The Occupy Finance Book- Chapter 1: “Heads They Win, Tails We Lose”

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The Occupy Finance Book

The Occupy Finance Book

Section 1. The Real Life Impact of Financialization on the 99%

Chapter 1. Heads They Win, Tails We Lose
(a discussion of the various ways the members of the 99% have become financial products)

Interview with Linda P. Brown
by Oriana P. Roerkraeyer

LB: I’m Linda Brown. I was a teacher for a very long time before I retired. Half of my life doing Adult Literacy and the other half Public High School teaching. I joined Occupy because after the 2008 crash lots of us were saying to ourselves and to each other : “well if people aren’t out on the streets now, when are they going to be out on the streets”? And then all of a sudden Occupy was out on the streets and I could not have been happier or more excited and it seemed to me that whatever they were doing I had to go join.

OPR: You guys just came out with a book “Occupy Finance”. How did that come about?

LB: It came about because we’ve been meeting now for over a year, almost two years. We set ourselves two tasks. One is to try to understand what was going on in the financial industry and the other was try to spread as much as we could what we had learned. On the first anniversary of Occupy Strike Debt came out with an absolutely wonderful manual called “The Debt Resistors Operations Manual”, which we thought was just the most extraordinary publication. Serious, radical, well researched and wonderful. We thought we should try to do the same for what we learned about the financial system and write down what went so terribly wrong.

OPR: Over the years, how has Wall Street crept up on Main Street and are we doing better because of it?

LB: (laughs) What is the name for this kind of question when you know what the answer is going to be in advance? Well, let me say this, personally I was always aware of Wall street and I was always aware there were some people that traded stock and bonds and there were some people that made an extraordinary amount of money but it was always sort of in its box. There were other parts of your life, you had your job, you had your family, you had whatever else you were thinking about and suddenly, around 2007, I became obsessed with what are hedgefunds and what do hedgefunds do? After 2005, or even 2000, you couldn’t avoid hearing what was happening on Wall Street. Not only was it taking bigger and bigger chunks out of our lives, it was also taking bigger and bigger chunks out of our consciousness. People like me started following the business news, I had never followed the business news before. You know, I was in teaching. Why would I do that?

OPR: Can you give some examples of how our lives have become financialized?

LB: One is the complicated financing of charter schools. Charter schools are non-profit and they are available to public school students. However, the management companies, the people who are in charge of running the charter schools, are not non-profits. We are basically paying public money to these private entities. Also part of rush to test everybody has to do with the companies that make the tests, that create the tests, that have all kinds of decisions in relationship to the tests. And then of course the third thing is how regular people can’t afford college. They just can’t you know, normal families, with three kids can’t afford college and the kids wind up with these overwhelming debts. So in all of those cases private business interests have moved in on what we used to think were sort of normal, regular, public goods.

OPR: Things have become more and more abstract and more complex. How are people supposed to keep up with all those financial terms and strategies?

LB: That’s a great question. I think before you start investigating you have to develop a stance. You have to sort of say to yourself “people who want to be understood can be understood”. Very complicated things can be explained. I was a teacher. Not that I had to explain terribly complicated things but if you want to you can make nanotechnology or microbiology or genetics or astronomy, you can explain it in such a way that people can grasp it. If you have a sector of your society that the majority of people find absolutely impenetrable that’s not by accident. So if you develop a stance that many things are made obscure deliberately and…but you do have to put in some work, you do have to actually start following the business news, start reading the occasional article, not every article, but the ones that are related to some things you know something about, watch programs on PBS, listen to things on radio stations that you trust, you can start to get a grasp.

OPR: What exactly happened during the real estate crisis and who was responsible?

