The Poverty Business
May 17th, 2007This reads like another evil-corporations-fleecing-ignorant-poor-people article, and it is, but it’s a huge mistake to think that the poor mindset only affects poor people. I know people who make a quarter of a million dollars per year who live week to week and are always struggling for more. I also know people who have declared bankruptcy who buy iPods. The lack of the concept of enough is the root of this. It creates the prisoners and the prison, regardless of income.
Do you know the one thing I’ve noticed that all people with the poor mindset seem to have in common?
Television.
Rich, poor, Ivy League education, no education, it doesn’t seem to matter: If they watch a lot of TV they are in debt up to their ears.
Have you noticed this too?
I wonder if anyone has done a study on hours of tv watched per day vs. household debt?
Via: Business Week:
In recent years, a range of businesses have made financing more readily available to even the riskiest of borrowers. Greater access to credit has put cars, computers, credit cards, and even homes within reach for many more of the working poor. But this remaking of the marketplace for low-income consumers has a dark side: Innovative and zealous firms have lured unsophisticated shoppers by the hundreds of thousands into a thicket of debt from which many never emerge.
Federal Reserve data show that in relative terms, that debt is getting more expensive. In 1989 households earning $30,000 or less a year paid an average annual interest rate on auto loans that was 16.8% higher than what households earning more than $90,000 a year paid. By 2004 the discrepancy had soared to 56.1%. Roughly the same thing happened with mortgage loans: a leap from a 6.4% gap to one of 25.5%. “It’s not only that the poor are paying more; the poor are paying a lot more,” says Sheila C. Bair, chairman of the Federal Deposit Insurance Corp.
Once, substantial businesses had little interest in chasing customers of the sort who frequent the storefronts surrounding the Byrider dealership in Albuquerque. Why bother grabbing for the few dollars in a broke man’s pocket? Now there’s a reason.
Armed with the latest technology for assessing credit risks—some of it so fine-tuned it picks up spending on cigarettes—ambitious corporations like Byrider see profits in those thin wallets. The liquidity lapping over all parts of the financial world also has enabled the dramatic expansion of lending to the working poor. Byrider, with financing from Bank of America Corp. (BAC ) and others, boasts 130 dealerships in 30 states. At company headquarters in Carmel, Ind., a profusion of colored pins decorates wall maps, marking the 372 additional franchises it aims to open from California to Florida. CompuCredit Corp., based in Atlanta, aggressively promotes credit cards to low-wage earners with a history of not paying their bills on time. And BlueHippo Funding, a self-described “direct response merchandise lender,” has retooled the rent-to-own model to sell PCs and plasma TVs.
Of course the rich get richer, the poor get poorer..soon there will be no middle class, only the extremely poor and the fat cats at the top..I think their greed will be their undoing however, its really the middle class that keeps the US economy going by buying goods and services..This whole system is geared towards helping the well off and screwing the lesser educated, poorer citizens.
I’m sure most of you have heard of James Howard Kunstler, but in case you haven’t, heres a recent blog post from his site http://www.kunstler.com:
Rigged to Blow
It’s hard to venture around this land and not feel like you are living in something like an obsolete Las Vegas hotel exquisitely rigged for implosion. The massive system that we’ve poured all our national wealth into, and elaborated to the last limits of refinement over half a century, is poised for failure. The prospect is so dreadful that no legitimate authority in politics, business, the news media, or even those cultural outlands of the arts and religion, can bring themselves to express a plausibly coherent view of what happens next to a living arrangement with no future and an economy of no purpose.
The system I refer to, of course, is the car-crazy infrastructure for everyday life, and all the activities supporting it, that most Americans now living regard as the natural and normal medium for human existence, as salt water is the natural and normal medium for squid. The public brings no critical reflection to being in it, and so its failure will eventually come as a deadly surprise — as a red tide surprises the denizens of a tropical sea. When it occurs, the public will not be able to escape from their investments in this way of life. Some may feel swindled, but they will not lose their sense of having been entitled to a happier destiny, so the chances for the acting-out of massive political grievance are high.
