Over the past year, we've repeatedly written in favor of anti-usury legislation at the state and federal level. Sen. Dick Durbin has been consumers' most consistent champion in Washington, proposing a Financial Product Safety Commission, introducing legislation to implement a federal usury cap of 36 percent interest on all consumer credit transactions, and spearheading the congressional fight over crucial mortgage bankruptcy reform. Like Durbin, Rep. Luis Gutierrez has also advocated for substantive regulations on the credit card industry so people aren't exploited when they turn to credit to finance everyday needs. In Springfield, the results have been mixed: Attorney General Lisa Madigan has fought hard against deceptive mortgage lending practices, but necessary payday loan bills have languished in committee, no doubt because of generous campaign contributions on the part of this powerful industry.

Why focus on these measures? In a cover story for Harper's this month (subscription required), Chicago labor lawyer and former 5th Congressional District candidate Tom Geoghegan lays out the basics in brilliant detail. As with any Geoghegan article, his sweeping and idiosyncratic writing style is hard to pare down. But the central thesis of his piece is simple -- the deregulation of usury and the decimation of labor laws has warped the economic balance between capital and labor, creating a house of cards that inevitably crumbled:

Here’s what happens: the financial sector bloats up. With no law capping interest, the evil is not only that banks prey on the poor (they have always done so) but that capital gushes out of manufacturing and into banking. When banks get 25 percent to 30 percent on credit cards, and 500 or more percent on payday loans, capital flees from honest pursuits, like auto manufacturing. Sure, GM is awful. Sure, it doesn’t innovate. But the people who could have saved GM and Ford went off to work at AIG, or Merrill Lynch, or even Goldman Sachs. All of this used to be so obvious as not to merit comment. What is history, really, but a turf war between manufacturing, labor, and the banks? In the United States, we shrank manufacturing. We got rid of labor. Now it’s just the banks.

In response to our regular items on payday lending and other exploitative forms of consumer credit, we often get comments (many of them written by representatives of the industry) arguing that these services actually do the public a service by offering loans (with exorbitant interest rates) to those who have no other option.

In discussing consumer credit, the industry likes to narrow the discussion by focusing on the individual customer and pigeon-holing oppoents of their abusive practices by asking where these individuals are supposed to go to get emergency cash.  What Geoghegan manages to do in this piece is broaden the discussion, pointing out that these forms of credits don't just devastate many individuals, they have also helped devastate our economy from a macroeconomic perspective.

As money flowed away from manufacturing, the United States racked up enormous trade deficits. To compensate, we grabbed foreign capital and threw it back into the banking industry, which stuffed it into new financial "products" that ultimately proved to be completely unsustainable. And the cycle repeated itself for decades. Geoghegan calls it the "autocatalytic reaction": "It just kept going," he writes. "All of that cheap money would have been a good thing if it had gone into manufacturing. But it didn’t."

While he praises the "saintly" Durbin for his efforts, Geoghegan offers his own innovative and highly progressive slate of reforms, many of which he pushed during his congressional campaign. These include capping interest at nine percent, (then letting a federal agency give exemptions to banks that want to raise rates up to Durbin’s limit), setting up state-owned financial institutions that would lend to the credit-worthy clients and "set benchmarks not only for how the private banks should behave but how the people should behave as well," and requiring bailout recipients to cancel consumer debt.

But don't take our word for it -- go read the article now. If you don't want to buy the whole issue on newsstands, we'll let you know when it's been published online.