Pluralistic: 02 Apr 2021

Originally published at: https://pluralistic.net/2021/04/02/innovation-unlocks-markets/


Today's links



The zombie economy and digital arm-breakers (permalink)

It's a zombie economy. For 40 years, we've eroded the wages of workers and transfered their share of profit and productivity to owners of capital. This is a problem, because people need money to buy things, and if they run out of money, they stop buying and profits vanish.

Time and again, capitalism has kicked any reckoning over this down the road. First came the great liquidation: pension cashouts, raided savings, reverse mortgages. Then came consumer borrowing, a tidal wave of unrepayable debt.

That's the zombie part: all the unpayable debt, which has been turned into bonds that enrich debt-holders. As Michael Hudson has told us again and again, debt that can't be paid, won't be paid. Our debt-based economy is the walking dead, a zombie.

We can either stabilize the economy (by forgiving debts, so that producers can pay for necessities and go on producing); or we can stabilize finance (by coercing debtors into destroying their lives in order to keep up on payments):

https://pluralistic.net/2020/03/24/grandparents-optional-party/#jubilee

Think of the loan-shark's arm-breaker: he wants to collect on debt, so he threatens to break your arm. You steal your kid's college fund. You secretly mortgage the house. You sell your wedding-ring. You end up divorced and homeless. You still owe. So he breaks your arm.

Now you're divorced, homeless, and you've lost your ability to earn, and you've got medical bills. He threatens to break your other arm. You start breaking into cars to steal the toll money in the ashtrays. You go to jail. Finally the arm-breaker and his boss are out of luck.

Debts that can't be paid, won't be paid. But as loan-sharks know, fortunes can be collected by applying the right incentives.

Give debtors the choice of immediate ruin from nonpayment, and making a payment today and ruining their lives tomorrow, and they're pay.

They'll pay…until they can't. Because debts that can't be paid, won't be paid.

The zombie economy is the subprime economy. "Subprime" came into collective consciousness thanks to the great financial crisis, where banks tricked poor homebuyers into predatory loans.

The banks knew that the loans couldn't be repaid – they had "balloon" clauses that jacked up payments beyond the borrowers' ability to repay a few years into the mortgage – but they also knew that threats of homelessness are powerful motivators.

The inscrutable equations used to "guarantee" subprime bonds all shared an unspoken assumption: people who face homelessness will go to extraordinary lengths to pay their mortgages. Behind every subprime loan is an arm-breaker.

The zombie economy shambles on. Obama's loan-shark bailout and the eviction crisis let the architects of subprime buy up whole towns' worth of homes and turn them into hugely profitable slums: high-rent, low-quality deathtraps.

https://www.reuters.com/investigates/special-report/usa-housing-invitation/

Wall St landlords package rents from subprime rentals into bonds, backed by the loan-shark's guarantee: arm-breakers will evict the shit out of anyone who stops paying.

America-a land where eviction was once a rarity-now faces an eviction epidemic.

https://www.newyorker.com/magazine/2016/02/08/forced-out

The foreclosure crisis was only possible because Wall St and the courts collaborated to streamline the historically complicated and time-consuming process of taking away someone's home. Same goes for the eviction epidemic.

It's a simple equation: the more loan-sharks spend on arm-breakers, the lower the expected profits.

Improvements to arm-breaking processes – cost-savings on traditional coercion or innovative new forms of terror – are powerful engines for unlocking new debt markets.

When innovation calls, tech answers. Our devices are increasingly "smart," and inside every smart device is a potential arm-breaker. Digital arm-breakers have been around since the first DRM systems, but they really took off in 2008.

That's when subprime car loans boomed. People who lost everything in the GFC still needed to get to work, and thanks to chronic US underinvestment in transit, that means owning a car. So loan-sharks and tech teamed up to deliver a new lost-cost, high-efficiency arm-breaker.

They leveraged the nation's mature wireless network to install cellular killswitches in cars. You could extend an unrepayable loan to a desperate person, and use an unmutable second stereo system to bombard them with earsplitting overdue notices.

https://edition.cnn.com/2009/LIVING/wayoflife/04/17/aa.bills.shut.engine.down/index.html

If they didn't pay, you could remotely cut off the ignition and send a precise location to your repo man.

Smart killswitches let you impose fine-grained control over debtors – say, enforcing a rule against driving over the county line.

https://dealbook.nytimes.com/2014/09/24/miss-a-payment-good-luck-moving-that-car/

Within a decade, the bond-market for payments from subprime car drivers was edging up on $1T; not because borrowers didn't default, but because they defaulted later, and the car could be easily re-leased to another desperate person.

https://www.youtube.com/watch?v=4U2eDJnwz_s

The zombie economy shambled on. Tech built undeletable, always-on kill-switches, lo-jacks, and spyware into an ever-expanding constellation of devices, like laptops.

https://www.theatlantic.com/technology/archive/2016/04/rental-company-control/478365/

Rent-to-own subprime laptops were tepicenter of innovation in digital arm-breaking. Laptops shipped with spyware for covert operation of cameras and mic and access ot files.

