure of unsecure debt because in the case of revolving credit facilities, the amounts outstanding includes 'active credit sources' or amounts that will be paid off before they incur interest charges. Without disaggregated data it is impossible to determine what proportion of revolving credit is debt and active credit source. PCE amounts are taken from January of each year. Bureau of Economic Analysis, 'Personal Consumption Expenditures by Major Type of Product', Table 2.3.5 (March 2008). Alan Greenspan, 'The Mortgage Market and Consumer Debt', Presented at the America's Community Bankers Annual Convention, 19 October 2004. Stiglitz, The Roaring Nineties, Introduction and chs 1, 3 and 4. Laurence Boone & Nathalie Girouard, The Stock Market, the Housing Market, and Consumer Behaviour, Economic Studies No. 35 (OECD, 2002); Greenspan, 'The Mortgage Market and Consumer Debt'. Melissa Davey, 'Savings, Wealth and Consumption', Bank of England Quarterly Bulletin, Spring, 2004; Muhammed Mustafa & Rahman Matiur, 'Growths in US Consumer Debt Outstanding and Major Categories of Consumer Spendings: Macroeconomic Implications from Time Series Evidence', American Business Review, Vol. 17, No. 2 (1999), pp. 11–16. Alan Greenspan, Federal Reserve Board's Semiannual Monetary Policy Report to the Congress, Federal Reserve Board of United States, 27 February 2002; James Banks, Richard Blundell & James P. Smith, 'Understanding Differences in Household Financial Wealth between the United States and Great Britain', Human Resources, Vol. 38, No. 2 (2003), pp. 241–79; Luigi Guiso, Michael Haliassos & Tullio Jappelli, Household Portfolios (MIT Press, 2001). Thomas A. Durkin & Micheal E. Staten, The Impact of Public Policy on Consumer Credit (Kluwer, 2004). Robert Brenner, 'New Boom or New Bubble?' New Left Review, Vol. 25 (2004), pp. 57–100. Robert Brenner, 'The World Economy at the Turn of the Millennium: Toward Boom or Crisis?', Review of International Political Economy, Vol. 8, No. 1 (2001), pp. 6–44; Robert Brenner, The Boom and the Bubble: The US in the World Economy (Verso, 2002). Boyer, 'The Political in the Era of Globalization and Finance'; Aglietta & Breton, 'Financial Systems, Corporate Control'. Brenner, 'New Boom or New Bubble?' Langley, The Everyday Life of Global Finance, ch. 7 and conclusion; Andrew Leyshon, Dawn Burton, David Knights, Catrina Aleroff & Paola Signoretta, 'Ecologies of Retail Financial Services: Understanding the Persistence of Door-to-Door Credit and Insurance Providers', Environment and Planning A, Vol. 36, No. 2 (2004), pp. 625–45; Andrew Leyshon & Nigel Thrift, 'Financial Exclusion and the Shifting Boundaries of the Financial Systems', Environments and Planning A, Vol. 28, No. 7 (1996), pp. 1150–6; Johnna Montgomerie, Spectre of the Subprime Borrower – Beyond a Credit Score Perspective, CRESC Working Paper No. 58, The University of Manchester, 2008. See also Dumenil & Levy, 'Neoliberal Income Trends: Wealth, Class, and Ownership in the USA'; Julie Froud, Sukhdev Johal, Colin Haslam & Karel Williams, 'Accumulation under Conditions of Inequality', Review of International Political Economy, Vol. 8, No. 1 (2001), pp. 66–95; Karel Williams, 'Trajectories of Inequality', Review of International Political Economy, Vol. 8, No. 1 (2001), pp. 1–12. Shaun French, Andrew Leyshon & Thomas Wainwright, 'Financializing Space, Spacing Financialization', Paper presented at the conference on Financialization and Competition, 25 April 2008. Leyshon & Thrift, 'Financial Exclusion and the Shifting Boundaries'. Dawn Burton, David Knights, Andrew Leyshon, Catrina Aleroff & Paola Signoretta, 'Making a Market: The UK Retail Financial Services Industry and the Rise of the Complex Sub-prime Credit Market', Competition and Change, Vol. 8, No. 1 (2004), pp. 3–25; Burton, Credit and Consumer Society, chs 3 & 4; Leyshon et al., 'Ecologies of Retail Financial Services'. Survey of Consumer Finances, HDEBT: those families reporting outstanding consumer loans Survey of Consumer Finances, monthly debt repayment (TPAY). Manning, Credit Card Nation; Ritzer, Expressing America. James Medoff & Andrew Harless, The Indebted Society: Anatomy of an Ongoing Disaster (Little, Brown and Company, 2000); Schor, The Overspent American. Liz McFall, 'Advertising, Persuasion and the Culture/Economy Dualism', in Paul du Gay & Michael Pryke (eds), Advertising, Persuasion and