It’s a tragic irony that we got so good at the advertising game the past half-century, because in doing so we rigged a sub-system dedicated to reinforcing all our false entitlements. So when the dreadful moment of recognition comes that we can’t possibly continue being a nation of happy motorists shuttling between the strip malls and subdivisions, the bewilderment will be monumental. Nobody will believe that it is happening, or have a clue how we got ourselves into such a fix.
For the moment, America is being subjected to the slow squeeze on gasoline prices, rather than a sudden sharp shock, with the pumps now averaging $3.09 nationwide. But there’s a lot tension accumulating in the process. Gasoline prices are going up remorselessly now mainly because of bottlenecks in the refinery sector. Demand has gotten so high — we are driving so much, regardless of up-or-downticks in measured economic activity, because the way things are laid out we have no choice — that our existing refineries are operating at over 90 percent capacity (when they are running). This has led to the deferral of a lot of routine maintenance, so the refineries are either running flat-out or they’re not running at all.
Most of our oil refineries are more than fifty years old. The metal in their pipes and retort vessels is fatigued. Things break. The companies that sell gasoline, like Exxon-Mobil, realize that they are in a “sunset” industry, so they are not interested in investing any fraction of their currently enormous profits in new refineries (especially when they can use that money to buy back their own stock and jack up the share price). Besides, the public regards oil refineries as obnoxious, and if a new one were even proposed somewhere, an army of NIMBYs would arise and march on the local zoning board to oppose it — so why bother?
Last week, a reader sent me an elaborate Powerpoint show put together by a Peak Oil “optimist,” someone who believes that there are vast recoverable reserves of oil waiting to be be tapped out there — as opposed to those like myself who don’t think new supply will offset declines in the known oil fields of the world. It seemed to me that most of this optimist’s case was based on the fantasy that the tar sands of Alberta and the oil sands of the Venezuelan jungle will make up for what we no longer get out of places like Ghawar in Saudi Arabia, Cantarell in Mexico, West Texas, and the other old standbys.
The Alberta tar sands are big, but even the Canadian government does not project them paying out much more than three million barrels a day when they reach maximum production in five or ten years, and the process will probably poison all the groundwater east of the Canadian Rockies. Meanwhile, world demand has reached about 85 million barrels a day. The project in Venezuela I regard as even less likely to ever reach production. Hugo Chavez has just chased out the foreign oil companies who have any technical expertise, but I think the jungle itself would defeat even them, and it will certainly prevent Chavez’s lame crew from getting any product out — he’s having technical problems out in the old familiar Maracaibo Basin.
The current sense of stalemate or stasis in Middle East politics the past year is certainly promoting an air of unreality. The civil war in Iraq grinds on no matter what the US police force does there, or what Congress and the White House do here. We bluster about Iran, but we don’t do anything about them, and they bluster back at us. The Saudis bust a hundred Islamic revolutionaries every few months and keep their operation rolling. The Holy Land is tense but quiet for now.
Events in geopolitics — things that happen “above the ground,” as they say in oil circles — seem kind of stuck for the moment. We forget that these things become unstuck rather suddenly, through slippage, or a process like phase change in physics, where conditions persist — until suddenly they don’t. This is pretty much what happens to a fifty-year-old Las Vegas hotel. It stands there out on the Strip year after year, perhaps with decreasing decorum, but it persists until the day comes when somebody throws a switch and the whole edifice comes down, reeking carpets and all.
Kevin,
I have in fact, seen a study like that. I don’t know where it was published (if anybody it ever was), but last year after a conversation on tv and its ill effect with one of my sociology profs she loaned me a copy of it. And guess what? There was an undeniable correlation between tv watching and debt, as well as other things.
There is a “file drawer” problem in academia. That is, there are a lot of studies that get done and papers that get written that never get published or publicized because they have topics that offend the major journals or their advertisers. So they get shoved into a file drawer. Sometimes forgotten, sometimes not. All of my better professors have had a stack of such papers, and were willing to lend them to students who actually had some interest and some critical thinking skills.
