Bankrupting the Common People

Game Over for the American Middle Class

Inflation adjusted wages are up 20 percent in last 20 years while housing costs are up 56 percent and healthcare costs are up 155 percent.

January 28, 2010

mybudget360 - ... We are at an inflexion point and the middle class is largely being squeezed out. A recent study from the Commerce Department shed some light on an issue that we already know. Over the past 20 years the middle class has been falling behind ... Incomes have gone up during this time but the cost of housing, healthcare, and access to education have outpaced income gains in some cases by four to one. Money is only worth what you can buy with it.

The grand housing bubble of this decade lured many into buying homes that they simply could not afford. Banks and Wall Street were more than willing to provide access to this dream since they knew if all bets crashed, and they did, that they would call on their connected politicians to bail them out and send the bill to taxpayers for their adventures in finance.

Housing price changes have wiped out any gains in income. The relative amount of income needed to buy a home has put many two income households on the brink of bankruptcy. And the 4 million foreclosure filings in 2009 alone tell us that many Americans are unable to hold onto one cornerstone of the American Dream.

The middle class is absolutely vital to having a sustainable and flourishing economy. The massive debt machine coming from the big banks has created a new form of debt servitude. Some would argue that this is a personal responsibility issue and I will be the first to agree with that. People should live within their means. But think of the FICO score that has become like a permanent financial report card. Some employers actually screen for credit scores before hiring applicants. Want to rent a home because you don’t want to over extend and buy a home? You better hope that FICO is up to par. And many insurance companies base their analysis on this score. So even if you never had a credit card or any debt, you would be in a bad spot because so many people rely on this number.

This is only one example of how people are actually forced to use debt simply to pursue the avenues of the middle class.

... The idea of a middle class life is slowly drifting away as each and every day we realize that our nation is becoming more of a corporatacracy.

The housing nightmare really played on both ends of this middle class dream. Banks were more than willing to lend trillions of dollars to people that really could not afford the homes they were buying. This created the biggest housing bubble the world has ever witnessed and the bursting ramifications are being felt throughout the economy. Yet if you look at the equation, who is really being punished? Average Americans are being punished as they have their homes foreclosed on. Yet banks who are in the supposed position of financial experts, have not only garnered trillions in bailouts but are now back to their speculative ways. This is disturbing because it is highlighting a marked shift and a near game over for the middle class.

... The average American is simply working to stay on track or face being thrown off the treadmill. Jobs are so important to keeping a solid middle class. This should be obvious but current policy being driven by the corporatacracy is simply focusing on keeping prices inflated for the big ticket items (i.e., housing and healthcare).

At this point in the game, housing values have gone up to points that are clearly unsupportable. This being the biggest budget item for most households, you would assume that lower prices would be welcomed from the government seeing that many Americans are underemployed and those with jobs have seen stagnant wages.

The middle class dream is at risk. This is a question of what we want out of our country. Are we simply obsessed on keeping home values inflated so banking giants could keep gaming accounting rules and claim billion dollar profits?

If we want to prosper in the next decade, there will need to be a radical change to preserve what once was envied by the world. Otherwise, you can expect banks and their political allies to keep selling away the middle class of America. On the path we are traveling on the middle class is largely at risk for a big game over in the next decade.

Housing Might Drag Economy Down Again

January 22, 2010

Seeking Alpha - Other than high unemployment -- a lagging indicator in fact -- the economy does seem to be improving, but there is now a renewed threat from the housing sector, suggesting that sector could again face further and significant declines in price. It was the housing sector that dragged us down and threw us into recession the first time. It also collapsed Wall Street’s house of cards. It might well do it again. Here is the problem.

The 10-City and 20-City Composite Home Price Case-Schiller Indices declined 6.4% and 7.3%, respectively, in October compared with a year earlier. As David M. Blitzer, chairman of the Index Committee at Standard & Poor’s put it:

The turnaround in home prices seen in the spring and summer has faded with only seven of the 20 cities seeing month-to-month gains, although all 20 continue to show improvements on a year-over-year basis. All in all, this report should be described as flat.

Others disagree and see a sequential decline in prices in the numbers, claiming the Case-Schiller indices showed only a very slight increase currently and only because each report is an average of the preceding three months, meaning the strong August market was still a component of the October report. Also, they claim seasonal adjustments tend to hide any weakness in the cooler months as the pace of home-buying slows.

The change from improving and rising prices to now flat or falling prices raises ominous possibilities, especially inasmuch as mortgage rates have risen in the last four weeks from 4.71% to 5.14%, making it harder to afford housing.

