TIME Money

The Long, Twisted History of Your Credit Score

Lewis Tappan
Hulton Archive / Getty Images Circa 1840: Lewis Tappan (1788-1873). American merchant and abolitionist who founded the first United States agency for rating commercial credit in 1841. Original Artwork: Engraving by J C Buttre

History’s lessons for surviving life in the age of the credit report

The credit score is a strange piece of financial alchemy. And yet many Americans see their scores—which claim to encapsulate everything from one’s credit history to one’s attitude toward debt—as normal, even natural.

But, of course, it is not. Credit reporting, in its modern sense, is fewer than 200 years old—invented as part of America’s transition to capitalist modernity. Already, however, its history has proved both alarming and empowering, helping millions realize the American Dream through access to credit, while integrating many more into surveillance networks rivaling the NSA’s. Just as importantly, it has saddled the majority of Americans with a lifelong ‘financial identity’: an un-erasable mark that reflects bad behavior in the past and compels good behavior in the future.

At a moment when credit reports are being used to inform a wide range of life decisions—from where people live and work, to how much they’ll pay for insurance and utilities—this history is more important than ever.

***

For much of debt’s 5,000-year history, credit reporting has been a deeply personal practice. In 18th-century America, for instance, country storekeepers secured loans by asking well-regarded neighbors to vouch for their character to bankers and merchants. And urban creditors mined far-flung rural acquaintances for rumors and hearsay regarding applicants for credit.

Beginning in the 1820s, however, credit reporting began to modernize, as the density of business transactions made the old system too cumbersome. New bankruptcy laws also made loans a riskier proposition. The result was a series of experiments in standardizing credit evaluation. Though these experiments were limited to commercial credit—loans to businesspeople—they would have important implications for the later history of consumer credit rating.

The most important of these experiments was the Mercantile Agency, founded in 1841 by merchant Lewis Tappan. Burned in the panic of 1837—a depression caused by merchants’ over-extension of credit—Tappan set out to systematize the rumors regarding debtors’ character and assets. Soliciting information from correspondents throughout the country, Tappan’s agency distilled these reports in massive ledgers in New York City.

These early reports were incredibly subjective. As such, they were colored by the opinions of their predominantly white, male reporters, as well as their racial, class and gender biases. One credit reporter from Buffalo, N.Y., for instance, noted that “prudence in large transactions with all Jews should be used.” And a reporter in post-Civil War Georgia described A. G. Marks’ liquor store as “a low Negro shop.”

The subjectivity of these reports had two important consequences. First, it reinforced existing social hierarchies, serving as an early form of redlining. Second, the jumble of rumors contained in early reports proved difficult to translate into actionable lessons. What was one to make, for instance, of reports like the following on Philadelphia merchant Charles Dull from Tappan’s Mercantile Agency: “there is a g[oo]d prej[udi]ce as among the trade—enjoys generally a poor reputation as a man, but is gen[erall]y sup[pose]d to have money”? Increasingly, then, subscribers to the Mercantile Agency and its rival, the Bradstreet Company, began to demand a simplified method of evaluation.

The result was a new thing under the sun: a pseudo-scientific sleight of hand that converted the (mis)information in borrowers’ reports into actionable financial ‘facts.’ Pioneered by Bradstreet in 1857, commercial credit rating would assume a more lasting form in 1864 when the Mercantile Agency, renamed R. G. Dun and Company on the eve of the Civil War, finalized an alphanumeric system that would remain in use until the twentieth century. (The companies later merged, becoming Dun & Bradstreet.)

Though intimately related to contemporary developments in population management, including espionage and statistical analysis, credit scoring was nevertheless novel in its own right. Its arrival meant that commercial borrowers now possessed what scholar Josh Lauer has called a ‘financial identity’: an identifier that not only purported to summarize one’s financial history, but which threatened to plummet, should one suffer a lapse in fortune or discipline. Reflecting on this development, one 19th-century commentator quipped that “the mercantile agency might well be termed a bureau for the promotion of honesty.”