LB: (laughs) Oh, I love it that you are asking me this question…and I love it even more that I’m gonna take a shot at answering it. My understanding of what happened in the real estate crisis was that once banks no longer kept the mortgages themselves, once they could put a whole group of mortgages together and sell them as a security, well they could make money from doing that and the people associated with it, the mortgage brokers, all kinds of other people could make money doing that, so of course they wanted to keep making that money. So rather than investigating whether or not the mortgages made sense or people could pay them back, there was this incredible drive to have as many mortgages as possible so that you could turn them into securities, which created the real estate bubble, which certainly contributed to the crash. I know that there are people who will go even back to before that, even before securitization and the fact that there was so much money that was looking for a place to invest, that there was a lot of this sort of free floating money around and the people with that money logged onto real estate. But you can see that the bubble was created and then was fed and then, the truly astonishing part is, the people who did it got tax-payer money. Tax-payer money that can’t be used to send people to college, to repair bridges,..I mean that really is an astonishing story. You know, people are worrying about tax-payer money paying for Obamacare. Tax-payer money paid for bonuses, for AIG and bank executives after they had crashed the economy. It astonishes me that people aren’t outraged every day about this.

OPR: Can you explain in simple terms what securitization is?

LB: I will try. Securitization is when you take one kind of asset and you turn it into another kind of asset. So with mortgages for example, you go and you borrow some money from the bank and you have a mortgage and the bank has the mortgage. Well the bank doesn’t just wait for you to pay the mortgage, that might be a 30 year mortgage. So what the bank does, it takes a whole group of mortgages and sells them to a financial firm. The financial firm then repackages them as securities, which it sells. So the original financial product was a mortgage but the new financial product is a security. They have taken your mortgage and a whole bunch of other mortgages and they have turned it into something that they can sell pieces of. And they don’t just do it with mortgages of course, they do it with all kinds of other things like loans and such.

OPR: That doesn’t seem to be in the best interest of the people, of the 99%. How come there is no law against that?

LB: Isn’t this the most interesting thing? How do our laws get written? How much oversight do we have over the laws that get written and when laws have not been written to help regular people, how can we change them? And that’s really huge. And I think, going back to what you asked earlier, part of the problem for regular citizens is the complexity and so people feel “yes, I have a sense that it’s wrong and corrupt but I have no idea what I can possibly do about that”.

OPR: In the long term, can this whole financial system survive?

LB: Who knows? I mean, we’ve all read or heard in our history books about the rise and falls of empires. It certainly can’t survive the way it is now that I can imagine because the next big crash is just waiting to happen. We haven’t created laws to prevent what happened in 2008 and a lot of the traders are doing exactly the kind of stuff that they were doing before. These days, a financial crash is a worldwide crash, it’s in Greece, it’s in Spain, it’s in Italy, it’s everywhere so it seems to me that unless we really seriously decide to get a grip …I think we are living in a dream world…

OPR: Yes, talking about that, what happened to the American Dream?

LB: Well,…I’m an example. I worked for public institutions so I have a teachers pension from New York City, I worked for the city university so I had part of a pension through the city university. I live in a rent-stabilized apartment. It is astonishing to me, I went to decent public schools when I grew up, I was able to go to college and pay back my loans so I am …you know how they talk about the greatest generation? I am the luckiest generation. It is amazing to me how all of these pieces came together and I’m sick at heart to think that people of your generation and the people younger than you, those seem so out of reach. You know. People are fighting to take away public pensions because people no longer have private pensions and it’s perfectly understandable that somebody working in a corporation would say “hey, why should I be paying my taxes so that you can have a pension when I have no idea whether I will ever be able to retire at all?” It’s understandable that we would be turning on each other but the American Dream,… people still talk about,.. but I would say more and more people feel trapped and are just hoping not to be homeless.

OPR: I’ve heard the phrase going around “poor people are invisible”. What is meant by that?

LB: Actually I know myself what it means. I live in a nice neighborhood in Brooklyn and probably the only way I see poor people is when I take the subway. But when I visit people I know in Florida, they live kind of out in the country, everywhere we go we’re in their car, we meet people who are like them, you know at nice restaurants. They absolutely never, never have to encounter anybody who’s poor and so it’s understandable to me that there are large parts of the country that really think that some people are exaggerating.

