The American Way of Poverty: How the Other Half Still Lives (27 page)

While the housing bust spilled into almost all regions of the country, disproportionately it hit African American and Latino households. In July 2011, the Pew Research Center released an analysis of government data that concluded the median wealth of white households was a staggering eighteen times that of Hispanic homes and twenty times that of African American households. Fueled by disproportionate home foreclosures and underwater mortgages amongst African Americans and Latinos, this data indicated a reversal of decades-long trends toward reducing such inequalities. “From 2005 to 2009, inflation-adjusted median wealth fell by 66
percent among Hispanic households and 53 percent among black households,” the authors wrote, “compared with just 16 percent among white households.”
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In working-class African American neighborhoods of Boston, for example, predatory lenders targeted residents for years, encouraging them both to take out variable rate mortgages and also to borrow heavily against the paper value of their homes. When the market collapsed, many of these homeowners were left with no way to pay off their debts, leading to an epidemic of foreclosures.

Take the case of the Boston cop who had bought his three-story home from his parents in 1985, intending to rent it out for extra cash. During the housing boom, its value had skyrocketed and he had refinanced and then refinanced again, taking on one dubious, adjustable-rate, subprime loan after another. At its peak, the home was worth $560,000 and he owed $470,000 on it, with monthly payments of $2,800.

But, it turned out that was just the teaser rate. After three years, the variable rate kicked in and his mortgage payments jumped to $4,000; and at the same time, the value of the property collapsed down to about $280,000, making it impossible for him to refinance. Despite his policeman’s salary, he fell behind on payments, and at the beginning of January 2010 he stopped paying entirely and the bank began foreclosure proceedings against him.

Then there is the story of Sophia Marks, 39 years old in late 2010, when she had to show up at Housing Court to plead to be able to stay in her home. Marks, who worked as a secretary, took a variable-rate mortgage out for $330,000 in 2005 and then watched in horror as her monthly payment rose from $2,000 to $2,600 just when her house’s value collapsed to $150,000 and her husband got laid off from his job with the city’s transit authority. Despite wiring thousands of dollars to the company that held her mortgage to try to avoid going into foreclosure, Sophia’s home was eventually sold out from under her for $165,000.

GORDIAN KNOTS

If we had been paying more attention, as a society, to our economic problems, we would have noticed a spreading series of poverty-lesions around America in the early 2000s. We didn’t pay enough attention, however; and thus it came as a huge shock when the housing market collapse, the financial crisis, and the cascading unemployment that followed in its wake, demonstrated just how hollowed out much of the economy had become.

The housing market crisis, Timothy Geithner—at the time a senior figure in the Federal Reserve, subsequently to be President Obama’s Treasury Secretary—confidently declared in late 2006, as evidence built that house prices were in for a period of steep decline, wouldn’t grow into a full-blown financial crisis. There were, said Geithner, ways to produce a soft landing that wouldn’t create “collateral damage.”
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Of course, the housing market
did
end up crashing, at least in part because debt-ridden homeowners couldn’t weather the blows when their houses ceased to be worth what they once were, or when their home equity lines of credit dried up, or when the variable rates on their subprime mortgages kicked in. And when it crashed, the collateral damage was catastrophic. Had more opinion-makers been paying attention to just how financially vulnerable America’s working poor had become, this would not have been a surprise.

Nor would they have been surprised when the financial crisis, once unleashed, triggered a soaring increase in poverty. After all, financial collapses invariably bring devastation to the job market. And when people don’t have rainy-day funds to fall back on, even short spells out of work can cause them economic mayhem.

All of which brings us back to the Gordian knot, tying in place a massive level of poverty in the heart of the world’s most powerful economy. In communities long defined by their affluence, residents find themselves awash in debt through a toxic combination of job
losses and the collapse of the housing bubble. Suburbs depleted of their tax base have seen infrastructure corrode, public services and schools decay, and quality of life for residents decline. Individuals who have long considered themselves solidly, safely middle-class find themselves sliding down the economic ladder. It is, argued Yale University political scientist Hacker,

an erosion of the sources of economic security. People are much less likely to have health insurance through work than they were a generation ago, unlikely to have a defined benefit retirement plan; we’ve seen workplace insecurity rise. It used to be that corporations would internalize a lot of the risk for their workers. Corporations value those risk protections less than they once did; they don’t want to carry the cost. They’ve off-loaded them onto individual workers and their families. The corporations that are off-loading these risks are also in many cases writing the rules and the laws, or pushing back against efforts to try to deal with the resulting fallout from their actions.

This has huge impacts on people’s daily lives. “It means that people are much less secure financially,” Hacker explained.

Debt levels have dramatically risen. Bankruptcy is much more common than it used to be. In the early 1980s, we are talking about a few hundred thousand Americans filing for consumer bankruptcy. By the mid-2000s, there were about 2 million households filing for bankruptcy. That’s a huge change. In recent years, poverty has risen to the highest levels we’ve seen in twenty years or more. Many Americans are struggling to get good benefits and good pay. What’s really striking are those falls down the ladder, those big drops in income have become much more frequent over the last generation. In recent years, about 20 percent of individuals in the United States have been seeing household income drops of 25 percent or greater
in any given year from one year to the next. For the last three years, every year we’ve been seeing more than one in five individuals seeing those kinds of drops.

