The Law of Debt Slavery

After the latest revelations in the HSBC scandal, there has finally been renewed debate over whether bankers should be allowed to escape punishment so easily. Recently, Senator Elizabeth Warren has called for criminal prosecution of HSBC executives and for strengthened financial rules.

I’m always glad when our distraction-focused public debate somehow lands on the right issues. But one aspect of legal reform has been missing from current conversations. In a Democracy Now! interview in 2009, legal expert Thomas Geoghegan described the problem.

 [W]e’ve not focused enough on the big deregulation that precedes all other deregulations . . . [I]nterest rates in this country were capped at eight percent, nine percent. In the 1970s, we began to deregulate this, and then we had a massive big bang with a Supreme Court case that effectively knocked out all the interest rate caps. And we have today, taken as common, that banks can charge 17, 18, 19, 30, 35 percent, not to mention payday lenders charging 200, 300, 400 percent.

Limits on usury were another casualty of the tidal wave of deregulation that swept the globe in the late 20th century. Geoghegan noted that, until very recently, such rules were considered fundamental. They also played a role in limiting the kind of speculation that preceded the 2008 crash.

 [T]he thing that was kind of an instinct in human and legal civilization, from the time of the Code of Hammurabi up to the present, and we created all these incentives for money to go into speculation.

In other words, a legal code that recognized slavery and prescribed mutilation for a wide range of offenses nonetheless contained a more advanced view of interest than our current laws. In our times, the destruction of interest limits contributed to the destruction of the U.S. economy. “When banks get 25 percent to 30 percent on credit cards and 500 or more percent on payday loans,” Geoghegan said, “capital flees from honest pursuits like auto manufacturing.”

See the entire interview here.