Smashing Capitalism

Somewhere in the Hamptons a high-roller is cursing his cleaning lady and shaking his fists at the lawn guys. The American poor, who are usually tactful enough to remain invisible to the multi-millionaire class, suddenly leaped onto the scene and started smashing the global financial system. Incredibly enough, this may be the first case in history in which the downtrodden manage to bring down an unfair economic system without going to the trouble of a revolution.

First they stopped paying their mortgages, a move in which they were joined by many financially stretched middle class folks, though the poor definitely led the way. All right, these were trick mortgages, many of them designed to be unaffordable within two years of signing the contract. There were "NINJA" loans, for example, awarded to people with "no income, no job or assets." Conservative columnist Niall Fergusen laments the low levels of "economic literacy" that allowed people to be exploited by sub-prime loans. Why didn't these low-income folks get lawyers to go over the fine print? And don't they have personal financial advisors anyway?

Then, in a diabolically clever move, the poor - a category which now roughly coincides with the working class -- stopped shopping. Both Wal-Mart and Home Depot announced disappointing second quarter performances, plunging the market into another Arctic-style meltdown. H. Lee Scott, CEO of the low-wage Wal-Mart empire, admitted with admirable sensitivity, that "it's no secret that many customers are running out of money at the end of the month."

I wish I could report that the current attack on capitalism represents a deliberate strategy on the part of the poor, that there have been secret meetings in break rooms and parking lots around the country, where cell leaders issued instructions like, "You, Vinny -- don't make any mortgage payment this month. And Caroline, forget that back-to-school shopping, OK?" But all the evidence suggests that the current crisis is something the high-rollers brought down on themselves.

When, for example, the largest private employer in America, which is Wal-Mart, starts experiencing a shortage of customers, it needs to take a long, hard look in the mirror. About a century ago, Henry Ford realized that his company would only prosper if his own workers earned enough to buy Fords. Wal-Mart, on the other hand, never seemed to figure out that its cruelly low wages would eventually curtail its own growth, even at the company's famously discounted prices.

The sad truth is that people earning Wal-Mart-level wages tend to favor the fashions available at the Salvation Army. Nor do they have much use for Wal-Mart's other departments, such as Electronics, Lawn and Garden, and Pharmacy.

It gets worse though. While with one hand the high-rollers, H. Lee Scott among them, squeezed the American worker's wages, the other hand was reaching out with the tempting offer of credit. In fact, easy credit became the American substitute for decent wages. Once you worked for your money, but now you were supposed to pay for it. Once you could count on earning enough to save for a home. Now you'll never earn that much, but, as the lenders were saying -- heh, heh -- do we have a mortgage for you!

Pay day loans, rent-to-buy furniture and exorbitant credit card interest rates for the poor were just the beginning. In its May 21st cover story on "The Poverty Business," BusinessWeek documented the stampede, in the just the last few years, to lend money to the people who could least afford to pay the interest: Buy your dream home! Refinance your house! Take on a car loan even if your credit rating sucks! Financiamos a Todos! Somehow, no one bothered to figure out where the poor were going to get the money to pay for all the money they were being offered.

Personally, I prefer my revolutions to be a little more pro-active. There should be marches and rallies, banners and sit-ins, possibly a nice color theme like red or orange. Certainly, there should be a vision of what you intend to replace the bad old system with -- European-style social democracy, Latin American-style socialism, or how about just American capitalism with some regulation thrown in?

Global capitalism will survive the current credit crisis; already, the government has rushed in to soothe the feverish markets. But in the long term, a system that depends on extracting every last cent from the poor cannot hope for a healthy prognosis. Who would have thought that foreclosures in Stockton and Cleveland would roil the markets of London and Shanghai? The poor have risen up and spoken; only it sounds less like a shout of protest than a low, strangled, cry of pain.