Thus, by the end of the Civil War, the three pillars of modern credit reporting were in place: private-sector mass surveillance that made credit reports possible, bureaucratic information-sharing that made them widely available and a rating system that made them actionable.

It would take nearly a half-century, however, before all three of these pillars would be transferred from commercial to consumer credit evaluation.

***

Consumer credit reporting, like consumer debt, was unnecessary in early America. Production and consumption were so thoroughly blended that a loan to a farmer for agricultural supplies would inevitably help him or her purchase clothing and furniture as well.

By the second half of the 19th century, however, many Americans conceived of production and consumption as distinct realms. Just as importantly, the success of the labor movement meant that many were working less and making more. Eager for these workers’ hard-earned dollars, many retailers—including America’s newfangled department stores and auto industry—extended generous credit lines. Though prone to abuses (auto and consumer-goods financing were deeply implicated in the Great Depression) these credit lines nevertheless helped put the trappings of middle-class life in the hands of many Americans.

The men and women in charge of evaluating consumer credit were not organized into a single dominant firm, as they were in commercial credit rating. More often, they were employed as credit managers for retailers. But that did not stop them from adopting techniques pioneered by firms like Dun & Bradstreet. Forming a national association in 1912, these credit managers used their professional organization to perfect practices for collecting, sharing and codifying information on retail debtors.

This is not to suggest, however, that there were no important pioneers in the consumer credit-reporting sector. While many early agencies were short-lived, firms like Atlanta’s Retail Credit Company left an enduring impact. Founded in 1899, RCC developed files on millions of Americans over the next 60 years. This information included not just data on credit, capital and character, but information on individuals’ social, political and sexual lives as well. Already a magnet for criticism, the outcry against RCC reached a fever pitch in the 1960s when the firm revealed plans to computerize its records.

The backlash was swift and heated. “Almost inevitably,” argued privacy advocate Alan Westin in a 1968 New York Times article, “transferring information from a manual file onto a computer triggers a threat to civil liberties, to privacy, to a man’s very humanity because access is so simple.” Say goodbye to second chances, Westin claimed: digitized files would make it impossible to outrun one’s past.

Knowingly or otherwise, Westin was echoing critiques that had haunted credit reporting since its earliest days. Writing in Hunt’s Merchant Magazine in 1853, a contributor lamented that, “[g]o where you may to purchase goods, a character has preceded you, either for your benefit or your destruction.” And in 1936, TIME exposed credit bureaus’ astonishing surveillance powers. Chronicling an unfortunate woman’s flight from Chicago to Los Angeles, the story showed how quickly reporters discovered her debts and dark past.

But while Westin’s comments may have drawn on a deeper history, their impact was novel. Indeed, the outcry against the computerization of credit-reporting data resulted not only in congressional investigations, but also in the passage of the Fair Credit Reporting Act in 1970—a landmark piece of legislation that required bureaus to open their files to the public; expunge data on race, sexuality and disability; and delete negative information after a specified period of time.

However, far from halting credit reporting, FCRA helped usher in its golden age. RCC, for instance, came away from congressional hearings with a black eye, but did not disappear. Instead, it changed its name to Equifax in 1975 and continued on its course of computerization. In time, it was joined by Experian and TransUnion. Together, they constitute the ‘Big Three’ of consumer credit reporting.

Despite expanding demand for their services, however, all three firms continued to be hamstrung by problems that had long afflicted the industry: namely, the difficulty of interpreting and comparing their reports. To resolve this, they began working with a tech company to develop a credit-scoring algorithm. The company’s name was Fair, Isaac and Company—though it is known today as FICO.

Fair, Isaac and Company was well positioned to take on this task. Founded in 1956, the firm had already been selling credit-scoring algorithms for decades when the Big Three began their quest for an industry-standard credit score. The result, which hit the market in 1989, was remarkably similar to the algorithm still in use today.

Quickly implemented throughout the consumer credit industry, the FICO score represented the final consummation of a process that began with the Bradstreet Company’s first credit-rating manual. Its arrival meant that, thenceforth, nearly everyone in America would have a codified financial identity. No longer the sole province of commercial borrowers, financial identity had become a fact of life in modern America.