For “Lisa,” (not her real name) a well-qualified, college-educated, middle-aged divorcée in Salt Lake City, the choices became increasingly stark after she lost her job as a retail analyst in early 2008, at the start of the recession, ran through her unemployment insurance, and depleted her savings. Unable to keep up the house that she had emerged from her marriage with as a part of the divorce settlement, and behind on her car payments, Lisa finally packed up her bags and moved to Colorado, hoping to start life afresh in a state in which she had many friends. It didn’t happen. Still unemployed, and with her money supplies further dwindling, Lisa returned to her home town with $69 to her name, began couch-surfing at friends’ houses, and started posting adverts on Craig’s List asking if anybody would temporarily house her for free. Nobody said “yes,” but, she recalled, several people sent her back lascivious emails, suggesting that she turn to prostitution to make ends meet. It wasn’t a savory choice, but, with her options pretty much exhausted, Lisa, who was then 46 years old and a new grandmother, decided it was worth a try. And so, she stated, trying too hard to sound matter-of-fact, she started “sleeping with men for money. It was terrible. [But], I was married to a man I didn’t have love for for the last seven years of my marriage. I stayed with him for the security. I thought this [the prostitution] is no different from marriage. I just shut it out.”

Eventually, Lisa found a new, more legitimate job and tried to forget about what she had done. But, she realized, she had become far more aware of life’s fragilities. “In a week it can change drastically. I’m older now, have absolutely no safety net for my retirement. I had no health insurance. I needed things done. I didn’t. My shoulder’s frozen now. It’s taken its toll on my health.” The tough face suddenly crumbled, and all at once Lisa started to cry. She wiped
her tears away, smiled, put on a face of bonhomie. “As my grandmother used to say, my bladder’s between my eyes.”

The tears welled up again. Once more, she batted them away.

WHEN WORK DOESN’T PAY THE BILLS

That so many people were seeing huge drops in income, with the resulting, and all-too-predictable, impacts on their ability to pay their mortgages, rents, and other basic bills, wasn’t just to do with unemployment. It was also to do with a political push to dismantle prevailing wage structures, and to keep the minimum wage extraordinarily low in many states. In fact, in the years prior to the onset of the Great Recession, much of the worst poverty data came out of states with lower-than-average unemployment. In places like Idaho and Texas, the jobs were there; they just were no longer paying enough to live on. In 2011, researchers with the Economic Policy Institute estimated that if the government entirely absented itself from the business of tax subsidies and assistance to the poor, the poverty rate in America would immediately jump up to 23.7 percent. The reason? As was the case in Victorian-era England, millions of twenty-first-century Americans, living in a period during which trade unions were on the wane and the power of employers on the rise, were having to work jobs that didn’t even get them up to subsistence-level living.
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While some liberal states created their own higher-than-the-federal minimum wage, and a handful of cities, from Santa Fe to San Francisco, adopted what they called “living wage ordinances,” other states moved in the opposite direction during the latter years of the twentieth and early years of the twenty-first centuries. By 2012, twenty-three states had adopted so-called “right to work” laws, which made it harder to organize workers into trade unions. The “right” they codified was, in reality, a right to work for lower wages than was the case in states where unions retained more power. A majority of these states were in the South; but, increasingly, as
conservative groups such as the American Legislative Exchange Council and the U.S. Chamber of Commerce championed the legislation, this was a movement with national legs. States such as Utah and North Dakota adopted these laws in the 1950s; Idaho, which had once had a proudly militant union culture, in 1985; Indiana, in 2012. In states with these laws, union membership plummeted, and, predictably, wages fell.
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As a result, even before the Great Recession hit, real incomes for working-class Americans were lower in the early 2000s than they had been a generation earlier. To remind readers of the salient numbers here: The median wage peaked in 1973 at $33,000 in 2010 dollars. By 2005, during the roaring decade that preceded the financial collapse, that median wage was down to $29,000; and in the years following, as the broader pillars of the economy tottered, it fell still further, toward the $26,000 mark.
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Millions of people were working full time yet being inexorably swept backward economically.

That was why Pastor Royce Wright started running a food pantry for residents of low-income communities outside of Boise a few years before the Great Recession kicked in. And that’s why, even after the recession technically ended, his Oasis Food Center—operating out of a complex across Simplot Avenue from the railway lines and potato processing plants, about half a mile from a large and particularly down-at-the-heels trailer park—still gave out boxes of free food twice a week. On Wednesdays, the doors opened early, and catered mainly to the out-of-work; on Thursdays, the pantry gave out food from four to six in the afternoon, with a clientele, said Royce, mainly consisting of low-wage and part-time workers from the nearby towns, people working but still being buffeted by the economic storm. An hour before the doors opened, hundreds of men and women, along with a fair number of children, would line up outside, given a number that would entitle them to leave the facility with some bread, milk, a bag of cheese, if they were lucky some frozen hot dogs, and on a good day a handful of vegetables.

It was also why Texas Governor Rick Perry could enter the presidential primary contest in 2011 claiming that he’d presided over a period of extraordinary job growth in the Lone Star State, while his opponents could decry the fact that 17.9 percent of Texans lived in poverty, and 7.4 percent in extreme poverty; that 6.3 million Texans had no health benefits, which meant that a larger percentage of the population in Texas had no access to medical coverage than in any other state in America; and that a higher percentage of the state’s residents were “food insecure” than in all but one other state.