At the heart of the widening student loan scandal and the continuing collapse of the subprime lending industry is a far more critical problem, the growing inequality in America. On one side, there are the student loan and subprime mortgage lenders and their Wall Street cohorts, who are raking in record profits with questionable business practices. Investigations launched by New York State Attorney General Andrew Cuomo revealed profiteering in the student loan lending industry with widespread use of kickbacks to colleges and universities in exchange for a slot on the preferred lender list. On the other side are students and their parents, who are finding it increasingly difficult to meet the rising costs of attending college in the wake of spiraling tuition costs and anemic financial aid. As the subprime mortgage market continues its meltdown, too many low-income homeowners will lose their families toe-hold on economic security through foreclosure--often because of deceptive and aggressively marketed refinance loans that were made under the guise of easing their financial burdens.
This month's Around the Kitchen Table features commentary on these developments and other economic problems facing the poor and America's weakened middle class. In May, Demos helped develop a special issue of the American Prospect, which includes insightful analysis of poverty in America, and solutions to address the crisis. While legislators try to push reform legislation through Congress that would prohibit kickbacks and conflicts of interests between lenders and college and university officials, economic inequality remains an ever present concern, highlighted by this month's featured publication: Inequality.Org, a clearinghouse of commentary and information spearheaded by Demos Senior Fellow Jim Lardner and Institute for Policy Studies' Senior Scholar Chuck Collins.
Tamara Draut
June 19, 2007
First Published in Newsday.
New York State Attorney General Andrew Cuomo addressed the U.S. Senate Banking, Housing and Urban Affairs Committee recently on his continuing investigations into the conflicts of interest in the student loan industry.
He concentrated on private loans, not guaranteed by the federal government - recommending a code of conduct to keep lenders from receiving university "finders-fee" kickbacks.
He also suggested the federal government get involved. Easier said than implemented.
First, the federal budget has consistently slashed education funding. In his last budget, President George W. Bush even called for cuts in subsidies to companies participating in federally guaranteed student loan programs to force diversion of loan business to private programs.
Second, there wasn't a word of caution uttered on Capitol Hill when the nation's largest education lending institution -- Sallie Mae, which manages $150 billion in student loans -- decided to sell itself to Wall Street: to Bank of America, JPMorgan Chase and two private equity companies, to be exact.
June 14, 2007
First Published in the New York Review of Books.
Donald Davis was not concerned about imports in the late 1960s, when he started out as CEO of the Stanley Works, the country's leading manufacturer of hand tools. By the early 1980s, the challenge of competing against inexpensive tools made in Taiwan, Korea, and China had swept most of Davis's other concerns aside. His first response was a plan to streamline management, reducing the company's white-collar ranks through attrition. An old-school CEO who had been with Stanley most of his adult life, Davis considered layoffs a last resort. But by the time he stepped down as CEO in 1987, hundreds of factory workers had lost their jobs on his orders.
His successor, Richard Ayers, had the advantage of knowing what he was in for. An industrial engineer by training, Ayers mapped out a long-term strategy that called for layoffs, plant closings, and outsourcing: sledgehammer and crowbar production was moved to Mexico; socket wrench production to Taiwan. But the company also invested in making its domestic operations more efficient, and Ayers took special care to preserve jobs and facilities in New Britain, Connecticut, where Stanley had been a major employer for more than a century. By the mid-1990s, revenues had stabilized, profits were up, and Ayers could reasonably tell himself that his "evolutionary" approach had worked.
April 30, 2007
First Published in The American Prospect.
This past week, even jaded observers of Wall Street were startled to learn that last year's top hedge fund manager, James Simons of Renaissance Technologies, made $1.7 billion in 2006. Alpha Magazine reported that the top 25 hedge fund earners garnered an average of $570 million in 2006, up from $362 million in 2005.
The burgeoning hedge fund and private equity industries are both a cause and a symptom of a dangerously lopsided America. Because they are private (not listed on stock exchanges or offering shares to the public), these funds do not have to disclose their inner workings to regulators or to the public. Yet these unregulated funds are increasingly buying and selling some of our largest corporations, stripping assets, piling on debt, leaving employees and subsequent buyers to dig out of a deep hole.
April 22, 2007
First Published in The American Prospect Special Report, "Ending Poverty in America."
From the 1970s through the mid-1990s, poverty policy was among the nastiest battlefields in the national culture war. Left and right slugged it out over why people were poor and how (or whether) to help them. Conservatives generally enjoyed the upper hand in these debates by focusing on individual-level causes of poverty, like family breakdown, drug addiction, and poor work habits -- pathologies said to be enabled by government largesse. This story line struck a chord with the American public, helping ensure the demise of the federal welfare entitlement and the introduction of strict work requirements in 1996.
But since then, a structural understanding of poverty has come back in vogue, fueled by more awareness of globalization and dead-end jobs. Popular books like Barbara Ehrenreich's Nickel and Dimed and Beth Shulman's The Betrayal of Work have drawn a fresh picture of the poor -- as mostly hardworking Americans who can't make ends meet through no fault of their own.
April 22, 2007
First Published in The American Prospect Special Report, "Ending Poverty in America."
Victor and Eloise represent the new face of debt in America. Together, they've worked in a series of low-wage jobs that include stints at fast-food restaurants, small factories, and hotels. Technically, they are not poor according to the government's official definition of "poverty," but the economic vulnerability of the working poor and the near-poor are increasingly similar. The couple, whom I interviewed for my recent book, live in Montgomery, Alabama, with their two children, aged 4 and 14. They own their own home, which they bought in 2000 after their second child was born.