Comments

[GeorgeEmsden]

Dear Barbara
Excellent post about NINJA loans. I had never heard of these things until about a week ago when they were mentioned in the City Diary of The Daily Telelgraph. As an IFA (Independent Financial Adviser or Broker) and mortgage adviser I am familiar with sub-prime business but not with the NINJA subriquet or seemingly non-existent lending criteria.
I have my own blog www.georgeemsden.co.uk which will have its second birthday in November. I started this to compliment my IFA business but it seems to be developing a life of its own and the posts are certainly are not all about financial issues. By far my largest readership seems in the USA with over 6,000 pages viewed this month.
I would like to be able to quote your excellent blog in future with a link from my blog. Is this OK with you?
Regards
George Emsden

[vugo]

Anyone can be a
Millionaire so
Everyone's gotta try.



To outsiders America can seem an odd mixture of the inspiring and the brutal. Americans seem very practical and sharp and yet so gullible.

Over the centuries most nations in Europe have had a shot at ruling "The World". Italians today don't live under Pax Romana but under a chaotic democracy because they really only care about good food, music, clothes and the happiness of their family; all else (including Catholicism) is a discredited facade, the detritus of their dreams, which is retained in a mocking way; as are the ruins of Rome.

The notion of exceptionalism runs deep in the USA. I suspect it fuels the sense of opportunity that is here. Perhaps it is held in place by the cultivated ignorance of many Americans, some of whom are taught that WW2 started in 1941. But it is a narcissistic ideal that honestly doesn't last long held against the deep history of human culture. Sometime in the future the temperature of American aspiration will have to come down. There is such a divide between the real and the ideal. Perhaps it is the result of some of the foundation stones being in bad faith (the Pilgrims gave thanks to God for sparing them; not to the poorly labelled Indians).

In the end our human needs are simple and very achievable today with the resources the Earth provides. But America must embrace the real in order to know peace, and that reality is that there are no exceptions.



Anyone can't be a
Millionaire.

[kingcityguru]

Ahhh, exactly what is wrong with holding people to their promise to pay back money that was lent to them?

[oldgringo]

What you see as a "revolution" by the poor is just us poor folk adjusting our "lifestyles" downward to perhaps allow living one more month before we start begging on the streets.....
When the "REVOLUTION" does finally come you can count on it being very bloody indeed, and there will be NO DOUBT WHATSOEVER as to whom the rage will be directed....
My only prayer is that I shall not live long enough to see it happen...

[unfoxworthy]

Let's see....hmmm. Lots of good analysis here, but a few things are missing.
All the mortgage brokers/banks benefited from subprime loans. Aren't we all paying on inflated loans simply because of the falsified values of the (post-creative financing) housing boom?
I SMELL REFUND! How about CLASS ACTION SUIT!?
A simple plan to redistribute wealth.
Everyone estimates ALL their wealth to the government, within say $10,000 to $100,000 to $1,000,000, scaled according to wealth.(I'd be happy to report my -10,000 net worth...plus we'd have to do it anyway if we changed currency like they did in Europe..think GLOBAL).
ALL monies not "at work" in DIRECT investments (i.e., investment capital) toward creating or supporting jobs is taxed on a progressive scale...period. Stocks would be progressively taxed as well after a certain $ figure. Think it's near-sighted?...stupid? Wouldn't stock and capital be more evenly distributed among the masses? uh YES. Wouldn't it cut the greed factor?
THINK ABOUT IT!

[dobberdoss]

It still amazes me reading some of the comments here how many people DONT realize the whole system is rigged!

Debt is exactly what keeps poor people poor & rich people rich.

The more money everyone has the more they must put up inflation & interest rates.

ITS A CON PEOPLE!! Capitalism is a con.

[ChristianSoldier]

Sad to contemplate is how people who are already unable to meet day to day expenses and whose homes are repossessed are then supposed to find a place to live.

Because of their destroyed credit they will have to provide first, last and security. For a median priced one bedroom in Miami, FL ($750 )that would be $2,250 before they even move in That of course does not include fees for phone and utilities.

The New York Times Magazine, using Congressional Budget Office statistics: Since 1979 income for families in the quintile have increased incomes of 2% (adjusted for inflation) The income of families in the fourth quintile -- upper-middle-class folks with an average yearly income of $82,000 -- rose by 23 percent. Only when you get to the top quintile were the gains truly big -- 63 percent.

