US History of Red Ink

With the migration of Brooklyn Law School Library’s catalog to its new open source platform, the New Book List has changed. The former version had both subject arrangement and a title display of news titles. The new version has only a title list of items added to the collection in the past thirty days.

On the current list is Debtor Nation: The History of America in Red Ink (Politics and Society in Twentieth Century America) by Louis Hyman (Call #HG3756.U54 H96 2011), a well researched and highly footnoted book that is recommended reading. It argues that the present American patterns of debt are the result of long-term developments since just after World War I. The author explains that while personal debt has always existed, prior to 1917 it was mostly a personal relationship where a borrower turned to family members, coworkers and friends in times of need and, when those resources ran out, the local loan shark. Usury laws made it impossible for personal debt to be a normal business as it was never legal to charge interest rates high enough to turn a profit and lenders could not resell their customer’s debt or borrow against it. In the 1920s, a majority of states enacted the Uniform Small Loan Act designed to combat loan sharking and improve credit conditions for poor people by allowing higher interest rates than those permitted by most state usury laws. This led to the birth of the small loan company, the most widespread of which in the U.S. was Household Finance Company whose history is examined in detail by the author.

Up until just after World War I, most cars were sold for cash. To lure new customers, car manufacturers like Ford Motor and General Motors developed lending subsidiaries like GMAC so that by the late 1920s installment sales grew to 60% of the total number of car purchases. Moving forward to the period of the Great Depression to after WWII, the author describes how the federal government, with the creation of the Federal Housing Administration, remade the institution of the housing mortgage so that after the war, “suburban Americans left government-mortgaged homes in installment-financed cars to shop on revolving credit at shopping centers.” This account of the explosion of consumer credit puts our current status as debtor nation in historical perspective. Anyone interested in our current credit crisis will enjoy this history of credit institutions in the 20th century America. Readers will be more knowledgeable and more thoughtful about the role of credit and our current economy and learn how, from the origins of car financing to the creation of subprime lending, little loans became big business.