Michael Snyder has an excellent report at Zerohedge
I will provide here a background narrative explanation of how poverty in America could have reached such epic proportions:
Within the US, from the late 1990s forward, widely available credit and housing “wealth” masked declining personal income for approximately 80 percent of the population. At the beginning of the new millennium, a 30 year old
man’s earning potential had declined relative to his father’s (Ip, 2007). Women’s participation in the labor force kept average household income from deteriorating, but women’s low wages in service and government sector jobs could not outpace men’s declining wages. U.S.
The average American household struggled to realize a fading American dream of prosperity and social security (Hacker, 2006). The relative decline in household income and opportunity among lower and middle-income Americans has been well document and was recently explored in a 2008 OECD report titled “Growing Unequal?” By November 2006,
consumers spending exceeded their disposable income by 1% (Whitehouse, 2007). U.S.
The accumulation of debt by US households eventually began to falter as the vast majority of Americans’ earning potential continued its gradual downward trajectory. Gas prices that exceeded $4 a gallon in 2006-2007 played an important triggering role in precipitating financial distress among sub-prime borrowers. Defaults began among low-income households struggling to maintain their lifestyles in the face of stagnating wages, declining health coverage, and skyrocketing gas prices.
However, although sub-prime mortgage defaults precipitated the financial crisis, they alone did not cause the crisis. Governor Frederic S. Mishkin of the Federal Reserve Bank explained in a speech at the U.S. Monetary Forum, February 29, 2008 that the
U.S. residential-market mortgage meltdown initially led to credit losses of around $400 billion, which constituted less than 2 percent of the outstanding $22 trillion in equities (Mishkin, 2008). The financial crisis was caused by a torrential cascade of defaults among the trillions of derivatives based on a comparatively small pool of underlying debt-based assets. U.S.
In April of 2009 the International Monetary Fund (IMF) stated that the global losses resulting from the financial meltdown exceeded $4 trillion. Approximately $2.7 trillion of those losses derived from underlying loans and assets originating in the
(Landler & Jolly, 2009). The insurance giant AIG neared collapse as it paid out on the insurance contracts—credit default swaps—purchased by investors hedging against default. American investment and commercial banks approached insolvency as the assets making up their reserves collapsed in value. U.S.
Unemployment grew as companies “downsized” in response to shrinking balance sheets caused by the collapse of value of investment assets and by declining sales revenue as consumers drew back in horror at the spectacle of the credit crisis.
In 2011, US corporations still adopt layoffs to offset sales declines.
The U.S. Federal Reserve and Treasury responded by bailing the financial and insurance industries. In 2008 the U.S. Government launched the $700 billion Troubled Asset Relief Program (TARP), which provided funds to insolvent and distressed banks and financial corporations, including AIG and Fannie Mae (“Cash Machine,” 2009). In the spring of 2009, the newly sworn in President Barack Obama launched the Term Asset-Backed Securities Loan Facility (TALF), which may expand to $1 trillion (Cho & Irwin, 2009).
taxpayers had contributed $163 billion to AIG by March 2 2009. Nouriel Roubini estimated the bailout will add $7 trillion to public debt (Fallows, 2009). Naomi Klein concluded that "the crisis on Wall Street created by deregulated capitalism is not actually being solved, it's being moved. A private sector crisis is being turned into a public sector crisis" (Klein, 2009). U.S.
By framing the solution to the financial crisis in relation to the “problem” of insolvent financial and insurance institutions, the U.S. Government elected to provide these institutions with liquidity in a period of significant asset deflation. These government-advantaged private institutions were therefore able to purchase assets whose prices had collapsed in a context of little competition because of the more general constriction of credit.
In particular, investment banks, such as Goldman Sachs, proceeded to buy up stocks, bonds, and now government insured mortgage-backed assets. A Goldman Sach’s executive had the audacity to describe his company’s operations as “God’s work” (quoted in In contrast, smaller banks and non-financial based industries struggled to access credit for basic operations. Smaller banks and businesses began to fail in significant numbers., 2009).
Now read Michael Snyder's essay...
I'm doing 'God's work'. Meet Mr. Goldman Sachs. Times Online. Retrieved from
Cash-Machine.” (2009, May). The Atlantic, 303(4), 58-59
Cho, D., & Irwin, N. (2009, March 4). “Financial rescue turns to toxic assets.” The
Post, p. D1. Washington
Fallows, J. (2009, August/July). Dr. Doom has some good news.” The
Atlantic, 304(1), 88-90, 91.
Klein, N. (2009, May 7). The Rachel Maddow whow: Stressing over the bank stress tests. The Nation. Retrieved from http://www.thenation.com/doc/20090525/stresstest_video
Ip G. (2007, May 5). Men in their 30s lag behind their fathers in pay. The Wall Street Journal, p. A2.
Landler, M., & Jolly, D. (2009, April 22). “I.M.F. puts bank losses from global financial crisis at $4.1 trillion.” The New York Times. Retrieved from http://www.nytimes.com/2009/04/22/business/global/22fund.html?th&emc=th
O.E.C.D. (2008). Growing unequal. Retrieved September 7, 2009 from www.oecd.org/els/social/inquality
Whitehouse, M. (2007, January 8). Why
should root for dollar to weaken more. The Wall Street Journal, p. A2. U.S.
Mishkin, F. (2008, February 29). On ‘leveraged losses: Lessons from the mortgage meltdown’ at the U.S. Monetary Policy Forum,
.” Board of Governors of the Federal Reserve System. Retrieved March 9, 2009, from http://www.federalreserve.gov/newsevents/speech/mishkin20080229a.htm New York, New York