Читать книгу Christian Economics - Dale Anthony Pivarunas - Страница 7

The median household income is approximately $57,000 a year. That means that half the families within the United States have gross incomes of less than $57,000 a year and net incomes of less than $42,500 a year after paying Federal tax, employment taxes, etc. This is $3,540 a month. Since there are approximately 126 million households, that means there are about 63 million families or between 150 million to 200 million individuals who fall into this income class. Most families who have a net income of less than $3,540 a month live from pay check to pay check. They have little to no money left over after paying their bills. If prices increase on the average by 3 percent a year and their incomes increase by a similar 3 percent, there is no problem. But if prices increase significantly more than their incomes, they are in trouble. There are also many families whose net incomes are greater than $42,500 a year who also live from pay check to pay check because of medical expenses related to unexpected medical reasons or because the families were spending money on education for their children.

Since 2000 the prices of basic necessities such food, clothing, electricity, heat, transportation, education and healthcare rose between 40 to 50 percent, while the average income rose about thirty percent. Food, electricity, heat, transportation and healthcare account for about 65 percent or more of the family budget for those whose net income is in the lower 50 percent of household incomes. Since these families were already living from pay check to pay check, they did not have any extra money or income to absorb these year over year increases in the prices of basic necessities. In order to survive financially and pay for these price increases, a significant number of these 58 million families used credit cards (and home equity loans if they were home owners) to bridge the difference between the higher expenses and their inadequate monthly net income. Many families also refinanced their homes reducing their equity to pay for education and healthcare. This, of course, was only a temporary fix. Soon, their credit cards reached their limits, and they could not use credit to pay for basic necessities. Complicating their already desperate financial situation, once these families reached the limits on their credit cards, their interest rates increased as well as their monthly payments.

Since these families were already financially constrained, they now had to play the ‘who should I pay’ game. This was and is a strategy used by families (tens of millions of families) who do not have enough money to pay all of their monthly expenses. Because there was not enough money, these families were forced to pay their bills late and pay irregularly. Paying credit cards, auto loans, mortgages, utility bills, water bills, and phone bills late incur late fees. Late fees are a scheme used by businesses and municipalities to increase revenues and profits. Late fees can be significant (ranging from 5 to 10 percent) and when almost every expense involves a late fee, the family’s monthly obligations, which already exceeded their income, increased significantly. And, now on top of the additional monthly expenditures because of the increases in the prices of basic necessities and increased credit card and home equity payments they suffered with higher interest rates and late fees which further worsened their financial situation. Besides the burden of continuing price increases which exceeded income increases, millions of people lost their jobs due to outsourcing from 2000 to 2008.

For millions of families in these situations (prices growing faster than income, loss of employment and reduction in income due to outsourcing), they reached a breaking point. What did these people do? They only way to financially survive, at least for a short period of time, was to stop paying their mortgage—their largest monthly expenditure. While these families could make partial payments on their mortgages, the mortgage companies did not allow partial payments preferring instead to foreclose and re-possess people’s homes. And there was no one there to help these people.

Such is the origin of and main reason for the recession (now called the Great Recession) which started in 2008 and lasted for five years. And, what is most troubling is that this situation (though not as extreme as ten years ago) is continuing and expanding to more families due to job loss, continued price increases, and the vulturous policies of the credit card, finance and banking corporations. Student debt has tripled in the last ten years and is now over $1.4 trillion. Auto loan debt has doubled in the last ten years and is now $1.3 trillion. Home ownership is down 9 percent in the last ten years and rents are up twenty to twenty-five percent.

However, the news media has claimed that the cause of this 2008 Great Recession was sub-prime mortgages, mortgages given to families who could not afford to pay them. Obviously, the families who were given the so-called sub-prime mortgages were able to make the monthly payments at first. But then something happened so that they could not make their monthly mortgage payments. If families could not make their monthly payments, then that meant that they did not have enough money to make their mortgage payments! They did not have enough money to make their payments, because they either lost their jobs or prices on other essential items such as food, electricity, heat, gasoline and healthcare increased so significantly that they could not afford to make their mortgage payments. A family will always place food, electricity, heat and healthcare before their mortgage payment when spending money. And yet, the situation where these families were not making their mortgage payments was not the cause of the recession, but rather how the banks, mortgage companies and the government reacted to this situation (actually it was the lack of action on the part of the government which was the major contributing cause). The banks and mortgage companies did what they usually do and what is in their best financial interest and not what is in the best interest of the mortgagee or the economy. They foreclosed on these loans, millions upon millions of them. And the government; Federal, state, county and local did nothing. The table below shows the number of foreclosures in the United States from 2000 to 2011. The yearly increases from 2000 to 2006, especially the number of foreclosures in 2006 (1,200,000), should have been a gigantic red flag for George Bush, his administration and Congress; but yet they did nothing. And the number of foreclosures in 2009, 2010 and 2011 should have been a gigantic red flag for Barack Obama, his administration and Congress; but they also did nothing. What is even more amazing is the total number of foreclosures between 2000 and 2011, over 21 million. This should be considered within the context that there are approximately 45 million residential mortgages in the US. While some homes may have been foreclosed twice in that period, the numbers still show that over 45 percent of all residential mortgages received a foreclosure notice between 2000 and 2011. While some of the 21 million mortgages were sub-prime mortgages, the majority of them were not. These 21 million foreclosures resulted in 4.7 million home repossessions, approximately 10 percent of all residential mortgages.

