Everyday Leverage, or Leveraging the Everyday

Abstract

Credit, debt and indebtedness are key terms for understanding contemporary social and economic life. In many recent accounts of debt, however, debt is largely an ahistorical category that remains constant throughout time, or seen simply in terms of a quantum of interest accrued over time that can then serve as a proxy for both the accumulation of profit and measurable oppression and exploitation. This forecloses analytical investigation of contemporary shifts in the everyday articulations of credit and debt and the specificity of creditor–debtor relations, including important changes in the nature of debt itself. In contrast, this paper focuses on the redefinition of debt as ‘leverage’, a dynamic, productive force that can have unpredictable effects. Alongside other developments that have transformed debt into a tradeable asset, such as financial securitization, debt as ‘leverage’ involves the anticipation of speculative excess and possibility. Addressing the contemporary transformations of credit/debt also requires acknowledging the multiple ways in which ordinary households are now expected to embrace the potentialities afforded by ‘leverage’. This is a symbiotic relationship that is evolving and persistent, and it demonstrates a much larger expansion of financial power, in which the biopolitical terrain of individual subjectivity, aspiration and forms of conduct at a micro-level is directly linked to macro-financial global structures. As the paper suggests, the contemporary consumer-citizen increasingly relies on debt-fuelled and frequently asset-based consumption that necessarily depends on some kind of leverage.

Keywords:

• leverage
• debt
• credit
• speculation
• subprime mortgages
• securitization

In Ben Fountain's (2012) novel Billy Lynn's Long Halftime Walk, the eponymous central character, the young soldier Billy Lynn, asks his immediate superior, Sergeant Dime, a man who possesses a worldliness that Billy admires and aspires to, ‘Sergeant Dime, what is leverage?’

Naïve, inexperienced and from Texas, Billy is on a promotional ‘Victory Tour’ across various American cities, championing the democracy, freedom and American way of life that he and his unit, Bravo Company, are defending in Iraq. At a visit to the Dallas Cowboys football stadium, meeting with the millionaires who run the show, Billy encounters the language of finance: leverage relative to cash flow, debt ratios, income streams, equity in lieu, and so on. It is a language he has never previously heard and he's hoping that some of this knowledge, which clearly leads to great power, money and success, might rub off on him: ‘How it works, who gains, who loses, who decides. It is not a casual thing, this knowledge. In a way it might be everything’. Left swimming in this sea of exotic new terms and concepts, he imagines a ‘shadowy, math-based parallel world that exists not just beside but amid the physical world … This is where money lives … It seems the airiest thing there is and yet the realest’ (Fountain 2012, p. 121).

Billy is given one piece of advice, however, that strikes him as particularly significant: ‘Leverage is a beautiful thing. In the right hands it can literally move mountains’ (p. 119). Of course, Billy is not unique in being mesmerized by the powerful magic of leverage. While the word ‘debt’ has mainly negative connotations, ‘leverage’ has an indisputably positive aura, suggesting quite literally a means of transformation and a way to maximize opportunities. What was once a noun has now become a verb: ‘we leverage our assets in order to reach for the stars’ (Blackburn 2008, p. 84). This magic of leverage stands in stark contrast to what is for many the grim reality of everyday indebtedness: a burden of debt service that stretches over the life course and is seemingly endless, frequently continuing after retirement and sometimes even beyond death.¹ While leverage may in some instances appear as a ‘beautiful thing’ with magical qualities of multiplication, a small act that can provide astonishing momentum, debt on the other hand now commonly describes an almost permanent condition of indenture and servitude, a way of life in which obligations are never likely to be repaid. For those trying to cope with unmanageable levels of indebtedness in relation to the basic needs of social existence – housing, education, health care – debt is a structural necessity now required to achieve even the most minimal standard of living.

Leverage is just one among many of the more recently popularized technical terms that, originating from the world of high finance, has spread to the so-called common sense of the everyday. Although it is a term that promises untold potential for innovation, growth and wealth accumulation for the few, its implementation also tends to ensure the very opposite for the majority. That so many of such terms relate to debt-based financial instruments – credit default swaps, collateralized debt obligations, mortgage-backed securities and derivatives – are not coincidental it seems. After all, the contemporary society of debt essentially embodies the same cruel, paradoxical relation: the necessary embrace of credit instruments which hold out the possibility of access to the ‘good life’ and yet simultaneously impede its realization (Berlant 2011). Indeed, the mass indebtedness of contemporary social life has been interpreted as a result of this self-defeating attachment to the fantasy of a good life, an ideal that may have made sense in a postwar era of growth and prosperity but which has little purchase in the current financialized economic order (Hyman 2011, Ross 2013).