OPR: Or they blame them for what’s going on.

LB: Or they blame them yes, but you know what, I have more faith in American’s humanity than that. I think there is a …you know, one kind of propaganda is that we are all selfish. Most Americans really aren’t and you know if you are a New Yorker a normal thing to talk about is September 11th and the weeks after September 11th the outpouring of everything, of money, of workers not expecting to be paid,..and there was a wonderful piece that Stephen Jay Gould wrote saying we talk about human’s destructive impulse but really our main impulse is to try to make things better and to try to fix it if things go wrong. I think that’s true in this country, I still think that’s true in this country, I think we are encouraged to be as selfish as we can be because now we say who’s gonna look after you, nobody is gonna look after you, but I don’t think that’s who we are.

OPR: Can you explain what ‘due diligence’ means?

LB: That’s a legal term and I would assume that it means that you, for example, if you are going to give a loan to somebody you check to make sure that what they are going to buy is not going to fall into a sinkhole tomorrow, that in other words you know it’s a reasonable investment and that they can reasonably pay off what they are borrowing. It seems to me in other words what your responsibility is you should take care of.

OPR: So this is what’s happening. They blame the American people for what is going on with the crisis.

LB: Right. Rather than the fact that they had robots signing papers and that they specifically didn’t want to investigate. It’s not a question of due diligence, it’s a question of lots of people in the mortgage business knew that it was shaky and tried to tell their bosses and higher ups and anybody who would listen, “you know, this deal really smells”. But of course if you are likely to make thousands and thousands and hundreds of thousands or millions of dollars on a number of these deals you don’t want to know. There’s some fabulous quote” “It’s amazing how someone can refuse to understand the basics of his salary depends on his not understanding them”.

OPR: What are the connections between how money is made and what is happening in our society and how has the financialization of our society affect our values, our politics, our environment and our lives?

LB: I recognize that line. One of the things that’s amazing to me is …My mother said no matter where you are there will be people who are richer than you are and people who are poorer than you. It’s fine with me that there are people who are richer than I am and even a lot richer but the amounts of money that are made, particularly in the financial and corporate spheres, are so astounding that they have to have …they reshaped things, in other words, it pulls everything out of any kind of normal relation ship, so it reshapes politics by how much money people can pay to campaigns…as many people have said, the Republican presidential campaign was kept going for so long with so many candidates because individual billionaires decided to bankroll particular men rather than it being a grass roots,..ok, we really wanna hear what Rick Santorum has to say, or what Newt Gingrich has to say…you know, this comes from us, the people…no no no, it comes from a few well placed very rich people who managed to reshape what it is we are thinking about and how we think about it. So, that much money…and not only of the heart breaking things to me is, what percentage of young people now still wanna go into finance. I remember reading something like, in the 1970’s maybe 25% of Harvard’s graduating class wanted to go into finance, so now it’s well over 50% or 60% something like that, because perfectly decent young people say to themselves “alright, let me see if I can make 500 million by the time I’m 30 or 35 or so”, and that doesn’t seem like an amazing thing to say! Back in the day people would say I would like to be a millionaire by the time I’m 40, you know. These days people look at Mark Zuckerberg or somebody else and they think, I’m smart, I’m creative, I should be able to make enormous amounts of money while I’m young and then I’ll do good. And of course, that hardly ever happens.

OPR: Where can we find this book?

LB: It’s online and if you send us a request on our website, which is alt.banking.ows@gmail we will send you a hardcopy.

OPR: Thank you

Introduction: Fighting Our Way Out of the Financial Maze

Them that’s got shall get
Them that’s not shall lose
So the Bible said
And it still is news
Billie Holiday, “God Bless The Child”

When frightening and destabilizing events were taking place in the financial world during the fall of 2008, it seemed like every day a new institution was on the brink of collapse and could be saved only by huge infusions of taxpayer money. After the dust—or rather, the dollars—had settled, we citizens naturally assumed that there would follow a day, or many months, of reckoning. How had the American economy arrived at such a moment, who was responsible, and what did we need to do to ensure that the same catastrophe would not happen again?

