Debtor Nation: The History of America in Red Ink

by Louis Hyman

Before the twentieth century, personal debt resided on the fringes of the American economy, the province of small-time criminals and struggling merchants. By the end of the century, however, the most profitable corporations and banks in the country lent money to millions of American debtors. How did this happen? The first book to follow the history of personal debt in modern America, Debtor Nation traces the evolution of debt over the course of the twentieth century, following its transformation from fringe to mainstream--thanks to federal policy, financial innovation, and retail competition.How did banks begin making personal loans to consumers during the Great Depression? Why did the government invent mortgage-backed securities? Why was all consumer credit, not just mortgages, tax deductible until 1986? Who invented the credit card? Examining the intersection of government and business in everyday life, Louis Hyman takes the reader behind the scenes of the institutions that
made modern lending the halls of Congress, the boardrooms of multinationals, and the back rooms of loan sharks. America's newfound indebtedness resulted not from a culture in decline, but from changes in the larger structure of American capitalism that were created, in part, by the choices of the powerful--choices that made lending money to facilitate consumption more profitable than lending to invest in expanded production. From the origins of car financing to the creation of subprime lending, Debtor Nation presents a nuanced history of consumer credit practices in the United States and shows how little loans became big business.

Genres: History, Economics, Nonfiction, Finance, United States, American, Politics

392 pages, Hardcover

First published January 1, 2011

About the author

Louis Hyman attended Columbia University, where he received a BA in history and mathematics. A former Fulbright scholar and a consultant at McKinsey & Co., he received his PhD in American history in 2007 from Harvard University. He is currently an assistant professor in Cornell University’s School of Industrial and Labor Relations, where he teaches history.

Reviews

[Colin · Rating 5 out of 5]

A brief discussion of housing finance constraints in an otherwise not very memorable book I read last year on Karachi land disputes made me think that I didn’t have much understanding of how the American economy came to develop the networks of credit and risk reporting that might allow lenders to confidently put up the capital necessary for a robust mortgage or credit market. The development of credit rating agencies (for more on the early history of these, Sarah Jeong’s Wired article is a good start) is only one element of this very interesting book, which traces the evolution of borrowing and spending on credit in America from loan sharking and small retailers’ use of “open book” credit in the 1920s all the way up to the cusp of the 2008 financial crisis.

Consumer credit provided by banks, retailers, and eventually “pure play” credit card companies forms one dominant strand of the history; the other major strand looks at the evolution of mortgage and home equity loans, though the two converge frequently. The use of credit has been so central to the post-war American economic boom that this book really serves as a window to the whole economic history of the country, but it is written so as to be reasonably accessible to a layman, and without devolving into a flashy Wall Street drama. The book is a political history as well as an economic one, and though it does not go in depth into issues related to redlining and other discriminatory practices, offers insight into those constraints and to how minority communities fought to gain access to credit financed-consumption.

There are a number of landmarks along the path here, including: the modification of usury laws to allow lenders to set interest rates profitable enough to compete with traditional loan sharking networks (or for those networks to transition to more legal structures); the introduction of installment credit, first driven by the automobile industry; the New Deal’s creation of a national mortgage market for banks to re-sell their loans to; WW II-era regulations that inadvertently pushed retailers to rely more on revolving credit lines, which department stores later took to scale, in a role which ultimately was again taken over by banks as capital requirements grew; the introduction of fair reporting requirements that increased the level of data collection and surveillance involved in the credit industry, allowing for deeper modeling, which also increased access to credit amongst minority populations; the innovation of securitizing and re-selling both mortgage and consumer credit loans, which (particularly following the introduction of the Basel capital requirement regulations that strongly incentivized such practices) ultimately fed the credit boom thanks to investment from institutional investors and the finance sector.

Although securitization in particular forms a major part of the story, and in the housing crisis that comes briefly at the end of its narrative, the author points out that throughout it all, “the increasing relative profitability of consumer lending is what has driven the expansion of consumer borrowing”, which has also had serious crowding out consequences for investments in other, productive sectors of the economy. Although the results were in many cases unintended, government policies and regulations have shaped this profitability and the resulting debtor economy, not a pure market dynamic or inexorable economic modernization track. I haven’t read much economic history and nothing this comprehensive; this was a fascinating read and will inspire me to seek out more.

