The Economy and the Business of Poverty

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Sylvia Chase follows a team of BusinessWeek reporters as they track corporate practices that some say are exploiting the working poor. Also included in this program, a talk with economist Dean Baker and journalist Bob Herbert about the severe economic challenges facing the government and the populace.


BILL MOYERS: Welcome to the Journal. In Afghanistan, 500 American military have now died. And in Iraq, the number of American troops killed rose this week to 4,134.

That alone is cause for grief. Who remembers any longer why they’re dying, or what the war is all about? Ask your neighbors: what are we still doing in Iraq? See what they say.

But there was some other news about Iraq this week that also has people shaking their heads in disbelief. The White House projects next year’s federal budget deficit will be a record $482 billion, and that’s not counting the projected $25 billion bailout of the mortgage banks, Fannie Mae and Freddie Mac or the total costs of fighting in the Middle East.

Try to get your mind around those numbers and then hear this: Our own government’s independent accountants issued a report concluding that, by year’s end, the Iraqi government may have a budget surplus as high as $79 billion.

That’s because of the high price of oil is filling Iraq’s coffers. That’s “war torn” Iraq, a surplus of $79 billion after we’ve poured $100 billion a year into that country and all those American lives.

$79 billion and they’re not spending it on rebuilding, on getting their electrical systems back on the grid, constructing schools and hospitals and housing, or making sure everyone has food and clean water.

Between 2005 and 2007, the GAO report says, only 10% of the Iraqi budget went toward reconstruction of their own country. Once again, you and I, American taxpayers, are picking up the slack — $48 billion dollars allocated for reconstruction costs since the shock and awe of Baghdad more than five years ago.

By the way, that includes $33 million for a new hotel, office complex and shopping mall at the Baghdad airport.

Remember what former Deputy Defense Secretary Paul Wolfowitz told Congress back in 2003, before the war.

PAUL WOLFOWITZ: We’re dealing with a country that can really finance its own reconstruction, and relatively soon.

BILL MOYERS: Remember, too, what Colin Powell told President Bush before we invaded Iraq: you break it, you buy it. Julius Caesar came, saw and conquered. George W. Bush broke and bought, and we just keep paying, in money and blood, while billions of oil profits pile up in Iraq as “surplus.”

BILL MOYERS: There’s always been money to be made from people who have no money. That’s because low income families turn to fast, easy, and pre-approved credit to make ends meet. But once they’ve signed on the dotted line, they often find their troubles have just begun. According to the Federal Reserve, the amount of money owed by households earning $30,000 or less between 1989 and 2004, soared to $691 billion — that’s an increase of nearly 250%.

These households are what one entrepreneur describes as “low-hanging fruit” — just waiting to be plucked. Nothing new about this.

Loan sharks have been around to prey on the poor for centuries, but now the sharks are trying to spiff up their image, relocating from back alleyways to friendly-looking storefronts.

They hide their sharp teeth behind promises of ready cash to people who need it now. BUSINESSWEEK magazine dubbed this industry “the poverty business.”

Its reporters looked at companies ranging from subprime credit card dealers and rent-to-own electronics stores to some of the biggest financial institutions in America, all of them turning the needs and desires of the working poor into bottom-line, bottom-feeding profits. Here’s a report from our colleagues at “Expose.”

Sylvia Chase narrates.

SYLVIA CHASE: Central Avenue in Albuquerque, New Mexico — part of fabled Route 66.

But the old romance of the open road now competes with the confines of modern reality: some call this area the “war zone.”

ROXANNE TSOSIE: On Central right here there’s like a bunch of prostitution; girls walking up and down the street. And then sometimes you’ll find needles on the sidewalk.

SYLVIA CHASE: Three years ago, Roxanne Tsosie decided it was time to escape the war zone. 28 years old, a single mother with four children she had just gotten a $15,000 a year job. There was a catch though: it required her to have a car.

ROXANNE TSOSIE: I’m a caregiver at a home with six guys that had HIV. And that was the main thing — I needed the vehicle to take my clients to their appointment, to get groceries, to pick up their prescription, get, you know whatever they need.

SYLVIA CHASE: She had no credit and little cash. But just a block away from her apartment was an attractive building with a lot full of cars and something else: a bright orange and blue sign easy credit.

