Abstract

Since the 2008 financial crisis, more attention has been paid to debt in systemically important institutions and in aggregate classes of borrowing. However, how much do we know about the kind of debt that burdens the most vulnerable Americans?

Since the 2008 financial crisis in the United States, and the repercussions of that crisis around the world, greater attention has been paid to the impact of private debt on the performance of the wider economy. Traditionally the focus has been paid to savings, investment and productivity growth, but there is an increasing realization both that private debt is just as central to economic performance, and that we know far too little about it.

Most of the recent attention on private debt has focused on how it might affect systemically important financial institutions, those that are so central to the broader financial system that their failure could put the entire financial system, and our economy, at risk. While this concern about the impact of private debt on the systemic level is crucial, what gets lost is how private debt affects ordinary people, particularly those living on low incomes. Discussions may touch on macro aggregates of auto loan or student loan debt, but we know too little about the impact on people’s lives of that debt, and other types of debt that low income people are burdened by. This type of debt is much smaller in size that the debt we usually focus on, but it has a disproportionate effect on large numbers of vulnerable Americans. And it is not somehow separate from large, mainstream financial institutions or investors. A recent Washington Post article (Whoriskey 2018) revealed how Mariner Finance, a consumer finance company owned and managed by multi-billion dollar private equity fund Warburg Pincus, the president of which is former treasury secretary Timothy Geithner, makes money from high-interest loans to low-income Americans, including from the substantial fees charged if they cannot repay and the loan goes into collections.


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America's Hidden Debt

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Author(s)

Annie Harper

Annie Harper

Instructor, Yale Program for Recovery and Community Health


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Annie Harper has a PhD from Yale University in cultural anthropology. She conducts research on how vulnerable populations, particularly low income people with mental illness, cope with poverty and financial difficulties, and how to support them in this area. She is particularly interested in understanding how the financial services and retail industries could better serve low income people generally, and people with mental illness in particular. She is committed to combining rigorous research with practical work that makes a difference now, to which end she works closely with the City of New Haven and the broader community’s efforts to provide support to low income residents struggling with financial difficulties. She is originally from the UK, but has lived for many years in New Haven with her husband, who is originally from Pakistan, and their three children.



ADDITIONAL ARTICLES

READ ARTICLE

Richard Vague on Why Large Rapid Build Ups of Private Debt Cause Financial Crises.

An excerpt from The Next Economic Disaster: Why It's Coming and How to Avoid It.

READ ARTICLE

America's Private Debt Problem: How Private Debt is Slowing Down Growth and Hurting the Middle Class

A World Economic Roundtable report on private debt and the American middle class.

READ ARTICLE

A Guide to Essential Readings on Private Debt

READ ARTICLE

Private Debt Bonanza, Public Debt Legacies: The Euro-Zone’s Experience With Liberalized Private Finance Under Its Ill-Designed Currency Union

How institutional design and austerity is destroying the European economy