Five years have passed. Banks that were “Too Big to Fail” have gotten bigger, with the encouragement of the government. Wall Street continues to bundle and trade the many debts of average Americans. Big trading risks are taken by people who ignore regulations and their own internal warning systems, leading to enormous losses—see JP Morgan Chase. The elements of the next crisis are being put in place at this very moment by some of the same people and institutions that brought us the last one. They are making money, lots of it, while the making is good.

There has been no reckoning. There have been no apologies. There have been no serious changes to the laws, to the reputations of the significant players in the crisis, or to the way business is conducted. Not only were the people responsible for the financial meltdown not prosecuted, they walked away with millions of dollars in profits even though they caused the companies they worked for to face bankruptcy. We do not even know exactly what happened to the billions of dollars that were handed over to private firms, except that almost none of it made its way to mortgage holders trapped by forces they could neither anticipate nor control. There has only been great suffering and the loss of homes, jobs, and confidence in a better future.

To add many insults to our economic injuries, the architects of austerity in Congress, the White House, and various state and local governments are requiring us to continue paying for the bailout with cuts in benefits, hikes in tuition, and loss of city, state and federal government services. Even worse, we are informed that we regular citizens, not the bankers and financiers, are the ones really responsible for any continuing fiscal distress, due to our profligate ways, our unpayable mortgages, and our pensions and health care costs.

This book is our reckoning. Some of us have long experience in the world of finance, having worked in banks or hedge funds or as financial advisors. Others of us are teachers, lawyers, students, or Teamsters who started out with a limited understanding of “securitization,” “credit default swaps,” and “collateralized debt obligations” but have taught ourselves about these instruments because we recognize their importance within our current economy. We have found that you do not need a PhD in math or economics to understand what is happening. We have also learned that it is imperative for us to know as much as we can about the workings of the financial system because some of the most interesting facts never get reported. Contrary to what the 1% would have us believe, the way things are is not the way they once were, not the way they have to be, and most importantly—not the way they should be.

The effects of the increased hold of the financial sector on ordinary American lives have come to our streets, where there are fewer police officers; to our schools, where there are fewer teachers; to our pension funds, which are being put at risk in speculative investments; and to our friends and family who face repaying mind-boggling student loans but are unable to find work that pays a living wage. We know that we cannot wait for other people—presidents, senators, regulators, CEOs, economists—to fix our system. They haven’t. They won’t.

Some kinds of cheating are publicly condemned. Athletes accused of using performance-enhancing drugs are exposed and forfeit their titles; teachers and administrators who alter test scores lose their jobs and are arrested. But where is the outrage when whole laws are written for and by big banks and financial firms to give them unfair advantages in relation to competition, tax policy, and influence within government? Why do the tax laws provide that the compensation of hedge fund managers does not count as “salary” and thus is taxed at a much lower rate? How much money is legally kept in off-shore accounts by businesses that use our infrastructure to secure their profits?

In this country we have been encouraged to trade the ideal of economic justice for that of equal opportunity, but this bargain, which never really existed, has been revealed as a cruel hoax. What we have is a lottery economy in which very few people do extremely well and the rest of us are supposed to bend our energies toward becoming one of those lucky few. We are urged to think of ourselves as rugged individualists, and yet none of us gets through the day without the support of the people and the institutions around us. We who feel responsible for others as well as ourselves, for Americans who have lost their homes and are living in their cars or Bangladeshis who risk their lives in sweatshops, need to step up. We must join together to demand policies and laws that enable a robust and productive economy that distributes its rewards widely, rather than one which plays roulette with the nation’s wealth for the benefit of the few. When the foundations of our society—education of our children, care for the sick and injured, security for our elderly—are viewed simply as opportunities for the creation of ever more “innovative” financial products and profit centers, we erode the very basis of the communities that keep us all safe. We become prey for the financial predators.

