By Annie Harper, Yale University
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.