Broke, USA: From Pawnshops to Poverty, Inc. – How the Working Poor Became Big Business
Gary Rivlin (2010, HarperCollins)
Last summer I wrote about Michael Lewis’s The Big Short, which told, from Wall Street’s point of view, the story of the past decade’s boom and bust in securities based on sub-prime-rate mortgages. Gary Rivlin’s Broke, USA is the complementary story about highly profitable predatory lending, from the streets and storefronts of Ohio and Georgia, where “I’ll gladly pay you Tuesday, for a hamburger today” may carry an annual rate of interest of over three hundred per cent.
Sub-prime mortgages, it turns out, are just one of the reasons it’s so expensive to be poor. People living paycheck to paycheck, who owe more than they have, make use of a shadow banking system that makes every transaction cost more. They rely on storefront check-cashing and payday loan businesses, and pay a fee for every money order they use to pay a bill. What credit cards they can get carry interest rates of 25% and more. They may buy appliances and furniture through a rent-to-own deal, making weekly payments up to twice what the item is worth. They may pawn their guitars, their jewelry, or even the title to their car. “All those waitresses and store clerks and home health-care workers might not make much, but in the aggregate they can mean big bucks. Whereas the banker seeks 100 customers with $1 million, people inside the payday industry like to say they covet a million people who only have $100 to their name. Bad credit. No credit. No problem.” Rivlin estimates the annual revenues of the poverty industry at $150 billion dollars, which would amount to $3800 a year from every American household that brings in less than $30,000 a year.
The names over the doors in the broken-down city centers and suburban strip malls are Household Finance, Advance America, Check Into Cash, Liberty Tax Service;
but the profits of the poverty industry also flow to Citibank, the Bank of America, HSBC, and other heavy hitters from the banking world. Notwithstanding the embarrassment of the occasional successful lawsuit, the money is just too good to pass up. In the early aughts, spurred by the money flowing in from Wall Street, sub-prime mortgage lending spread from the original low-income borrowers up to the middle class. Mortgage brokers who made more money on the most expensive loans pushed the process along; bond rating agencies knew what was happening, but it was contrary to their interests to express that knowledge by issuing lower ratings. When, in 2006, house prices began to stop going higher, millions of people were left owing more than their houses were worth, and the consequences are still evident across America.
Rivlin’s view of these events is not encyclopedic, but it is comprehensive. He sharpens his story by choosing a matched pair of antagonists: W. Allen Jones, the big payday lender from Tennessee, is inherently less sympathetic than Martin Eakes, the head of the North-Carolina-based Center for Community Self-Help, but they are both so zealous about how they see the world, and so aware of each other as adversaries, that they make ideal vehicles for Rivlin’s narrative.
Broke, USA, is another visit to the worlds of Barbara Ehrenreich (Nickel and Dimed) and Joe Bageant (Deer Hunting with Jesus), both of which I will now revisit with a new perspective. Rivlin doesn’t really have an answer for the pawnbrokers and payday lenders who claim that their services are the only recourse the poor have. Plenty of people with more resources use credit for questionable purposes–how can we fault people who use it for survival? Of course, that’s no excuse for the kind of profiteering, and in many cases fraud, that this book lays bare; but the real solutions are going to require a whole new way of thinking, and the sooner the better.
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