That went beyond repoing a laptop! Lenders could make and share covert sex-tapes of their customers!

They spied on children, plundered MP3 collections, stole passwords, read email. It was beyond the wildest dreams of analog loan-sharks.

https://www.ftc.gov/news-events/press-releases/2012/09/ftc-halts-computer-spying

To make a good digital arm-breaker, you need always-on network connectivity, a device that people really depend on, and a strong presumption that the device has core software that its owner is never allowed to remove.

Basically, a smartphone.

Mobile carriers were early to this party. They collaborated with device manufacturers to create a "subsidized phone" market. They would "give" you a phone in exchange for a long-term, abusive contract, and then repo it by terminating service if you missed payments.

This was only possible because the manufacturers helped, creating phones that could be locked to a single network, so you couldn't un-repo your phone by sliding in someone else's phone.

They relied on the "anti-circumvention" laws that the music industry lobbied for in the late 90s (like Section 1201 of the DMCA) to make it a felony to unlock these phones. Arm-breaking is a lot easier if it's a felony to evade the arm-breaker.

The smarter the phones got, the more subprime opportunities there were. Remember, there's a new market in every arm-breaking innovation and in every arm-breaking efficiency.

Which brings me to India.

India has a huge subprime market. As one of the world's inequality capitals, whose national government runs on performative culture war bullshit and giveaways to the super-rich, it's a land ripe for subprime innovation.

Phone manufacturers like Samsung are key to India's vast collateralized subprime smartphone market: first-time buyers get their phones on the installment plans at predatory interest rates so high that most will default

https://restofworld.org/2021/loans-that-hijack-your-phone-are-coming-to-india/

Remember: subprime isn't about debts being repaid in full. It's about making borrowers so desperate that they ruin their lives to make payments before they default.

Samsung's uninstallable arm-breaker app allows lenders to brick a smartphone without help from a carrier.

Writing for Rest of World, Nilesh Christopher describes an "escalating series of annoyances" culminating with a full lockout for failure to repay:

  • audiovisual prompts in regional languages as reminders
  • changing the wallpaper on their cellphones

That escalates to coercion based on analysis of the users' device activity:

  • For "a prolific selfie-taker," notifications every time
  • frequently used messaging and social apps like Facebook or Instagram are progressively blocked

One step at a time, the phone is made progressively less usable, until it is fully bricked.

It's a fully automated, self-configuring arm-breaker, one that substitutes a thug's unscientific ladder of mounting terror with bloodless, statistical science.

This is probably a good point to mention the Shitty Technology Adoption Curve: any disciplinary technology is tried out on powerless people first, and gradually works its way up the privilege gradient to encompass the whole world.

https://pluralistic.net/2021/02/24/gwb-rumsfeld-monsters/#bossware

Debt, after all, is consuming all of us except for the lucky few at the very top of the wealth distribution who have not faced wage stagnation and forced liquidations.

The covid crisis pushed whole countries into subprime status. Pfizer has told poor countries that they can only get access to vaccines if they stake their sovereign assets as collateral to settle claims related to its products:

https://www.thebureauinvestigates.com/stories/2021-02-23/held-to-ransom-pfizer-demands-governments-gamble-with-state-assets-to-secure-vaccine-deal

And the shitty-tech adoption curve is putting arm-breaking tech into every kind of device, spreading with alarming speed from the bottom of the social order to its apex.

Miss your Tesla payments and your car will lock itself, summon a repo man, back itself out of the parking lot, honk its horn, and unlock its doors for the repo man.

https://tiremeetsroad.com/2021/03/18/tesla-allegedly-remotely-unlocks-model-3-owners-car-uses-smart-summon-to-help-repo-agent/

As subprime climbs the shitty tech adoption curve, it gets a new name: "software as a service." In a SaaS world, you cannot own the tools of your profession. Adobe Photoshop becomes Adobe Creative Cloud, and any designer who stops monthly payments becomes economic roadkill.

What's more, software is the ghost in the shell, the animating spirit within physical devices. Remove software from a smart device and you don't have a dumb device, you have a brick.

This lets the arm-breakers exert pressure over larger, more powerful entities…like Hoboken, NJ. Hoboken had a payment dispute with the software vendor for its robotic parking garage, so the vendor bricked the garage and took all the cars hostage.

https://www.wired.com/news/technology/0,71554-0.html

The strange mutations of arm-breaker tech bodes ill, especially in light of Chekhov's Law: "A phaser on the bulkhead in Act One will go off by Act Three."

The universal spread of devices designed to be remotely repoed – bricked, downgraded, turned into surveillance tools – means that oppressive governments that coerce manufacturers will have the power to reach into our homes, cars and pockets to attack us.

Same goes for unscrupulous insiders – like the subprime laptop jokers making nonconsensual sex-tapes with their customers' webcams – and criminals who can pressure insiders into acting on their behalf.

Nevertheless, subprime arm-breaking is bound to spread, and spread, and spread. Covid forced millions to liquidate everything, left them in precarious, sub-minimum-wage gig work, and there's the millions of evictions waiting for the moratorium to end.