We know that the way it is not the way it has to be. Economic arrangements, however complex, opaque, and interconnected, are created by human beings and can be changed by them—by us. Taking on this responsibility is daunting, but also exhilarating. It is the first step in the direction of economic justice.

Chapter 1.Heads They Win, Tails We Lose: Real Life Impact of Financialization on the 99%

(a discussion of the various ways the members of the 99% have become financial products)

Indeed I live in the dark ages!
A guileless word is an absurdity.
A smooth forehead betokens
A hard heart.
He who laughs
Has not yet heard
The terrible tidings.
Bertolt Brecht

To have a sense of how banks and other financial entities have entangled American families in ever more complex economic arrangements, it will be useful to remind ourselves of what an average family’s financial life looked like as recently as two generations, or forty years, ago. In general, a family had two outstanding debts: a mortgage on their home and a car loan. A small percentage of families took out an additional loan to help pay for a child’s college expenses. The chances are excellent that the family got the mortgage from a local bank that would keep the loan until it was paid off and bought the car at a local lot.

Many families had a breadwinner, or sometimes two, whose jobs provided pensions and health insurance, among other benefits. Almost no families had credit cards. Only a minority of families had investments in the stock market. Therefore, at any particular moment, it was clear to the family where they stood – they knew how much they owed and to whom, what their interest rates were, and when their loans would be paid in full. They could also plan for retirement.

Not coincidentally, before ATM cards and the Internet, banks and stores had regular hours and were sometimes closed, on Sundays for instance. People were more likely to think in advance about what they were going to spend and would be reluctant to spend money they did not have.

How far we have come! A modern family, if it is one of the millions of families unlucky enough to have bought a house during the recent real estate bubble, probably has either a mortgage with a very high fixed rate or an adjustable-rate mortgage which began with a low teaser-rate, to encourage the family to buy, and subsequently rose to an unmanageable level.1 The family could have had no way of knowing that the mortgage broker and the realtor and the bank representative and any lawyers involved had no interest in their ownership of the home or whether they could afford to pay for it or what would happen in one or two years – because all of these parties had collected their fees and the mortgage had been sold off to other interests. Most people had no knowledge or understanding of “securitization” and had no idea that their mortgage was now an entirely different financial product from the mortgage of their parents or grandparents.

In a naive way, we all tend to think, “People who lend money want to be paid; they wouldn’t lend it if they didn’t seriously expect to be paid.” But of course this is no longer the case. Loans are made because the lender makes money from the debt and from fees associated with arranging for the loan – whether or not the borrower eventually defaults. We are suspicious when a stranger on the street offers to sell us a Rolex watch for fifty dollars, but why would we have had those same suspicions about the largest mortgage company in the U.S.A., Countrywide? One of many outrageous tactics of mortgage brokers was to steer families with good credit into signing for a subprime loan, at much worse rates, because the broker would then make a bigger profit.2 When home prices were rising, a number of families with regular fixed-rate mortgages were encouraged to take out second mortgages or home equity loans, which were open to all of the same manipulations to generate higher fees as initial mortgages were. As we all now know, when the housing bubble deflated, many homeowners were caught paying exorbitant amounts for mortgages that were now valued at far more than their houses were worth. Thus it happened that what used to be considered the major forward-looking purchase in a family’s life became, instead, a financial trap that a family could not escape without, at best, ruining its credit and, at worst, ending up homeless.

Car purchases also used to be more straightforward, although buyers have always been somewhat wary of car dealers. Now among the many ways a family can buy a car are:

PCP or Personal Contract Purchase in which the buyer pays an agreed-upon amount for a fixed number of months and then has a hefty final payment before gaining ownership
HP or Hire Purchase loan, which is similar to a PCP agreement but has some different features
Borrowing from an online financial institution, with associated complexities and the lack of any particular person to explain the terms
Using the money from a second mortgage or home equity loan
Using a credit card
Arranging the loan through the dealer
So our average American family has had two financial balls to juggle. And almost all families now have a third: credit cards .

