Wednesday, February 15, 2012

In 2008, Katie Porter (pictured below), then a UI College of Law professor, proposed a topic for the Obermann Summer Seminar on consumer debt in America. For two weeks the following summer, she and a group of eleven participants--including professors in law, psychology, urban and regional planning and medicine--met at Obermann to discuss different perspectives on this topic. Each participant came with a draft of a paper, which he or she then honed into a final book chapter. 

Now, with publication from Stanford University Press, Broke: How Debt Bankrupts the Middle Class, Porter's book could not be more timely. Americans are still struggling not only to recover from the recession that was hitting just as the Summer Seminar took place, but to understand it. Professor Porter (KP), now at UC-Irvine, chatted with Obermann Assistant Director, Jennifer New (JN), about the project.

JN:  Why did you propose this topic, both with regard to your own scholarly interests and where the country was at the time of your application?

KP: In 2008, when I proposed the seminar, the economy was reeling from the financial crisis. The federal government was rescuing major financial institutions, and people did not know whether the situation was going to improve or worsen. The financial crisis certainly made consumer debt a timely topic for the 2009 seminar. In the Introduction to Broke, however, I explain that the run-up in consumer debt is a long-term phenomenon. It reflects major structural changes in the economy and is rewriting the rules for middle class families about how to achieve and maintain prosperity. My own interest in consumer debt comes in part from growing up in rural Iowa during the farm crisis of the 1980s. I watched farmers and small town citizens struggle against foreclosure, bankruptcy, job loss, and the family stress of financial problems. Those personal observations motivated me to study how debt can destabilize communities and families, and how the law can offer relief from overindebtedness.

Katie Porter

JN:  Elizabeth Warren was part of the seminar and co-authors a chapter of the book. A professor at Harvard, Warren has since served as an assistant to President Obama and a special advisory to the Secretary of the Treasury on the Consumer Financial Protection Bureau. She is now running for the US Senate. Did you know Professor Warren going into the Seminar and what did her participation bring to the group?

KP: Professor Elizabeth Warren taught me bankruptcy law when I was a student at Harvard Law School. She is an amazing teacher, bringing passion about her subject and incredible technical mastery of law and policy to the classroom. Her chapter in Broke looks at how bankruptcy remains--and indeed, has become even more so in the recent decade--a refuge for middle class families who are overwhelmed with debt. One of Professor Warren's amazing talents is her ability to speak plainly about hard subjects. Her chapter helped establish a model for all Seminar participants about making Broke accessible to a general audience. She cares deeply about the financial well-being of American families, and her participation in the Seminar is another expression of that commitment. Like the other participants, she hopes Broke will provide insights about consumer debt as a policy problem.

JN: To give a sense of the scope of bankruptcy and personal financial turmoil in the U.S., 1.5 million families applied for bankruptcy in 2010. You write, "The debt loads that are commonplace among today's families would have been unthinkable a mere generation ago. The Great Recession that began in mid-2007 has widened the scope of the financial pain caused by overindebtedness, but the problem predated the large-scale economic meltdown headlines." Do you see any change in our habits, at the personal level or as a result of government policy, that might incrementally shrink these debt loads? In other words, are we still in the same rough spot or is there any sign of improvement?

KP: The financial crisis slowed household borrowing for a few years, and families began to increase their savings. Consumer debt is down about 8% from its peak in 2008. But that is a pretty modest change. When you look back over the last several decades as I do in the first chapter of Broke, you can see that consumer debt remains at near-record levels. Part of that situation is that mortgage debt is hard to shed; it's a long-term commitment that families made to tie up their income in homeownership. And in recent months, however, borrowing is ticking back upward. In particular, we are seeing a huge growth in student loan debt burdens. I think we are going to continue to see millions of families suffer from bankruptcy or foreclosure each year in the next decade. Consumer debt is going to remain one of the defining features of the American middle class, and it is going to continue to be a major issue for policymakers to grapple with as they try to improve the American economy.

JN: If you were to run another Obermann Summer Seminar now, what would its focus be?

KP: My dream seminar for 2012 would focus on homeownership. Mortgages were the catalyst for the financial crisis, and the housing market remains a major burden on America's economic recovery. It is remarkable to me that despite the record foreclosures and mortgage debt overhang, policymakers have not articulated a new framework for American homeownership. Our country still hasn't grappled with key questions about whether the government should be subsidizing mortgages, which bears directly on Broke's focus on the middle class and its debt loads. Two chapters in Broke specifically focus on homeownership. University of Iowa professor Jerry Anthony writes about how families in bankruptcy spend a large fraction of their incomes on housing costs, and Marianne Culhane, Dean of the Creighton University Law School, writes about where families go when they lose their homes to foreclosure and the ways in which families suffer as a result.

JN: I know how challenging it can be to get academic books into the hands of the reading public. I wonder if you're having success with the book beyond the academic press, and also who you'd most like to read this book?

KP: The book is attracting attention from a wide audience, I think in part because there is a growing consensus that consumer debt remains a serious problem for American families and the economy. I have written about the book at the blog that I share with several other scholars, Credit Slips and that has helped expand the book's reach to media, congressional staffers, consumer advocates, and other financial writers. I've taught a law school seminar built around the book, and sociologist Deborah Thorne, a Seminar participant, has assigned the book in her graduate course on Consumerism. Students find the book accessible, and we have made the syllabi for those courses available to interested teachers at the book's website, A major goal of the seminar participants was to create a work that could help teachers from many different disciplines explore consumer debt issues with their students, and I am glad to see the book reaching future scholars.