ROXANNE TSOSIE: So I went over there and when they told me yeah you can leave with a vehicle, I was like, cool. Guess I’ll stay here and get one then I was really happy — I cried. I was like, ‘Oh my gosh, I got me a vehicle.’

SYLVIA CHASE: Consumers like Roxanne Tsotsie have little money individually. But together they number in the tens of millions, and represent a massive pool of wealth. And there’s what amounts to an entire industry devoted to seeking riches in their pockets one customer at a time. That day at the Albuquerque used car lot, Roxanne Tsosie got herself a 1999 Saturn. It had 103,000 miles on it. The purchase price: $7,922. She bought it entirely on credit. Her payments: $150 every two weeks. Her interest rate: 24.9 per cent. Within months, she realized that what she thought was her ticket out, was actually weighing her down. Her family couldn’t live on what was left over after she made her car payments. She returned the Saturn to the people who sold it her.

ROXANNE TSOSIE: I was sad when I had to give it back. That was my first vehicle. I was proud, you know, I did this on my own but after all this happened it just crushed me. And I’m like oh my gosh, I’m back to square one again.

SYLVIA CHASE: For Roxanne Tsosie that would have been the end of the story — if, across the country in Atlanta, a colorful ad hadn’t caught the eye of a commuter on his way to work.

BRIAN GROW: You can’t help but notice it, it’s bright it’s orange and blue. And there’s a bright smiling face of a pretty young girl. And the ad says get credit, drive today. But there’s an asterisks, and it says subject to approval. It talks about how $399 delivers, i.e. $399 down, delivers the car. But there’s two asterisks next to that one.

The ad says, by purchasing a car you can rebuild your credit. But there’s three asterisks after that one, sitting on the train every day, you know, over time I read all the fine print and it just stuck with me. Financing for all? No credit, bad credit? No problem. What does that mean?

SYLVIA CHASE: Brian Grow is a reporter in Atlanta for BUSINESSWEEKmagazine. It was late 2006 when that advertisement with a slew of asterisks caught his attention. Soon after, a think tank report arrived on his desk. As he read it, Brian grow began to connect some dots.

BRIAN GROW: Matt Fellowes, at Brookings Institution, published a report called “From Poverty, Opportunity” how more companies were looking at low income Americans as a very attractive business opportunity.

Sort of defies conventional wisdom that the low income consumer is a segment of the market, where most companies wouldn’t want to play. And it was pretty powerful and fascinating.

MATT FELLOWES: I’ve estimated in my research that among the bottom 25 percent of households, they’re collectively bringing in about 650 billion dollars every year.

So you can imagine why an amount of money that large is attractive to a great variety of businesses, from large financial services companies to new, uh, to entrepreneurs looking for innovations to serve this market.

SYLVIA CHASE: That the poor can be lucrative to big business was intriguing enough to the reporter. But Matt Fellowes’ evidence for that case was even more so. The Fellowes report noted that wages have been stagnant for years; to compensate the working poor are buying items small and large by taking out loans from companies all too happy to lend them the money at a very high rate.

MATT FELLOWES: Lower income families tend to pay higher prices for nearly every basic necessity from groceries to the price of a car to the price of a mortgage.

MATT FELLOWES: Between 1989 and 2004, they borrowed about 240 percent more debt than they did in1989. So there is this enormous increase in the amount of debt held by low and moderate level income houses.

SYLVIA CHASE: BUSINESSWEEK may be considered an unlikely publication to take on a poverty investigation — based in New York City, it is a magazine that, like the corporations it covers, has traditionally viewed the world from the top down. But the think tank report hinted at a story a business magazine could embrace: an industry based on poverty, serving 25 percent of the American population.

PAUL BARRETT: The aha moment was that we could show a marketplace could be exploited, both in the neutral sense of exploited, just profits could be found; and exploited with the connotation of people being taken advantage of.

SYLVIA CHASE: One player which for BUSINESSWEEK epitomizes what the magazine calls ‘the poverty business’ is the company that sold Roxanne Tsotsie her car: the company with the bright orange and blue signs. It’s called J.D. Byrider.

BRIAN GROW: When you go to a J.D. Byrider lot, if you’re paying attention then what will strike you as different, is that there are no prices on the cars. Which for most people would be what, how, why?