***

History reminds us that, common as it now seems, credit scoring is anything but universal. People in the past rightly worried about the concentration of power in the hands of secretive, privately-held organizations—firms that Lewis Tappan regularly had to defend against charges of espionage, and that at least one outraged antebellum commentator described as a new Inquisition. Even today, worries remain. As in the past, credit reporting can function as a way of maintaining social hierarchies. Especially among poorer Americans, low credit scores often translate into larger down payments and higher interest rates on purchases—terms that place an undue strain on household budgets and that often result in high rates of bankruptcy and default, which in turn lower credit scores even more.

Not all of history’s lessons, however, are so unflattering. Credit reporting was essential to opening financial opportunities to a broader cross-section of Americans—allowing them to buy not just baubles, but life-changing goods as well.

The alternative to credit reporting, moreover, is a dismal one. Before the modern era, credit was anchored in personal relationships. These relationships could be nurturing. But often they were predatory. Now, obviously, financial ne’er-do-wells have not disappeared. But FICO scores do at least allow individuals to move easily between lenders.

Most of all, knowing the history of credit reporting shows us why it’s important to pay attention to the institution as a whole, and not just to our own scores. Today, credit reports are used to inform decisions about housing, employment, insurance and the cost of utilities. But errors on credit reports are common. And many of the consumer protections in FCRA are being circumvented by opaque, in-house rating systems under development at major financial institutions.

Though cloaked in algorithmic objectivity, the raison d’être of the modern credit score is the same as the scrawled reports in Tappan’s massive ledgers: to determine not just who can repay their debts, but who will choose to do so. To answer this essentially moral question—and to compel ‘good’ behavior—credit bureaus have developed surveillance and information-sharing techniques rivaling anything in the arsenal of the state. These have brought benefits, true. But they have also inscribed Americans’ financial histories in the indelible digital ledgers of modern capitalism—for the mighty to see, and the majority to glimpse.

In the face of power like this, what choice do we have but vigilance?

The Long ViewHistorians explain how the past informs the present

Sean Trainor has a Ph.D. in History & Women’s, Gender, and Sexuality Studies from Penn State University. He blogs at seantrainor.org.

TIME Economics

These Were the 6 Major American Economic Crises of the Last Century

From the Great Depression to the Great Recession, these events changed the economic world

A recent popular (and highly debatable) meme among economic observers is that financial crises now come every seven years. If that’s the case, we could be hit by a new one any day now. Whether or not the seven-year theory is strictly accurate, many economists are warning that another crisis is coming soon—and we’ve definitely been through the cycle before.

Here’s a look at how TIME covered six of the worst crises to hit the United States in the last century, at the moments when things looked their bleakest:

 

  • 1929: The Crash of ’29

    The Great Crash
    Hulton Archive / Getty Images Oct. 29, 1929: Workers flood the streets in a panic following the Black Tuesday stock market crash on Wall Street, New York City.

    Nobody knew, as the stock market imploded in October 1929, that years of depression lay ahead and that the market would stay seized up for years. In its regular summation of the president’s week after Black Tuesday (Oct. 29), TIME put the market crash in the No. 2 position, after devastating storms in the Great Lakes region. TIME described the stock-swoon this way: “For so many months, so many people had saved money and borrowed money and borrowed on their borrowings to possess themselves of the little pieces of paper by virtue of which they became partners of U.S. Industry. Now they were trying to get rid of them even more frantically than they had tried to get them. Stocks bought without reference to their earnings were being sold without reference to their dividends.” The crisis that began that autumn and led into the Great Depression would not fully resolve for a decade.

    Read the Nov. 4, 1929, issue, here in the TIME Vault: Bankers v. Panic

  • 1973: The OPEC Embargo

    Drivers Push Cars To Gas Station During 'Oil Crisis'
    Spencer Grant—Getty Images Drivers push cars to gas station during oil crisis, in Boston, 1973.