In these terms, finance in general has been commonly understood as a destructive and impersonal force of abstraction that has led to the impoverished social bonds of the present: ‘The history of western civilization is a history of creeping abstraction. It has now reached its endgame in finance’ (Fleet 2013). From this point of view, debt-fuelled financialization has institutionalized the short-termism of the repayment schedule and thus extinguished the possibility of any time of life outside the time of debt, including the possibility of any kind of meaningful investment in a non-indebted future (Berardi 2011, Lazzarato 2012). In these and other recent accounts, debt is a category that remains constant throughout time, describing a common form of subordination and struggle despite the widely different historical conditions in which it occurs. Frequently referred to as the ‘oldest means of exploitation’ (Federici 2014, p. 233), debt is essentially the same time-honoured contractual obligation, or promise to pay, enforceable by the violence of morality and/or the state, irrespective of which credit and debt instruments are involved. In contrast, this essay resituates debt in relation to recent financial developments, especially processes of securitisation that operate not only through systems of abstraction and quantification but also through dynamic engagements with the lived materialities of the social. Proposing an understanding of debt as a qualitative multiplicity that undergoes long chains of transformation in non-Euclidean space and time, the essay departs from the conventional depiction of debt as measurable exploitation within a framework of absolute, fixed, metrical space and linear time. In turn, this brings to light a metrics that is contingent, fungible and uneven and significantly different to the Marxian focus on abstraction as a calculus of exchange that is typically registered as the measurement of equivalence and sameness and distance from an originary source of value. I suggest therefore that debt needs to be understood not only in terms of the historical specificity of what it is and does, but also in terms of the concrete particularities in which it occurs, including the particular subjects, such as minority and women borrowers, who were previously excluded from credit/debt relations but that have been specifically targeted for new loan instruments in recent decades. Addressing the contemporary transformations of everyday credit/debt also requires acknowledging the multiple ways in which ordinary households have been increasingly exhorted to operate as everyday investors and to perform their own kinds of ‘calculative agencies’ (Callon 1998), including embracing the open-ended potential afforded by ‘leverage’. As the essay suggests, the contemporary consumer-citizen has been enjoined, indeed is now required, to invest in their lives through asset-based wealth accumulation that necessarily depends on some kind of debt leverage.

Indebted

Even before Deleuze (1990/1995, p. 181) presciently observed that ‘A man is no longer a man confined but a man in debt’, it was clear that the debt economy had fundamentally changed over the course of the 1970s.² The suspension of US dollar-gold convertibility in 1971 brought an end to the international gold reserve system that had been at the centre of the postwar architecture of unprecedented economic growth and stability, including the period of relative debt restraint that had lasted until the late 1960s. In 1973 the Bretton Woods regime of fixed exchange rates was subsequently abandoned, beginning a new era of money and credit creation that dramatically expanded both the forms and supply of monetary and credit instruments, and the kind of institutions that could participate in that expansion (Arrighi 2003).

The restructuring of money and credit markets led to a massive expansion in the availability of credit. But the adoption of floating exchange rates and the rise of the US dollar as the global reserve currency also inaugurated a boom-bust volatility that contributed to recession, unemployment and large trade imbalances, and also fundamentally changed the way ordinary people experienced borrowing money and, therefore, credit and debt. Variable rates could rise unexpectedly and so have a calamitous impact on the multiple debt obligations of households. While such floating rates made funds cheaper, they likewise increased the risks associated with interest rates, most obviously for borrowers.

In the period following the end of the Bretton Woods, overall indebtedness increased significantly for consumers, households and nations, with debt levels growing faster than comparable rates of growth for most national economies. Debt also began to play a more prominent role in national and international political discourse, with a new focus on the ‘unsustainable’ liabilities of consumers and the national debt burden of governments in particular. But the growth of debt from the mid-1970s onwards was not simply due to the ready availability of credit that followed the abandonment of Bretton Woods. Much wider structural changes produced the unique deterioration of economic conditions in the early 1970s, entrenching inequalities of income and wealth that would continue to play out over the next few decades, and coincide with the extension of consumer credit as a substitute for wage growth. In an era of stagnant and declining real wages ‘Personal debt was no longer a private choice, but a structural imperative’ (Hyman 2011, p. 283).

Although the organized labour movement had been successful throughout the 1960s in its demands for welfare provisions and a wage share that would maintain adequate standards of living (at least for its unionized workers), declining economic conditions in the 1970s triggered increasing resistance to these demands. The price inflation that had served to nullify wage inflation became a counterproductive inflationary pressure that simply exacerbated the combination of economic stagnation, high unemployment and high inflation that now presented as intractable ‘stagflation’. The devaluation of the US dollar averted a run on American reserves but it had little effect in containing the generalized inflation that proved so stubbornly resistant to the conventional Keynesian methods of governing the economy. Compounded by the 1973 oil crisis and a fall in global aggregate demand, the steep drop in levels of both productivity and profitability across many sectors of the economy, and especially in international manufacturing, contributed to an economic downturn in a number of Western countries in the mid-1970s. The subsequent recession of 1973–1974 not only brought an end to the exceptional growth of the postwar era, it also signalled a major structural shift that marked the end of full employment and the decline in inequality that had accompanied it in the postwar years. The movement of capital away from trade and production towards services, a shift that included the growing centrality of the financial activities associated with the FIRE (finance, insurance and real estate) industries in particular, also highlighted the major reorganization of capitalist dynamics at this time. These exceptional macroeconomic conditions at first tested the limits of Keynesian policy, and then ultimately toppled the Fordist/Keynesian socio-economic order.

