By Kent Paterson
Ruled essentially by the rules it established in NAFTA and other trade agreements, the lives of the working and middle classes in the United States and Mexico have been shaped by the same investors, lenders, achievers, hoarders, peddlers, and political players on both sides of the United States. border
Today middle-aged and with a family to support, government employee Gerardo González González has pursued a personal economic strategy that has become familiar to countless Mexicans. Using credit cards to make up for stagnant salaries, González has juggled multiple accounts, missed a couple of payments, and even landed at the Credit Bureau. But the resident of the city of Aguascalientes insisted that he is not a frivolous person who uses credit cards to go partying at night or fly to a beach resort on credit for six months without interest. The plastic money goes to expenses like cell phone bills, equipment for her cameras, computers for her children, and medical emergencies. "You never know when you will need them (credit cards)" observes González.
Once a status symbol for the upper middle class, in recent years credit cards have become extremely easy to come by in Mexico. According to the National Commission for the Defense of Users of Financial Services (Condusef), the number of credit cards issued by banks jumped from 6.1 million to 26.1 million from 2001 to 2008.
Most of these debts end up in the coffers of foreign-owned banks, which, says the Condusef, charged annual interest rates, on average, between 47% and 113% in early 2009. Analysts estimate that financial corporations with headquarters in the United States, Spain, the United Kingdom, the Netherlands and other countries, they effectively control 80% to 90% of Mexican bank capital.
In a 2008 article published by the Americas Program, researcher and activist Peter Cervantes-Gautschi, co-director of the Oregon nonprofit Enlace, described how the Clinton administration and the International Monetary Fund laid the groundwork and ground for the acquisition by foreigners of the Mexican bank as part of the rescue operation of the Mexican economy in 1994-95.
Currently, Banamex (owned by Citigroup), Santander, HSBC and other organizations based abroad are the Lords of Mexican finance. Mexico even serves as a springboard for the expansion of these foreign financial corporations to other Latin American countries. In 2008, Banamex acquired Grupo Cuscutlán, a financial institution that operated in Guatemala, Honduras, El Salvador and Costa Rica.
Two landmark events accompanied the credit card boom, dramatically transforming the economic landscape in Mexico in recent years. First, the banks spread to virtually every corner of the nation. According to the Mexican Banking Association, there were some 10,800 banks in the country at the end of 2008. With more than 31,800 ATMs and 427,000 sales terminals (branches), banks are filling virtually every chink of Mexico's economic life. Plans are already underway to establish internet banking at every OXXO and Seven-Eleven, chains of "convenience stores" that swiftly supplant the folkloric changarro, the family grocery store, once hailed by former President Fox as the business response to unemployment.
Second, the increased availability of credit cards fitted into a retail model favored by the North American Free Trade Agreement (NAFTA). Well versed in transactions with plastic money, huge supermarket chains sprung up almost everywhere on Mexican soil. By 2005, Wal-Mart controlled 44.8 percent of the department store market and was the largest private employer in the nation. Perhaps to no one's surprise, the Texas-based giant immediately entered the Mexican financial services market with its Wal-Mart Adelante Bank.
At first glance, it seemed that the proliferation of banks and credit cards would render obsolete the type of credit so familiar to Mexicans in financial trouble: the agiotista, or neighborhood moneylender shark. However, the growing indebtedness of Mexican credit card users actually opened a new opportunity for the usurious lender of doubtful transactions. To pay off their high-interest credit cards, some debtors turn to loan sharks again.
"Now there are even people who turn to them (the usurers) because they have a huge problem with the banks," said Gerardo González.
The rise of credit cards in Mexico was complemented by an explosion in the availability of other forms of credit, be it with the car as collateral, pawn shops, recurring payment ("payday") loans. Even loans to private school students became part of the expensive money mix.
In 1996, as part of its drive to liberalize goods and services of all kinds, the Mexican government opened the market for pawnshops or montepíos. By 2006, about 4,500 private montepíos branches had been formed and operated, including businesses affiliated with First Cash Financial Services and EZCorp, US corporations. Citing reports, Texas Senator Eliot Shapleigh, a prominent critic of predatory lending practices, noted in a statement that EZCorp - which is now transnational - pocketed a net income of $ 52 million from $ 457 million in earnings. during 2008.
With deafening music in the streets, "specials" of the Day of Love and Friendship, and sometimes costumed dancers who promote them by dancing at their doors, pawn shops are today a striking addition and of doubtful taste on the business scene. Mexican. One company even created a cartoon character, "Super Ticket", to rescue consumers "in this time of crisis." More than two million Mexicans are officially unemployed, and those who are hungry for cash can go to the local branch of Prendamex or Prendalana to pawn the grandmother's wedding band at an interest rate of 130% to 156%.
With limited staff and resources, the Mexican government finds it difficult to regulate the plethora of new montepíos and microfinance institutions.
