TPM Cafe: Opinion

Jon Gertner wrote a terrific piece, Forgive Us Our Student Debts, in tomorrow’s NYT Sunday Magazine (link not available yet). I said my piece in it: A college diploma is the necessary ticket for a CHANCE to launch a young person into the middle class. But, for many kids, the debt that accompanies those diplomas erodes the very middle class safety and security that a diploma once promised.

What are the solutions? I want to use Warren Reports today to ask you to consider an option: An absolute guarantee that every young person in the U.S. can go to college on a government loan (regardless of family income), and that for every year of public service following graduation, a year of college debt is forgiven. Four years in college, four years in public service, and the student is 26, debt-free and ready to begin an adult life.

I have the faith of a teacher. If we want to strengthen the middle class, we must grow the economy so that there are good jobs for millions more Americans. Our best hope to accomplish that is a well-educated workforce that will create new opportunities in the US. We can remain competitive internationally only if we have a well-educated workforce that can out-innovate the rest of the world. We will be able to pay for health care and for the retirements of millions of our citizens only if we have a highly productive, high-earning cadre of young people. College is a collective investment that pays off for the whole country.

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As we export jobs to China, is their middle class getting stronger? Amid the happy-face stories of a new generation of Chinese buying cars and designer sneakers, Andy Mukherjee offers a grim glimpse of ordinary Chinese families living with risk. He tells about patients in hospitals wearing stickers to identify “how much they can pay to get well” and parents paying illegal bribes to keep their children in schools that are nominally public.

State owned businesses once provided the social safety net — lifetime employment, education, health care and pensions. Mukherjee observes: “Those days are over. As part of their ‘reform,’ the state enterprises have been curtailing their social responsibilities.”

Ah, the familiar question of who should build the safety net.

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The data have been accumulating for a while now: Blacks and Hispanics are far more likely to get trapped in high-priced mortgages than are whites. But lenders always had a ready response: the real reason loan rates are higher for blacks and Hispanics is their low credit scores, their low incomes, etc. In other words, the high-priced mortgages are correctly priced for risk. The Center for Responsible Lending has now completed a powerful study to test the lenders’ excuses. What did they find? Race matters. When they control for all the other factors, African Americans and Hispanics are about a third more likely to end up with higher rate loans than their white counterparts. In other words, the fact of being black or Hispanic costs a potential homeowner big time.

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So long as no one tells the story of a middle class under siege, every American family in trouble experiences flat incomes, rising costs and increasing risks as their own problem — not a systemic problem. And every politician is off the hook: No need to do anything, if the problems stay hidden.

Investigative journalists — the ones who dig deep to collect data and tell the stories that someone wants hidden — are crucial to the ultimate safety of the middle class. And that’s why I felt sick when I learned that reporters Don Barlett and Jim Steele had been laid off. I remembered their extraordinary work on the bankruptcy bill — a seven-page article in Time Magazine that Senator Ted Kennedy laid directly on the desk of President Bill Clinton. When Clinton later vetoed the bankruptcy bill, Barlett and Steele could take as much credit as anyone for exposing this terrible bill.

Chuck Lewis, also an investigative journalist extraordinaire, offers his thought for Warren Reports:

I first began reading the peerless work of Don Barlett and Jim Steele in the early 1970s, when they were producing computer-assisted reporting about the criminal justice system in Philadelphia, about the 1974 OPEC oil embargo and allegations of price manipulation by the U.S. oil companies. Their work at the Philadelphia Inquirer for approximately a quarter century was nothing short of stunning, winning two Pulitzer Prizes.

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When the fed raised the short-term interest rates on last week, it took about two hours for the credit card companies to raise rates on their customers. Banks increased the prime rate to 8% in a matter of hours, and that difference is already showing up in this month’s credit card statement. Surely this is an efficient market in its full glory.

So how efficient was that market just a couple of years ago? From 2001 to 2003, the prime rate fell from about 8% to 4% (more than 400 basis points for those who thin slice). In the same period, customers realized a rate reduction of about half of that decrease — 2 percentage points (about 200 basis points).

As I read it, this efficient market just created a terrific wealth transfer: 2 percentage points better return than in the pre-2001 days. Perfect markets give way to perfect profits.

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The Center for American Progress issued a grim report yesterday showing that household debt grew by a staggering 33% in just three years from 2001 to 2004. In 2001, debt stood at a shocking 78.1% of income. Today those numbers look small. In three years, debt reached a 108.4% of household income.

What’s our exit strategy? When — and how — does the debt get paid down? Think of it this way: If debt is 108.4% of household income, then the average family has spent more than a year’s worth of tomorrow’s earnings. Someday in the future, that average family is supposed to cut spending enough to make up for all the interest payments and principal due on this debt. How will that happen — and what will it mean for the economy?

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I promise I won’€™t keep talking about this forever, but it is worth pausing to note that foreclosures across the country are up 72% over last year–and 38% in just the last quarter. At this rate, foreclosures will likely hit 1.2 million this year.

It isn;€™t the super-heated markets on the two coasts that are cracking first. I was knocked out by the increase in Boston, but it seems Massachusetts is behind the curve. Instead, Georgia, Colorado and Indiana lead the country in foreclosures per household, with Nevada, Michigan, Texas, Ohio, Tennessee, Utah and Florida rounding out the top ten. Check out your home state.

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The bust has hit Boston. Foreclosures are growing at a staggering pace. The once hot-hot-hot Boston real estate market has seen a 63% increase in foreclosures in the first quarter this year. Some of those “creative mortgages” are starting to look “creative” in the horror-movie way that spurting blood and slow-mo death were once hailed as creative film-making.

So is the industry cutting back? Heck, no. It’s full-steam-ahead, more creativity, more loans and more spurting blood to come.

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Remember the old law-and-order political sally: A conservative is a liberal who got mugged. Maybe there will be a new version. At least one conservative business analyst is warning his political compatriots that their middle class base may melt away when homeowners begin to experience the coming housing crash. Andrew LaPerriere sounds the alarm in the most recent Weekly Standard, telling conservatives to get some answers ready for the people who are going to lose their homes.

Has the housing crash started? And will it bring down the whole economy? LaPerriere travels ground we covered here last summer — skyrocketing home prices that make purchases unaffordable for a growing number of families, the staggering differential between rental prices and purchase prices that signal over-heated speculation, and what happens when $2 trillion of adjustable-rate and interest-only mortgages (one quarter of all mortgages in the US) are reset in the next two years. But he adds a political analysis that is amazingly candid. Calling his fellow conservatives “strangely silent” on the problem and consequently vulnerable to the political fallout when conservatives across the country discover that no one in Washington was watching out for them.

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Allan Carlson gets it. In the current Weekly Standard, he asks if the marriage between social conservatives and the GOP can be saved. His case in point: the bankruptcy bill.  Dr. Carlson makes the point that when Republicans had to make the choice between their big business allies and the millions of hard-working families who put them in office, the politicians enthusiastically chose the financial services giants over the families. And he’s pretty hot about it.

Dr. Carlson frames the issue in terms of party politics, a rip at the center of the Republican alliance between big business and small families. But the central point is even larger: Whether politicians represent corporate interests or family interests is a national question, pervading both Democratic and Republican politics.

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Want to contribute to TPM Cafe? Email ideas for your pieces to us at talk@talkingpointsmemo.com

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