One event in particular proved decisive in shifting the composition of inflation from the wage inflation that benefited organized labour to the asset-price inflation that would ultimately prove to be a boon for US finance capital and also fundamentally change the nature of personal debt: the ‘financial coup’ of Paul Volcker, chairman of the Federal Reserve, in October 1979 (Kunkel 2014, p. 130, see also Harvey 2005, pp. 23–31). In answer to cycles of wage and price inflation that had proved unresponsive to the standard Keynesian tools of fiscal management, Volcker pushed up interest rates to the debilitating level of 20 percent. This policy of radical monetary restriction induced a severe recession in North America and Europe and led to soaring levels of unemployment, especially in traditional heavy industries and manufacturing (which could not compete with offshore production in Asia). In the USA and the UK, industries that had long been the backbone of industrial capitalism, such as coal and steel, were destroyed along with the bargaining power of the unions that had once represented their workers. The so-called Volcker shock also induced the debt crises in Latin America, when several countries, now unable to service their dollar-dominated foreign debt, had to turn to IMF approved debt restructuring and its mandatory set of free market reforms (Klein 2007, Heintz and Balakrishnan 2012).

Under the political stewardship of Ronald Reagan in the USA and Margaret Thatcher in the UK, the recession triggered by the unprecedented hike in interest rates created the ideal opportunity to dismantle the residual architecture of the Fordist-Keynesian class compromise. Both leaders targeted unionized labour and working conditions, restructuring the workforce around flexible labour and the forms of temporary, contingent and short-term contract work that would become a permanent feature of the employment landscape in the following decades (Hatton 2011, Cooper 2015). In addition, alongside their concerted campaign to erode formal work entitlements, both Reagan and Thatcher embraced privatization and the reorganization of welfare and social insurance, promoting the involvement of ordinary people in the ownership of property and stocks, and encouraging employee shareholding and personal equity plans as an alternative to traditional forms of welfare and social security provision.

Another outcome of the same high interest rates that had created crippling debt burdens in the Global South was the attraction of a steady flow of capital to the USA. After a period of declining interest in a devalued US dollar, foreign investors suddenly returned to US financial markets, investing in US Treasury bills, securities, bonds and other dollar-dominated assets. This flood of capital into the USA would continue over the next two decades, maintaining the strength of the US dollar and capping the price of goods while simultaneously leading to significant asset-price inflation. Assets such as housing and real estate appreciated dramatically in value, becoming popular investment opportunities for foreign and domestic investors alike. This was a turning point for the world economy, securing the emerging dominance of the US financial sector and unleashing what would become known as the financialization of global capital markets. Awash with flows of foreign investment, US financial markets were also in a position to rapidly widen and deepen networks of credit and debt, expanding the supply of credit to unprecedented levels (Konings 2011, pp. 13–14). This also resulted in the further erosion of any remaining boundaries between high finance and everyday life.

With assets appreciating in value much faster than incomes, consumers also eagerly embraced asset-accumulation, scrambling to borrow money and invest in residential housing in particular, hoping to capitalise on their rapidly rising home prices. As the supply of funds increased, consumers found it easier than ever before to access credit. But they also found it more difficult than ever before to pay it back. In this new age of post-growth volatility characterized by rising unemployment and deindustrialization, American consumers not only faced the possibility of sudden loss of employment and therefore income, but also stagnating wages, a trend that would actually amount to a steady decline in real wages over the next 30 or so years. As Thomas Piketty (2014) has shown in his study of inequality, Capital in the Twenty-First Century, in terms of purchasing power the US minimum wage reached its maximum level in 1969, at $1.60 an hour, and has reflected an overall three-decade long fall in wages ever since. The expansion of consumer credit therefore coincided with a period of economic uncertainty in which consumers began to rely on credit to compensate for lack of wage growth, enabling households to maintain their standard of living while also upholding the levels of consumption that capitalist expansion increasingly depended on. This came at the cost of ballooning household debt levels, however, and, unsurprisingly, between 1970 and 1979 outstanding debt tripled (Barba and Pivetti 2009).