-Ann
The mind-numbing effects of TeeVee are undeniable. Firstly I must say that I got rid of any paid TV over a year ago and haven’t regretted it. I don’t even bother trying to tune in off the air broadcasts. I have money in my pocket where before it went out the window subsidizing “programming” that I was ethically and morally opposed to. Honestly.
In this day and age you would think that you could pick a-la-carte the shows that you want and simply pay for those alone but you can’t. So instead you get dozens that you don’t want or will ever watch and are in effect paying a tax to keep those “junk” channels alive. It would be the equivalent of going to the local Denny’s and finding out that you couldn’t get the Grand-slam breakfast meal without also paying for shots of whiskey at the local strip club. Now if going to see strippers is your thing then so be it but why do I, or anyone else for that matter, need to subsidize your kicks? And vice versa I might add.
It all boils down to conditioning the consumer. I thought long and hard about it and decided that, being a free enterprise kind of guy, I needn’t use their services at all, and so pulled the plug. It was tough at first… sorta cold turkey but I and the family got used to it.
To show you how I’ve “detoxed” from television I’ll point out that on a recent trip out of town we spent a couple of nights in a motel where the television as usual was prominently displayed in the room. The non stop commercials with their rapid fire machine gunning mindless ads were enough to give me a headache. Did I actually used to watch this drivel every day?
And here is something that I’ve pondered about for a long time. Do you remember that show from years ago called “lifestyles of the rich and famous”? Anyone? Well, one thing hit me square between the eyes was when I thought how you never saw wealthy or successful people on television watching television! Think about it. They’re too busy “living” and making a life while the poor dreamers on the receiving end are merely “watching” life pass them by. Ding! Turn the damn thing off and you’ll be richer in more ways than one.
I would like to deconstruct the paragraph starting “Federal Reserve data show …” .
How is it hugely deceptive? Let me count the ways…
1: The amount a consumer pays a financial institution for a loan consists of three components: the cost of money to the financial institution, the profit and expenses for the financial insitution, and the risk premium, which roughly speaking is the percentage of principal lost each year to defaults. For relatively small numbers [in the single digits] these numbers can be simply added to get the appropriate interest rate.
Now, over the cited period, 1989-2004, interest rates dropped hugely. The prime interest rate was 10.5% on 1/1/1989 and 4% in 1/1/2004. If we need a 1% addition for expenses and profit, and one group of clients needs a 5% risk premium and the other needs a negligible risk premium, the percentage cited in this paragraph would have risen from about 30% to 100% with no real change in the way people are being treated between the two eras.
2: I find this wording of the difference between the interest rates paid by prime and subprime borrows to be deceptive in the extreme. A middle class reader who always pays his bills, paid 11% for their mortgage in 1989, and enjoys a 5% mortgage now, can be excused for thinking that the poor used to pay 11%+6.4%=17.4% in 1989 but now has to pay 5%+25.5%=30.5% now. Not true. These numbers are percentages of percentages.
3: Low income is being used as a proxy for low credit. They correlate in large part because to a significant extent low income now is a result of a present orientation instead of a future orientation [deciding to become a single mother FOUR TIMES without completing education, like the “victomized” person with whom the article leads, is one excellent example]. If you act on impulse and short-change your own education you’re unlikely to take financial obligations seriously and you’re likely to take out the easy payments for that glitzy new plasma TV, but that would not have made nearly so sympathetic an article. Perhaps the Federal Reserve doesn’t compare credit ratings [which might be difficult to compare over such a period of time — for example, FICO may not have existed then] but that is the salient point. However, readers may not be so eager to shed a tear for “people with more than 6 late pays over the previous three months” or whatever standard is used to separate the creditworthy from the deadbeats.
4: Although there was substantial inflation in the period from 1989 to 2004, the same income brackets were apparently used. In 1989, $30K was lower middle class. In 2004, it’s a very low wage. True, $90K isn’t what it used to be either, but then and now $90K was a solidly middle class income, probably pulled down by someone who had done well in college.
The deceptions in this paragraph cast serious doubts on the intellectual honesty of the entire article.
-dk