The zombie economy and digital arm-breakers 2nd April, 2021
It's a zombie economy. For 40 years, we've eroded the wages of workers and transferred their share of profit and productivity to owners of capital. This is a problem, because people need money to buy things, and if they run out of money, they stop buying and profits vanish.
Time and again, capitalism has kicked any reckoning over this down the road. First came the great liquidation: pension cashouts, raided savings, reverse mortgages. Then came consumer borrowing, a tidal wave of unrepayable debt. In the UK, Pension drawdown was introduced from April 2015 where there is no limit on how much income you can choose to take from your drawdown funds. Under the new rules, once you reach the age of 55, you can now take the whole of your pension pot as cash in one go if you wish. However if you do this, you could end up with a large tax bill and run out of money in retirement. The first 25% will be tax free. The remaining 75% will be added to the rest of your income and taxed in the normal way.
That's the zombie part: all the unpayable debt, which has been turned into bonds that enrich debt-holders. Debt that can't be paid, won't be paid. Our debt-based economy is the walking dead, a zombie.
We can either stabilize the economy (by forgiving debts, so that producers can pay for necessities and go on producing); or we can stabilize finance (by coercing debtors into destroying their lives in order to keep up on payments):
Think of the loan-shark's arm-breaker: he wants to collect on debt, so he threatens to break your arm. You steal your kid's college fund. You secretly mortgage the house. You sell your wedding-ring. You gamble. You end up divorced and homeless. You still owe. So he breaks your arm.
Now you're divorced, homeless, and you've lost your ability to earn, and you've got medical bills. He threatens to break your other arm. You start breaking into cars to steal the toll money in the ashtrays. You go to jail. Finally, the arm-breaker and his boss are out of luck.
Debts that can't be paid, won't be paid. But as loan-sharks know, fortunes can be collected by applying the right incentives.
Give debtors the choice of immediate ruin from nonpayment, making a payment today and ruining their lives tomorrow, and they’ll pay.
They'll pay…until they can't. Because debts that can't be paid, won't be paid.
The zombie economy is the subprime economy. "Subprime" came into collective consciousness thanks to the great financial crisis, where banks tricked poor homebuyers into predatory loans.
The banks knew that the loans couldn't be repaid – they had "balloon" clauses that jacked up payments beyond the borrowers' ability to repay a few years into the mortgage – but they also knew that threats of homelessness are powerful motivators.
The inscrutable equations used to "guarantee" subprime bonds all shared an unspoken assumption: people who face homelessness will go to extraordinary lengths to pay their mortgages. Behind every subprime loan is an arm-breaker.
The zombie economy shambles on. Obama's loan-shark bailout and the eviction crisis let the architects of subprime buy up whole towns' worth of homes and turn them into hugely profitable slums: high-rent, low-quality deathtraps.
Wall St landlords package rents from subprime rentals into bonds, backed by the loan-shark's guarantee: arm-breakers will evict the proverbial out of anyone who stops paying.
America-a land where eviction was once a rarity-now faces an eviction epidemic.
The foreclosure crisis was only possible because Wall St and the courts collaborated to streamline the historically complicated and time-consuming process of taking away someone's home. Same goes for the eviction epidemic.
It's a simple equation: the more loan-sharks spend on arm-breakers, the lower the expected profits.
Improvements to arm-breaking processes – cost-savings on traditional coercion or innovative new forms of terror – are powerful engines for unlocking new debt markets.
When innovation calls, tech answers. Our devices are increasingly "smart," and inside every smart device is a potential arm-breaker. Digital arm-breakers have been around for years, but they really took off in 2008.
That's when subprime car loans boomed. People who lost everything in the Great Financial Crash still needed to get to work, and thanks to chronic United States underinvestment in transit, that means owning a car. So loan-sharks and tech teamed up to deliver a new lost-cost, high-efficiency arm-breaker.
They leveraged the nation's mature wireless network to install cellular killswitches in cars. You could extend an unrepayable loan to a desperate person.
If they didn't pay, you could remotely cut off the ignition and send a precise location to your repo man.
Smart killswitches let you impose fine-grained control over debtors – say, enforcing a rule against driving over the county line.
Here in the UK, according to the Manchester Evening News, until recently Tony Cliff was a high powered managing director at a national company. Now he’s been out of work for six months, is struggling with his mental health, is on medication and says he’s drinking too much. The number of people claiming Universal Credit has soared since the pandemic began in March 2020 and has doubled across greater Manchester.
Tony is one of those new claimants.
He signed on for the first time in his working life in September 2020 and is now one of six million people just under 10% of the population, now claiming the all-in one benefit across the UK.
As someone who has worked all his life, unemployment has come as a massive shock to his system. The 51 year old joined the car firm he work for at 16 as soon as he’d left school.
With no qualifications he started as a fuel attendant and worked his way up through the ranks until he was responsible for more than 800 staff, travelling up and down the country for work and putting in 60 hour weeks. But in July 2020 the senior executive was brought into his head office by his management and made suddenly and unexpectedly redundant.
The rapid and dramatic change in his life absolutely shattered Tony and he’s now on anti depressants and sleeping medication to help him cope.
It was completely out of the blue there was no explanation, no rationale, nothing he said It was unbelievable.
The company I worked for considered my salary significant and they felt that could be saved he added.
I think a lot of companies are going to use this as an excuse to reshape, cut costs and get rid of people.
I’ve never applied for a job before or ever been in the job market. It was everything to me, my job, my social life, my friends and when you’re gone that all disappears. People avoid you because they’re faithful to their job.
You go from having your phone going ringing every 20 minutes to nothing, your phone pinging with emails every two minutes to nothing.
If you said to me 12 months ago that that would be me, I would have laughed in your face. I would have said I’ve got the most secure job in the world.
It completely shattered me, I don’t know if I’m redy to go back into the job market. I just kept thinking what do I do, I’ve never been in a Job Centre in my life.
Tony began drinking heavily to try and cope.
Initially I was struggling to sleep and when I would sleep I had horrible nightmares, he said. I knew I needed help from my doctor so I was given sleeping pills. Anyway to return to the USA article.
The universal spread of devices designed to be remotely repoed – bricked, downgraded, turned into surveillance tools – means that oppressive governments that coerce manufacturers will have the power to reach into our homes, cars and pockets to attack us.
Same goes for unscrupulous insiders – like the subprime laptop jokers making nonconsensual sex-tapes with their customers' webcams – and criminals who can pressure insiders into acting on their behalf.
Nevertheless, subprime arm-breaking is bound to spread, and spread, and spread. Covid forced millions to liquidate everything, left them in precarious, sub-minimum-wage gig work, and there's the millions of evictions waiting for the moratorium to end. We know in the UK that the High Street Banks are busy recruiting staff to repo houses possibly by the end of this year.
Debts that can't be paid, won't be paid. And yet, people must participate in the zombie economy: they're not going to dig a hole, climb in, and pull the dirt in on top of themselves. There is strong demand for credit on any terms. Any.
Arm-breaker tech unlocks new markets by delaying defaults on unpayable debts. The zombie economy shambles on.