From the 1970s on, as they sought to insure against the uncertainties of employment, a declining social wage and increasingly privatized and downsized public services, flows of highly liquid capital enabled Americans to borrow cheaply and so invest in, and acquire, assets. This new debt economy, however, not only represented simply a growth in the debt burdens of households. Rather, it entailed a much wider reconfiguration of the relationships between lenders and borrowers, between consumer credit and investor capital, and between households and financial markets.

Leverage this!

In Michael Lewis's The Big Short: Inside the Doomsday Machine, one financial trader describes his use of leverage thus:

Leverage means to magnify the effect. You have a crowbar, you take a little bit of pressure, you turn it into a lot of pressure. We were looking to get ourselves into a position where small changes in states of the world created huge changes in values (2011, p. 128).

Leverage derives from ‘lever’: a simple tool that employs the principle of mechanical advantage to amplify an input force so that the output power it produces is over and above that of the original input. A mechanical invention most commonly associated with the Greek mathematician Archimedes, lever is a term that is commonly used to describe any instrument capable of generating an amplification of power that will in turn provide leverage. For example, Archimedes described how a simple block-and-tackle pulley system could become a powerful instrument capable of moving great weights without the application of great force. According to Plutarch, Archimedes personally demonstrated how such a lever could be deployed to move large objects, even a large ship (Plutarch 1961, pp. 78–79, Latour 1990). Archimedes wrote on many different aspects of mechanics and geometry, but his work on the dynamics of leverage provided the quote that has become a standard refrain of American popular culture, frequently put to use by politicians of all stripes, from John F Kennedy to George Bush: ‘Give me a place to stand and with a lever I will move the whole world’.

The lever, then, is an inert object or instrument that provides a fulcrum around which differences in distance can be arranged in space as differences in force. When such positive differences are manipulated in time, the fulcrum is transformed into a dynamic technology capable of magnifying movement to powerful effect. It is the seemingly magical power of leverage to amplify and multiply, to always be greater than the sum of its parts, which provides its appeal to the financial investor as much as to the mathematician or philosopher. In Deleuzian terms, leverage can be understood as a dynamic multiplicity that is non-additive and non-metric, an intensive, virtual continuum that differentiates itself in emergent, largely unpredictable ways (Deleuze 1968/1994, De Landa 2002, Lozano 2015).³

When Sergeant Dime answers Billy's question, ‘What is leverage?’, however, the answer he provides refers to a context more prosaic than the radical mathematical potential imagined by either Archimedes or Deleuze: ‘Leverage, Billy, that's a fancy way of saying other people's money. As in, borrowing. Debt. Credit. Hock. Using other people's money to make money for yourself’ (p. 122). With this definition, Sergeant Dime is alluding to the more conventional financial understanding of leverage as the use of credit, borrowed capital or other financial instruments for an investment, with the expectation that the potential return (the profits) will be greater than the interest payable on the outstanding debt. In the 1980s and 1990s, after financial deregulation, the phrases ‘leveraged buyout’ and ‘leveraged takeover bid’ became commonplace in the financial media, developing notoriety not only because of some instances of spectacular failure but also because they represented a significant shift in the formation of capital itself. In particular this represented a new strategy for capital to valorize itself by borrowing, restructuring and selling assets. This was a strategy that dovetailed neatly with the growing influence of the financial sector, in which profits are to be made not by investing money, in production or other productive activities, but rather by lending it (Krippner 2005, 2011).

In the context of the global financial crisis, and specifically in relation to the bail out of banks and other financial firms, leverage has again become a prominent term in the media, usually in relation to the (exceptionally high) ratios of debt to equity that banks now increasingly hold (also called ‘gearing’, or, to ‘lever up’). In an era of financialization in which borrowing money (debt) is frequently cheaper than raising equity (by issuing new shares), the levels of equity in the banking system have steadily dwindled, falling to lows which has also made them inherently fragile and more ‘exposed’ to the risk of an abrupt downturn, or, even a ‘bank run’ (first depicted so memorably in Frank Capra's films American Madness [1932] and It's a Wonderful Life [1946]). The scale of the bank bailouts in 2008 – after a financial crisis that also incidentally included a depositor run on the UK bank Northern Rock – demonstrated the inability of most banks to even absorb losses that amounted to only a small decline in the value of their assets (MacKenzie 2013). Indeed, the failure of many banks during the global banking crisis was directly tied to risky debt to equity ratios and inadequate minimum capital requirements. And, as this example shows, the magic of leverage works both ways: it may be a powerful amplifier of success, but it can also be a great amplifier of failure.

