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Thursday, May 15, 2014

TOO MUCH WEALTH TO CONTINUE TO SUFFER

JULY 20, 2014 Update (see below)


JUNE 10, 2014 Update:  Three stories of note:




By Jodi Weinberger, Shelterforce 

The findings from the new "How Housing Matters" study showed that over half of Americans are making serious tradeoffs to afford a roof over their head.The sacrifices include one ore more family members taking on a second job, putting off saving for retirement, accumulating credit card debt, making cuts in health care and healthy foods, and moving to a worse neighborhood with poor schools. The findings also reveal that there is a lot of skepticism leftover from the Great Recession and many Americans no longer believe that owning a home is a solid path to building equity. Although home ownership is still a dream for many, most Americans now see renting and ownership as equally attractive and believe the government should be doing more to increase the affordability for both sets . . .  June 10, 2014

Housing Solutions:  America's Wealthy Could Buy Entire Cities.  See HousingWire.com, 6/10/14

How the Private Equity Industry is Looting the Middle Class, AlterNet.org, 6/9/14

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THERE IS TOO MUCH WEALTH TO ALLOW MILLIONS OF STRUGGLING HOMEOWNERS – AND THE ECONOMY –  TO CONTINUE TO SUFFER

NOTE:  This is being published despite some technical problems that are causing the text to move around from what I originally typed.  Hope to correct later.

Most of us know how our "Great Recession" (and extremely slow recovery) parallels the Depression of         over  eight decades ago (historically and officially from 1929 to 1939, but anecdotally from 1929 through the  1940s).  In that era, there was overspending, the stock market crash that wiped out millions of investors, bank failures, reduced purchasing by all classes, subsequent job losses, and climate variations (drought conditions in the Mississippi Valley in 1930 forced farmers to sell their farms and seek employment elsewhere).  During that period the unemployment rate was 22 to 25 percent of the population.  That also parallels today's rate of unemployment, when you take into consideration, one, those discouraged workers who are no longer participating in the job market but who are not officially counted amongst the unemployed, and two, those who work part-time but who prefer full-time work.

We are in a jobs and housing recession and the programs and events that got us out of the Depression won't help us now.  In the event you don't remember, they were: creation of the FDIC, SEC, TVA, WPA and other relief and recovery measures during the Roosevelt administration, as well as passage of the Social Security Act and the Employment Security Act.  Lastly, our entrance into World War II created jobs; subsequently when the war ended in 1945, America was able to begin a great economic expansion to include homeownership and employment .  In general, the beginning of the rise of the middle class, which continued for three decades, up until the late '70s [according to Anthony B. Sanders; see his blog confounded interest.wordpress.com..  The middle class has been shrinking ever since.  There is great progress in one area:  Wall Street.  The stock market is at record levels.  Around 16,700 as of the time of this writing.

But times are different and what worked then won’t work now.  A divided America is dealing with a $17 trillion-plus debt, low GDP, a shrinking middle class, need for updated infrastructure, tax reform, campaign finance reform, and housing reform policies – problems confronting government and the private sector, at a time when those who make the decisions that affect everyone are from our wealthy ruling class who, as always, look out more for its own members than the problems facing the average citizen.

However, my local newspaper on Mother’s Day featured two articles, one of which discussed a typical underwater household. and the other featuring a member of our billionaire class.  The two articles, on the same day prompted the idea of a possible solution which for some reason few are discussing.

First, the article (“Trapped in an underwater mortgage”)  – written by Kathleen Cooper for The News Tribune – featured one of tens of thousands of Pierce County, Washington families who have mortgages higher than their homes are worth.   It described the Allen family (Michelle, David and their three children who live in a 936 square foot, three-bedroom, one-bath home.  All they want is a second bathroom.

“We have good credit and we don’t want to ruin it.  We are Christian and we like to keep our word . . . if we signed a paper saying we’ll pay for our house, we’re going to keep up our end of the deal”, stated Michelle Allen.  “The only way we could get help is if we walk away.  And we’re not going to do that.”

