"Borrow" traces the roots of U.S. debt crisis

The American Way of Debt
By Louis Hyman

Vintage Books. 292 pp. $15 paperback

There are plenty of villains: social engineers and market ideologues in Washington; lying bond traders, conflicted credit analysts, careless bank bosses and investment funds on Wall Street; lenders and builders and borrowers across America: All found it profitable not to worry about shaky loans, until they blew up.

Cornell University historian (and ex-McKinsey & Co. consultant) Louis Hyman has written a breezy book that goes deeper. Skimming decades of news, testimony and arcane trade reports, he reminds us that this has happened before, and that there was nothing secret about the public and business decisions that led to cheap money, price inflation, collapse, mass foreclosures, and bailouts.

Americans' refusal to worry too much about history is a national strength in some ways, but it also makes our recurring financial crises more emphatic.

In the early Republic, Hyman tells us, borrowed money was for rich people only; for everyone else, it was a sign of weakness and impending doom. Speculators, gamblers, and other marginal figures who gave in to weakness and borrowed were liable to wind up in debtors' jails like Philadelphia's Prune Street Prison.

Railroads opened the way for farmer-investors willing and able to borrow. Bankruptcy law eased the finality of failure. Personal consumer lending, as we know it, began in the 1920s, as pioneering loan financiers, instead of sitting on borrowers' notes, packaged and sold them to spread the risk and finance new loans. Henry Ford insisted on cash for his Model T's, but his rivals, led by DuPont Co. financier John J. Raskob, set up General Motors Acceptance Corp. to finance auto sales to the working masses.

President Franklin D. Roosevelt's New Deal planners, frustrated by surviving banks' reluctance to lend again, created the Federal Housing Adminstration and Fannie Mae to boost the prostrate home-building business. After World War II, they financed the new suburbs.