the Culture/Economy Dualism (Sage, 2002) pp. 132–47; Liz McFall, 'What about the Old Cultural Intermediaries? An Historical Review of Advertising Producers', Cultural Studies, Vol. 16, No. 4 (2002), pp. 532–52. Aitken, '"A direct personal stake"'; Langley, 'Financialization and Consumer Credit Boom'; Randy Martin, Financialization of Daily Life (Temple University Press, 2002). Froud et al., 'New Actors in a Financialised Economy'; Nigel Thrift, Knowing Capitalism (Sage, 2000). Lendol Calder, Financing the American Dream: A Cultural History of Consumer Credit (Princeton University Press, 1999), introduction and ch. 1. Klein, It's in the Cards. Martha L. Olney, Buy Now, Pay Later: Advertising, Credit, and Consumer Durables in the 1920s (University of North Carolina Press, 1991). Ritzer, Expressing America, p. 31. Manning, Credit Card Nation, p. 17. John Kenneth Galbraith, 'The Bill Collector Cometh', in The Affluent Society (Andre Deutsch, 1984), ch. 13. Hugh Barty-King, The Worst Poverty: A History of Debt and Debtors (Alan Sutton, 1991); Scott B. MacDonald & Albert L. Gastmann, A History of Credit and Power in the Western World (Transaction Publishers, 2000). Hobson & Seabrooke, Everyday Politics of the World Economy, pp. 15–6. Ibid., p. 20. Manning, Credit Card Nation; Medoff & Harless, The Indebted Society; Ritzer, Expressing America; Schor, The Overspent American. Medoff & Harless, The Indebted Society, p. 7. Andrew Glyn, Capitalism Unleashed: Finance, Globalization, and Welfare (Oxford University Press, 2007), chs 5–7. Tamara Draut, Strapped: Why America's 20- and 30-Somethings Can't Get Ahead (Doubleday, 2006). Elizabeth Warren & Amelia Warren Tyagi, The Two-Income Trap: Why Middle-class Mothers and Fathers are Going Broke (Basic Books, 2003). Glyn, Capitalism Unleashed, ch. 5. William Lazonick & Mary O'sullivan, 'Maximizing Shareholder Value: A New Ideology for Corporate Governance', Economy and Society, Vol. 29, No. 1 (2000), pp. 13–35. Hobson & Seabrooke, Everyday Politics of the World Economy, p. 198. Kaiser Foundation, 'Health Insurance Premium Growth from 2000–2006', Daily Health Report, October 2006. Michelle M. Doty, Jennifer N. Edwards & Alyssa L. Holmgrem, Seeing Red: Americans Driven into Debt by Medical Bills: Results from a National Survey, The Commonwealth Fund, August 2005. Cindy Zeldin & Mark Rukavina, 'Borrowing to Stay Healthy: How Credit Card Debt is Related to Medical Expenses', Dēmos: A Network of Ideas and Action and The Access Project, No. 1 (Winter 2007). David U. Himmelstein, Elizabeth Warren, Deborah Thorne & Steffie Woolhander, Illness and Injury as Contributors to Bankruptcy, Health Affairs Social Science Research Network (SSRN), Working Paper Series, 2005. Forty-two per cent of those who did not go on to graduate school said their student loans had a major influence on their decision not to go. See Sandy Baum & Marie O'Malley, College on Credit: How Borrowers Perceive their Education Debt, National Student Loan Survey, Nellie Mae, 2002. Warren & Tyagi, The Two-income Trap, ch. 4. Tamara Draut, Ansel Brown, Lisa James, Kathleen Keest, Jabrina Robinson & Ellen Schloemer, The Plastic Safety Net: The Reality Behind Debt in America, Dēmos and The Center for Responsible Lending, 2005, p. 10. Ibid. See also José Garcia, 'Borrowing to Make Ends Meet: the rapid growth of credit card debt in America', Dēmos: A Network for Ideas, 2006. Draut et al., The Plastic Safety Net. Ibid., p. 11. Hobson & Seabrooke, Everyday Politics of the World Economy, p. 198. Schor, The Overspent American, chs 3 and 4. Timothy H. Baker, 'The Consumer in the Global Market', The OECD Observer, No. 192 (1995); James G. Carrier & Josiah Heyman, 'Consumption and Political Economy', The Journal of the Royal Anthropological Institute, Vol. 3, No. 2 (1997), pp. 355–73. Schor, The Overspent American, p. 19. Warren & Tyagi, The Two-income Trap, ch. 4. Leonard Seabrooke, The Social Sources of Financial Power: Domestic Legitimacy and International Financial Orders (Cornell University Press, 2006), p. 2. Langley, The Everyday Life of Global Finance, ch. 7 and conclusion; Leyshon et al., 'Ecologies of Retail Financial Services; Leyshon & Thrift, 'Financial exclusion and the shifting boundaries'; Johnna Montgomerie, Spectre of the Subprime Borrower – Beyond a Credit Score Perspective', CRESC Working Paper No. 58, The University of Manchester, 2008.