Promissory Notes

PROMISSORY NOTES Promissory Notes ON THE LITERARY CONDITIONS OF DEBT By Robin Truth Goodman Professor and Associate Chair of English Florida State University Copyright © 2018 by Robin Truth Goodman Lever Press (leverpress.org) is a publisher of pathbreaking scholarship. Supported by a consortium of liberal arts institutions focused on, and renowned for, excellence in both research and teaching, our press is grounded on three essential commitments: to be a digitally native press, to be a peer- reviewed, open access press that charges no fees to either authors or their institutions, and to be a press aligned with the ethos and mission of liberal arts colleges. This work is licensed under the Creative Commons Attribution- NonCommercial- NoDerivatives 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-nd/4.0/ or send a letter to Creative Commons, PO Box 1866, Mountain View, California, 94042, USA. P PR MS The proposal of this work was subjected to a fully closed (“double blind”) review process. The complete manuscript of this work was subjected to a partly closed (“single blind”) review process. For more infor- mation, please see our Peer Review Commitments and Guidelines at https://www.leverpress.org/peerreview DOI: https://doi.org/10.3998/mpub.10209707 Print ISBN: 978- 1- 64315- 000- 0 Open access ISBN: 978- 1- 64315- 002- 7 LCCN: 2018958665 Published in the United States of America by Lever Press, in partnership with Amherst College Press and Michigan Publishing Manufactured in the United States of America You no longer need foreign armies to control the population . [Debt] has rendered historical concepts of national independence almost meaningless. — Juan González It is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe that there would be a revolution before tomorrow morning. — Henry Ford Sr. Acknowledgments Lever Press is a joint venture. This work was made possible by the generous support of Lever Press member libraries from the follow- ing institutions: Adrian College DePauw University Agnes Scott College Earlham College Allegheny College Furman University Amherst College Grinnell College Bard College Guilford College Berea College Hamilton College Bowdoin College Harvey Mudd College Carleton College Haverford College Claremont Graduate Hollins University University Interdenominational Claremont McKenna College Theological Center Clark Atlanta University Keck Graduate Institute Coe College Kenyon College College of Saint Benedict / Knox College Saint John’s University Lafayette College The College of Wooster Lake Forest College Denison University Macalester College Middlebury College St. Lawrence University Morehouse College St. Olaf College Oberlin College Susquehanna University Pitzer College Swarthmore College Pomona College Trinity University Rollins College Union College Santa Clara University University of Puget Sound Scripps College Ursinus College Sewanee: The University of Vassar College the South Washington and Lee Skidmore College University Smith College Whitman College Spelman College Williams College viii Acknowledgments Contents Introduction 3 1 Futures and Fictions: The Right to Make Promises and the Object That Never Was 18 2 Debt’s Geographies: Inequality, or Development’s Dance with Dead Capital 56 Notes 101 Works Cited 119 Online Appendix: https://doi.org/10.3998/mpub.10209390.fulcrum.cmp.1 INTRODUCTION “You know the old joke,” begins David Dayen of The Nation. “How do you make a killing on Wall Street and never risk a loss? Easy— use other people’s money” (13). Dayen’s article is about J. P. Morgan’s settlement on a case of misconduct when they “robo- signed” possibly thousands of foreclosures after the housing crisis of 2008. By “robo- signed,” Dayen means that J. P. Morgan did not investigate the contents of the foreclosure documents. In a 2013 settlement, J. P. Morgan was required to forgive $4.2 billion worth of foreclosures and pay another $4 billion in consumer relief for deceiving mortgage investors. In order to comply with the settlement, however, J. P. Morgan “was forgiving loans on properties it no longer owned” (13; original emphasis). J. P. Morgan had sold tens of thousands of toxic loans years before at bargain rates in order to get the loans off its balance sheet (1st Fidelity Loan Services is the buyer that Dayen focuses on in a deal arranged by Nationwide Title Clearing, associated with, weirdly enough, the Church of Scientol- ogy) and yet had not taken the properties out of its secret “dump” of distressed properties and had not even provided full documenta- tion on the properties to those who bought the loans, even admit- ting that they were still collecting payments on those properties. They then proceeded to “forgive” the loans they no longer owned in order to honor the mortgage forgiveness requirements in the settlement. Dayen concludes that the Justice Department under