The financial innovation that led to it being cheaper than ever before to take on debt also led to greater levels of integration and interconnection between commercial banks, insurance companies, large investment firms and ordinary consumers. It also fundamentally changed the way in which banks performed risk calculations and organized their balance sheets, indeed the way they understood the very relationship between debt and equity and the meanings those terms signified. Securitization in particular enabled banks to move loans off their balance sheets by pooling and then repackaging them into investment products and selling them on global financial markets. This was a major shift away from the classic originate-to-hold model of bank lending, in which banks held loans on their books until maturity and were thus also exposed to significant default and liquidity risks. This new, originate-to-distribute model separated loan making from risk taking and facilitated a massive expansion of the provision of credit (Dymski 2009). Under the auspices of President Johnson's Great Society programs, the mortgage-backed security was originally designed to generate much needed capital that could be used to fund housing programmes so as to ‘solve’ the housing crisis and in turn quell the riots and unrest in America's cities. As Hyman (2011, p. 224) argues, ‘For Great Society policymakers and promoters, the problems of inequality were framed as a problem of credit access rather than job access’. One largely unanticipated outcome of securitization, however, was that it enabled new sources of funds to flow into the mortgage system more generally, which in turn completely reshaped both the way home finance was provided and how the everyday credit and debt practices of households would connect with financial markets. Every form of personal debt would eventually be securitized: credit cards, auto loans, student loans, medical insurance and household water and electricity payments. Repackaged and sold as bonds to mainly offshore investors, American consumer debt became a large market and a profitable investment opportunity.

In short, securitization transformed the banking industry, enabling financial institutions to move beyond the regulations of the New Deal/Fordist-era welfare state that had organized housing finance around a ‘middle-class-family model buying single-family homes’ (Schwartz 2009, p. 185) and effectively restricted credit to the citizen in full time and regular employment who had become an iconic representation of this era: the white, middle-class, male worker. But it also, unexpectedly, provided a way of responding to the pressure from the civil rights movement and its demands for antidiscriminatory lending practices in consumer credit markets, a transformation that eventually enabled the extension of credit to groups most often employed in irregular, non-standard and primarily low-wage work: African-Americans, Latinos and women (Cooper 2015).

Securing debt

Until the early 1970s women and racial minorities had been systematically excluded from mortgage finance and consumer credit, not only due to general prejudice and discrimination but also through specific techniques such as bank redlining and the underwriting guidelines employed by the Federal Housing Administration (FHA) (Dymski 2009, Dymski et al. 2013). Like the practices of most banking and financial institutions, the New Deal housing programmes associated with the FHA were structured by racial covenants which discriminated against minority areas and essentially defined suburban home ownership as synonymous with the white middle class. In this way, the underwriting guidelines employed by the FHA not only shaped suburban development but dictated which groups could access credit and on what kind of terms. Moreover, gender discrimination frequently compounded racial discrimination, with women finding it difficult if not impossible to obtain credit in their own names. Even after credit reform, women faced discrimination due to the intransigence of long-standing assumptions about ‘the proper relation of men, women and credit’ (Hyman 2011, p. 192). With the new financial instruments associated with securitization the supply of capital suddenly became plentiful, indeed nearly limitless, banks and non-bank private lenders were soon willing to extend credit to those who had been largely excluded from postwar prosperity and the indebtedness it required.

What subsequently became known as the ‘subprime market’, which typically involved high interest rates, high fees and onerous non-payment penalties, then became one of the most common forms of mortgage lending by the late 1990s, particularly among female-headed and minority households, growing by an astonishing 900 percent between 1993 and 1999 (HUD 2000, Dymski et al. 2013). Women, and in particular women of colour, were overrepresented in the ranks of ‘the wretched and reckless’ (The Economist 2007) who were targeted for subprime loans, with the profile of the typical subprime borrower seeking assistance from foreclosure counselling organizations described as ‘single, female, with two children, in her first house’ (quoted in Baldauf 2010, p. 225). Moreover, a disproportionate number of women received subprime mortgages even when they had incomes and credit scores that qualified them for conventional loans (Fishbein and Woodall 2006). Deep in debt, in insecure ‘flexible’ forms of employment, often underpaid, and carrying an increased individualized responsibility for all kinds of risk: this is the profound ordinariness which the figure of the female subprime mortgagor represents. Yet this so-called ‘delinquent’ or ‘irresponsible’ borrower is also significant now for being more common than unique, and, in two-earner as much as single, female-headed households this is an existence that is increasingly the rule rather than the exception. Although the racial and gendered dimensions of housing and mortgage credit, and of finance more generally, have rarely been given much attention, the picture of the subprime crisis that has now emerged is one in which practices of credit and debt (and therefore leverage of course), played out around and through the dynamics of race, gender and class. Given the now prominent role of the female subject in managing household debt, of ‘making do’ within generalized conditions of precarity and insecurity, and of finding and pursuing micro-tactics of struggle and survival for herself and those around her, perhaps one might ask whether debt is better understood, as Lisa Adkins (2014, p. 12) suggests, not in terms of Lazzarato's ‘indebted man’ but in terms of the ‘speculative woman’? This is a female subject who calculates and takes chances, recognizes potential and plays with the opportunities at hand; the subject who, in other words, employs any available financial strategy necessary for negotiating an uncertain future (Roberts 2013, Allon 2014).

