Nel's New Day

June 16, 2014

Decline of the U.S.: Brandeis, Warren, Reich

Louis Brandeis’ book, Other People’s Money and How the Bankers Use It, was published 100 years ago, but it has a strong parallel to Elizabeth Warren’s latest book, A Fighting Chance, according to reviewer Jill Lepore. Brandeis contends “that the country was being run by plutocrats and, especially, by investment bankers, who, by combining, consolidating, and aggregating the functions of banks, trusts, and corporations, controlled both the nation’s credit and the majority of its resources—including the railroads—and yet had not the least accountability to the public or any sense that the functions they had adopted were essentially those of a public utility.” He wrote:

“The power and the growth of power of our financial oligarchs comes from wielding the savings and quick capital of others. The fetters which bind the people are forged from the people’s own gold.”

One hundred years ago, the Gilded Age plutocrats used savings in banks to build giant, monopolistic conglomerates controlled by the shareholders instead of the people who had deposited their money into bank accounts. Brandeis’ book originally appeared in Harper’s as essays. Its compilation of facts and figures shows the massive control that banks wielded:

J. P. Morgan and the First National and the National City Bank together held “341 directorships in 112 corporations having aggregate resources or capitalization of $22,245,000,000,” a sum that is “nearly three times the assessed value of all the real estate in the City of New York” and “more than the assessed value of all the property in the twenty-two states, north and south, lying west of the Mississippi River.”

When Brandeis republished Other People’s Money in 1933 at a cost of $.15, the book was designed to influence President Roosevelt’s administration. The result was a number of anti-trust reforms and financial-industry regulations that grew the middle class during the middle decades of the last century.

While Brandeis’ book deals with the banks’ use of savings, Warren’s A Fighting Chance shows how banks today use the massive debt of the middle class to make money and wield control. With the repeal of financial reforms starting in the 1980s and the loss of the wall between commercial and savings banks from investment banks came the fetters on people from excessively-high interest rates on credit cards and mortgages. People were lured into a sense of false security with “teaser” rates before they faced the shock of skyrocketing interest rates.

Warren first published about bankruptcy in a monograph with Teresa A. Sullivan and Jay Lawrence Westbrook, As We Forgive Our Debtors: Bankruptcy and Consumer Credit in America (1989). Studying 2,400 bankruptcy petitions filed in 1981, they discovered that many of them belonged to the middle class. Over half were homeowners, and many were women rearing children. In The Fragile Middle Class: Americans in Debt, published six years later, Warren reported on personal-bankruptcy filings a decade after her first study. She found that between 1979 and 1997, the number of these filings had increased by 400 percent.

Part of Brandeis’ work led to abolishing child labor and establishing maximum-hour and minimum-wage laws. These laws lost the power to help the middle class, starting with insufficient increase in minimum-wage during the late 1900s. Warren’s work concluded that women holding jobs and raising children become more economically vulnerable, not less. “For middle-class families, the most important part of the safety net for generations has been the stay-at-home mother,” Warren and her daughter, Amelia Warren Tyagi, wrote in The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke (2003). As wages grew stagnant for the middle class in the early 1980s, married women, like Warren’s mother decades earlier, were forced to get a job to help the financial crisis. Once the family grew dependent on the second income, there was no cushion for wages that continued to be stagnant.

stagnant wages

The only answer for struggling families was to spend savings. Once those were gone, they took on huge debts. The final step was filing for bankruptcy. Financial crisis for a two-income family is the loss of one of these jobs. Warren and Tyagi reported, “Having a child is now the single best predictor that a woman will end up in financial collapse.” Between 1981 and 2001, the number of women filing for bankruptcy rose more than six hundred per cent.

During the battle for Massachusetts senator in 2012, Scott Brown tried to paint Warren as an Ivy League elitist. A Fighting Chance shows a far different picture. The divorced Warren was a single mother when she worked to get her college degrees and a registered Republican until the mid-1990s. It was her study of bankruptcy that destroyed her faith in unfettered market systems and “crony capitalism.”

A parallel to Elizabeth Warren’s work is Robert Reich’s research that has been recently promoted in the documentary, Inequality for All based on his book Aftershock: The Next Economy and America’s Future.

