This text explores the historical evolution of debt structures in America and how it has impacted the lives of individuals. It highlights the shift from relying on friends, loan sharks, and local merchants for credit in the nineteenth century to the emergence of finance companies as middlemen in the 1920s. The rise of consumer banks investing in consumer debt, starting with automobiles, led to a market for debt that continued to grow over time. The financial devastation of the Great Depression prompted the federal government to create institutions like the Federal Housing Administration and Fannie Mae to facilitate mortgage lending. The postwar consumer boom further fueled the market for debt, with General Electric’s subsidiary, GE Credit Corporation, playing a significant role. In the later years, the federal government and Wall Street contributed to the development of complex mortgage-backed financial products, shifting capital away from production-focused sectors. Overall, the text emphasizes the transformation of debt structures and the role of financial institutions in shaping the economy.
| Signal | Change | 10y horizon | Driving force |
|---|---|---|---|
| Rise of finance companies | Shift from local loans to consumer debt | Increase in consumer debt | Need for middlemen in lending |
| Creation of Federal Housing Administration | Government involvement in mortgage lending | National market for mortgage debt | Financial stability after the Great Depression |
| Creation of Fannie Mae | National market for mortgage debt | Consolidation of mortgage debt | Facilitate buying mortgage debt from local banks |
| Growth of GE Credit Corporation | Expansion of revolving credit | Increase in consumer debt | Profitability of consumer credit |
| Development of mortgage-backed financial products | Increase in complexity of financial products | Expansion of securitized assets | Profitability of investing in consumption |
| Shifting from wages to lending | 1 percent lending money to 99 percent | Increased lending by wealthy | Profitability of lending over production |