Subprime lending can certainly be understood as a form of predatory lending whereby gender and racial exclusion was largely replaced by gender and racial inclusion, but in a way that actually extended rather than curtailed discriminatory and extortionary practices (Dymski 2009, p. 162). Much more enduring than one-off predatory lending practices, however, are the profound changes to the relationship between households and financial markets which the global financial crisis highlighted, changes that go far beyond suspect or exploitative lending practices to vulnerable households. This is a symbiotic relationship that is evolving and persistent, and it demonstrates a much larger expansion of financial power in which the biopolitical terrain of individual subjectivity, aspiration and forms of conduct at a micro-level is directly linked to macro-financial global structures (see Shiller 2003). At the same time as mortgage-backed securities offered institutional investors stable, bond-like investments in mortgages, they also provided American borrowers with a seemingly unlimited source of mortgage capital. This expansion of lending must therefore be understood as speculative as much as extortionary, for everyday consumers as much as for banks and institutional investors.

In this way, the processes of securitization that completely transformed the US housing finance industry also dramatically changed the way in which consumers were able to use debt. Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home. With the huge increase in credit provision that securitization afforded both banks and lending institutions, however, leverage shifted from being simply a device that ‘assisted’ in the purchase of an asset, to an all-encompassing financial blanket that could often end up larger than the entity it was intended to help cover. With a home equity line of credit, for example, home equity withdrawal allowed consumers to tap into a now fungible source of housing wealth, moving money in and out of their house as they saw fit, irregularly, sporadically, flexibly and even reversed (in the case of reverse mortgages), yet always permanently available to be added to or drawn on (see Langley 2008). Home equity loans became one of the most popular ways that homeowners could capitalize on the steadily rising equity in their homes, primarily because homes, for most Americans, ‘were the only kind of financial leverage to which they could have access’ (Hyman 2011, p. 235).

In a context in which house prices were rising faster than other consumer goods, as well as rising much faster than wages, asset-acquisition was thereby reconfigured as a de facto form of welfare, encouraging households to rely on asset-price appreciation as a safety net, a contingent solution for all possible financial needs. After all, alongside the massive expansion of financial liquidity in the US economy there was an intense promotion of the ‘ownership society’ and housing investment ‘opportunities’, including schemes for equity withdrawal and refinancing. The importance attached to asset-accumulation, and home ownership in particular, was reinforced even further when Bill Clinton announced his intention to ‘end welfare as we know it’. With the decline of a raft of public services, including the disappearance of the very idea of a social wage, the home came to be increasingly viewed as an object of leveraged investment, providing a liquid source of funds for consumption in the present and also an asset base for welfare in the future. As the Economist put it: consumers had begun to view their house as their ‘main store of wealth, regarding it as a combination of cash cow and pension plan’ (1985, p. 83, also see Langley 2009).

Home equity loans were also increasingly used for debt consolidation, a shift that highlights the convergence of different kinds of credit and debt and their fluid transfer from markets to households and consumers and back again. What is also significant is that for many borrowers subprime loans were never intended for new home acquisition but rather for distress financing – using mortgage finance to generate cash loans for emergency expenses, including paying off outstanding debts (Schloenmer et al. 2006). Several studies have now confirmed the extent to which American households have been borrowing money against property not just as leverage for home purchase, but rather simply to raise funds to make ends meet, a trend that has also become prominent in other countries such as the UK and Australia (Smith 2010). After all, 30 years of wage stagnation had made it virtually impossible to pay back debts except through largely fortuitous asset appreciation, and it is hardly surprising that around 40 percent of home equity loans were used for debt consolidation (Hyman 2011, p. 276). With securitization, then, the supply of capital not only became more plentiful, and available to more people, it also transformed consumer debt towards complete substitution, fluidity and interchangeability.

Bodily pledges and indebted intimacies

Debt and indebtedness are steeped in the quotidian world of bodies, intimacies and materialities, inseparable from habits and routines, dispositions and moods, as well as the disciplining rhythms of the repayment schedule. In Debt: The First Five Thousand Years, David Graeber describes in detail how the logic of debt and indebtedness has ‘come to suffuse and shape even the most intimate aspects of our existence’ (2011, p. 15). Indeed, Graeber provides much historical material to show how the calculus of debt has inserted itself into human relations on the level of the sentient physical body as much as on the level of abstract power and economic calculation. Although slavery is perhaps the most extreme example of debt redemption through bodily indenture, Graeber also demonstrates the everyday violence that underpins most relations of indebtedness, structured as they are by an implicitly asymmetrical obligation to repay.