Income-Inequality-Graph-from-Robert-Reichs-New-Film

A recurring visual during the film is a suspension bridge superimposed over a graph of wealth concentration of wealth during the 20th century. The two high points are 1928 and 2008 when equality peaked in the United States. Immediately following both these peaks were crashes—the Great Depression and the Great Recession. At both these high points, the top 1 percent took home over 23 percent of the national income. Currently, 400 people in the United States have more wealth than the bottom half of people in the U.S. That’s 400 people with over $2 trillion who have the same wealth as over 150 million people in the United States.

share in income 1

The Golden Age from 1945 to about 1975 disappeared with the anti-union legislation and rapid increase in college tuition. Taxes were also high during this period of time, as much as a 70-percent marginal rate, but they shrank rapidly starting with 1980. At the same time, taxes on the middle class such as sales taxes and payroll taxes (including Social Security) rose.

During the time shown by the suspension bridge, other trends parallel the suspension bridge concept in reverse. Wages grew during the middle of the 20th century as did union memberships. By the 1980s, wages stayed stagnant and union membership shrank.

In his work, Reich goes farther than Warren to show how the rigged system destroys not only the people but the corporations. When workers lose an adequate share of the nation’s income, they can’t buy anything. Lower consumption equals lower corporate earnings. In a vicious cycle, resulting layoffs causes even lower corporate earnings and more layoffs. In short, it is the majority of people who are the job creators, not the wealthy.

share in total income

A common perception among conservatives is that people are poor because they won’t work. As more and more people struggle, that perception is gradually changing. The following chart shows that during the past two decades, more and more people understand that people who work hard cannot climb out of poverty. By 2012, less than one-fourth of the people blame “not working” instead of “not earning enough.”

chart poor people in us

Reading A Fighting Chance and watching Inequality for All (http://inequalityforall.com/) provide a great background for the problems we face and the ways that we can move forward.

June 14, 2014

‘A Fighting Chance’: Elizabeth Warren’s Thoughts on the Rigged System

fighting chanceMen complain how women take everything personally. Elizabeth Warren makes that a good thing. For the past four decades, she has taken the problems of the poor and the middle class of this country very personally. She’s fought against unfair bankruptcy, concealed bank practices, and now excessive interest for student loans.

Warren’s newest book, A Fighting Chance, is far more than her personal story about her family and political campaigns. Throughout her book about how the middle class is trapped in a vise of debt, she shows that she is a person determined to help desperate people in this nation.

Warren grew up when employers could refuse to hire her because she was pregnant—or just because she is a woman. She married and had children early, and her husband—as most men in society at that time—thought it was her responsibility to be sole caretaker of both him and the children. Yet she managed to earn a law degree from Rutgers. Part of her success in education, according to her book, is that education was much cheaper then. She attended a state commuter college and paid $50 a semester for tuition. Now a state college can cost $15,000 a year for instate students.

 

Her original title of the book, Rigged, shows that U.S. politics gives control to plutocrats and bankers at the expense of most of the people in the nation. She writes about this issue in clear, simple language instead of the vague, ambiguous, wordy “fed speak” that most people high in the economic leadership use. Past Federal Reserve chair Alan Greenspan said about his use of fed speak: “You soon learn to mumble with great incoherence.”

One joy of A Fighting Chance is the lack of mumbling. With clarity and common sense, Warren delivers her message of giving everyone in the country a fair chance. Early in her teaching career, she taught a class on bankruptcy at a time when textbooks didn’t cover the new 1978 Bankruptcy Reform Act. In doing her own research on the law, she learned that almost 90 percent of people declared bankruptcy because of a job loss, a medical problem, or a family breakup, not because of bad choices.

Passion about the subject of bankruptcy led Warren to write a book about it and talk to groups about the law. That led her to become an advisor to lawmakers, giving her the opportunity to advocate for vital updates that allowed desperate people to get relief from their debt. Through this advocacy, she met such greats as former Sen. Edward Kennedy (D-MA), whose seat Warren now occupies in the U.S. Senate.

As Maura Casey said in her review:

“She’s mad as hell, and many readers will be, too, by the time they finish this book. Warren explains how the financial crisis was preceded by congressional and court decisions that shredded public protections for high interest rates and predatory banking practices during the 1980s and ‘90s. ‘Gradually [the bankers’] strategy emerged,’ she writes. ‘Target families who were already in a little trouble, lend them more money, get them entangled in high fees and astronomical interest rates, then block the doors to the bankruptcy exit if they really get in other their heads.’”

