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Subprime Nation

Herman M. Schwartz

(Cornell University Press; US: Sep 2009)

It’s truly amazing how many origin stories there are for the US financial meltdown that became the top headline of 2008 (and is still a major headline today). There was the housing crisis, sure, but let’s not forget companies using unmade products as financial collateral, the toxic loans that were being issued by banks all across the board, and whatever tertiary theory that’s being touted by a political pundit around the time that you read this. In truth, there was never a single, defining issue that caused the crash (even though it’s easier for everyone to just say “housing crisis” and call it a day).  Instead, there were several big, big problems that all happened to unfurl within a few years span of each other, and once that first domino toppled, everything else came crashing down right after it.


The 2008 economic crash has become a hugely politicized issue, with both the left and the right turning it into a weapon to use for their own causes, and whether we like it or not, it’s going to be used a big political warhorse for years to come. However, it’s somewhat disconcerting to see politicians and PR-friendly TV-analysts attempting to summarize the global economic meltdown in just a few concise soundbites while completely glossing over some of the more alarming details that have emerged since the crash. To truly understand the best way out of this recession, we must understand what truly caused it to begin with…


...and that’s where Subprime Nation kicks in.


Herman M. Schwartz’s epic analysis of the events that lead to our global financial crisis is assuredly not for the casual reader. Schwartz has crafted a very sophisticated look at US finances both at home and abroad, and in so answers many questions that people generally gloss over, like how the US has managed to continue to make a profit despite carrying an unthinkably huge debt on its shoulders. Yet while his attention to detail is near-obsessive and bound to please fellow economic number-junkies, the finite scope that Schwartz has chosen to work in also limits the amount of readers that can understand what he’s trying to convey. Although Schwartz is to be commended for writing a book that doesn’t even attempt to dumb itself down given the complexity of the issues at hand, that doesn’t prevent it from being weighed down by a great deal of jargon.


From the onset, Schwartz explains what his book will be about, plain and simple: “This book is about politics, and politics is ultimately about power.” Yet, as he goes on to explain, the politics of finance are different than the politics of Washington, because even as we look at any given country’s profit-and-loss sheet for the year, there are factors at work beyond those printed pages that are far more influential (one of his recurring statements in the book is that “all debt is not created equal”). 


True power, he claims, is not simply controlling things and making them do what you want. True power is doing all of that without having to report or justify your actions to anyone. In short, true power is power without any sort of constraint, and an unregulated market is just one of the reasons (but assuredly one of the more important reasons) that the financial crisis ultimately became what it was.


Yet Schwartz’s book requires delving into it for while before it truly takes off. A majority of the second chapter (“Global Capital Flows and the Absence of Constraint”) is spent analyzing the many theories that have emerged about why our economy faltered after what Schwartz calls “the long 1990s” (a reference to that 15-year span of time when the US economy flourished). These theories range from Ben Bernanke’s interest rate argument to Dooley, Folkerts-Landau, and Garber’s “Asia is responsible” response, all of which Schwartz digs into with great detail before unearthing the key note that the subject is (sometimes deliberately) overlooking. 


As great as it is to see these many long-welcomed stances debunked, they unfortunately do little to advance Schwartz’s own arguments. Many of these arguments are not referenced later on in the book, and by lumping them together into one section, their impact is ultimately dulled. Plain and short, it doesn’t make for the most compelling reading, which is a shame too, given that the book really takes off after that point. 


As Schwartz continues on, he begins introducing simple-yet-fascinating concepts in relation to international lending and the history of our country’s housing market, and the historical facts are what Schwartz does best, hitting his stride in particular when talking about the US manufacturing sector, and how even as manufacturing declined in Britain, the US never reached the UK’s level of descent, due to the smart transfer of jobs to other countries while still operating in official US capacity. In fact, the more that Schwartz discusses the lending practices of the US in relation to other countries, it’s somewhat frightening to discover: A) how much of our money is actually being made in overseas investments, and B) how tightly our own economy is tied into foreign markets and to what end. It is here that the concept of financial politics is brought into play again, as the US has been given a “free pass” from neighbor nations in more than a few instances, which—although occasionally beneficial in the short-term sense of things—still left certain US practices unconstrained, which, ultimately, only contributed to the somewhat destructive practices that lead to the financial collapse later on.


Of course, all these summaries are still oversimplifying the issues at hand. Schwartz’s book has a “warts-and-all” approach to viewing the practices that the US employed during the “long 1990s”, yet the US isn’t as responsible for as much as we are sometimes lead to believe. When all is said and done, there are many questions that still linger following a thorough reading of Subprime Nation—but, fortunately for us, there aren’t as many as there were before.

Rating:

Evan Sawdey started contributing to PopMatters in late 2005, and has also had his work featured in publications such as SLUG Magazine, The Metro (U.K.), Soundvenue Magazine (Denmark), the Daily Dot, and multiple national newspapers. Evan has been a guest on RevotTV's "Revolt Live!" as well as WNYC's Soundcheck (an NPR affiliate), was the Executive Producer for the Good With Words: A Tribute to Benjamin Durdle album (available for free at GoodWithWordsAlbum.com), and wrote the liner notes for the 2011 re-release of Andre Cymone's hit 1985 album A.C. (Big Break Records), the 2012 re-release of 'Til Tuesday's 1985 debut Voices Carry (Hot Shot Records), and many others. He currently resides in Chicago, Illinois. You can follow him @SawdEye should you be so inclined.


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