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June 7, 2009


William Greider, The Nation - One of the fundamental issues that [Democratic] party managers wished to avoid was the scandal of American usury. Usury is the ancient sin of charging inflated interest rates sure to ruin the borrowers. It is considered immoral by Judaism, Christianity and Islam because usury involves the powerful using their wealth to ensnare weak and defenseless borrowers. The classic usurer offers an impossible choice that debtors cannot easily refuse. If they reject the terms of the loan, they will not be able to pay the rent or buy necessities. If they accept the usurious interest rates, their debts will accumulate until they are bankrupted (at which point the creditors claim their property). No civilized society can endure in such conditions.

Usury used to be illegal in the United States but it was "decriminalized" in 1980--the dawn of financial deregulation. . . Thirty years later, American society is permeated with usurious practices--credit cards charging 30 percent and higher, sub prime mortgages and other forms of predatory lending, the notorious "payday" loans that charge desperate working people an effective interest rate of 500 percent or more. Businesses, especially smaller firms, are also prey to usury in less direct ways.

Needing credit to survive, they submit to the creditor's demands and are often weakened as a result, shedding workers and services that shrink customers and income.

The straightforward way to stop usury is to enact a hard legal limit on the interest rates creditors can charge borrowers. In the House, several legislators introduced interest-rate caps, but party leaders would not let the issue get a roll call vote. Rep. Maurice Hinchey of New York and co-sponsors proposed an interest-rate cap of 18 percent, the same ceiling enacted years ago for credit unions. "Offering the amendment raised a lot of anxiety on the part of a lot of people," Hinchey said.

"It was withdrawn because it had no possibility of success and it would have put a number of people in a tough situation. We had to back off."

A roll call on usury would have compelled legislators to choose between their constituents and their bankers. Rep. Donna Edwards of Maryland proposed a tougher ceiling on interest rates, but the House rules committee rejected her amendment. "Our constituents are so angry with the banks," she observed, "siding with credit-card companies would not be helpful to me, and I expect that's true in other districts." Bankers are contributors, so this is what members call "a money vote." A consumer lobbyist explained. "Let's face it," he said. "The main reason lots of members get on the House Financial Services Committee is because they want to raise money from the financial industry."

In the Senate, Dick Durbin of Illinois, the majority whip who rounds up votes for the party, introduced his own usury bill--a cap of 36 percent including the non-interest fees and charges. Durbin's bill also empowered state governments to set lower limits. The Consumer Federation of America endorsed it, but the consumer lobbyists asked Durbin not to have a roll call on his measure because it might reveal their weakness.

Nevertheless, the redoubtable Bernie Sanders of Vermont demanded a vote on his bill--an interest-rate cap of 15 percent.

"When banks are charging 30 percent interest rates, they are not making credit available," Sanders said. "They are engaged in loan sharking." Sanders lost, 33 to 60. . .

The Rev. David Brawley of East Brooklyn Baptist described a preliminary statement of basic principles. "Reasonable interest rates," he said. "In this financial culture, the nation will return to a time-honored, indeed ancient, practice: the law against usury. Financial institutions and mechanisms that participate in this culture will agree to a maximum of 9 percent interest or so. This was the usual state-mandated rate before the repeal."

Brawley described other principles with radical implications. "The lender holds the loan," he explained. "The financial institution that makes a loan holds the loan for its duration. The borrower and lender enter into a long-term relationship that ends when the loan is fully repaid. This is the fundamental starting point for any return to accountability." That statement of principle challenges the market securitization of mortgages that falsely claimed to reduce risk by dispersing it among many investors. The process instead left no one responsible for sound lending and thus multiplied the costs of failure.

Brawley's final principle was perhaps most threatening to the existing order. "The federal government insists on these core characteristics as the criteria for all further bailout funding. Banks that wish to borrow from the government must accept these simple standards [and] provide consumers with an alternative to the current monopoly of financial transactions dominated and still dictated by the same fifty financial institutions that caused the crisis."

In other words, the social standard of usurious practices should define which banks and financial firms are eligible to participate in all forms of government aid and protection. Why should taxpayers finance the usurers who are injuring the society? The government's undiscriminating approach to aiding banks implicates everyone in supporting the usury. So do the banks and brokerages that collect people's savings and channel the money into usurious practices that produce greater returns by ruining more borrowers. The moral standard poses difficult questions for everyone, not just bankers and politicians.


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