Living in America’s Fringe Economy
December 31st, 2006Via: AlterNet:
Far from a mom-and-pop industry, America’s fringe economy is largely dominated by a handful of large, well-financed multinational corporations with strong ties to mainstream financial institutions. It is a comprehensive and fully formed parallel economy that addresses the financial needs of the poor and credit-challenged in the same way as the mainstream economy meets the needs of the middle class. The main difference is the exorbitant interest rates, high fees, and onerous loan terms that mark fringe economy transactions.
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The fringe economy plays a big role in the housing market, where subprime home mortgages rose from 35,000 in 1994 to 332,000 in 2003, a 25% a year growth rate and a tenfold increase in just nine years. (A subprime loan is a loan extended to less creditworthy customers at a rate that is higher than the prime rate.) According to Edward Gramlich, former member of the Board of Governors of the Federal Reserve System, subprime mortgages accounted for almost $300 billion or 9% of all mortgages in 2003.
Related: Inside a Wall Street Chop Shop