At times of financial misfortune or miscalculation debt also registers its costs on health and well-being, taking its toll quite literally on the limits of bodily composure and endurance. Debt, then, has always been an intimately embodied experience, as the moneylender Shylock's demand for a ‘pound of flesh’ made clear. Similarly, from Graeber's anthropological miscellany on debt we also learn that in the colonial days of the USA, an insolvent debtor's ear was often nailed to a post (2011, p. 16), a bodily pledge that now finds its contemporary counterpart in the punishment of foreclosure, the exemption of student loans from bankruptcy protections (a revision introduced for federally guaranteed education loans in 1978 and extended to loans issued by private banks in 2005), and in the revival of debt-related incarceration and debtors prisons (Joseph 2014). In both instances, but most especially in the case of student debt as a form of indenture – a burden that must be indeterminately endured until the elusive conditions of full employment and economic autonomy have been reached – debt bondage seems less an archaism that has now been civilized and more of a technology that has simply proliferated into new forms (see Ross 2013).

If the figure of the rational and self-interested investor has become one of the most esteemed figures of economic liberalism, signalling the superiority of cold, utilitarian calculation over hot-headed passion and inchoate affect, an everyday economics of money, credit and debt demonstrates that these dispositions are rarely so cleanly disentangled. For the ordinary people who were swept up by the pre-crisis housing boom, for example, there was a driving sense of optimism about ‘getting a foot on the property ladder’ and a deep-seated fear of missing out, of leaving it too late, of being left behind by a rising market. Many of these borrowers were late housing market entrants and typically had adjustable-rate mortgages (ARM), the most common form of mortgage in the subprime or Alt-A sector, which usually indicated less than 20 percent down payment, or even no down payment at all, or some problems with the borrower's FICO score or credit history. ARM featured low ‘teaser’ interest rates for the first two or so years that then reset to much higher rates, and they were generally designed to be refinanced into low, fixed-rate loans after house price appreciation had generated some amount of equity in the home. Subprime and Alt-A mortgages were also geographically concentrated in the states of California, Virginia, Florida and Texas, states which unsurprisingly had the highest rates of mortgage default and foreclosure and which then had to endure the devastating consequences of fiscal crisis and punishing regimes of austerity.

Yet before these debilitating conditions of personal and collective over-indebtedness and community decomposition had emerged in the post-crisis downturn, subprime mortgagors optimistically embraced debt, and leverage more generally, as key to the freedom of a more secure future. Such a feeling of being propelled into a better future, of no time to lose, not even the time to read the fine print of mortgage documents, was frequently described by Californian mortgagors when they were interviewed after they had lost their homes or were in the process of organizing distress refinancing. As one borrower explained: ‘I didn’t read them carefully. I just pretended to look over them and then asked for the pen … They were going to give me my keys. I wasn’t going to raise any kind of concern at that point’ (quoted in Reid 2010). In these instances, debt has an implicitly speculative form, pegged to the future and marked by anxious anticipation and expectation.

In Stockton, California, the city that was dubbed the ‘sub-prime mortgage capital of the United States’ (Clark 2008), speculation became akin to a general and widespread ‘structure of feeling’, driving the sentiment that buying a house, by any means necessary, was what everyone should do. As one resident put it: ‘Everyone was speculating … everyone wanted houses … even the City Council was speculating’ (interview conducted with Diana, Stockton, July 2013). With the ready availability of ARMs, interest-only loans and other so-called ‘affordability mortgage products’, which explicitly enabled and called up what Paul Langley has defined as ‘leveraged investor subjects’ (2009, p. 1406), such debt-based speculation became the norm. Yet for many households (including many low-income households), debt was not simply a financial means to embrace risk, calculation and the benefits of asset-acquisition; it was also simultaneously affective, intimate and entrepreneurial, frighteningly personal and precarious, gut-wrenching, embodied and locked onto the anxious yet nonetheless hopeful promise of provisioning for the future. In this sense, these experiences of debt were very much the total social fact that Mauss (1990, p. 3) envisioned, a cultural and experiential intensity in which ‘everything intermingles’ (cited in High 2012, p. 364).

Stockton was hit hard by the financial crisis. In 2008 it had one of the highest rates of mortgage default and foreclosure, and one in 25 homes was repossessed. Rows of empty, abandoned houses were commonplace in established, relatively affluent suburbs as much as in the new housing developments on the city's fringe. Brown lawns, dumped furniture, new, cheap, ill-fitting locks on the front doors of foreclosed houses that were about to be resold to property speculators became the material signifiers of debt gone bad. These ‘zones of abandonment’, to use Elizabeth Povinelli's (2011) term, also stretched to the homeless families camped in parking lots, the tents pitched under bridges and freeways and the shanty-like structures haphazardly constructed along the main roads. Beyond the subprime ‘scandal’ or financial ‘crisis’, however, ordinary, more endemic forms of financial leverage, speculation and expropriation continued. In 2012 Stockton filed for bankruptcy, in part because a gamble with pension obligation bonds failed to pay off and the city could not service the interest it owed on those bonds. More recently though, according to some residents and community activists, life in Stockton has begun to improve (for example, the murder rate is not as bad as it used to be), and many essential social services such as policing and the fire department are due to return to normal levels in the not too distant future. As the property market also begins to show signs of improvement, however, housing and financial counsellors remain concerned about the next wave of defaulting homeowners.

