Saturday, March 14, 2009

Infinite Debt

I highly recommend you buy (it doesn't seem to be available on the web) this month's issue of Harper's and read the article by Thomas Geohegan called:
Infinite Debt: How unlimited interest rates destroyed the economy

Prominent labor lawyer, former congressional candidate
(for Rahm Emanuel’s open seat in Illinois), and author
of the definitive title on labor relations, Which Side Are
You On, Thomas Geoghegan writes on American usury.
He begins his report by noting the extraordinary fact of
how America “dismantled the most ancient of human
laws, the law against usury, which had existed in some
formin everycivilization from the time of the
Babylonian Empireto the end of Jimmy Carter’sterm,
and which had been so taken for granted that no one
ever even mentioned it to us in law school. That’s
when we found out what happens when an advanced
industrial economy tries to function with no cap at all
on interest rates.” Geoghegan makes a convincing case
for the idea that usury is the hidden-in-plain-sight
source of our ruinous financial condition. With the
overturning of interest-rate laws in the 1970s, usurious
rates created the ultimate in perverse incentives: soon
profits in the financial sector so dwarfed those of stur-
dier industries that every capitalist strove to become a
banker, and many of those sturdy companies to become
pseudo-banks. The resulting capital flight established
the lopsided framework for the current catastrophe.

Best explanation of how this happened that I have read so far

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