    Here’s proof that the every-seven-years formulation hasn’t always held true: The OPEC oil embargo is widely viewed as the first major, discrete event after the Crash of ’29 to have deep, wide-ranging economic effects that lasted for years. OPEC, responding to the United States’ involvement in the Yom Kippur War, froze oil production and hiked prices several times beginning on October 16. Oil prices eventually quadrupled, meaning that gas prices soared. The embargo, TIME warned in the days after it started, “could easily lead to cold homes, hospitals and schools, shuttered factories, slower travel, brownouts, consumer rationing, aggravated inflation and even worsened air pollution in the U.S., Europe and Japan.”

    Read the 1973 cover story, here in the TIME Vault: The Oil Squeeze

  • 1981: The Early-’80s Recession

    JUN 17 1980, JUN 19 1980; Unemployment - Denver; David Barrett passing through Denver lets it be kno
    Ernie Leyba—Post Archive/Getty David Barrett, passing through Denver lets it be known that he is looking for work, on Jun. 17, 1980

    The recession of the early 1980s lasted from July 1981 to November of the following year, and was marked by high interest rates, high unemployment and rising prices. Unlike market-crash-caused crises, it’s impossible to pin this one to a particular date. TIME’s cover story of Feb. 8, 1982, is as good a place as any to take a sounding. Titled simply “Unemployment on the Rise,” the article examined the dire landscape and groped for solutions that would only come with an upturn in the business cycle at the end of the year. “For the first time in years, polls show that more Americans are worried about unemployment than inflation,” TIME reported. A White House source told TIME: “If unemployment breaks 10%, we’re in big trouble.” Unemployment peaked the following November at 10.8%.

    Read the 1982 cover story, here in the TIME Vault: Unemployment: The Biggest Worry

  • 1987: Black Monday

    Black Monday
    Maria Bastone—AFP/Getty Images A trader on the New York Stock Exchange on Oct. 19, 1987.

    If the meaning of the Crash of ’29 was underappreciated at the time it happened, the meaning of Black Monday 1987 was probably overblown—though understandably, given what happened. The 508-point drop in the Dow Jones Industrial Average on October 19 was, and remains, the biggest one-day percentage loss in the Dow’s history. But the reverberations weren’t all that severe by historical standards. “Almost an entire nation become paralyzed with curiosity and concern,” TIME reported. “Crowds gathered to watch the electronic tickers in brokers’ offices or stare at television monitors through plate-glass windows. In downtown Boston, police ordered a Fidelity Investments branch to turn off its ticker because a throng of nervous investors had spilled out onto Congress Street and was blocking traffic.”

    Read the 1987 cover story, here in the TIME Vault: The Crash

  • 2001: The Dot-Com Crash

    Dow Jones Average Down
    Chris Hondros—Getty Images A trader rubs his brow on the floor of the New York Stock Exchange Jan. 5, 2001, in New York City

    The dot-com bubble deflated relatively slowly, and haltingly, over more than two years, but it was nevertheless a discrete, identifiable crash that paved the way for the early-2000s recession. Fueled by speculation in tech and Internet stocks, many of dubious real value, the Nasdaq peaked on March 10, 2000, at 5132. Stocks were volatile for years before and after the peak, and didn’t reach their lows until November of 2002. In an article in the Jan. 8, 2001, issue, TIME reported that market problems had spread throughout the economy. The “distress is no longer confined to young dotcommers who got rich fast and lorded it over the rest of us. And it’s no longer confined to the stock market. The economic uprising that rocked eToys, Priceline.com, Pets.com and all the other www. s has now spread to blue-chip tech companies and Old Economy stalwarts.”

    Read the 2001 cover story, here in the TIME Vault: How to Survive the Slump

  • 2008: The Great Recession

    Wall Street Reels As Major Financial Companies Face Crisis
    Spencer Platt—Getty Images A trader works on the floor of the New York Stock Exchange September 15, 2008 in New York City. protection

    On Sept. 15, 2008, after rounds of negotiations between Wall Street executives and government officials, Lehman Bros. collapsed into bankruptcy. And so did AIG. Merrill Lynch was forced to sell itself to Bank of America. And that was just the beginning. TIME pulled no punches in its September 29 cover story, titled “How Wall Street Sold Out America” and written by Andy Serwer and Allan Sloan. “If you’re having a little trouble coping with what seems to be the complete unraveling of the world’s financial system, you needn’t feel bad about yourself,” the men wrote. “It’s horribly confusing, not to say terrifying; even people like us, with a combined 65 years of writing about business, have never seen anything like what’s going on. They advised readers that “the four most dangerous words in the world for your financial health are ‘This time, it’s different.’ It’s never different. It’s always the same, but with bigger numbers.”