Conclusion

Remarkably, some accounts of the financial crisis of 2007 have contained no mention of racial or gender discrimination (Shiller 2008). In these explanations, the subprime crisis is usually interpreted as a breakdown of mechanisms that should have functioned efficiently, or as a mispricing of risk, or as a result of imperfect information. But this reification of abstraction, and the subsequent erasure of localized difference and a sense of the lived contradictions of everyday capitalist social relations, has also been a feature of accounts of the crisis from the other side of the political spectrum too. For example, David Graeber (2011, p. 386) argues that one of the most violent dimensions of the debt economy is that it reduces human beings to the abstract and interchangeable state of money, ‘valuable precisely for their lack of history’ (see Spencer 2014). Yet an examination of financialization illustrates the way in which abstraction increasingly proceeds, and in fact depends upon, the concrete and particular (Joseph 2014). Rather than simply confirming the conventional story of financial capital as the relentless abstraction, depersonalization and dematerialization of social relations, as simply the latest instance of what, in Graeber's terms, represents the violent destruction of community by monetary calculation and quantification, we can instead see the subprime crisis as one stage in a ‘step-by-step coevolution of banking strategies and communities, one shaped by and reinforcing patterns of racial and gender inequality’ (Dymski et al. 2013, p. 137).

As a tradeable asset in new strategies of accumulation which are themselves increasingly focused on the everyday life of households and the necessities of their social reproduction, debt, in its conventional guise of measurable quantum, has undergone a significant mutation. Over the past few decades, financial innovations, in particular techniques of securitisation, have become focused on home ownership, home equity withdrawal and on the household's debt-financed asset-accumulation and therefore subsequent payment streams. However, for many debt-refusal campaigns like Strike Debt, as well as for anti-debt activists like David Graeber and Andrew Ross, debt is still really only understood in terms of the formalism of measure, whereby it appears indistinguishable from a prolonged, punitive history of quantification and expropriation. The problem here though is that not only is the important issue of the redefinition of the householder as a ‘free’, asset-accumulating financial subject overlooked, the significance of the disappearance of any real distinction between debt as liability and debt as asset is also downplayed.

Yet this is one of the most important features of contemporary capitalism, and it transforms debt into a dynamic means of financial production and replication, mutable and unpredictable across both time and space when it is securitised as future cash flows (see Lozano 2015). And yet these are ‘debts’ that exist as much more than a simple sense of obligation or liability: the commodification of debt in securitized financial instruments facilitates ever-growing webs of profit-generating interconnection between the public and the private and between consumer and corporate indebtedness and financial markets. So, while finance may be amplifying money's abstraction of value, it is also creating new articulations to the concrete and the particular, reformulating the everyday settings in which the socialness of debt is actually produced and lived out. As Billy Lynne understood, it was not just a casual thing, this knowledge of leverage. In a way, it might be everything.

Notes on Contributor

Fiona Allon is an Australian Research Council (ARC) Future Fellow and Senior Lecturer in the Department of Gender and Cultural Studies at the University of Sydney, Australia. She is the author of Renovation Nation: Our Obsession with Home (2008). Her recent research focuses on cultures of financial calculation in the everyday life of households, specifically in relation to the interface between home/housing, mortgage and financial markets. Parts of this research have been published in the Journal of Cultural Economy, Journal of Australian Political Economy, Australian Feminist Studies and South Atlantic Quarterly.

Disclosure statement

No potential conflict of interest was reported by the author.

Additional information

Funding

This work was supported by an Australian Research Council Future Fellowship [ARC FT0992302].

Notes

1 See, for example, ‘The 40-year-old mortgage you will pass on to your children: House price boom forces buyers to opt for two-generation loans’, Daily Mail, 11 January 2014. Available at http://www.dailymail.co.uk/news/article-2537511/The-40-year-old-mortgage-pass-children-House-price-boom-forces-buyers-opt-two-generation-loans.html#ixzz3TOjrFyz0 Accessed on 1 September 2014.

2 Interestingly, in this essay Deleuze discusses changes to money, including the shift from ‘molded currencies containing gold as a numerical standard’ to ‘floating exchange rates’ as an important site for registering the difference between disciplinary and control societies (p. 180).

3 My ideas on leverage have been influenced by Benjamin Lozano's blog ‘Speculative Materialism’, Available at: http://speculativematerialism.com/. For his Deleuzian analysis of finance, see Lozano 2015. I would also like to acknowledge the helpful and insightful conversations about finance I have had with Benjamin over the last few years.