The Normalization of Buying on Credit

Even though credit cards existed before the 1980s, a comparatively small number of people had access to them and used them. They were originally intended for customers with good credit as a convenience, to encourage them to do business with the issuing bank or institution. Diners Club cards, introduced in the 1950s, were one of the first general purpose cards (as opposed to department store charge cards). Complicating the introduction of credit cards that could be available to most Americans was the fact that interstate banking laws prohibited banks in one state from lending to customers in another, and each state set its own interest rate ceiling.

In 1978, however, the Supreme Court ruled, in the case of Marquette National Bank of Minneapolis v. First of Omaha Service Corp, that nationally chartered banks could do business across state lines and, most importantly, could charge people in other states the interest rate set in the bank’s home state.3 Bank deregulation had begun for real! This meant that banks could issue cards with more or less uniform high interest rates after they had incorporated in states like South Dakota that placed no limits on the interest banks could charge. By the 1980s, the proliferation of credit cards and their use and abuse began in earnest. Soon it seemed that everyone from heads of families to college freshman had at least one and sometimes many credit cards, and they used them a lot.

Note that our average family is already paying for a mortgage and a car and has severely limited discretionary funds. But credit cards enable this family to buy more goods and services, and thus to go further into debt, since most people do not pay their full credit card bill each month and are charged interest on the unpaid balance – interest as high as 29.99%.4 Also, most people use more than one credit card. Often those cards are not used for flat-screen televisions or new clothes but, instead, for necessities like medical bills and food. A further complication of credit cards comes when the card holder is late with or misses a payment. Even though many people are aware of the high rates of interest they are being charged on their cards, they are often unaware of how large the late fees are and how these get added to their overall bill. Then these additional fees start to accrue, just as they do if payment is late for a mortgage or a car loan.

This would be the time to reflect on the fact that salaries for most American workers have remained stagnant or have even gone down in the last two generations. Median earnings for prime-age (25-64) working men have declined from 1970 to 2010, falling by 4%. But this statistic only accounts for working men, not those on disability or incarcerated or unemployed. The real decline is much greater.5 Women have made more progress, but of course they started at a lower pay level. However even women’s wages are down by 6% since 2000. It becomes more and more obvious that credit cards have been used to take up the slack. It is also obvious that credit card issuers, which are primarily the major banks, have made enormous profits from credit card interest payments and late fees. So we have a neat transfer of wealth from regular families to financial institutions—specifically to the people who work at the upper levels of those institutions or who own stock in them.

Possibly our average family has a child, and perhaps more than one, who is ready for college. Our society has told young people and their families over and over that college is a necessity if they want to have any kind of respected and reasonably paid job; they are considered irresponsible if they opt out of higher education. But very few families have enough money to pay for college expenses without borrowing. One of the more sobering statistics about credit cards is that around one-third of college students pay all or part of their tuition this way.6 They will only be able to make partial payments on these cards for years.

Most students also take out some combination of federal loans with interest of 6.8% and private loans with varying interest rates. Students often have all three kinds of debt by the time they graduate, and the amounts they owe are truly extraordinary: average student debt at the time of graduation is around $27,000,7 but students who have attended law school, medical school, or other graduate programs often owe many times that much.

In generations past, college graduates could usually find a job and begin paying a reasonable amount on their loans each month. Now the situation is very different. Not only is there high unemployment or underemployment for recent graduates, but the amount they must pay on their debts each month is insupportable. Everyone knows graduates who have moved back home to live with their families after college because, even if they have been lucky enough to find work, they can’t pay off their college loans and also pay for a place to live and a car. These young people are not saving to buy a home or to start a family or a business; at the beginning of their adult lives, they are struggling just to get by.