Like many struggling homeowners, the Allens are in negative equity and are stuck where they are until home values increase, which could be another half or full decade.  (The Allens owe about $131,000.  Purchase price was $129,000 and they made $25,000 worth of upgrades.  It was estimated they could sell their home for their original purchase price, but after taxes and fees, that would net them about $118,000 – $13,000 short of breaking even, Cooper reported.  “Michelle Allen calculated that selling at that price would mean a loss of $60,000 during their seven years of home ownership.”

Seven years after the bust, millions of other homeowners are stuck in place.  Many have had to reduce their spending (and often spend only what is needed to survive), further adversely affecting the economy.

Obviously, each neighborhood is different, and some states were harder hit than others, meaning recovery rates will vary.  As Cooper wrote, it is predicted that 10 years out, home prices will average 60 percent higher than they are now (citing a study by MIT’s Center for Real Estate).  She cited another survey of 100 real estate experts and economists conducted by Pulsenomics that predicted a 20 percent increase in home prices during the next five years.  That’s not much comfort to those of us whose lives are being adversely impacted now in so many ways primarily because of our negative home equity.

Even renters need help.  According to a New York Times article [April 14, 2014 by Shaila Dewan]:

Nationally, half of all renters are now spending more than 30 percent of their income on housing,      according to a comprehensive Harvard study, up from 38 percent of renters in 2000. In December, Housing Secretary Shaun Donovan declared “the worst rental affordability crisis that this country has ever known.”

But there is a solution, and of course, it involves an infusion of cash or some form of credit.  On April 24, I read reporter Ben Lane’s story in HousingWire that the settlements of the Federal Housing Finance Agency’s lawsuits against some of the biggest banks in the world exceed $16 billion.  (Out of 18 lawsuits originally filed, FHFA has settled 13 of them [FHFA reaches $280 million RMBS settlement with Barclays  [HousingWire, April 24, 2014].

If each of now almost ten million underwater homeowners received $20,000 to $30,000 principal reduction (partially paid by the FHFA settlement funds),  it would erase most of our negative equity.  This relief would enable the homeowners to then spend money they otherwise haven’t been able to, such as on their homes (maintenance/repairs, and a myriad of other worthy expenditures many have deferred).  Imagine what a boost to the economy, locally and nationally, that would provide.  (Akin to what must have happened when Wall Street investors received huge bonuses - including after  taxpayer bailouts of the finance industry.  Similarly, when comparing huge executive salaries with the salaries of the average worker, you have to ask:  What do they do with all that money, besides invest it to make more, save it/hoard it, buy mansions and set up trusts for their children, grandchildren and great-grandchildren?).

But – and this brings me to my second point – the second article I read on Mother’s Day was by John Dodge, staff writer for the The News Tribune, about billionaire Warren Buffett and his son [Warren Buffett let his son follow his dreams, do what he loved, The News Tribune, May 11, 2014] .

The Tribune article mentioned how Peter Buffett, an award-winning musician and best-selling author and the son of Warren, had become a full-blown world philanthropist, working on behalf of impoverished and enslaved adolescent girls everywhere.  His (Peter Buffet’s) message before the Community Foundation of South Puget Sound on May 8 in Seattle was one of “equality, love, empowerment and compassion.”  Why are those qualities limited to philanthropic efforts toward only one segment of the population?  Why isn’t he helping people right here in America who desperately need help, such as struggling homeowners?  And why isn’t some of the money given by Warren Buffett to the Bill and Melinda Gates Foundation being used to help with the housing mess?  As you will recall last year Buffett donated Class B shares of Berkshire stock worth $2 billion.

Dodge wrote how in 2006, Buffett “allocated $1 billion to each of his three children for charitable work only.  This followed like-minded contributions of $10 million in 1999 and $100,000 in 1997.”