Her next project was to give the financial world transparency for everyone. Warren knew that as long as financial industries kept consumers and voters ignorant, that banks and credit cards could charge whatever fees and interest rates that they wished. The same ignorance on the part of consumers led to eight times as many bankruptcies in 2010 over 1980 and caused these same people to lose their homes at a enormous rate. Thanks to her support from such luminaries as Rep. Barney Frank (D-MA) and a Democratic president, a new agency, the Consumer Financial Protection Bureau, created a simpler way of looking at financial contracts. Credit card agreements are now one page, and mortgages use understandable language.

elizabeth_warren_graduates-620x412Republicans made a major mistake when they refused to make Warren the head of this agency. Because of this loss, she ran for Senate against a popular incumbent—and won. Her current crusade is to put student loans on the same footing as bank loans.

Banks pay less than 1 percent in interest, giving them a subsidy of $83 billion a year that they stash away instead of helping people with the funds. Students pay nonnegotiable rates of over 8 percent, in a time when mortgages are under 4 percent.

The bill allows students to take out government loans at 3.86 percent interest and let existing borrowers to refinance their current loans down to that lower rate. It also proposes that the $5.1 billion loss each year through refinancing would be off-set by $7.1 in new revenues from a surcharge tax on millionaires to ensure that they pay at least 30 percent of their income in taxes.

Warren said:

“We put the plan to pay for it right on the table. No gimmicks or smoke-and-mirrors. We said that when the government reduces its profits on student loans, the money should be made up by stitching up tax loopholes so that millionaires and billionaires pay at least as much in taxes as middle class families.”

As Warren told the Boston Globe:

“It’s a basic question on our values. Does this country protect millionaires’ and billionaires’ tax loopholes? Or does it try to help young people who are just starting their economic lives?”

This past week, GOP senators filibustered her bill on student loans and temporarily killed it. She obtained 56 votes to overcome the filibuster: that’s six votes over a majority of the Senate but not enough for the filibuster policy that mandates 60 votes. There were actually 57 votes to close the filibuster, but Majority Leader Harry Reid changed his vote to no so that he could bring up the bill again. Thirty-eight GOP senators voted to protect the 22,000 millionaires/billionaires.

Warren never quits. She’ll be back with the bill again. And she’s got help. A few hours after the bill was blocked, Chuck Schumer, the third-ranking Democrat in the Senate, told Jon Stewart on The Daily Show:

“You can refinance your home, you can refinance your car, but the federal government doesn’t allow you to refinance your college loan if you’re paying too much. Why shouldn’t we do that? We’re gonna keep going at it. We’re going to bring this bill up over and over.”

Businesses and local governments can also refinance loans for a lower interest rate.

High interest on the $1.2 trillion that over 40 million people owe in student loans hurts the country’s economy. Most of them cannot buy cars and homes, causing fewer jobs to make and sell these. Dropping the interest rate would put billions into the economy and billions into the government coffers through tax revenue.

The GOP couldn’t even come up with a rationale justification for voting against the bill. Minority Leader Mitch McConnell (R-KY)  said, “The Senate Democrats’ bill isn’t really about students at all. It’s really all about Senate Democrats. They want an issue to campaign on to save their own hides this November.” At the same time, the Senate Finance Committee has approved a measure to cut taxes for the wealthy that cost $8 billion a year with no offset.

Warren has an answer for McConnell. She’s headed to Kentucky to campaign and fundraise for his opponent, Alison Lundergan Grimes.

Although much of the book is about policy and law, it is a very personal book as Warren writes about how she developed her value system. She grew up poor and always has an eye on the dollar. It is that background that makes her valuable in her fight for the people struggling against a rigged system. She has lived their lives. And she understands how all these lives, rich and poor, are interconnected.

“There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: You moved the goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory…. Now look, you built the factory and it turned into something terrific, or great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid that comes along.”

Warren’s  weapon throughout her achievements is her call for transparent systems. As she says, “When you have no real power, go public—really public. The public is where the real power is.” After the GOP blocked her bill, she said:

“I think it is time to come back louder than ever. I think it is time to show up at campaign events and town halls and ask every single Republican who voted against this bill why protecting billionaires is more important than giving our kids a chance to pay off their loans. I think we need to ask, and ask again, and ask again.”

That’s what Warren is doing in Kentucky, and it’s great advice. It might give the people of the United States a fighting chance.

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