    Read the 2008 cover story, here in the TIME Vault: How Wall Street Sold Out America

TIME Economics

Trading Halt? Here’s What to Really Worry About in the Markets Now

A lot of unhappy accidents are occurring simultaneously

In markets, as in journalism, three’s a trend. So it’s no wonder that everyone is in a panic about the halt of today’s trading on the NYSE, coupled with the free fall in Chinese markets that has come on the heels of the Greek debt crisis. While the first is apparently a technical glitch, and the latter two are big, long-awaited macro events, the fact that they are all coming together isn’t great timing. Global markets were already on a hair-trigger.

Technical “glitches” are never welcome, but this one is coming at a particularly bad time. Markets have been waiting for a major correction for months now. Why? Because we’re now entering the second major global economic shift since the 2008 financial crisis–the end of the era of easy money. Central bankers have pumped trillions into the economic apparatus and kept interest rates low for an unprecedented period. The expectation until quite recently was that the Fed would slowly begin to raise rates in September, with the hopes of very gently deflating a market bubble that might otherwise pop (valuations of stocks are historically high).

MORE: Here’s What It Looks Like When the New York Stock Exchange Goes Down

But that was before the Greek crisis blew up, and threatened the future of the Eurozone and the political integrity of America’s biggest ally. And then there’s the market meltdown in China, which if it continues will make Greece look like a sideshow. China creates a new Greece every six weeks, and represents the biggest chunk of global growth in the last decade. TIME called the China bubble early on, but the fact that the markets have gone into a panicked slide now, as Europe is struggling and the US is about to change the economic paradigm by raising interest rates, isn’t a stellar combination.

(BTW, China’s crash is due to both market speculation—there are 90 million retail investors in China, two-thirds of which don’t have a high school diploma—and the real economy—debt is a whopping 300% of GDP. For all you need to know on that, check out Ruchir Sharma’s oped in today’s Wall Street Journal.)

What’s the upshot? Whatever correction is coming, US stocks are still a decent place to put our money relative to other regions at the moment. But investors have to take the long view and be prepared for a rough ride. Volatility in the first half of this year has already been greater than all of last year. I predict that when trading resumes on the NYSE, there will be jitters. And then people will go back to worrying about all the really important things in the global economy that they were worried about before the exchange halt.

TIME China

Will the Communist Party Save China’s Volatile Stock Market?

An investor holds onto prayer beads as he watches a board showing stock prices at a brokerage office in Beijing
Kim Kyung Hoon—Reuters An investor holds onto prayer beads as he watches a board showing stock prices at a brokerage office in Beijing, China, July 6, 2015

China’s top brokerages have pledged almost $20 billion to arrest a calamitous slide

Rain, like the downpours that have inundated Shanghai in recent weeks, doesn’t buoy the spirits. But don’t despair, counseled the People’s Daily, the Chinese Communist Party’s mouthpiece, on Monday: “Rainbows always appear after rains.”

That upbeat message coursed through China’s state media on Monday, referring to the dismal performance of the nation’s bourses, including the Shanghai Composite Index, which has lost nearly 30% over the past three weeks.

The chief rainbowmaker is, no surprise, the ruling Communist Party. “The Chinese government unveiled an unprecedented string of emergency and supportive measures to stabilize market sentiment,” announced state news agency Xinhua on Monday, with the nation’s central bank called in to increase liquidity.

