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Bankruptcies,
Greatly Increased Last Decade,
Are Now Accelerating:
You May Be Surprised
At the Who and the Why
Why so many middle class bankruptcies?
Are they just overspending?
or are they “the Canary in the Mine”?
“Why Are So Many Middle Class Families Going Broke?" was the subject of Bill Moyers' recent interview with Professor Warren on NOW with BILL MOYERS: February 6, 2004. She had a surprising answer for both the WHO and the WHY.
(http://www.pbs.org/now/transcript/transcript306_full.html)
Professor Elizabeth Warren is a leading expert on bankruptcy, debt, and the middle class. She was cited five years ago as one of the fifty most influential women lawyers in America. She teaches at Harvard Law School.
She and her daughter did extensive research to find out WHO are going bankrupt, and WHY. Both the who and the why are a surprise to most people, and may be a surprise to you. In this interview she touches a little on both the who and the why of bankruptcies, which are much more extensively revealed in their book.
She also tells of a personal experience involving Hillary Clinton, that vividly illustrates one reason for serious failure in our democratic system: misplaced government accountability.
In the interview she was talking about what is happening in the middle class today. The following is a digest of that interview, with a few quotations from it.
There is an Invisible Crisis Building
Bill Moyers: "Political candidates take note -- we're not making this up -- there's an invisible crisis building out there. By the end of this decade, says a new book, nearly one of every seven families in America with children may have declared itself flat broke. This year alone, more people will end up bankrupt than will suffer a heart attack. And more people will file for bankruptcy than will graduate from college."
Elizabeth Warren: "The middle class has been pushed right to the edge. They are on a cliff. And increasing numbers are falling off every single day. Families live in a much more dangerous economic world than they did a generation ago.”
Dr. Warren is co-author of The Two Income-trap: Why Middle-class Mothers and Fathers Are Going Broke.
Dealing With a More Dangerous Economic World
Warren: "They tried to deal with it by sending both mom and dad to work. You know, a generation ago, early 1970s, the median earning family had one person at work.
"And today, just 30 years later, the median earning family has two people at work, and now here comes the zinger. Even though they're making 75 percent more money in inflation-adjusted dollars, because now they've got those two incomes, by the time they pay the mortgage payment, health insurance, a second car, because they're further out in the suburbs and mom needs to get to work, and pay for their pre-school and daycare, they actually have less money to spend than their one income parents had a generation ago.
"And what we found was that well over 90 percent of the families who file for bankruptcy, when you look at the enduring criteria, are middle class families."
Why is this happening?
Since 1990 household debt has doubled [shades of the 1920s?]. Not only mortgages, but new cars bought on dealer credit, houses renovated with home equity loans, and the use of credit cards for almost everything else.
They must be overspending .... buying things they don't need! Right? Not according to government records.
Professor Warren and her daughter did thorough research in unpublished government records and found that in inflation adjusted dollars the middle class are actually spending less than their parents spent in the 1970s: 22% less on clothing, 21% less on food, 44% less on appliances, as well as less on carpets and furniture. (Of course, computers, cell phones, etc., were hardly there to be compared.)
Where is most of the money going?
Mortgage, health insurance, daycare, childcare, nursery school, a second car. Expenses necessitated because Mom is working have more than eaten up her paycheck.
What is the cause of all this?
The causes are many.
Health insurance is one.
Failure of the public school system is another, which drives up real estate values where the schools are least bad.
On average they are paying more than 70% more for a house, in inflation adjusted dollars, than their parents paid for only half a room less.
Middle class costs have shot way out of control, and wages and salaries have not kept up. And in this world, where two incomes have become necessary just to meet the costs of the mortgage and the health insurance, ...
... the one income family is no longer in the middle class.
Credit Cards Are a Case Apart,
And a Case in Point
Deregulation of the consumer credit industry 25 years ago made lots of credit available at low interest rates. But it also gave birth to what Warren calls a monster, which is eating American middle class families alive. That monster is ...
Predatory Lenders.
When the prime rate is around 2%, banks find ways to charge 18-34% for loans.
Primary victims of bankruptcy are the middle class
It is the middle class, two income, families who get caught in that debt when one loses a job, or they divorce, or sickness is not covered by health insurance. And before it all ends in bankruptcy they lie awake at night wondering how long they can miss the car payments before the car is hauled off in the middle of the night and repossessed. At any one time there are several of these families in counseling trying to get it straightened out, to every one that is actually in bankruptcy. Home mortgage foreclosures are more than three times what they were in the '70s. Car repossessions are at record levels, as are credit card defaults.
Credit Cards Are a Heavy Tax On the Middle Class
It is the middle class who use credit cards; this is, in effect, a heavy tax on the middle class. Credit card companies this year will collect $78 billion in interest charges. It also happens that they have been trying to tighten the bankruptcy laws to make them more constrained and constricted so that fewer families could get in. Why? Because credit lenders can make more money if fewer people go bankrupt.