On April 2, 2014, Peter Coy wrote an article in Business Week that described how the world’s 85 richest individuals are now worth as much as 3.5 billion of the poorest.  One of the comments to that story appeared as follows:

One can argue that the richest rich are playing by the rules, earning their wealth, etc., etc. At some point though the moral argument that they are entitled to their wealth has to give way to the social argument that such wealth concentration threatens the stability of the society. Should the wealthiest of the wealthy be allowed to keep their wealth even amidst civil unrest as more and more of the citizenry are forced to survive on less . . .  
Two years ago, there was an article in Think Progress by Pat Garofalo [July 17, 2012) which stated:  Between 2007 and 2010, while median family wealth fell by 38.8 percent, the wealth of the Walton family members rose from $73.3 billion to $89.5 billion…In 2007, it was reported that the Walton family wealth was as large as the bottom 35 million families in the wealth distribution combined, or 30.5 percent of all American families.

And in 2010, as the Walton’s wealth has risen and most other Americans’ wealth declined, it is now the case that the Walton family wealth is as large as the bottom 48.8 million families in the wealth distribution (constituting 41.5 percent of all American families) combined.”

If the wealth of the Buffetts, the Waltons and other wealthy families were totaled, imagine how one tenth (or less) of it would help millions of struggling homeowners and others – combined, of course, with at least some of the $16 billion the federal government is collecting from bank settlements.  There would be more than enough money to provide relief for the majority of homeowners and others who lack adequate housing.  What mechanism could be used to make this come about?  A philanthropic effort?  Tax credits?  Federal government intervention?  It is doubtful there is the wherewithal and courage to effect such a change in our political climate and our “me first” culture.  

I think there is a moral argument, as well as a patriotic one, for the wealthiest to come forward to help where needed.  If they don’t, we will likely see a great deal of civil unrest right here in America. It shouldn’t be forced upon them, but will they help otherwise?  Will the Federal Housing Finance Agency come to our aid?   Shouldn’t there be collaboration between the private sector and the government to save our economy, our country? 

Even Pope Francis is pleading for change.  An article on May 9, 2014 in MoneyNews.com titled:  Pope Demands ‘Legitimate Redistribution’ of Wealth”  quotes Pope Francis - during a speech to U.S. Secretary-General Ban Ki-moon and heads of major U.N. agencies – calling for the United Nations to promote a “worldwide ethical mobilization” of solidarity with the poor in a new spirit of generosity. “  He denounced trickle-down economic theories as unproven and naïve and urged the U.N. to “promote development goals that attack the root cause of poverty and hunger, protect the environment and ensure dignified labor for all . . . challenging all forms of injustices and resisting the economy of exclusion and the throwaway culture . . .”

Let’s define “poor”.  I think the middle class, not generally put in the “poor” category, needs as much help as the poor, however “poor” is defined.   Maybe more.  The poor have been getting help for decades, and much of it from the middle class.  It’s time to address the needs of the shrinking middle class, including its struggling homeowners.

 If it’s going to be happen, the sooner the better.

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Sources:

HousingWire                                                             Think Progress
The News Tribune                                                    The New York Times
Business Week                                                          Wikapedia
The Wall Street Journal                                            The Seattle Times



Suggested reading:


  1. Forbes’ article by Steve Denning on 5/9/14 (Is the creative economy also in trouble?)  He writes, in part:  The global economy is undergoing what Tyler Cowen has called “the Great Stagnation,” with the appearance of prosperity achieved only by big companies and banks having access to cheap money from central banks. Former Treasury Secretary Larry Summers has declared that the U.S. has entered a period in which current low economic growth should be considered “the base case for economic planning”: declining levels of investment, spending, consumption and growth are the “new normal.”

  1. Mandelson Matters:  Another amazing story of a struggling homeowner (Arthur Pritchard, resident of San Francisco):   We all agree:  We want to keep people in their homes if possible . . . sort of.  May 12, 2014:

http://mandelman.ml-implode.com/2014/05/we-all-agree-we-want-to-keep-people-in-their-homes-if-possible-sort-of/?fb_action_ids=631655430253112&fb_action_types=og.likes&fb_ref=.U2-6reuwUs8.like


UPDATE:  July 20, 2014

WHY AREN'T PHILANTHROPISTS HELPING AMERICA'S MIDDLE CLASS?