Over the weekend, China’s top brokerages, surely encouraged by officialdom, vowed to spend nearly $20 billion to shore up the stock market. By government fiat, new stock listings are being curtailed. Foreigners have been admonished not to sell China short — as if they were the ones chiefly responsible for the stock market’s nosedive. On July 5, Beijing police arrested a man they say spread rumors that a despondent punter jumped to his death because of the stock-market plunge.

The result so far of this massive government intervention: after an 8% surge in the morning, the Shanghai index ended up 2.4% on July 6, following a 12% loss the previous week. State-owned giants led the weak recovery. In meteorological news, the plum rains are forecast to last all week in China’s commercial capital. (At close on Monday, Shenzhen’s more erratic index was down 1.39%.)

The past three weeks have seen the market shed more than $2 trillion. Still, the percentage of the Chinese population that dabbles in the stock market is comparatively low. And as brutal as the summer sell-off has seemed, shares are still up this year, with the Shanghai Composite having expanded by nearly 80% compared with roughly a year ago.

Chinese social-media users have debated whether the central government’s efforts were enough to prevent a further market nosedive. There was less discussion, however, of whether the government should be doing battle in the first place — especially given that some of the recent market frenzy has derived from risky margin trades that may be testing banks. Critics have noted that this generation of Chinese leadership, in place since late 2012, has called for market forces to gain more power, not less. The government’s latest intervention runs counter to talk of reform.

“Fragile market sentiment will be reversed,” the People’s Daily has stated. That’s about as clear a signal of official policy as the ruling Communist Party can give. Beijing, which is already facing a slowing economy, is tying part of its legitimacy to returning confidence to the nation’s stock market. When will the rainbow appear?

TIME

Chinese Stock Markets Are in the Middle of an ‘Unprecedented’ Slide

A man walks past an electronic board showing the benchmark Shanghai and Shenzhen stock indices, on a pedestrian overpass at the Pudong financial district in Shanghai
Aly Song—Reuters A man walks past an electronic board showing the benchmark Shanghai and Shenzhen stock indices, on a pedestrian overpass at the Pudong financial district in Shanghai, China, June 26, 2015.

State monetary policy has failed to fix the situation, and Beijing is growing desperate

In what analysts are describing as an unprecedented economic situation, China’s stock indexes are currently tumbling into a free fall, with panic taking the place of the brash confidence that, until last month, led these markets to rapidly develop into an unsustainable bubble.

That bubble appears to have now burst: by early afternoon local time on Friday, the Shanghai Composite Index had fallen 3.25% to an anemic 3,785.57 points; in the three weeks since it reached a seven-year high, it has lost 30% of its value.

Monetary authorities in Beijing are currently grasping for straws to remedy the situation, but numerous market interventions, including the fourth cut in interest rates since November, have failed to keep investors from frantically selling their Chinese stocks.

The turbulent situation is not yet catastrophic, but it illuminates the greater volatilities of China’s fraught existential dynamic: between an autocratic Communist government and the currents of free-market capitalism. In a country where stock investors now outnumber Communist Party members, if the market heals, it will likely heal itself. Beijing’s economic policies have thus far proven mostly ineffective.

Meanwhile, state authorities are attempting to blame the economic instability on calculated “foreign forces,” the Washington Post reports. State media outlets have alleged that Morgan Stanley or prominent investor George Soros may be purposely interfering in the Chinese markets. Messages making the rounds on WeChat, the country’s preeminent messaging service, allege that “‘international capital’ — or simply capitalism itself — [is] attacking China,” according to the Post.

In the face of this supposed malfeasance, prominent figures are encouraging their fellow countrymen to have faith in their faltering economy.

“Hold stocks with confidence,” was the advice of Fan Shaoxuan, a executive at microblogging service Sina Weibo, according to the Post. “Win glory for the country even if you lose the last penny.”

TIME Economics

Everything You Should Know About Puerto Rico’s Economic Crisis

The island's debt is four times that of Detroit

As Greece’s debt crisis grows increasingly dire, another territory much closer to home — Puerto Rico — has admitted to some major financial woes.

What exactly is happening in Puerto Rico?

