venerdì 9 ottobre 2009

Middle Class Moms vs. the Banks

Middle Class Moms vs. the Banks

By Ruth Conniff, The Progressive, October 8, 2009

I spoke with Elizabeth Warren, the government's watchdog on the massive bank bailout, yesterday, for The Progressive's upcoming special issue on the economy. Warren, a hero to consumer advocates and critics of the financial industry, is a professor at Harvard Law School and an expert on bankruptcy. She is also the person charged with heading up hearings on the $700 billion TARP program that funnels taxpayer money to all those "too big to fail" banks.

Many people on Wall Street despise her, for Warren has been a critic of the industry for years.

In her 2003 book "The Two Income Trap: Why Middle-Class Mothers & Fathers Are Going Broke," co-authored with her daughter, Amelia Warren Tyagi, she presciently pointed to predatory lenders--rebutting "the myth of the immoral debtor"--to show how middle class families are screwed by the banks.

On the morning we spoke, a front page New York Times story detailed a new bank scheme: pay-in-advance debit cards. Banks offer these cards specifically to low-income people and those who don't have bank accounts as an easy way to access money without carrying around wads of cash. The only catch is, the banks charge outlandish fees and penalties, eating up much of the cash consumers put on the cards. Does this sort of thing make Warren angry, I sked, or is she used to it by now?

"I will never get used to it. Every single day that goes by I see another story in the newspaper about why we need a consumer financial protection agency [Warren's big idea, recently championed by the Obama Administration]. It's just one story after another about how large financial institutions have figured out ways to make profits, not by offering a better product, but by tricking and trapping people."

While the bank bailout and the investment practices that led to the recent financial collapse are intimidatingly complex, most people have a good grip on this truth: The banks are not their friends. High interest rates, hidden fees, and other nasty surprises lurking in the fine print of consumers' mortgage agreements and credit card contracts are all too familiar. That's why a consumer advocate like Warren is such a great person to put in charge of the TARP Congressional Oversight Committee.

One of Warren's most fascinating insights, taken from copious research for "The Two Income Trap,” turns the conventional wisdom about the American middle class's reckless spending spree on its head.

"During the past generation, a great myth has swept through America," Warren writes. "Like all good myths, the Over-Consumption Myth tells a tale to explain a confusing world. Why are so many Americans in financial trouble? Why are credit card debts up and savings down? Why are millions of mothers heading into the labor force and working overtime? The myth is so deeply embedded in our collective understanding that is resists even elementary questioning: Families have spent too much money buying things they don't need. Americans have a new character flaw--'the urge to splurge'--and it is driving them to spend, spend, spend like never before."

Conservatives and liberals alike--from David Brooks to President Obama--have fingered this personal responsibility issue as a major reason for Americans' soaring consumer debt.

But Warren has the research to disprove it.

In fact, Warren shows, it is not the big-screen TVs, designer clothes, vacations, and restaurant meals that are pushing American families to the brink of bankruptcy. Contrary to popular assumptions, consumer spending on such luxuries is not any higher now than it was a generation ago. Instead, long-term financial commitments -- mainly housing-- are eating up family income.

The people in the worst financial trouble are parents. Having a child, Warren writes, is the single best predictor that a woman will end up in financial collapse.

That is due to the "two income trap"--the economic system that propels families to max out their earning power just to stay afloat. If someone loses a job, or divorce, illness, or other misfortune strikes, there is no safety net.

More women would declare bankruptcy in a single year than would graduate from college, and more families would be affected by bankruptcy than by divorce, cancer, or heart attack, Warren wrote in 2003. Since then, of course, things have gotten even worse.

The fascinating story Warren tells is how the two-income family lost a valuable safety net when mothers entered the workforce in big numbers. With both parents working as hard as they can for shrunken wages and benefits, just to cover the basics of housing, transportation, child care, and health insurance, families now have no margin for error. It used to be that stay at home moms provided free child care and other underrated services. And, most overlooked, if a father lost a job, the mother could go into the workforce or increase her part-time hours to help bail the family out. Today middle class families have no padding. They are scrambling and committing every dollar of their combined incomes to staying afloat.

The hard-pressed working mothers Warren writes about have an intuitive sense of how wrong the myths of overconsumption and the "immoral debtor" are because they are the ones trying to piece together work and family, and dealing with a system that is stacked against them. Interestingly, she notes, when families go bankrupt, a great majority of wives take over the financial responsibilities from husbands. They wrangle with the banks, the creditors, the lawyers. This, Warren surmises, may be because women have less of a sense of personal failure when their families go bankrupt. While men take financial failure very personally, women have a broader sense that they are caught in a trap.

Perhaps that outsider's perspective is one reason Warren is so perfectly poised to unveil the "tricks and traps" of the banking industry. [...]


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