PAUL BARRETT: Their method is quite creative. The interest rate depends on what they think they can get out of you. So they basically debrief their customers to a much great degree than you could imagine.

SYLVIA CHASE: The company uses sales techniques that brought lawsuits from Attorneys General in Kentucky and Ohio alleging that customers were being misled. The Kentucky case created a public docket that included J.D. Byrider corporate papers.

BRIAN GROW: So in the Kentucky Attorney General’s lawsuit they introduce evidence from a J.D. Byrider operation’s manual that points to a system in which sales staff are encouraged not to discuss the price of a car, when a prospective buyer comes in.

SYLVIA CHASE: What sales agents do is try to learn everything they can about the earnings, spending habits and credit history of the customer. Then they crunch those numbers to create an extraordinary financial profile

MATT FELLOWES: It’s difficult, I think, to underestimate how significant this ability to analyze and share, uh and gather data has been on illuminating business opportunities where they might not have been seen in the past.

What that has allowed these businesses to do is identify the specific risk level of an individual and do so in a nanosecond. That’s an incredibly powerful innovation in the market.

SYLVIA CHASE: And that’s exactly what J.D. Byrider says it uses the information for: assessing its credit risk with each customer.

Consumer advocates say something else: that the company’s software decides how much it can get someone to pay for one of its used cars. The software program is called the Automated Risk Evaluator — A.R.E.

BRIAN GROW: Here you go, take a look, this is great, this is the beginning of A.R.E. at Byrider so this is the form that they fill out on the individual borrower, in this case they’ve blacked out the name.

SYLVIA CHASE: During a visit to J.D. Byrider headquarters in Indiana, Brian Grow was given a revealing document: a completed customer form, the kind Roxanne Tsosie would have filled out.

BRIAN GROW: I remember the CEO said “I probably shouldn’t give this to you.”

Look at what the analysis tells you about the individual — it’s fascinating. The individual rents and pays $300 a month in rent to Marco. That’s their landlord. Spends $75 a month on groceries. Spends $64 a month eating the dollar menu at fast foods chains four times a week maximum. Has no home phone. Does not purchase clothes, rather uses hand me downs. $345 on the car payment to J.D. Byrider was going to be by far the biggest payment the individual had, per month.

And if you add in the insurance costs they were going to be paying in total insurance, car payment but not gas $546 per month.

Oh, and this is interesting too, they’re making $8.00 and hour wherever they may work.

After buying a car from Byrider, that individual had $67 left over per month. And I actually said to the Byrider CEO “that’s pretty tight.” He acknowledged that it was.

SYLVIA CHASE: Byrider’s critics contend the system is unfair to consumers with limited means. They call it “opportunity pricing.”

KEITH EPSTEIN: Opportunity pricing is a way of setting the price second. First thing you do is figure out what they can pay then figure out what the payments they can make are and work backwards to the price.

SYLVIA CHASE: Online, J.D. Byrider denies that its application process affects the price of its cars.

Byrider goes on to say, “Our core business is selling good cars to people who need credit. By providing affordable financing — and we make sure it’s affordable — we can enable those customers to advance in life.”

But what if a customer like Roxanne Tsosie finds herself falling behind and has to default on her loan? For companies like Byrider, defaults are acceptable, even profitable, according to Matt Fellowes.

MATT FELLOWES: So for instance there’s a used car business out there that knows very well when it is selling a car to an individual that that individual will not likely be able to hold on to their car for the duration of their loan payment. And so therefore they’ll return the car after a few months into the duration of the loan.

But that’s OK with them because they’ve charged a high enough interest to cover the costs associated with that car being returned before the end of the loan.

SYLVIA CHASE: In other words, Byrider has sold a car, made a profit on the loan and gotten the car back. What’s more, BuisinessWeek would report that nearly half of Byrider’s Albuquerque car sales don’t result in a final payoff.

BRIAN GROW: Byrider knows it can repossess cars, assuming it can find them, and resell them which it does.

SYLVIA CHASE: That cycle appears to be part of a successful business model in 2006 J.D. Bryider 131 dealerships — most of which are franchisees — reported total sales of $700 million. The average gross profit margin at the 10 percent of stores which are company-owned was a robust 37.25%.