I'm sure I can find more statistics to support how bad this going to become, but the BLS web site is down.

[IREALLYHATEBUSH]

This is the best column I've read in a long time.........

[mbaty]

Wow, there are SO many comments on this; I am not what you'd consider rich, and my bank right now is trying to charge me several overdraft fees that total over $300% profit from what I actually spent, as well as a continuous overdraft charge every day. They won't stop bleeding my account until I bring it into the black...so while I try to catch up, they continue to siphon my money away, all because I mistakenly thought I had six dollars in my account for some fast food. Indeed, poverty is big business for banks, and most of their profit comes from punishing the "poor."

[wars4profit]

Barbara:

I"m aware you wrote a book called "Nickled and Dimed" after working low-wage jobs. It seems as if, after such an experience, you would not write lines like the one below:

"The American poor¦suddenly leaped onto the scene and started smashing the global financial system."

You seem to be telling us that the poor are in control of world capitalism. You appear to be blaming the poor for their own poverty. In fact, nothing has happened that challenges the dictatorship of the superrich.

It should be obvious that the poor will increase in numbers and bear the brunt of the current economic "downturn," the same as always. There has been no "revolution." Surely you know that the capitalists continue to control their own global system and will go on thriving.
.

[MikeMidCity]

After the next election lets round up all the MBAs instead of the lawyers.

[paixa3]

LOL

[JayZee]

Welcome to Pottersville.

[happytrails]

OK, I'm smug but not happy that I was right. When the Liar-in-Chief told everyone to go shopping as an antidote to 9/11, I decided to STOP all unnecessary purchases except for end-of-season merchandise which is marked WAAAAY down. And to curtail holiday gifting. And to resist impulse buying. And to THROW OUT all catalogs before looking at them. And to use my car as little as possible. And to use the public library instead of buying. For sure, this isn't even a drop in the bucket but if everyone did it...........

[TheIndependenceParty]

Yes, Roy Rogers, ... you were, and are right. It's good advice with one precaution. The order of the economic food chain will never be reversed by the market itself. When people blog that the economy is rigged, ... it IS, in the sense that WalMart has the option to fire their housekeepers, ... and then half their stockers, and greeters, ... when we reject their marketing crap. We can drag the ad houses and major retailers to their knees. And then what do we do next?
~
I for one believe that firms who seek 10% net growth in profits will almost universally resort to predatory practices. Nations who seek 5% annual growth do the same. I have heard such thoughts described as a "psychology of scarcity", ... but I believe that numbers such as these lead to self-aggrandisement, ... and an absolute distortion of a balanced and normal society. That is, I believe, where we are at this very moment.
~
Many of us own IRAs and 401Ks and 403Bs, and we fashion ourselves grand investors. Indeed Bush promoted privatization of the Social Security System, ... or at least a part of it, to devote even more retirement funds to such instruments. By their design, we are on a group roller coaster, blindfolded ... and instead of an assurance of return through competent and conscientious management, ... we are penalized, ... and handed a spatula with a company logo on it, ... so that we can clean ourselves up off the tracks as "corporate roadkill" at the end of our wild ride.
~
I would ask every pension investor in whatever form you place your wagers, ... When did you last benefit by taking action on news in the middle of a trading day to avoid a significant loss in the market in your 401k,403b,IRA, etc. What? The trades don't occur until the end of the day? What?, ... your fund managers did not protect your position, ... even though they could have? Keep the blindfold on, ... you do not want to see what comes next!
~
Ain't that just a kick in the teeth?

[BUSHsurvivor]

Excellent blog!

And the problem with this unintentional desent is that no rethug will come to the aid of the poor and middle class unless they were a corporation or an industry!

It's like these rethug candidates trying to tell us how great it would be to have these health insurance savings plans. With medical-related costs skyrocketing and average joe incomes remaining low...who will be able to afford staying alive. These plans should be relabeled...subprime health insurance accounts...great idea, but can you truly afford them!