Personal Experience with Hillary Clinton
A Lesson in Accountability
Professor Warren had written an op-ed about how a proposed law to make it more difficult to go bankrupt would fall disproportionately hard on divorced women raising families who would have to compete with Citibank, MasterCard, Visa, and Bank One, for getting alimony and child support. Mrs. Clinton, then the First Lady, evidently saw the piece. Professor Warren got a call from the White House saying that Mrs. Clinton was going to be in Boston to give a speech and wanted her to meet with her.
So Professor Warren put together all her files and showed up at the appointed place. Just the two of them sat down, behind closed doors, and over a hamburger and french fries, Hillary says, "Tell me about bankruptcy."
The following is taken from the transcript of the interview
(http://www.pbs.org/now/transcript/transcript306_full.html),
WARREN: "And I got to tell you, I never had a smarter student. Quick, right to the heart of it. I go over the law. It's a complex law. Went over the economics. Showed her the graphs, showed her the charts. And she got it.
"Within 20 minutes, she could play where the rest of it would come. Well, then that will mean this part's happened. That will mean this has happened. I said, "Yes, that's right." And at the end of the conversation, Mrs. Clinton stood up. She said, "Let's get our picture taken" which we did, and she said, "Professor Warren, we've got to stop that awful bill," referring to this bankruptcy bill that [was] sponsored by the credit card companies."
The last bill that came before President Clinton was that bankruptcy bill that he had intended to sign, and he vetoed it. In her autobiography, Hillary rightly took credit for that veto. She got it. She understood about bankruptcy.
After she became Senator Clinton one of the first bills that came up was that bankruptcy bill, that Professor Warren likens to a vampire that will not die because of all the money behind it. Her husband had vetoed it at her urging. Hillary voted in favor of that same bankruptcy bill.
Why would she do that?
On Senators the pressures are very different.
Consumer Credit is a well-financed industry. Many don't realize that the industry that has given the most money to Washington over the past few years was not the oil industry or the pharmaceuticals. It was consumer credit products. Hilary has taken money from them, and is concerned about them as a constituency.
How can it be that politicians who claim to be for the middle class
are beholden to powerful interests that undermine the middle class?
The credit industry has spent tens of millions of dollars lobbying on this bankruptcy bill, and as their profits grow, they just throw more into lobbying for how they can get laws that will make it easier and easier and easier to drain money out of the pockets of middle class families.
Banks and credit card companies are among the most generous of political donors, over $37 million in one election year alone. They were the top two sources of campaign cash for former representative George Gekas of Pennsylvania, who took the lead in pushing the new version of the bankruptcy bill which has passed the House. M.B.N.A. American bank, is the second largest credit card issuer in the country, and the top donor to President George W. Bush.
The WASHINGTON POST has reported the new bankruptcy bill is "salted with language benefiting landlords, condo owners, auto lenders, shopping center owners, and even entertainment companies." Also, it has a provision slipped into the bill that enables landlords to evict families during bankruptcy.
What can be done about this?
Professor Warren and her daughter propose some very original solutions in this book that go beyond ideology. Both liberals and conservatives are talking about it. The Two Income Trap: Why Middle Class Mothers And Fathers Are Going Broke -- With Surprising Solutions That Will Change Our Children's Futures, by Elizabeth Warren and Amelia Warren Tyagi.
One thing they do not propose is that mothers should quit their jobs and go back home. It is too late for that. This book is also a "must" to understand more about how political decisions in Washington have contributed to this situation.
You can read the full transcript of Bill Moyers' interview with Prof. Warren, on
his NOW bankruptcies program,
which also includes interviews with others about the cause of bankruptcies.
http://www.pbs.org/now/transcript/transcript306_full.html
But What is Wrong
with this Picture
in the First Place?
Why is the credit industry so powerful?
Why do Senators need such big campaign chests?
How is her experience with Hillary a lesson in accountability?
Does the Constitution need fixing?
Is there a remedy for the situation?
How can it be that politicians who claim to be for the middle class
are beholden to powerful interests that undermine the middle class?
Have we no safeguards against such abuse of power?
As a matter of fact, our Founding Fathers -- in their wisdom -- built in safeguards that should have protected us from these abuses. But we, much to our peril, as we have just seen, have allowed these safeguards to be set aside.
The Good News
From much research that has been done and documented we now know that the removal of the safeguards, which made impossible government accountability, was fraudulently perpetrated upon the American people. And for fraud there is no statute of limitations.
The remedy is simple and is already in the Constitution. We don’t have to invent new law and hope it works. We know it works because it rescued our nation from a similar predicament and certain oblivion in its infancy. The Constitution needs less to be repaired than to be restored.
Jean Carpenter spent years researching the facts and
tells the story. To understand how Prof. Warren's experience with Hillary is a lesson in accountability, turn to chapter 3.
Before We Can Restore Government Accountability,
We Need to Understand the Various Problems
That Have Followed in the Wake of its Loss
Over the years, especially in the 20th Century, and now even more in the 21st, our Constitution has been rendered almost meaningless while our government has become more and more unaccountable.
See how that has been playing out in ways that affect you, and how we can restore accountability.
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