BRIAN GROW: There was a map I remember that had all of these colored pins on it and I asked them what is this? And that’s their expansion plans.

The 372 additional franchises it aims to open from California to Florida. It said this business model works despite the type of consumer that they’re selling to. That map absolutely suggested there is money to be made in poverty.

SYLVIA CHASE: Making money off people in need of money has always been around: pawn shops ready to take valuable goods for a song. Store-front operators willing to cash a paycheck on the spot — in exchange for a cut.

But now, BUSINESSWEEK was finding, it was all going big-time.

PAUL BARRETT: That kind of business was now franchising and getting much, much bigger and much more sophisticated. And employing the modern tools of credit technology, the ability to look at your financial profile.

And they’re big businesses where the product is often the loan.

SYLVIA CHASE: BUSINESSWEEK would also report that mainstream banks are helping fuel what the magazine calls an “explosion in subprime lending to the working poor.” For example: Bank of America Corp. provides a revolving credit line of up to $110 million to J.D. Byrider.

Wells Fargo and US Bancorp are offering what the magazine called their own versions of “payday loans” to people in need of quick cash charging two dollars for every twenty borrowed. The annual interest rate based on a 30-day repayment period? One hundred twenty per cent. A buyer in a difficult circumstance takes out a loan, a company provides it at a high rate: criminal, or simply a case of caveat emptor — let the buyer beware?

PAUL BARRETT: Companies can often stay within the law, and still basically exploit the unsophistication of their borrowers. A lot of financial misbehavior stops well short of something that can be prosecuted criminally. Or to put it differently, clever financial engineers don’t necessarily look like a guy with a gun going into a bank.

And often, the perilous aspect of the loan would be hidden in fine print, or it may just be a person taking advantage of another person, which isn’t always illegal.

SYLVIA CHASE: BUSINESSWEEK would learn that even nonprofit hospitals are getting into the poverty business, making deals with companies that transform medical bills into consumer debt.

BRIAN GROW: And as we were reporting during poverty business, we would see credit reports of some of the people we talked to. And on those credit reports inevitably was a hospital bill. Oh I went to the emergency room and I didn’t have insurance and I’m paying that bill.

Has ER bills on credit, outstanding of $1328 and $318 but is making $25 monthly payments they said.

SYLVIA CHASE: In America there are now close to 50 million people without health insurance. At hospitals they are called “self pay” patients — and each year they ring up hundreds of billions of dollars in services — money paid off slowly, if at all.

For American finance firms that kind of money cannot be ignored: BUSINESSWEEK found some are now pitching their services as hospital debt collectors — for a cut of the self-pay pie.

PAUL BARRETT: Hospitals are now operating much more like other businesses. They don’t want to settle for getting their money over such a long period of time, with the chance that after a while the person will stop paying altogether.

They want some cash now. Lo and behold, an industry pops up that is willing to help them do that. We’ll buy your loan basically, or you’ll transfer the loan to us — hospital’s happy, great, 80 cents on the dollar right now, we’re done. Now, the finance company or the credit card person is suddenly the one knocking on that person’s door, and they’re not so merciful. They didn’t go into the healthcare business to save people’s lives; they’re in the money business.

SYLVIA CHASE: Traditionally, at non-profit hospitals, the approach has been “pay what you can when you can.” No longer. Many are now requiring patients to pay their bills through interest -charging third parties sometimes without the patient fully understanding what she’s getting into.

A case in point: April Dial, a 24-year-old woman living in rural Arkansas.

BRIAN GROW: April earns about $17,000 a year. She has no health insurance. She’s a diabetic meaning her medical situation is, is pretty significant: She has ongoing medical issues, that she can control to the best of her ability but, as with many diabetics, can often result in sudden drops in blood sugar level that will require a visit to the hospital.

SYLVIA CHASE: April Dial and her mother Carolyn live outside the small town of Malvern, Arkansas. They both wait tables at a truck-stop, where Carolyn took over her daughter’s shift one day in September 2007.

CAROLYN DIAL: I had worked for her that day because she was sick. And she called me from home and she was just, she couldn’t breathe. You could tell she couldn’t breathe, she was hyperventilating.

And she was in the floor, she couldn’t get up. So I got her in her car, we flew to Hot Spring County Hospital. Soon as I walked in, one of the nurses looked at me, I said she’s bad.

