Third World America (10 page)

Our country now stands on the verge of a major credit card crisis. Every day, Americans, faced with layoffs and tough economic times, are forced to use their credit cards to pay for essentials such as food, housing, and medical care—the costs of which continue to escalate. But, as their debt rises, they find it harder to keep up with their payments. When they don’t, banks, trying to offset losses in other areas, turn around, hike interest rates, and impose all manner of fees and penalties—all of which makes it even less likely consumers will be able to
pay off their mounting debts. It’s a vicious cycle, as Janet H. recounted:

“Back in 2008,” she told me, “we had just a few minor credit card balances less than $1,000, which we would pay off within a couple of months. It was what we used for vacations or maybe for an extra Christmas splurge.

“When I lost my job as an office manager, however, we came to live off of credit cards—we had no other choice. Gas and groceries were a large portion of that, as gas was almost $4 per gallon and my husband commuted 50 minutes each way to work.

“Now our interest rates, which a couple of years ago ranged from 2.9 percent to 12 percent, have risen as high as 29.9 percent, even though we continued to make credit card payments.

“At the same time, each credit card decided to lower our credit limit and that, in turn, gave us a higher debt-to-available-credit ratio. A couple of months later, another credit card company would see the higher percentage and then they, too, would lower our credit limit. This is a cycle and we are now at the point where our credit card with a $16,000 credit limit has a $3,000 credit limit, thus giving us the dubious distinction of looking like we’ve maxed out all of our cards. These days we do not use credit cards often because, since all of them are maxed out, we cannot make a purchase without going over the limit.

“We have more debt than we can handle now, no savings, a house going back to the bank. All I hear is people saying that people in my situation ‘are just bad with money’ or ‘overspend’ or ‘should never have bought a house if they could not afford it.’ I do not want a handout; I do not want to file for bankruptcy. I make less money now, my husband makes less money now.
I am getting pretty fed up with people who judge us like we are of a lower class due to circumstances that really were beyond our control. Meanwhile, the banks get bailouts and pay large bonuses.”

Credit card experiences like Janet’s contribute to the growing anger, as well as to our economy’s downward spiral. Many experts feel that as more and more Americans default on their credit card debt, banks will find themselves faced with a stomach-turning replay of the toxic securities meltdown from the mortgage crisis. In another example of Wall Street “creativity,” credit card debt is routinely bundled together into “credit card receivables” and sold to investors—often pension funds and hedge funds. In 2008, securities backed by credit card debt added up to a $365 billion market.
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It motivated credit card companies to offer cards to risky borrowers and to allow greater and greater amounts of debt.

As these borrowers continue to default, banks and the investors who bought their packaged debt will take a serious hit. So how are the credit card companies trying to offset the rise in bad debts? By raising rates and fees for the rest of their customers, causing more of them to fall into arrears. And round and round and round we go.

Americans are encouraged to spend in order to help get the sputtering economy humming again. But the problem is, many Americans are broke, or barely scraping by, so the only way they can spend is to charge it, running up balances on credit cards that are structured in a way that makes it harder and harder to pay them off. Getting dizzy yet?

Elizabeth Warren worries that the credit card crisis “could be the knockout blow to the middle class.”
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Americans everywhere are anxious.

In March 2010, a FOX News poll found that 79 percent of voters—including the vast majority of Democrats, Republicans, and independents—think it’s possible the economy could collapse.
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An April 2010 Gallup Poll revealed that only 41 percent of Americans think their financial situation is “good” or “excellent”—the lowest percentage in the past ten years.
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And 21 percent of workers think it’s likely they will be fired during the next year.
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This pessimistic outlook can have a profound impact on the American psyche, shaking our celebrated self-confidence. As reported by Don Peck in the March 2010 issue of the
Atlantic
, University of Warwick economist Andrew Oswald believes that “involuntary unemployment lasting six months or more is the worst thing for a person’s mental health—just as bad … as the death of a spouse.…
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And the psychological effect is lasting—lingering even after a new job has been found.”

Researchers at Rutgers University interviewed one thousand unemployed people in the summer of 2009.
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By the spring of 2010, 80 percent of them were still out of work. Of the people who did find work, only 13 percent had landed full-time jobs. To deal with the extended unemployment, “70 percent of the people dipped into retirement funds, 56 percent borrowed money from family or friends, and 45 percent turned to credit cards. Forty-two percent skimped on medical care, 20 percent moved in with family or friends, and 18 percent visited a soup kitchen.”

“The cushion’s completely gone,” says Cliff Zukin, one of
the authors of the study.
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“It’s a much deeper economic gash this time.” And no occupation, at the middle-class level, has been spared.

Henry Chalian was a vice president and relationship manager at JPMorgan when he was laid off in May 2009. “It was a shock to everyone, in every way possible,” he explains. “That said, the year before had been an unsettling one where every morning we came in, we said to each other: ‘We are still here!’ ” Chalian, who has a master’s degree from the London School of Economics, worked for Bear Stearns before he was hired by JPMorgan. “I managed relationships with some of the top independent research firms in the country,” he says. “A lot of changes occurred in the last year, but we thought our jobs were secure. I was laid off on the last day Bear Stearns’ severance was in place.”

Chalian considers himself luckier than most: His former company has an in-house career center for displaced workers for up to one year. He has access to career counselors on a weekly basis, and the center offers classes on networking, speaking, and interviewing skills. He even participated in a six-week seminar on using social media for job searches. “I have joined a number of LinkedIn groups associated with finance, prior employers, and school alumni,” he says, “I follow discussions, ask questions, and make comments.” Chalian has also been using Twitter, which he discovered can be a powerful job-searching tool. “There are a lot of smart and helpful career advisers, bloggers, and recruiters that I have discovered and now follow.”