Year	Foreclosures	Percent Increase
2011	3,900,000	3%
2010	3,800,000	9%
2009	3,500,000	17%
2008	3,000,000	36%
2007	2,200,000	83%
2006	1,200,000	50%
2005	800,000	25%
2004	640,000	-3%
2003	660,000	-6%
2002	700,000	30%
2001	540,000	15%
2000	470,000
Total	21,410,000

While George Bush did not notice the red flag of foreclosures in 2006, or at least he did not do anything about it, the banks certainly took notice. Banks had been bundling mortgages together to sell them to investors instead of holding on to these mortgages themselves. The money the banks received was used for other mortgages, which in turn were bundled and sold to other investors. These bundles of mortgages took on the aspect of investment products which were bought and sold and whose values were based on the risk associated with the mortgages themselves. As the number of foreclosures increased the value of these investment products decreased significantly and the banks were not able to continue to sell these bundles of mortgages because investors considered them poor investments since they assumed that the banks would have to repossess many of these foreclosed properties. These foreclosed mortgages were then revalued by the banks and were given the name of toxic assets. These so-called toxic assets made it appear as though the bank had lost a significant amount of money based on the assumption that the banks would lose money when they had to repossess the properties. When the shareholders in the banks saw these toxic assets on the banks’ financial statements, they began to sell their shares of the bank stock because of lack of confidence in the banks. This caused a significant sell off of bank stocks driving down the price of shares of the banks. This led to the banks going to Henry Paulson, the Secretary of the Treasury under George Bush, who orchestrated the so-called bail out of the banks. Before and in spite of the bail out of the banks by the Federal government, banks restricted the money that they made available for business loans. Businesses were already impacted by a significant reduction in sales caused by all those people whose homes were in foreclosure or whose homes were repossessed not spending money on things other than necessities. With sales down and no money for expansions, businesses resorted to layoffs with over 8 million people losing their jobs between 2008 and 2010.

What happened to all of the people who lost their homes, that is, whose homes were repossessed? Some families became homeless. Some families became squatters in abandoned buildings. Many families had to move in to slum housing. Many families had to move in with relatives. Because their credit ratings were ruined, these families found it extremely difficult or impossible to move into an apartment because most landlords require a credit check and will not rent to someone with a low credit score. Did the mortgage companies care that people became homeless or squatters or were denied a lease? Not at all! The mortgage companies didn’t care; all they are concerned about is maximizing their profits. They don’t care about people or morals or anything else, they are only concerned about money.

What is amazing is that the mortgage companies are so blinded by their greed that they ended up losing significant amounts of money when in fact they did not have to. The mortgage companies could have changed the interest rates back to what they were when the families were able to make payments. The mortgage companies also could have worked out temporary payment plans with these families. Reducing the adjustable interest rates back to the original amount or working out special payment plans would have allowed the mortgage companies to continue to make money. Remember that the mortgage companies borrow money at one to two percent and loan it to borrowers at five to nine percent; their gross profit margins are between four and five hundred percent. If the mortgage companies were to charge three or four percent interest, they would still make a very good profit. Yet, the mortgage companies did not do either of these things. Instead, the mortgage companies forced foreclosures and repossessions and then had to sell the homes at significant losses. For those poor families who had variable rate mortgages and who could make payments at the original rate of interest before the reset or who could make partial payments were forced out of their homes. And the mortgage companies lost money by having to sell the home for less than they had invested in it. It was a lose-lose situation for the mortgage companies and the families who lost their homes—all because of the greed of the mortgage companies. The only winners are and have been those people and businesses that have been able to buy foreclosed homes for pennies on the dollar. It should be clear that the greed of the mortgage companies precipitated the Great Recession of 2008 and continues to undermine its long-term recovery.

What could have prevented the recession that started in 2008? When the first red flag appeared in 2006, George Bush could have and should have placed a moratorium on foreclosures and required the mortgage companies to provide five year loan modifications based on what the families could afford. If foreclosures ceased and therefore repossessions as well, there would have not been a financial crisis for the banks, there would not have been a sell-off of bank shares, there would not have been a bail out by the US government, 4.7 million families would not have lost their homes, 8 million people would not have lost their jobs and there would not have been a recession.

There are two results to the situations explained above; one is the housing crisis and the other is the general reduction in consumption by 150 to 200 million people. 150 to 200 million people represent one half to two-thirds of the US population. The continuing recession is being caused by 50 to 60 million families (between 150 and 200 million people) who are extremely constrained financially. These people would like to buy cars, appliances, clothes, entertainment, healthcare, education, etc. but cannot because they cannot afford to. Toxic assets, poor investments, and the other vague euphemisms cited by Bush and Obama as the causes of this economic crisis were and are totally wrong. And, the American public was led to believe that the money that was given as bailouts to the banks, insurance companies, auto companies, etc. somehow would trickle down to these 150 to 200 million financially desperate people. Trickle-down economics and corporate welfare does not work. And that is why the recession/stagnant economy continues ten years later.

The economy will not turn around until these 50 to 60 million families are helped out of their financial slavery and enabled to consume the goods and services which they need and desire. Positive and sustainable economic growth will not occur until this situation is corrected. For the economy is driven by the work and consumption of the people and not by the stock market. All of the investment in the world will not and cannot rebuild the economy unless that investment is in these people who are the basis and backbone of America.