APRIL DIAL: I couldn’t walk, I was so weak. And they admitted me into ICU.

SYLVIA CHASE: April’s mom signed the admission papers without fully reading them.

CAROLYN DIAL: But they told me they’re not going to see them unless they sign admission papers. Well I wasn’t worried about admission papers; I was worried about her, because she comes first.

I don’t think I’ve ever known anybody that’s ever went in the hospital that has sit down and read the fine print.

SYLVIA CHASE: April Dial’s experience with Hot Spring County Medical Center goes way back — this is where she was born. And her three-day stay in September was only the latest diabetes care she received there over the past decade.

Since her father’s death seven years ago left the family uninsured, she and her mom have accumulated thousands of dollars in bills from the non-profit hospital. But despite living on their truck-stop waitress wages, the dials had slowly paid down their debt.

CAROLYN DIAL: Hot Spring County would let you make a payment. Even if you only paid them $5 a month, you were still making a payment. And I mean I was, I was going to pay the bill, but I couldn’t just dish out 4 or 5,000 — 6,000 dollars at a time. I was paying about $50 to $100 a month.

SYLVIA CHASE: But when April showed up at the ER in September there were new rules ever since Hot Spring County Medical Center sold its past-due accounts to this private company in nearby little rock. It specializes in collecting medical debt.

APRIL DIAL: I got this in the mail too. It’s Complete Care Inter- Incorporated. I’ve never heard of it before.

BRIAN GROW: A bill shows up from Complete Care and it’s a debt owed to Hot Spring County Medical Center, but now they’re charging 5.75 % interest. Here you are not dealing with sky high interest rates. But what you have is $455 minimum payments, which would be difficult for anyone, let alone a truck-stop waitress.

APRIL DIAL: It was like a credit card almost. Audio hit I mean, it was interest due.

SYLVIA CHASE: The news would get worse for April Dial the hospital had sold not only her new debt, but her past bills, too. In all, she was now told to pay off $7300. Without knowing, April Dial had become a debtor to a new player in the poverty industry.

BRIAN GROW: The fine print which she says she didn’t read, says I agree that if payment in full is not made within thirty days I will have the option to pay the outstanding balance over time under the conditions set by Hot Spring County Medical Center or its billing company, Complete Care.

Goes on to say that by electing to pay such balance over time I consent to and agree with all conditions disclosed on the back of my Complete Care Statement, including the charging of a fee and/or interest on any outstanding balance.

APRIL DIAL: I was supposed to pay either 10% or I would be delinquent on my credit.

SYLVIA CHASE: On its website Complete Care does not hide its perspective on patients.

BRIAN GROW: You can pretty succinctly understand what their business model is: the patient becomes a consumer, the minute they walk out the hospital door. They’re converting the medical debt into a consumer debt. They charge interest that’s the mechanism for converting a medical debt into a consumer debt.

SYLVIA CHASE: For background on billing at nonprofit hospitals, Brian Grow interviewed the CFO of Methodist Le Bonheur in Memphis — Chris McLean.

CHRIS MCLEAN: There’s a belief especially in hospitals we’re not very good at collecting self pay accounts, and so that’s their pitch, that we’ve left money on the table.

CHRIS MCLEAN: What they are pitching there is the belief — and there’s quite honestly some truth to it — that people will pay a credit card company first and a health care company second, under the belief that a credit card company will hurt their credit reputation and come back to haunt them in the future — affect their ability to get a house, affect their ability to get a loan for a car, affect their ability to get another credit card.

APRIL DIAL: Everything OK?


APRIL DIAL: What’s wrong?

SYLVIA CHASE: April Dial is accustomed to most of her paycheck going to pay for her diabetic care.

APRIL DIAL: I’m pretty tired, so if you wanted to run you coulda ran. . .

SYLVIA CHASE: But after learning of the hospital’s new finance rules she contacted a patient advocacy group for help — a group coincidentally in contact with Brian Grow at BUSINESSWEEK.

APRIL DIAL: Everything OK?

MAN 2: Just fine.


SYLVIA CHASE: In its series on the poverty industry, BUSINESSWEEK reported that Complete Care agreed to reduce April Dial’s monthly payments to $125. And the hospital, Hot Spring County Medical Center, decided patients billed by complete care would no longer be charged interest.

