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Borrow: The American Way of Debt    by Louis Hyman order for
by Louis Hyman
Order:  USA  Can
Vintage, 2012 (2012)
Softcover, e-Book

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* *   Reviewed by Bob Walch

Home mortgages, car payments, college loans and credit card accounts have all combined to create a backbreaking financial burden for many individuals today. Although this is not necessarily a new situation it has, over the past four years, caused a lot of anguish and helped collapse what was once a thriving economy.

In Borrow - The American Way of Debt, Louis Hyman not only traces how consumer debt reached this point but also what might be done to reverse the mess.

The economic historian begins in the early 1900s with the financing of Henry Ford's Model T's to the securitization of mortgages leading up to the Great Depression. He then takes the reader up through the 1950s and the rise of department store credit and the borrowing mindset that it created.

Of course, the next big step was the popularity of the credit card. The surge in the use of this borrowing tool coincided, according to the author, with the rise of the discount store and the fall of the department store.

'Discounters, such as Target, provided the convenience of department stores but at lower prices. Few discount stores, unlike all department stores, offered credit to their customers,' Hyman writes. 'At the same time, an old kind of retailer that had been sidelined by the department store in the nineteenth century reemerged: the specialty stores.'

The increased demand for cut rate, discounted or specialty goods necessitated another credit instrument the credit card! As debt grew to unfathomable levels, the financing sector grew by leaps and bounds. 'A dollar invested in debt made more money than a dollar invested in a factory,' explains the author. And, as he shows, 'the rising profitability of finance came at a devastating cost'.

From the Savings and Loan crisis of the 1980s and 1990s to the housing collapse and associated problems of today, we see that when mortgages became securities, the number of possible investors grew, as did the potential for abuse and other problems.

What does Hyman suggest as a way of avoiding similar problems in the future. 'Securitization needs to be a mechanism that encourages money to be invested in productive businesses, not consumer debt,' he writes. 'To save our economy, it must become easier for investors to lend to small business. Economic growth is small business growth.'

The author also believes that two new federal agencies need to be created. One would evaluate businesses the same way the FHA created standards for houses and the other would be an institution that coordinates the secondary market for the securitization of business loans.

You may not agree with Louis Hyman's suggested solutions for the creation of a better economic tomorrow, but his narrative of how we got to where we are today is definitely both informative and entertaining.

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