[Ietrio · Rating 1 out of 5]

> Before the twentieth century, personal debt resided on the fringes of the American economy [...]

Poor us, 21st century people! I mean, indentured servant is something McDonald's invented and Walmart propagated. Bad, bad Capitalism! No porridge for you tonight! Share croppers? Well, that is a concept produced by Uber to enslave (what a concept! who would have thought of it?!) to enslave white men with 6 figure wages in a World where an insignificant one billion people still lives below $2 a day.

[Nicholas · Rating 3 out of 5]

It came as no surprise when the author revealed that this book was adapted from his dissertation. It was repetitive, academically structured, and could have used a stronger narrative thread. But the subject matter and his take on America's relationship with debt was so novel and fascinating to me that I really enjoyed it anyway.

[Whitebeard Books · Rating 4 out of 5]

Certainly the basis of some research I will now do. Very interesting point of view on many potential impacts on things as they appeared to happen,

[Megan · Rating 3 out of 5]

I found the subject extremely interesting, but it reads like someone was trying to meet a word count.

[Patrick · Rating 5 out of 5]

This book did a great job of not only showing the how and why of financial innovations, but also detailing the downsides; consumer risk, class dynamics and de facto segregation and more. Compared to several other books that push a relentlessly rosy picture of the financial history of the last 100 years, this book did a much better job of giving more context and more fair treatment of both sides of the story and explained a few of the more complicated tools (CMOs, securitized debts, etc).

[Matthew S · Rating 4 out of 5]

Great history of American capitalism that makes us better understand our relationship with debt. Hyman has a skill for properly identifying how changing structures around debt resulted in differences to our perception of debt within society. Terrific work, but it could be a little more polished from a dissertation.

[Jim Twombly · Rating 3 out of 5]

An excellent source of material on the history of debt in America. Hyman provides a detailed history of debt and credit, especially consumer debt. It does suffer from some drawbacks, including typos and grammatical errors throughout the text and frequent repetition of thoughts, with near complete duplication of sentences at times -- even within the same paragraph.

[Sam · Rating 4 out of 5]

A very interesting history of consumer credit in the US that is desperately in need of a copy editor.

[Ayesha Tahir · Rating 4 out of 5]

What a fun book to finish on birthday #2 fr

[Mehrsa · Rating 4 out of 5]

This book is a fascinating history of debt. It's a bit hard to get through, but very worthwhile.

[Amber · Rating 4 out of 5]

This is a very detailed, almost painfully detailed, history of consumer debt over the course of the last century.

[Kari · Rating 3 out of 5]

3.5 stars. When I picked this book up, I thought it would be more of a discussion of spending habits and consumer decisions that resulted in our current infatuation with debt. It wasn't. It was a description of legislation, the financial sector, and economics and how all of those forces contributed to our current financial system and indebtedness. While that made it much harder for me to read (I am not well versed in the capital securities market and how it actually works), I actually learned a lot. The takeaway I got from this book was that our current debt level and structure is not solely due to consumer greed and budgeting laziness, but that there have been little steps taken here and there since the 1920's that have legislated our current system into being...all behind the scenes.

Content was 4 stars, density and difficulty of material was 3 stars.

[Scott Alessandro · Rating 4 out of 5]

Would have given it 4.5 stars if possible. Only thing holding it back from 5 stars is that it can get too technical at times and has an assumption that the reader understand financial terminology and markets. But this is just a minor issue as you can figure out the points that the author is trying to make. This is a must read book to help you understand the latest financial crisis and how it came about. Intelligently written and well researched. Incredibly impressed that this is Hyman's first book. Reads more like a book by a senior, established researcher. Kudos and look forward to your next book.

[Jw]

really interesting so far, brings in gender and race into the discussion. rare for a book about economic things.

[Miranda · Rating 3 out of 5]

Important & fascinating but inaccessible; too wordy/repetitive.