the Trump administration is unlikely to pursue litigation. The issue here is not only that bankers have been profiting from using other people’s money by expanding debt. Dayen’s story also shows that bankers have taken over the sovereign state’s role of creating money by creating characters who hold the same money that they do at the same time as they do1— this made it possible for them to own the same money twice. In other words, the old joke really is that bankers are making money by using nobody’s money or, rather, using no thing that still has the name of money in order to create more money for themselves under a different name. That is, bankers are profiting from using their own money multiple times by distributing the same money to multiple fictional entities with multiple fictional personalities under multiple fictional names: they are, in essence, sharing the profits from their properties with multiple versions of themselves. J. P. Morgan could then claim (e.g., if a payment came in) that they were the owners of the loans even while they could also claim (e.g., if there were an enforcement issue or an associated cost) that another company was responsible. The practice of expanding the money supply by expanding debt— that is, of expanding the money supply by representing money in multiple money endeavors at once— is not aberrant or criminal but quite simply the rule of capital. J. P. Morgan was the company that came up with the idea of what is now broadly called the credit default swap (also known as “synthetic collateralized debt obligations” or “securitization”). The credit default swap is an instrument that furthered the excesses that most people believe led to the 2008 financial crisis. It basically allowed financial companies to reduce their reserves and transfer the risks of the loan to another company. According to British nov- elist John Lanchester in his nonfiction account of the crisis, I.O.U., in 1989, Exxon needed to open up a credit line to fund cleanup 4 Promissory notes after the Exxon Valdez spill. J. P. Morgan had a long- standing rela- tionship with Exxon and wanted to help them out, but the money could be better spent elsewhere, since the cleanup was not likely to be lucrative. So J. P. Morgan came up with the idea of selling the loan to the European Bank for Reconstruction and Develop- ment for a fee. That way, J. P. Morgan did not need to hold reserves against the loan and could still use their reserves to loan out the same money to someone else, and the regulators looked the other way because the banks could say they were maintaining the legal level of reserves (remember, all this was to cover the costs of a sink- ing ship, so to speak). “J.P. Morgan,” concludes Lanchester, “had found a way to shift risk off its books, while simultaneously gen- erating income from that risk and freeing up capital to lend elsewhere” (70). This mechanism could succeed in a time of growth, but if money were receding, the banks could not pay because they were overleveraged. Eventually, the third- party bank that held the loan was replaced by financial instruments that bundled up the loans, mixing different levels of risk assessed not by evaluating a person or company’s financial records and histories2 but rather through complex math- ematical models that referred to constructed averages, composites, and bell curves rather than to actual financial actors. The bundles of loans absorbed risk by dispersing it throughout the system to a variety of named entities.3 These J. P. Morgan incidents divulge a trend in financial meth- ods: that is, finance is indebted to literary practices. In this instance, profits are made by constructing believable characters who transact on a believable financial stage. They are made as characters by hold- ing money, as their personalities are built on traditions of securing value that literature has developed as well as on literary traditions that envision characters as a composite of social positions and averages so that they seem compelling, identifiable, and sympathetic across a broad array of types of readers. Similar to the way J. P. Mor- gan created shells to hold value, for nineteenth-cen tury novelists introduction 5 like Anthony Trollope, for example, mentioning the value of a person’s assets and annual income did a lot of the work of establish- ing character traits, often stood in for explaining the character’s moral positions, and also revealed the character’s social networks and place in the community (in terms not only of class but also of influence, trustworthiness, political potential, and connections). “The revenues from the Scotch estate,” The Eustace Diamonds nar- rator tells us about the recently widowed Lizzie Eustace, “—some £4000 a year— were clearly her own for life” (52), whereas her some- times lover Frank Greystock, “at present .

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