It’s better to be rich – hardly a surprising claim.
But it is devastating to be poor, and this period of economic crisis it is deadly to be poor.
The effects of the crisis have been charted in many ways. There has been barely concealed panic on Wall Street. Big banks have wobbled, and many wallowed in debt. Many have taken on as much capital as anyone will lend them, as well as selling off big chunks of their equity. A major brokerage house failed, and was saved by the Federal Reserve Board.
On Wall Street, record numbers of people in the finance industry are being let go.
On Main Street, states and municipalities, as well as state authorities that back borrowings for universities, public schools, and public housing corporations, are having trouble selling their bonds.
Then there are the homeowners whose economic troubles triggered in part the crisis –apart from a financial sector whose blood lust for ever higher profits created the mess in the first place.
Who are the homeowners? Hard to know. Though you can learn a lot about the latest cure for something on the news every night, followed or preceded by drug commercials selling you pharmaceuticals, the efficacy of which seems to boil down to a smiley face and chocolate Labrador, you can’t learn much about endangered homeowners. A reporter may find one of the 7.2 million of families at risk of losing their home, but the bigger frame amidst the family’s well-earned tears is lost. Try as they might, or try as they don’t, the news industry presents a fuzzy picture. Who are these folks in trouble?
They are many: the 7.2 million households comprise 28% of all American households with mortgages. They owe $332 billion in loans, and 2.2 million have lost or will lose their houses without a federal remedy, according to the Center for Responsible Lending. A majority is white, but a disproportionate number of blacks and Latinos are vulnerable too. For instance, among whites, 17% have sub-prime mortgages; the figure is 55% for blacks.
I have come to the conclusion that only a specialist can understand what the Congress and the Executive are proposing for remedies. It is transparent, however, that they have done nothing yet to assist these vulnerable families.
(Parenthetically, where were the Federal Reserve, financial regulators and the Congress when the crisis had begun to show itself in October, 2006? Where are the US attorneys and the Attorney Generals of 23 states, all of whom are equipped with statutory authority to stop predatory lending and impose civil, as well as in some cases criminal penalties on perpetrators?)
Banks made greater profits on sub-prime loans because they could charge working class and near-power households more for their mortgages. They sold them in packages at higher prices to customers eager for extra profits. Everybody made out – except those purchasing the mortgages. Disaster was just around the corner.
Not even the poor without homes, I expect, would want these troubles. Yet, the poor along with those caught up directly in the sub-prime emergency face even rougher times ahead. Inflation is back. For the past five months, headline inflation, that is, everything we consume, has been 4% above the comparable period last year. Even the so-called core inflation rate, that is what we consumer minus food and energy, has been running at 2% for the last seven months.
I have written about how economic policymakers are attached to a measure – core inflation – that having dropped food and fuel seriously under-estimates the increased burdens on typical American households. (See my column, September, 2007)
But an interesting analysis by Neil Irwin and Alejandro Lazo of the Washington Post (March 21, 2008) suggests how even headline inflation misses a much higher increase in the cost of living. Their analysis of government data shows consumer prices for basics has risen 9% since 2006, and now costs a family making $45,000 a year an extra $972. The poor and near poor consume the basics too.
Fearful that the economic roof was falling in, Congress and the Executive agreed to a stimulus package. The idea is that American families need to keep the economy going by spending money.
Don’t put a down payment on the Prius yet. Individuals will receive up to $600 and couples $1200 depending upon income. Families with children will receive $300 for each child.
These are the upper limits. Being poor entitles you to no more than this, despite inflation and diminished or nonexistent employment opportunities.
Without employment, you may not get the money, even if you are poor because you are unemployed. You must have filed a tax return several weeks back and have declared at least $3000 in income. To get the check, Social Security and Veterans benefits, and low income wages count. But to qualify you must have income, a curious requirement when the easiest definition of poverty is the absence of it.
Thanks to the Clinton welfare “reform” act of 1996, welfare recipients are eventually cut off from further assistance, job or no job. The result a little over ten years later is that 20% of low-income mothers are without work or welfare benefits, a figure that has doubled since the 1996 law. How do they qualify for the “stimulus?”
It’s movie we have all seen before, I know. But the ending is meaner than usual: when times get tough, we make it tougher on the poor, near-poor, and the working class.
7.2 million families holding sub-prime mortgages, disproportionately lower-income, black and Latino are in danger of losing their little bit of the American Dream.
37 million poor people (the definition of poverty for a family of 4 is an income of less than $20,000) can receive $600 a person and $300 per child if they have an income already. If not, then not.
In a society without justice such as ours, poor people, people with one foot out of poverty, and the working class are experiencing a crisis only guessed at on Wall Street where all the mischief began. Those becoming stricken by the crisis — they indeed are the chickens that are coming home to roost. Only for them, it is simply for delivery to Tyson’s.