In an interview earlier this year, Enrique José Castro Soto, director of the Guerrero state office of the Federal Consumer Prosecutor's Office (Profeco), estimated that there were 150 pawn shops in the city of Acapulco alone. Castro reported that Profeco inspectors had visited 60 of these businesses to ensure that they complied with the regulations, for example, having all consumer charges, insurance policies and contracts required by law registered and up to date. Profeco staff discovered irregularities in 32 of the 60 establishments inspected, Castro acknowledged. The Montepíos in Acapulco charged annual interest rates of between 60% and 300%, according to the federal official.
"Some behave responsibly, others not so much," Castro said.
Unlike pawn shops, microfinance companies, or "payday lenders" exist in a kind of black hole between the montepíos regulated by Profeco and the banks regulated by Condusef, and they are not subject to government supervision. There are those who wonder about the origin of the investment capital necessary to open all these new businesses.
Part of the first generation of Mexicans to grow up in the credit card economy, Aguascalientes resident and recent college graduate Angélica Barba received her first credit card thanks to the sponsorship of the institution of higher education she attended. With an extensive knowledge of the advantages and disadvantages of credit cards, even she was amazed at the rise of pawn shops.
"I have seen an incredible number of them in the last two months. I live in a middle-class neighborhood and the number of pawn shops is impressive," said Angélica. A friend of mine works in one of them and the amount of money they earn from the interests of people who do not want to lose their belongings is impressive. "
Made in USA model
The modern credit-based economy that forms in Mexico was perfected in the United States long ago. As unions declined, inflation rose, and wages worsened, US workers made up for the loss of wage income by resorting to various credit instruments offered by the burgeoning financial sector. Real estate loans, cash advances, "payday" loans, credit cards, auto and student loans, and later subprime mortgages, all became the defining parameters of an individual American lifestyle. . In contrast to collectively bargained wage and benefit increases, workers' living standards were increasingly determined by individual negotiations with a host of moneylenders. And the cost of the new economic relationship was not low.
A decisive and crucial moment occurred in 1978, when the resolution of the U.S. Supreme Court. Marquette National Bank vs. First of Omaha Service Corp stripped each state of the power to limit interest rates on credit cards issued by banks in other states. This was followed by the deregulation of financial institutions by successive Democratic and Republican governments.
At the state level, the predatory lending industry flourished thanks to weak regulatory structures and friendly politicians looking for cash. In some cases, interest rates on recurring payment ("payday") loans reached the unprecedented level of 1,100%.
"The law against usury has existed since the time of the Babylonian Empire, and now we have dismantled it," author Thomas Geoghegan recently wrote in Harper’s Magazine.
As with other social indicators in the United States, debts on credit cards and other types are not color blind to the user. As reported by the National Council of La Raza, 13% of Latino users are charged interest rates higher than 20%, against only 7% of Anglo-Saxon users subject to the same high rate.
Across the United States, providers of recurring payment (payday) credit are established around military bases, low-income neighborhoods, and immigrant and people of color communities. A 2003 study by the Southwest Center for Economic Integrity found that 37% of "payday" credit establishments in Arizona's Pima County are located within a quarter of a mile. of Latino communities.
According to Dr. Richard Wolff, professor of economics at the University of Massachusetts-Amherst, the capitalist class almost reached its nirvana in political economy that prevailed in the 1970s. Wages fell or stagnated, working hours increased, and productivity rose. Capitalists facing a potential purchasing power crisis in the consumer class found the perfect remedy: "It's in your wallet. It's called a credit card," Wolff said recently on the Boulder-based Alternative Radio program.
According to recent reports in the US press, 700 million credit cards circulated last year. Credit card debt jumped 25% over the past decade, racking up nearly half of a $ 2.5 trillion personal debt burden in 2008. The figure excludes home mortgages. Credit card late payments in the United States reached 5 percent at the end of last year, with default rates still on the rise during the first months of 2009.
Wolff is among those analysts who believe the working class is financially to the bone. "This is a population that has reached its limits; it cannot take on more debt or work more," Wolff said.
Consumers in the U.S. Once they received mountains of credit card offers in the mail, they now receive "robot calls" from "Jessica", "Ambar" or "John Stevens" that promise lower interest rates on credit cards or supposedly interest-free credits.
In Mexico, delinquencies exceeded 10% during the first quarter of this year, with some reports that the real rate was double the official figures. The crisis literally crossed borders. Middle-class Mexicans with credit cards accustomed to doing their shopping in the US border cities. They found themselves in a bind last fall after the peso began to gradually devalue 40-50% as interest rates on credit cards soared. Shopping centers in El Paso, Texas, dependent on Mexican clientele, suffered from the pinch. "We don't get as much business as usual," said Ana González, manager of the Shine women's clothing store at Sunland Park Mall in El Paso.
Ruled essentially by the rules it established in NAFTA and other trade agreements, the lives of the working and middle classes in the United States and Mexico have been shaped by the same investors, lenders, achievers, hoarders, peddlers, and political players on both sides of the United States. border.