Last November 13, 2013, 60 MINUTES aired a show on The Giving Pledge, a group of billionaires who have pledged to give at least half their money away.   Some of the billionaires featured were Bill and Melinda Gates, Warren Buffett, Sarah Blakeley (Spanx founder), as well as the founders of E-Bay, and other big companies and wealthy corporations.  (Complete list to be made available in a future update.)

The segment was aired again tonight, and it made me wonder:  Why are so few Americans who have been suffering (and continue to) being ignored by philanthropists?   Yes, I know: The Gates Foundation helps the plight of the homeless.  But how about the plight of the Middle Class?

The Giving Pledge membership requires its members to have at least  one billion dollars and pledge to give half of it away.  The group's policy is not to give to "individuals" - and only to nonprofit organization.  (Can we, the Middle Class, form ourselves into a nonprofit?)   Yet, they are giving billions to help with education and vaccinations worldwide, money to research important issues such as climate change, nuclear proliferation, medical research, water quality, and so forth.  All while millions of Americans have lost homes (as will many more in the near future)

While our own country's infrastructure is falling apart, we've been helping other countries build roads, highways, and other infrastructure in the Middle East.and other countries.  Why do American taxpayers continued to be abused in this way while other countries benefit from our money?

The philanthropists and their efforts are, of course, laudable.  But likeable?  Not by the truly needy middle class men and women who need just a little relief and assurance from someone, somewhere that there is  hope for us and our families.  And the next generation.  (Not those who will be recipients of the largest transfer of wealth the country has ever seen -- when our current wealthy elitists die off.)

Suggested Reading;  Screwed:  The Undeclared War against the Middle Class (Thom Hartmann, 2006)

A new book just out:  The Murder of the Middle Class:  How to Save Yourself and Your Family from the Criminal Conspiracy of the Century (Wayne Allyn Root, July 2014).  The inside flap reads:


Uncovering the Crime of the Century -The great American middle class is dying—and not from natural causes.  For the first time in modern history, the American middle class is no longer the wealthiest in the world—in fact, the net worth of the average American family is down a whopping 40 percent, and the typical American family has seen its inflation-adjusted income fall for five years in a row.

Think things are going to get better?

As bestselling author Wayne Allyn Root points out, it is hard to be optimistic when more Americans are now on welfare than work full time in year-round jobs; close to 50 percent of Americans don’t even have $500 in savings; most Americans have "subprime" credit ratings; and for the first time in history, American businesses are failing faster than they are being created.

The future of the American economy is not that of a world leader, but of a country that will soon be playing second fiddle to China, which will pass the United States as the world’s richest economy this year. It’s a future where Americans become more dependent on government—one of the fastest growing sectors of our "economy" is the number of people taking disability payments—and where "jobs" are increasingly temporary (already America's second-largest employer is a temp agency).

What can you do to protect yourself and your family from America's economic decline and fall?

The first step is to recognize who is responsible. The Murder of the Middle Class exposes the crime and indicts the conspirators, from the Obama administration to their willing accomplices in big business, big media, and big unions—naming names and pointing out their misdeeds.

But Wayne Allyn Root doesn't just prove the crime and profile the suspects, he provides bold solutions to save American capitalism, the middle class, the GOP . . . and YOU! This middle class warrior gives you the game plan and the weapons to fight back.


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Once I finish reading The Price of Inequality and other books on my bedside table (and the dining room table and the living room coffee table), I'll get to The Murder of the Middle Class and report back to you.



UPDATE:  July 23, 2014 (Seattle Times):  1 in 25 New Yorkers a millionaire

Reporter Walter Hamilton of the Los Angeles Times says a recent study (released yesterday) by Spears magazine and consulting firm Wealth Insights shows the Big Apple ranks fourth in a listing of the top 20 global cities based on the position of their population.  WealthInsight analyst Oliver Williams was quoted as saying, "New York has long been the bastion of wealth not only in America, but the world.  It has the second largest millionaire and largest billionaire population of any global city."  Monaco, Zurich and Geneva claimed the first three spots.

Not surprisingly, most of the highest-ranked cities are banking and financial centers, including Frankfurt (no. 5) and London (no. 6).

Source:  The Seattle Times, July 23, 2014