Complaints about high rates of credit card interest, payday loans and other types of predatory lending are usually framed in terms of their effects on the borrower, which are bad enough. But in "Infinite Debt: How unlimited interest rates destroyed the economy" (Harper's Magazine, April, 2009), Chicago attorney Thomas Geohegan—who also wrote See You in Court: How the Right Made America a Lawsuit Nation—makes the point that exorbitant interest rates hurt not only borrowers but the larger economy.
High interest rates become a cause as well as an effect of risky lending behavior, Geohegan points out. "You know, if you are Mr. Potter in It's a Wonderful Life and can only get 6 percent, 7 percent on your loan, you want the loan to be repaid…" he told Amy Goodman in a recent interview on her award-winning radio show, Democracy Now. "You want to scrutinize everybody very carefully. But if you're able to charge 30 percent or, in a payday lender case, 200 or 300 percent, you don't care so much if the loan—in fact, you actually want the loan not to be repaid. You want people to go into debt. You want to accumulate this interest. And this addicted the financial sector to very, very, very high rates of return compared to what investors were used to getting in the real economy, the manufacturing sector, General Motors, which would give piddling 5, 6, 7 percent returns."
Geohegan points out that interest rates were capped at around 8 or 9 percent until they began to be deregulated in the 1970s. He goes on to explain that money that might have been used for purchases that would stimulate the economy has been sucked into the financial sector because of high interest rates, pulling it away from retail and the manufacturing that feeds retail. As he told Goodman, "That's why we ended up, by 2006, having a third of all profits going into the banks and the financial firms and not into the real economy."