Karl E. Case, the Wellesley College economist who helped design the Case-Schiller housing index, is alarmed and was recently quoted as expressing his very pessimistic outlook:

"I’m worried. Everyone’s worried. If [housing] prices sink 15 percent from here, which is a possibility, and the 2008 and 2009 loans [also] go bad, then we’re back where we were before — in a nightmare."

In short, loans written more recently would succumb to a similar fate as subprime and ALT-A loans written earlier. A whole new set of write downs or write offs would be needed if the FASB or IASB standards were strictly applied and there was a reversion to the mark to market rule. We would be awash in another large quantity bad debt.

Several elements reinforce this concern. Housing demand is weak. Median income continues to drop because of unemployment and a long term trend toward flat wages. Also, income is shifting from the labor force to top management and special interests, aided by Congress. The demand for housing is also being hit by selected vastly higher expenses that are driving many into bankruptcy — like medical costs which account for 50% of all bankruptcies. Also, population growth in the relevant cohorts is not adding to housing demand materially.

The net result is housing prices are vulnerable to further declines which could well drag the economy down with them, just as it did the first time. In part, this is the legacy of ill-advised tax laws which favored excessive investment in the housing market for many years in the first place, coupled more recently with Fed policies which aided formation of the housing bubble. Those problems are a lot to dig out from. Regardless, recent developments do not afford an encouraging prospect.

UK Families Face Shocking 20% Rise in Heating Bills as Gas Giants Cash in on Big Freeze

Gas bills will rise by 20% as families battle to keep warm during the cold winter

January 15, 2010

Daily Mail - Families face record winter gas bills averaging £360 as power companies reap a huge windfall from the big freeze.

The 'big six' energy suppliers have refused to pass on a steep fall in wholesale prices to customers. They are collecting a profit bonanza of £846million in a single month by charging over the odds to keep homes warm.

Householders have had no choice but to turn up the heat to cope with the coldest spell in 30 years, with snow and ice blanketing the entire country.

Domestic demand for gas over the last month is predicted to be 60 per cent higher than in a normal winter. This increased consumption will result in average bills of £360 for the three-month period from November through to the end of January, compared with £300 a year ago.

Greedy suppliers decided to reduce the tariff to customers by less than 10 per cent -- even though the wholesale price of gas came down by some 60 per cent between 2008 and 2009.

Separately, heating oil companies, which provide fuel to thousands of rural communities, have been accused of putting up their prices by more than 50 per cent since November. The evidence of apparent profiteering has brought calls from consumer groups and MPs for inquiries by both the Competition Commission and the Office of Fair Trading. At the same time, there is a mounting clamour for a windfall tax from pensioner groups, Labour MPs, unions, think tanks and the Local Government Association, which represents councils from all parties.

Analysts at the TheEnergyShop.com suggest the bill in the coldest period over Christmas and New Year would have been at least £36 lower if suppliers had cut their prices by a further 10 per cent, as they easily could, before the winter began.

Multiplying this across the nation's 23.5million households suggests the big six -- British Gas, Scottish & Southern Energy (SSE), RWE nPower, Eon, EDF and Scottish Power -- are making an extra £846million in a month.

SSE recently revealed a 36 per cent increase in profits for the period before the temperatures plummeted. UK suppliers owned by German, French and Spanish firms are enjoying a similar bonanza.

Andrew Hallett, energy expert at the official customer body, Consumer Focus, said:

'As energy firms failed to fully pass on wholesale price cuts before winter, they will be cashing in on the cold snap... Consumers are paying over the odds for their increased heating needs, giving a profits boost to suppliers.'

Joe Malinowski, founder of TheEnergyShop.com, said:

'This year's record winter bills will come as a real shock to many people, particularly when you consider that wholesale gas prices fell by over 30 per cent in 2009 and are 60 per cent lower than their 2008 peak. 'In freezing conditions, turning down the heating is not always an option.'

Apart from the cost, there is a real threat to the health of elderly customers who are too scared to turn on their heating. It is feared the cold temperatures, which exacerbate many underlying health problems, could contribute to some 60,000 deaths.

The National Pensioners' Convention said:

'We know that energy firms are quick to put up prices yet very slow to bring in the reductions... Energy companies, particularly in this cold winter, will be making huge profits out of very vulnerable customers. That raises the serious question as to whether they should pay money back through a windfall tax to fund things like home insulation.'

The Local Government Association has argued the need to raise an extra £500million a year for ten years from both oil and gas firms to fund a massive home insulation scheme.

Christine McGourty, director of Energy UK, which represents the major gas and electricity suppliers, rejected allegations of profiteering and advised anyone struggling with bills to contact the supplier for help. She said much of the gas being used this winter was bought up to two years ago, when wholesale prices were higher.