Are the Credit Lords being held back?
Both in Mexico and the United States, citizen and government initiatives have sought to stop the worst abuses of the credit system. When interest rates on credit cards began to climb last year, groups from both countries began protesting against bank credit policies. Mexico went through a similar conflict during the 1994-95 economic crisis, when interest rates soared exorbitantly, prompting the mobilization of El Barzón, who represented and, many times successfully, defended debtors.
But recent protests in Mexico have been more fragmentary, from blogs vociferously condemning usury to demonstrations in front of banks organized by teachers, by supporters of opposition leader Andrés Manuel López Obrador, and others. Scattered calls for a strike on credit card payments or a boycott of Banamex credit cards drew little response from the public. The banks bought time with some debtors, agreeing to restructure private debts with the blessing of the Condusef.
Last year, some Mexican congressmen began to proclaim the need to cap interest rates; The final result was that this year a rather weak law was approved that gave the central Bank of Mexico greater freedom to publish interest rates as a strategy to promote competition; likewise, banks that deviate from creditworthiness practices could face relatively light penalties in the future.
A similar trajectory followed in the United States, when popular ire was stoked by the US Congress and Federal Reserve's bailout of collapsing financial institutions.
From the pacifist ANSWER coalition to "A New Way Forward" (or "New Advancement"), different groups demonstrated demanding various measures such as imposing a limit on interest rates, or nationalizing and spinning off the banks. The Oregon organization Enlace, which works with immigrant workers, has proposed taxing federal ransom money to help pay for emergency medical services threatened by cuts in resources. Meanwhile, a new movement against usury and debt consolidation and sale emerged in the churches, also partly based on immigrant communities and affiliated with the Saul Alinsky-inspired Industrial Areas Foundation.
More than a few respected voices supported the spirit of the nascent movement.
"We need to spin off the banks (which are) too big to fail," wrote the Nobel Laureate in economics Joseph Stiglitz. "There is no evidence that these monsters produce social benefits commensurate with the costs they have imposed."
On Capitol Hill, Independent Senator Bernie Sanders proposed legislation that would have capped interest on credit cards at 15% in most cases. Sanders' proposal was defeated last April by a 33-60 vote in a Senate dominated by Democrats. Twenty-two Democrats joined Republicans in ending the measure.
"We believe that if we are giving low or no interest loans and funds to all those banks, they should not be allowed to turn around and charge exorbitant interest rates, Sanders aide Will Wilquist said after the vote.
Rather than cap interest rates, the U.S. Congress and President Barack Obama signed a new law known as the Credit Cardholders Bill of Rights. In general, the media and liberal commentators saw the passage of the law as a triumph for consumer rights. An Associated Press report even ventured to say that the law will "revolutionize" the credit card industry. credit.
A closer look at the law reveals that while it will end some of the most egregious abuses, such as raising interest rates for a customer who has been late paying a totally different bill, and prohibiting retroactive interest rate hikes on existing balances, this legislation actually does nothing to prevent banks from imposing stratospheric fees on credit card purchases. Similar to rules whose application was already pending anyway in the US Federal Reserve, the Bill of Rights of Credit Card Holders will apply from the year 2010, thus giving banks more than enough time to scam customers if they want to.
In Mexico, as in the United States, the financial industry argued that putting a cap on interest rates would affect the ability of banks to extend credit to as many people as possible, especially low-income people who were the most urgently needed. in need of additional income. Politicians on both sides of the border bought not only this argument, but many others put forward by the banks.
In the United States, any challenge to banking might immediately crashes into the revolving door between former congressional employees and federal "regulators" who act as lobbyists for the financial services industry, as well as mountains of campaign cash. that banks and insurance companies pour out on senators and representatives.
Perhaps the quote that most succinctly captures the political reality of the times was from Illinois Senator Dick Durbin, who recently said that the banks "own" the Capitol. At the state level the situation is not very different.
Critical of the governor's recent appointment of former Cash America Vice Chairman William White to chairman of the Texas Finance Committee, Texas Senator Eliot Shapleigh did not beat around the bush. "In Texas, the fox is not in the hen house. The fox owns the hen house," Shapleigh said.
Despite public derision at their high interest rates and widespread humiliation by the subprime mortgage disaster, banks have stopped potentially serious challenges to their power. But for millions of people on both sides of the border, the credit card crisis, and the broader debt crisis, those will not go away.
Like the historic movements to end child labor and win the eight-hour workday, freedom from debt bondage is emerging as one of the hottest social issues of the twenty-first century. And in an age when financial services are globalized, any mobilization to overthrow the Lords of Credit must transcend borders if it is to be successful.
Kent Paterson is a freelance journalist covering the southwestern part of the United States, as well as Mexico and Latin America, and is an analyst for the Americas Program. Published in www.ircamericas.org - June 30, 2009
Translation by: Maria Soledad Cervantes Ramírez