Puerto Rico Governor Alejandro García Padilla made a worrisome announcement Sunday that the island cannot pay back its $72 billion in public debt, the New York Times reports. Padilla and his staff, according to the Times, are seeking to defer debt payments for as long as five years, while also possibly seeking concessions from many of its creditors.

“The debt is not payable,” García Padilla said. “There is no other option. I would love to have an easier option. This is not politics, this is math.”

Okay… in English, please?

Puerto Rico is in the midst of a decades-long economic struggle fueled by years of recession and slow economic growth. As a result, its government has taken out massive loans from creditors to cover its costs.

But Puerto Rico has to pay back the money (or figure out a Plan B). In recent years, the commonwealth has raised taxes and slashed pensions in order to pay back its loans, but the island’s “tab,” so to speak, has still spiraled out of control. Many residents have found their businesses collapsing — Puerto Rico’s unemployment rate is double that of mainland America — while others have been leaving the island for better opportunities state-side.

Financial markets across the world have already been rocked by Greece’s debt crisis, and Puerto Rico’s troubles will only add to the current global economic uncertainty.

What does this mean for Americans?

If you’re an investor in municipal bond funds, Puerto Rico’s debt might be your problem, too. Municipal bonds — or loans used by local governments to fund public projects — have traditionally been considered safe investments. But some investors are worried about them — several American cities have filed for bankruptcy in recent years, and the Puerto Rico situation could make things worse. According to the Washington Post, as many as three out of four municipal bond mutual funds held Puerto Rican bonds in 2013.

How bad is the situation exactly?

Padilla called the situation a “death spiral.” And he wasn’t exaggerating: Puerto Rico’s debt is four times that of Detroit’s, and the island has more debt per capita than any American state. Analysts believe the central government will run out of cash as soon as July, according to the Wall Street Journal, which could lead to a government shutdown, emergency measures and an unpredictable crisis.

So what’s next for Puerto Rico?

Good question. While Padilla seeks to negotiate with creditors, his administration is also pushing for the right to file for bankruptcy under Chapter 9, which outlines a plan for creditors to get back some of their money. (That’s what happened with U.S. cities like Detroit, Mich., and Stockton, Calif., last year.) But under current law, that right is afforded only to U.S. cities, not to states or territories including Puerto Rico.

Read next: Everything to Know About Greece’s Economic Crisis

TIME South Korea

Bank of Korea Cuts Key Interest Rate to Stave Off Economic Fallout From MERS

The death toll rose to nine on Wednesday

In an effort to stave off economic troubles caused by panic over the MERS (Middle East Respiratory Syndrome) outbreak, South Korea’s central bank lowered its seven-day repurchase rate to an unprecedented 1.5% Thursday, the fourth such reduction in 10 months, Bloomberg reports.

Authorities meanwhile announced that more people had died of the respiratory ailment, bringing the death toll to 10. The total infections now stand at 122, according to the Wall Street Journal.

As many as 3,000 people have been quarantined to date, and economists fear that a bleak mood will deaden any upward momentum the country’s already embattled economy might have been gaining.

This is the second straight year that the country has faced sudden threats to consumer sentiment, after last year’s sinking of the Sewol ferry also traumatized both the country’s people and its markets. Similarly, experts fear that worries over MERS could freeze domestic consumption, adding further troubles on top of the country’s plummeting exports, which fell 10% last year.

Public approval for President Park Geun-hye meanwhile dropped six percentage points in the past week, according to a Gallup Korea poll, suggesting that South Koreans were unhappy with Park’s handling of the crisis. She postponed a trip to the U.S. planned for next week and asked her Cabinet to execute “all preemptive measures” that might minimize the effect of MERS on the economy.

To date, all South Korean MERS casualties have been older than 55; all also had underlying medical conditions such as asthma, heart disease, and cancer. Still, this is the most extensive outbreak of MERS since the syndrome was discovered in Saudi Arabia in 2012.

[WSJ, Bloomberg]

TIME Economy

Most Americans Say Wealth Inequality Is a Huge Issue

McDonalds Holds National Hiring Day To Add 50,000 Employees
Justin Sullivan—Getty Images A McDonald's employee prepares an order during a one-day hiring event at a McDonald's restaurant on April 19, 2011 in San Francisco, California.

