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Predatory Lending and the Predator State


Raúl Carrillo (@RaulACarrillo) is an Academic Fellow at Columbia Law School and the former Deputy Director of the LPE Project.

NB: This post is part of the “Piercing the Monetary Veil” symposium. Other contributions can be found here.

Like most advocates of Modern Monetary Theory (MMT), I didn’t embrace the paradigm because I dig late-night chats about accounting identities. Rather, I found it while pursuing economic justice (following the lead of Angela Harris, Emma Coleman Jordan, and other allies). Today, I fight financial predators — banks, landlords, debt collectors, and agencies engaged in racialized wealth extraction — on the daily. And so, my MMT enthusiasm remains…practical.

Although the commentariat caricatures MMT as a rationalization for U.S. deficit spending, it’s something more powerful — a new interdisciplinary lens, shaped for eyes on the prize of justice. Most importantly, MMT is rooted in legal analysis; its neochartalist foundations help illuminate financial hierarchies — so we can better dismantle them around the world.

As elites literally claim human survival is “too expensive”, it’s crucial for movements to absorb this symposium’s chief insight: money itself, although not always starkly a creature of the “state”, is a creature of law, just like the institutions through which it flows.

When we analyze money as public software, rather than private hardware, we see political economy differently. For example, as Harris argues, any movement for economic justice must overcome the toxic trope of the “undeserving benefit recipient” (and the corollary trope of the put-upon khaki-clad patriarch). In my view, MMT helps us challenge this divide-and-conquer strategy, by undermining the technical premises of “taxpayer citizenship” — the racialized and gendered notion that rights should correspond to one’s nominal contributions to government coffers. When Stephanie Kelton reminds us that “money doesn’t grow on rich people”, she is making an inference LPE readers should appreciate: the wealthy do not get their money by generating it, but by mastering a system that routes tradeable legal claims on real resources that we collectively produce (i.e. “money”) to themselves. As I’ve emphasized, the coercion Robert Lee Hale described leads the rest of us not merely to work, but to work for legal tender, which can settle debts between individuals, but must satisfy debts to the state (most notably, taxes).

Similarly, modern extractive finance — predatory lending — is not merely private domination, but a systemic legal and cultural phenomenon designed, in James Galbraith’ words, by “a coalition…that seeks to control the state partly in order to prevent the assertion of public purpose and partly to poach on the lines of activity that past public purpose has established.”As Galbraith argues, monetary economies grow through government spending or bank lending, because “governments and banks are the two entities with the power to create something from nothing.” This is a legal point: the Supreme Court has affirmed Congress’s constitutional power to place as much money as it wants in everyday people’s hands, but Wall Street has little to gain from such an arrangement. And so, as Bob Hockett and Saule Omarova illustrate, elites essentially delegate the power of the public purse to finance. By forsaking government deficit spending, we invite corporate looting. (And as MMT’s analyses regarding sectoral balances and financial instability show, we perpetuate a “cycle of crisis, austerity, privatization, and the concomitant loss of rights for the public”).

In our time, the oligarchs distribute education, healthcare, housing, energy, transportation,etc., by shouldering everyday people with debt and padding their own assets. Accordingly, the world of “consumer debt” — is not the Wild Wild West in the fake Hollywood sense, but in the true imperialist sense (as  monetary phenomena so often are). As Galbraith noted, the “ecology of predator-prey relationships is one of mutual interdependence.” They require our subsistence — and our obedience.

As Harris has argued, the legal system hosts a spectrum of “slow violence”, from the “mundane world” of misdemeanor convictions, to a similarly humdrum world of “payday loans, credit cards with ruinously high interest rates, for-profit colleges, and of course subprime mortgages.” And this world itself links to a “sprawling system of surveillance, punitive discipline, and control that makes the lives of poor people profoundly unfree.” And yet as Galbraith emphasizes, the predators do not merely threaten poor folks, but “everyone who has not licked the appropriate boots.” For instance, the ever-expanding credit scoring apparatus rank and files us, according to our “digital character.”

At an even deeper level, the predators depend not only on government austerity, but the marketing of consumer debt as an antidote to poverty. Many politicos are narrowly focused on “access to credit”, especially in its recent incarnation as “fintech.” This is a trap. As Omarova has argued, fintech promises not only to “eliminate all manner of market inefficiency but also to democratize finance.” And yet, online lending and securitization threaten to “exacerbate the financial system’s dysfunctional tendency toward unsustainably self-referential growth” all while extracting both money and personal data. This strategy — bribing us to be surveilled — is just the latest chapter in hawking private credit creation as a solution to public money scarcity. The tech-facilitated reverse redlining that preceded the global financial crisis — what Jordan calls one of the “most catastrophic innovations of racial capitalism” — was “predatory inclusion” that ultimately amplified the racial wealth gap. And yet, we still welcome Silicon Valley’s gentrification of everything (including the payments system itself). In part, this is because the pitch is sophisticated: for instance, originate-to-distribute lending is often cloaked in the guise of “civil rights and equal access and opportunity.” In many ways, fintech epitomizes “progressive neoliberalism.”

Thus, like Mehrsa Baradaran, I see no hope in for-profit financial services. We can’t trust rogue public utilities to manage the ‘means of the means of production.’ I do, however, support non-profit financial cooperatives and community currencies as endeavors of self-determination and resilience. I find certain communities’ efforts not only instructive, as Shirley Thompson suggests, but indispensable, as they build power beyond both the profit and revenue motives. Cooperatives can also challenge banks, as 19th century populists did, and pressure Congress to provide them with support.

The risk with any sort of lending, of course, is replicating the predators’ practices. Here, again, MMT proves helpful. For example, I professionally advocate for public banking. And yet I recognize that appropriations are often superior to lending and investment. As MMT stresses, municipalities may be mired in debt, and states may face balanced budget requirements, but the federal government maintains its constitutional power to spend public money for our general welfare, subject only to real resource constraints.

To the extent we do use public lending rather than spending, we should remember that, as Fred Lee argued, price administration is a power struggle — and consumer interest rates are no different. There is no ‘natural’ interest rate: the Federal Reserve sets the price rather than the quantity of high-powered money. The way in which this affects consumer and other downstream rates is not just a function of “market conditions”, unless those include things like usury caps, consumer protection laws, the existence (or not) of public options for credit, etc.. To paraphrase Frederick Douglass, “Find out just what [rates] [debtors] will quietly submit to and you have found out the exact measure of what will be deemed a [“natural”] or [“reasonable” interest rate]…”

The MMT view of public spending capacity is exceptionally clear. We should integrate the analysis into other social justice efforts. As Christine Desan says, monetary design “can bring people together or set them at each other’s throats.” Because MMT helps us identify subordination justified by false financial scarcity, as Rohan Grey stresses, it directly challenges neoliberalism. MMT unflinchingly argues that 1) money is a public creature, 2) money’s legal malleability is crucial for freedom and dignity, 3) democratic politics can successfully govern money, and 4) alternative ideas about money should be welcomed.

Changing the culture around public finance will be challenging. But creative collective action is both possible and necessary. We don’t know if the predators will bleed us dry (or destroy our entire environment). But we can at least avoid predatory inclusion and focus on capturing the public purse. Rather than leaning into financialization, we can fight for rights in all spheres of life. A democracy of consumers dependent upon an aristocracy of financiers is no democracy at all.

I humbly submit that because MMT and LPE pay intimate attention to both laws and economic facts, together we can not only challenge the predator state, but help nurture that “new phase of human development”: a world with no predators, and no prey.