Third World America - Arianna Huffington [28]
“We see eight-year-olds telling Mom not to worry, don’t cry,” said Bill Murdock, who works with homeless schoolchildren.104
It’s hard to hear stories like these and not feel outraged that we have given hundreds of billions of dollars to save Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo, and yet those same banks are turning around and refusing to modify mortgages so that families can stay in their homes.
Moreover, despite common perception, most of the people losing their homes today are not recent buyers with crazy subprime mortgages, or families who took out massive loans they couldn’t afford. They are middle-class Americans who have lost their jobs and are struggling to make ends meet.
The foreclosure crisis hasn’t gotten the attention it deserves because the public’s interest—people being able to keep their homes—is not aligned with corporate and financial interests. Banks don’t want to adjust nonperforming mortgages down to their actual values because that would lead to marking down the value of the massive asset pools they have rolled the mortgages into.105 The four largest banks (Bank of America, Wells Fargo, Chase, and Citibank) service two-thirds of all distressed mortgages.106 These banks collectively hold about $477 billion in second liens.107
When it came to the foreclosure crisis, Obama’s audacity to win morphed into a timidity to govern. Bolder action earlier by the administration and our paralyzed, polarized Congress would have kept millions of families in their homes and cleared the decks more quickly for an economic revival on Main Street. But that, of course, would have meant giving the public the same sort of breaks the gluttonous bankers got.
“The banks are too big to fail” has been the mantra we’ve been hearing since September 2008.108 But apparently it’s okay when American homeowners are thrown out of their homes and out of the middle class—perhaps forever.
A HOUSE OF CARDS
Mortgages, of course, are far from the only kind of debt Americans are saddled with. Indeed, we have become a nation fueled by plastic and financed by revolving credit.
The numbers are stunning:
As of January 2010, U.S. consumers were carrying $2.46 trillion in consumer debt; $864 billion of that was made up of revolving credit (98 percent of which is credit card debt).109, 110
There are more than 576 million credit cards in circulation in America, and another 507 million debit cards.111 We used those cards to make more than 56 billion transactions last year.
The average credit cardholder has 3.5 cards, and of the households with credit card debt, the average debt is $16,000.112 During 2009, 56 percent of consumers carried an unpaid balance.
Americans no longer use their credit cards just to buy the things they want; they use them to make ends meet. “For much of America,” says Elizabeth Warren, “the credit card is now the health insurance policy, the unemployment insurance, the way to deal with a child who’s off in college and you haven’t got enough to cover expenses.”113 For more and more Americans, credit cards have become a plastic lifeline. In fact, in 2007, even before the economic crisis began, 14.7 percent of American households had debt totaling more than 40 percent of their annual income.114
In 1958, American Express pioneered the use of widely accepted credit cards.115 BankAmericard (later to become Visa) followed in 1959 with the first general-use card that allowed balances to be paid over time. MasterCard (originally known as Master Charge) launched in the late 1960s.
But the modern credit card industry really kicked into high gear after a 1978 Supreme Court ruling allowed banks to charge the top interest rate permitted by the state where a bank is incorporated as opposed to the borrower’s home state.116 Hoping to lure banks