Maxed Out, by James Scurlock

One of the recurring questions of the credit crisis is ‘why didn’t we see it coming?’ It’s become known as ‘the Queen’s question’ here, as it’s the one she asked the experts herself. The fact is, thousands of people knew what was going on, that our economy was running on unsustainable levels of credit, but they were ignored. One of those people was James Scurlock, whose documentary and book were released months before the collapse of Northern Rock.

‘Maxed Out – hard times in the age of easy credit’ is the book of the documentary. It is essentially an expose of debt culture, told through a series of human stories with people who lend, borrow, or collect debt.

What he discovers is that “Americans’ incomes have not kept pace with expenses” – people want to consume more goods than they can afford. Rather than deny themselves, those unaffordable luxuries are bought on credit. When the payments get too burdensome, new loans are taken on to cover the old ones in what is known as debt ‘surfing’.

Scurlock explores how this came to be with a series of mini-biographies of the men involved, the bankers who first realized that it was more profitable to encourage borrowing than saving. Dee Hock, the inventor of Visa, or Sanford Weill of Citigroup, who declared that his preferred customers were ‘people who eat at McDonalds.’

If that sounds a little odd, it should. Banks used to court the rich, as they would have more money to play with and be more dependable. More recently banks have begun to target the poor, because they have less money and are less dependable. That means they will borrow more, and then not be able to repay it, which means more fees, punitive interest rates, or even repossessions.

Clever business perhaps, if rather short-term, but at a terrible human cost. Scurlock meets a family who’s daughter committed suicide because of her credit card debts. He meets a woman who was persuaded to remortgage her house to help care for her disabled son, and now faces repossession. One obvious lesson of Maxed Out is just how shamelessly the banks have preyed upon the poor.

Another important message is how credit disconnects us from the true cost of things. There’s the former marine, now in jail, who bought a Cadillac on the US Army credit card and got away with it, at least for a little while. There’s a woman who has ordered an 11,000 square foot house because “if you look like you make money, eventually you will, you know.” As Scurlock observes, the basic problem is that people didn’t grasp that “credit was not the same as wealth.”

There’s a lot of interesting material here, like the financial sector’s lobbying powers (MBNA was the biggest contributor to George W Bush’s campaigns) or why the government failed to regulate – mainly because they were using credit too. The chapters on debt collection are eye opening, both from the point of view of the harassed borrower, and what really goes on in a debt collection agency. I’m going to do a separate post on sub-prime lending, but here are some more:

• An estimated 90% of credit reports contain errors.
• Many American manufacturers, including General Motors, make more money from financing their products than they do on the products themselves.
• There are between twenty and forty million Americans without a bank account.
• “Close to half” of all Americans plan on winning the lottery before they retire.

Scurlock surveys the levels of debt and concludes “you have to wonder if society itself is not already bankrupt.” “Many of the regulations we’ve seen disappear were instigated to protect the financial system from a Depression-style meltdown” he warns, and “sometime, maybe sometime soon, this house of cards is going to collapse.” I’m guessing this book was probably researched in about 2005 for a 2007 publication debt. Perhaps Scurlock was already too late, but I really wish it had got more attention.

In summary, this is a very useful book in explaining how our debt culture developed, how it affects our view of money, how it preys on the poor, and how it ultimately pushed our economies over the edge. I highly recommend it. There’s also the Maxed Out documentary of course. If anyone’s seen it, let us know your views.

• Maxed Out is about American debt, but we’re as bad or worse at living beyond our means here in the UK.
  
• Why didn’t we see it coming? There were plenty of signs. Here’s some I spotted.