He has participated in a variety of programs offered by his city and state to assist newly unemployed individuals, such as JumpStart NYC, which is a combined effort by Mayor Michael
Bloomberg and the New York City Economic Development Corporation for displaced financial service employees; he attended a one-week boot camp with educators from Harvard Business School; he spent six months at a digital media and e-commerce start-up incubator as part of an unpaid fellowship and consulting program; and he used a National Emergency Grant to participate in a two-week “Columbia Essentials of Management” program at Columbia Business School. He also contributes to a blog on
WSJ.com
called Laid Off and Looking, and he appeared in a CNN Money segment entitled “Castaway Bankers.”

It has now been a year since Chalian was laid off, and, despite all these efforts, he is still looking for a job. His severance package exhausted, he is now relying on unemployment and has cut into his retirement savings. “I have been very frugal,” he says, “but that goes only so far. I’m in a constant state of worry about money and the future. As busy as I have been, it has not been easy.”

One of the offshoots of this undercurrent of fear and anxiety is the anger building up across America.

In April 2010, hot on the heels of an outbreak of threats against members of Congress, came word that an Oklahoma Tea Party group was planning to form an armed militia to help defend the state against the perceived encroachment of the federal government—this in a state where, fifteen years earlier, Timothy McVeigh’s rage had turned deadly.
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The FBI was investigating an antigovernment extremist group that was sending letters to America’s governors demanding they resign or be “removed.”
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This followed the arrests of
members of the Hutaree group, a radical Christian militia organization in Michigan that was plotting to kill police officers.
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When Tea Party members gathered for tax-day protests across the country, we were treated to a fresh wave of debate about whether these groups are fueled by anger, fear, racism, or class divisions.
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There was also talk about how much responsibility media outlets and certain political figures bear for inciting Tea Party crowds with violent rhetoric. (Sarah Palin urged her supporters to “reload,” and U.S. representative Michele Bachmann said she wants her constituents “armed and dangerous.”)
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The rising tide of anger is part of a disturbing trend. According to
Rage on the Right
, a report released by the Southern Poverty Law Center, the number of so-called Patriot groups has skyrocketed in the past few years.
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In 2008, there were 149 active Patriot groups; in 2009, there were 512. The number of like-minded militia groups, meanwhile, rose from 42 in 2008 to 127 in 2009. And “nativist extremist groups,” which advocate vigilante action against undocumented workers, went from 173 in 2008 to 309 in 2009.

While it’s important that we take the threats and the rage seriously, it’s just as important that we don’t ignore the legitimate anger being directed at Washington and the political establishment of both parties. Thanks to the botched bank bailout, anti-government rhetoric has pervaded the public conversation. “Discontent with the present and apprehension about the future have become the background noise of our politics,” wrote Tim Rutten in the
Los Angeles Times
, “yet both sides of the congressional aisle seem deaf to the din.”
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“There are times—they mark the danger point for a political system—when politicians can no longer communicate,
when they stop understanding the language of the people they are supposed to be representing,” wrote historian Ian Kersaw.
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Maybe that explains the lackadaisical, going-through-the-motions response of the political establishment to the rising chorus of middle-class anger.

In times of economic upheaval, when people are losing their jobs, losing their homes, and feeling powerless to do anything about it, people have always looked for scapegoats. We’ve seen this over and over again throughout American history.

For example, in the 1880s, as the post–Civil War Gilded Age came to an end, a severe economic crisis began that culminated in the depression of 1893.
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But the search for scapegoats among the American people began early. The Chinese Exclusion Act of 1882 suspended immigration from China, after Chinese immigrants had just helped build the transcontinental railroad.
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Attacks on the Chinese by white mobs took place all over the country.

One newspaperman captured the mood of the times: “Why permit an army of leprous, prosperity-sucking, progress-blasting Asiatics befoul our thoroughfares, degrade the city, repel immigration, drive out our people, break up our homes, take employment from our countrymen, corrupt the morals of our youth, establish opium joints, buy or steal the babe of poverty or slave, and taint with their brothels the lives of our young men?”
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An ancestor of Glenn Beck’s, perhaps?

Then, as now, the agitation resulted in the formation of a loose political party—the Populists.
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Here is how historian Richard Hofstadter described their agenda: “The utopia of the Populists was in the past, not the future,” he wrote. “The Populists looked backward with longing to the lost agrarian Eden.” Sound familiar? The myth of a golden age in America that
existed before all our current problems existed has fueled many a political campaign.

Hofstadter also pointed to the Populists’ rigid us-versus-them view of the world. It was the masses against the elites. Or, as Sarah Palin would put it, real Americans versus everybody else.

Conspiracy theories were rampant in the nineteenth century as well.
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In the wake of the depression of 1893, the Populists saw postwar American history as a “sustained conspiracy of the international money power,” an obsession that also played into a virulent anti-Semitism.

History shows that such unconscionable credulity becomes much more ominous in times of economic hardship. It becomes even more heightened when our politicians, leaders, and members of the media pander to it, rather than addressing the underlying causes. While the shameful internment of Japanese citizens during World War II is well known, many Americans remain unaware that during the Great Depression, the United States, under President Hoover, actually deported large numbers of American citizens of Mexican ancestry.
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As for anti-Semitism during the Great Depression, it wasn’t just angry rhetoric—it was acted upon. In 1935, for example, many shops owned by Jews in Harlem were destroyed by a mob of African Americans, for whom the shopkeepers were simply the most available scapegoats.
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And, of course, the flames of bigotry were fanned by the wildly popular, xenophobic, and openly anti-Semitic Father Charles Coughlin, whose radio show was, at one time, listened to by one in three Americans.
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