Today, after more than a decade of working low-wage jobs, the couple's annual income has risen to about $50,000, more than double the poverty-line for a family of four. But their long years of subsistence living have left them with high-interest debt totaling $13,000. They're paying a 25 percent annual percentage rate on a $3,000 credit-card balance that paid for new tires and alignment work on their car, as well as for a new stove for their kitchen. They also have three personal installment loans totaling more than $9,000, all at interest rates of 25 percent or higher. These loans were used to help cover bills while Eloise was on maternity leave, to help pay for a used car, and to help repair the family's home air conditioner. After years of barely making a dent in the principal, the couple now pays $345 a month to a credit company that negotiated lower rates and makes payments on their behalf toward one of their credit cards and on two of their installment loans, but they still pay over $500 month, mostly in interest, in past loans that financed basic living expenses.
April 22, 2007
First Published in The American Prospect Special Report, "Ending Poverty in America."
Imagine an infant born into poverty. this child is statistically at greater than normal risk for every bad social outcome in later life associated with early chronic trauma. As the infant grows into a toddler, the child is more likely to have poor cognitive and emotional skills; later on, to do poorly in school; to have poor eating and exercise habits, to use drugs and excessive alcohol, to become pregnant as a teen, to drop out of school. As an adult, this grown child is more likely to suffer physical and mental illnesses, to have difficulty forming secure attachments to a life partner, to get into trouble with the law, to be incarcerated, and to die prematurely. Add other factors highly correlated with extreme poverty in children, such as severe depression in mothers, and the odds worsen. Some remarkable individuals surmount these odds, but to be poor is to be at greater risk.
The phrase that famously got Daniel Patrick Moynihan into such trouble four decades ago in his report "The Negro Family" -- "tangle of pathology" -- is an accurate description not of race but of extreme poverty. Pathology was taken to imply blame. Yet no newborn baby is responsible for its own behavior. And while some poor parents do make poor choices, as Dorothy Day of the Catholic Worker Movement observed, to be poor is often not just to be poor in money but poor in spirit and other human resources. To be born into such an environment is not good for children.
April 22, 2007
First Published in The American Prospect Special Report, "Ending Poverty in America."
Private enterprise produces employment, wages, and wealth, but our public structures are what facilitate the conduct of business, providing the framework necessary for markets to thrive. Key public systems also help protect people against the risks of a free-market economy and provide the infrastructure for economic opportunity such as public- and higher-education systems, tasks that are beyond the purview of any individual. Although the balance between market forces and government institutions and regulations varies over time and place, the notion that public structures and market enterprises work together to generate the common good is virtually a definition of an advanced industrial nation.
Yet for the last several decades, the country has reverted to a premise more like Adam Smith's -- that the public interest is nothing but the sum of private interests; that government is not a partner in prosperity but antithetical to it. From this point of view, government's activities should be minimal; taxes are not the price of government but a pure drag on efficiency. What cannot be provided or ensured by private markets is presumed to be the responsibility of individuals.
April 21, 2007
First Published in The Boston Globe
THE DEEPENING college loan scandal is a classic case of what can happen when government uses private companies as middlemen to carry out public goals. Lately, investigations by New York Attorney General Andrew Cuomo, US Senator Edward Kennedy, and others have revealed a number of problems:
April 7, 2007
First Published in The Boston Globe
Representative Barney Frank of Newton, chairman of the House Financial Services Committee, was in town this week to hold a hearing on the squeeze on household incomes and housing costs. In city after city, costs of both rentals and owner-occupied homes have been outstripping paychecks.
Northeastern University economist Barry Bluestone testified that median housing prices increased by about 50 percent in Greater Boston between 1999 and 2006, while real household incomes were basically flat. In 1998, Bluestone calculated, the median-income family could afford the median-priced home in 148 of 161 Greater Boston communities; by 2006, in just 12 communities.
The cost of rentals has been rising just as fast. All this, of course, represents a real hit to family incomes. If you have to spend half of your income to get a roof over your head, you are that much poorer. If you have to double up to get a decent place to live, that's a decline in your standard of living.
April 4, 2007
First Published in the Los Angeles Times
The crisis in subprime mortgages betrays a deeper predicament facing consumer capitalism triumphant: The "Protestant ethos" of hard work and deferred gratification has been replaced by an infantilist ethos of easy credit and impulsive consumption that puts democracy and the market system at risk.
Capitalism's core virtue is that it marries altruism and self-interest. In producing goods and services that answer real consumer needs, it secures a profit for producers. Doing good for others turns out to entail doing well for yourself.
Capitalism's success, however, has meant that core wants in the developed world are now mostly met and that too many goods are now chasing too few needs. Yet capitalism requires us to "need" all that it produces in order to survive. So it busies itself manufacturing needs for the wealthy while ignoring the wants of the truly needy. Global inequality means that while the wealthy have too few needs, the needy have too little wealth.
Inequality.org
Over the past three decades, the rewards of economic growth in our country have gone to an increasingly narrow slice of the American people. Once seen as a global exemplar of economic opportunity and middle-class egalitarianism, the United States is a more unequal country today than at any time since the 1930s, and, experts generally agree, the most unequal country in all the developed world.
This week, Demos and the Project on Inequality and the Common Good (based at the Institute for Policy Studies) announce the launch of the new Inequality.org--an online resource for advocates, policymakers, journalists, academics and citizens who hope to understand the magnitude, causes and far-reaching consequences of this growing economic divide.