What Happened To The Benefits?

In 1980, two out of three American workers were in defined-benefit pension plans provided by their employers, with guaranteed lifetime benefits.8 By 2011, that number had shrunk to fewer than one in five workers, and it is continuing to go down. Now workers are expected to enroll in 401(k) plans through their employers or set up an Individual Retirement Account (IRA) on their own. There are four big problems for a family trying to provide for retirement through one of these financial instruments:

The money in these funds is at much greater risk than money in traditional pensions, as we all saw during and after the financial crisis of 2008. A family can lose an enormous amount of retirement savings overnight.
A family with no particular financial expertise has to figure out how to invest. Just as the markets and finance are becoming more complicated and less transparent, regular people are forced to gamble with their future.
Families often ask financial advisors to help them sort through the various possibilities. But of course these advisors must be paid, with money that could have gone into the retirement account.
In a crisis, a family sometimes withdraws money from these accounts and pays steep penalties – not only the taxes that had been deferred, but also an additional fee of 10%.
So our average American family, with mortgage debt, car debt, credit card debt, and student loan debt, also has no idea of how much will be in their retirement fund when it is time to retire – assuming they have not withdrawn the funds before that time for an emergency. They could be lucky – the stock market could be up and their mix of stocks and bonds could be performing well -or they could be wiped out. Ultimately, they have virtually no control over the outcome.

The other benefit that workers relied on was employer-provided health insurance, not just for themselves but also for their families. After World War II, because of wage controls, employers offered health benefits in order to compete for workers. The number of employers offering this benefit grew until the early 1980s. However, as health care costs increased, employers cut back on various benefits, health care among them. In 2010, 55.3% of American workers had employer-based health insurance, and workers were paying more for it.9 This means that almost half of all working people don’t get access to health care through their jobs. Even when they do have such benefits, coverage is often seriously inadequate and the deductible – the amount the family must pay before they receive any insurance assistance – is very high.

A 2009 study in The American Journal of Medicine reported that, of people who declared bankruptcy because of medical bills, 75% were covered by health insurance.10 And employers, particularly non-union employers, can change the coverage they offer at will, as can the health insurance corporations. Walmart, which had been heavily criticized for not providing health insurance and for paying workers so little that they were actually eligible for Medicaid, announced that it was improving its health insurance policies in 2006.11 However, by 2011 Walmart rescinded most of those changes, particularly those which covered part-time workers. As we know, many companies deliberately keep workers’ hours below the number at which they would be eligible for benefits. In other words, they intentionally add more part-time workers rather than increase the hours of the workers they already have in order to avoid paying for benefits. If our average family is fortunate, at least one breadwinner has employer-provided health insurance which also covers the spouse and children, but there is a one-in-two chance that this is not the case.

Historically, pensions and health insurance were offered to workers in lieu of pay raises. Now, the productivity of Americans has increased, but their salaries have not gone up and their benefits have been seriously eroded. What, we hardly need to ask because we already know the answer, has happened to the money that could have paid higher wages and decent benefits?

Blood From A Stone

So far we have been discussing the increasing financial burdens on an average American family. But what about the burdens on the millions of families that survive on less than $30,000 a year, sometimes much less? Their situation is truly desperate – but not so desperate that various businesses cannot make money from their distress. The general name for this sector of the economy is Alternative Financial Services, which covers everything from check-cashing stores to payday loan providers. What is most interesting about these “alternative” services is how closely they are connected to regular, mainstream institutions like JP Morgan Chase.

Unless a bank depositor maintains an average monthly balance, usually of more than $1,000, he or she will be charged a monthly fee and various additional fees for checking and other services. Many people who are unable to maintain a large enough balance are therefore driven to use check-cashing services, for which the fee is usually 1.5% to 3.5% of the face value of the check. They also have to figure out how to pay their bills without a bank account, often using money orders or other expensive options. Walmart and Kmart now offer check-cashing services at their stores, illustrating how “alternative” quickly becomes normalized when there are profits to be made.