Expect it to be a 2016 campaign theme

An improving economy has done little to distract Americans from an issue sure to be a the forefront of the 2016 presidential contest: inequality.

A new poll by The New York Times and CBS News found that a majority of respondents—66%—said wealth should be more evenly distributed. 67% percent of respondents said the gap between the rich and the poor was getting larger, and 65% said the divide needs to be addressed now.

A smaller chunk of respondents—57%—said the government should do more to close the gap between rich and poor, though they split sharply along partisan lines with one-third of Republicans supporting a more active government role, versus eight in 10 Democrats, according to the Times. When asked if they wanted to raise taxes on Americans who earn more than $1 million, 68% said they were in favor of such hikes.

Democrats are trying to capitalize on Americans’ belief that the economic recovery has been uneven, benefiting high-earners the most. But inequality is far from a partisan issue. The Times reports inequality is a concern for almost half of Republicans and two-thirds of independents, which suggests it’s an issue that will persist through and beyond this election cycle. Considering these findings, it’s no surprise that both Democratic and Republican politicians are exercising their populist muscles.

TIME Economics

El Nino Could Cause Serious Trouble Across Asia

Aerial view of a flooded area in Trinida
Aizar Ralder—AFP/Getty Images Aerial view of a flooded area in Trinidad, Beni, Bolivia on Feb. 24, 2007. Authorities say two months of rain and floods left 35 people dead, 10 unaccounted for, and affected hundreds of thousands of people. The disaster, blamed on the "El Nino" weather phenomenon, also has caused millions of dollars in material losses.

Bad weather on the horizon

You may recall a time in the mid-1990s when American citizens were worried about El Niño, the tropical weather pattern that can cause global changes in temperature and rainfall. Now, according to a new Citigroup report, the next group to pin concerns to El Niño may be bankers.

The report, produced by Citi analysts Johanna Chua and Siddharth Mathur, suggests that the current El Niño (the weather anomaly takes places at unpredictable times, sometimes more than five years apart) could have a deleterious effect on economies in countries in and around Asia.

India, Thailand, The Philippines, and others, where agriculture contributes a major percentage of GDP, might see inflation in food prices, since a severe El Niño can brings dry spells and cause crop damage. In Indonesia, for example, the agriculture sector makes up more than 50% of overall employment.

In economies dependent on farming, long-lasting weather that upends crops will naturally impact farming output, and thus commodity pricing.

With these countries especially vulnerable to economic disruption, it may be more bad news that recent reports indicate we are about to see a particularly violent El Niño.

TIME Economics

These Are the Fastest-Growing Cities in America

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Don Klumpp—Getty Images Downtown San Marcos, Texas

One state has five cities on the top-ten list

The Census Bureau on Thursday released its latest data tracking the nation’s population shifts from July 2013 to July 2014, resulting in a new list of American boomtowns. A quick glance at the list tells us one thing: Texas is blowing up.

Five of the ten fastest growing cities with 50,000 residents or more are in the Lone Star State. Top among them is San Marcos, which snagged the fastest growing title for the third year running. The city saw its population climb 7.9% between 2013 and 2014.

San Marcos’s growth is attributable to its status as a college town; it’s home to Texas State University. It also offers job opportunities in both Austin and San Antonio since it sits between the two employment hubs.

Here’s a full rundown of the top ten:

1. San Marcos, Texas grew 7.9%
Population: 58,892

2. Georgetown, Texas grew 7.6%
Population: 59,102

3. Doral, Florida grew 7%
Population: 54,116

4. Frisco, Texas grew 5.8%
Population: 145,035

5. South Jordan, Utah grew 5.7%
Population: 62,781

6. Conroe, Texas grew 5.2%
Population: 65,871

7. McKinney, Texas grew 5.1%
Population: 156,767

8. Milpitas, California grew 5.1%
Population: 73,672

9. Meridian, Idaho grew 5.1%
Population: 87,743

10. Castle Rock, Colorado grew 4.9%
Population: 55,747

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