Debts that can't be paid, won't be paid. And yet, people must participate in the zombie economy: they're not going to dig a hole, climb in, and pull the dirt in on top of themselves. There is strong demand for credit on any terms. Any.

Arm-breaker tech unlocks new markets by delaying defaults on unpayable debts. The zombie economy shambles on.

Image: Cryteria (modified)
https://commons.wikimedia.org/wiki/File:HAL9000.svg

Sachab (modified):
https://www.flickr.com/photos/sachab/1422847855/

CC BY:
https://creativecommons.org/licenses/by/3.0/deed.en

Kat Northern Lights Man (modified):
https://www.flickr.com/photos/orangegreenblue/11375767914/

CC BY-NC:
https://creativecommons.org/licenses/by-nc/2.0/

(Image: Cryteria, Sachab, CC BY; Kat Northern Lights Man, CC BY-NC, modified)



This day in history (permalink)

#5yrsago 33 state Democratic parties launder $26M from millionaires for Hillary https://www.counterpunch.org/2016/04/01/how-hillary-clinton-bought-the-loyalty-of-33-state-democratic-parties/

#1yrago Turn on wifi sharing https://pluralistic.net/2020/04/02/eff-livestream-today/#digital-divide

#1yrago How you are subsidizing the otherwise unprofitable Fox News https://pluralistic.net/2020/04/02/eff-livestream-today/#unfoxmycablebox

#1yrago Private equity titan squats on empty hospital https://pluralistic.net/2020/04/02/eff-livestream-today/#joel-kills



Colophon (permalink)

Today's top sources: Techdirt (https://www.techdirt.com/).

Currently writing:

  • A cyberpunk noir thriller novel, "Red Team Blues." Yesterday's progress: 1013 words (47787 total).

Currently reading: Analogia by George Dyson.

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"When life gives you SARS, you make sarsaparilla" -Joey "Accordion Guy" DeVilla

Happy Easter. Much to the chagrin of the FIRE sector that (would) pack churches every Sunday, Hudson reminds us of Jesus’ first sermon in Luke 4; 18 “The Spirit of the Lord is on me,
because he has anointed me
to proclaim good news to the poor.
He has sent me to proclaim freedom for the prisoners
and recovery of sight for the blind,
to set the oppressed free,
19 to proclaim the year of the Lord’s favor.”
The sum of a charismatic + a message of clean slate=crucifixion. MLK, Malcom, and Fred Hampton didn’t even get around to the debt forgiveness part.

I live without debt, or i should say, I live without loans. Debt is everywhere, in so many little insidious ways.

Paying for healthcare is a debt. Pay your insurance or pay high medical bills, or pay your insurance AND pay high medical bills. Rent is a debt, in a way.

But I chose to live without loans, to live closer to work (when I was working - thanks Covid (and that isn’t to whine, just to clarify)), to have a cheaper car that I paid cash for, to not have everything, to keep some socked away just in case (which turned out to be needed this last year).

And all of that didn’t seem like a privilege, not for a long time. Perhaps it was ignorance or arrogance that made me think that it was just my choices that got me to this place, where I don’t have loans and debts to service. But it was mostly luck. Luck that I didn’t have a major medical issue. Luck that my career worked out. Luck that I kept my head above water.

I haven’t had a truly lean year since the early 90s, when I ate spaghetti and ground turkey for a week, when I could hardly afford my $250 a month studio apartment in Denver, when I needed help to keep afloat until I got that $8/hour job that paid my way for a few years (can you imagine?). This past year, thanks to being free from loans, being out of work has been manageable on a financial level (on an emotional level, that’s another thing altogether). I didn’t have to get a job at a grocery store, with all the risks of Covid and a public that hates those that keep them afloat.

Those choices shouldn’t be a privilege. They should be a choice that everyone gets to make.

But the world wants you to pay them. And the best way to get them to pay you is to put you in debt to them. And the world will work towards that.

I got an email from a service I rarely use that I paid for in 2013 outright. They are going the SaaS route, and while they aren’t forcing me to change over, they are asking me to voluntarily change to a monthly payment plan. It was fairly cheap then, it’s fairly cheap as far as per month services are concerned, and it’s run by an independent person, rather than a company.

But I’m flummoxed. It was probably obvious to them that doing a one time payment for a service that required upkeep wasn’t a sustainable model, but those were the terms at the time. I want them to keep going, even though I hardly touch the service, but I also have enough SaaS and subscriptions, and another one is chewing me apart. How many more will there be? It’s not expensive, and at the same time, it’s another slice of income that I don’t have right now.

One of the reasons I use Logic Pro for my audio editing (which I am an audio tech by trade) is that there isn’t the steep yearly payments associated with Pro Tools. Yes, I’m locked in to a platform with it, and Pro Tools is widely adopted as the industry standard. My lack of Pro Tools has probably cost me jobs. But it also costs me when there aren’t uses for it.

SaaS as a debt is something that I hadn’t considered, but it makes total sense. Especially when it comes for your wallet directly.

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