Since the Credit Card Act went into effect in 2010, placing some restrictions on credit card issuers, the use of prepaid cards has exploded. These cards are most often used by people who can’t get regular credit cards. They are not yet regulated in the same way as regular credit cards, so, naturally, charges and fees that are not initially disclosed to the buyer are common. The buyer of a General Purpose Reloadable (GPR) card purchases the card which has a certain amount of money on it – but of course the card, and the service, comes for a fee. Other fees include monthly charges, a fee to activate, balance inquiry fees and dormancy fees, among others. A different kind of card, issued by the government to pay benefits, is the Electronic Benefit Transfer (EBT) card. We are not surprised to learn that the banks that are contracted to service these cards charge a variety of their own fees

People who live paycheck to paycheck sometimes cannot quite make it through the week or two weeks between checks, and so they take out payday loans. Everyone, including the people asking for these loans, knows that they are a terrible, last-ditch option, but sometimes getting such a loan is a necessity. They can carry annual interest rates of over 500%. There are now many Internet-based payday lenders that can automatically withdraw payments from a borrower’s checking account. JP Morgan Chase, Bank of America, and Wells Fargo, among others, permit this practice. If the payday lender tries to withdraw money and it is not in the account, a fee is charged. So the borrower is paying not only extraordinary interest charges, but also excessive bank fees.

These are only some of the ways in which our largest institutions bleed money out of our most vulnerable citizens, and surely right now, at this very moment, new and ostensibly legal possibilities for turning some people’s debt into other people’s investment opportunities are being created. Exploitation never sleeps.

Is One Person’s Profit Another Person’s Loss?

We are used to thinking of ourselves as a rich country – rich in land, rich in natural resources, rich in the creativity and willingness of our people to work hard. Perhaps because of this, we have allowed ourselves to believe that large fortunes can be made by a few people and no one will be the worse for it. We refuse to make the connections between how money is made and what is happening in our society. How has great wealth affected our values? What is important to us in life? How has it affected our politics? How has it affected our environment? And most important, how has it affected not only our citizens but also other people in other countries?

We have slid, at first slowly and then rapidly, into making wealth our only measure of value, and we have encouraged our financial sector in its drive to find more and more ways to turn the necessities of life into profits. But there is a price to be paid. Some people are paying now and paying dearly. For the rest of us, the cost may be delayed – but the bill will come due.


1. Katalina M. Bianco, “The Subprime Lending Crisis: Causes and Effects of the Mortgage Meltdown,” Commerce Clearing House (CCH), 2008

2. Charlie Savage, “Wells Fargo Will Settle Mortgage Bias Charges,” New York Times, July 12, 2012 (

3. Marquette Nat. Bank v. First of Omaha Svc. Corp.—439 U.S.299 (1978)

4. Connie Prater, “Issuer of 79.9% interest credit card defends its product,”, February 12, 2010 (

5. Michael Greenstone and Adam Looney, “The Uncomfortable Truth About American Wages,” New York Times, October 22, 2012 (

6. “Study finds rising number of college students using credit cards for tuition,” Sallie Mae. Inc, April 13, 2009 (

7. Chris Denhart, “How The $1.2 Trillion College Debt Crisis is Crippling Students, Parents and the Economy,” Forbes, August 7, 2013 (

8. Thomas Geoghegan, “No Pension, No Chance,” New York Times, February 9, 2011 (

9. Brian Mauersberger, “Tracking Employment-Based Health Benefits in Changing Times,” Bureau of Labor Statistics, January 27, 2012. (

10. Reed Abelson, “Insured, but Bankrupted by Health Crises,” New York Times, June 30, 2009 (

11. Steven Greenhouse and Reed Abelson, “Wal-Mart Cuts Some Health Care Benefits,” New York Times, October 20, 2011 (

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