In Albuquerque, BUSINESSWEEK’s reporting resulted in the local J.D. Byrider franchise reimbursing Roxanne Tsosie the $900 she had paid on her used car before returning it to the dealer.

The power of the national media spotlight may have forced changes in a few cases. But the bigger story remains: exploiting poverty is now big business.

BILL MOYERS: Most people aren’t so fortunate as to have a reporter from BUSINESSWEEK show up to investigate, but many individual state governments have been defending their citizens against poverty businesses and predatory lending.

Those lawsuits filed by the Attorneys General of Kentucky and Ohio against J.D. Byrider were settled. The car dealer did not admit liability but agreed to reimburse past customers and inform new ones of the “maximum retail price” of the automobiles on sale. However, BUSINESSWEEK says prices still are not posted on the cars themselves.

In June, Ohio Governor Ted Strickland signed tough legislation that caps the interest rate for payday loans.

GOV. TED STRICKLAND: We will not tolerate individuals being exposed to exorbitant rates, which does contribute to the cycle of indebtedness.

BILL MOYERS: The new cap is set at an interest rate of 28 percent. Sound high? Well, that’s down from -brace yourself — 391 percent.

But the poverty business isn’t taking Ohio’s new law lying down. Under the innocuous-sounding name of Ohioans for Financial Freedom, the industry is circulating this petition to overturn the law. They have already raised $850,000 to try to drum up enough signatures. All of the money comes from a single donor, the payday lenders’ lobbyist, the Community Financial Services Association.

MAN IN CFSA AD: I got one when my car broke down.

WOMAN IN CFSA AD: I used one when I had a larger than expected water bill, but it wasn’t a decision I took lightly.

BILL MOYERS: CFSA has been especially active in urban, African American communities — that’s a primary target for predatory lenders. On our website at, you can link to a startling investigation in the current online issue of MOTHER JONES.

The magazine reports that the CFSA and the subprime credit card company CompuCredit, have co-opted several prominent civil rights organizations to bolster their efforts to fend off stricter regulation. Seals of approval for payday lending have come from CORE — that’s the Congress of Racial Equality, the National Conference of Black Mayors and local chapters of the National Urban League.

Even the WASHINGTON POST was caught off guard.

Charles Steele Jr., president of the Southern Christian Leadership Conference, invoked Martin Luther King Jr. as he argued against the proposed Credit Cardholders’ Bill of Rights Act. He defended subprime credit card lending.

The POST later had to issue a clarification that the Southern Christian Leadership Conference has a partnership with CompuCredit that includes plans to market “SCLC-branded” credit cards. Shameful.

BILL MOYERS: Economists of every stripe agree that the credit crisis is out of control. For example, Charles Calomiras of the conservative American Enterprise Institute, said this week, “We do need some regulation, smarter regulation, to prevent the abuse of the safety net.” And the economist Dean Baker told the same reporter, “Wall Street just ran wild. It was some mix of irresponsibility and downright greed.”

Dean Baker is with me now. He is co-director of the Center for Economic and Policy Research in Washington, D.C., and author of the much-read blog BEAT THE PRESS, where he spares no one in the media, including yours truly. Also with us is Bob Herbert, the nationally syndicated columnist for THE NEW YORK TIMES, whose book, PROMISES BETRAYED, is one I highly recommend. Gentlemen, welcome to the Journal.

DEAN BAKER: Great to see you, Bill.

BILL MOYERS: Both of you keep your eyes on issues of fairness in America. And we just saw a report on how working people with low incomes are bamboozled by rapacious lenders who make money out of other people’s poverty. So I want to ask you, Dean Baker, how is it we’ve come to accept a predatory economy as the American way of life?

DEAN BAKER: Well, basically we adopted this policy of anything goes, so that if Wall Street business could dole it and they could make money on it, we let them get away with it.

You know, the fact that sub-prime mortgages had more than doubled as a share of the economy, that should have been, you know, just an alarm bell sounding off to everyone. And this was, you know, I’m an economist. I see this data. But, you know, this widely known. But yet, people are just looking the other way. And we knew people were being taken advantage of. We knew it was going to end very badly.

BILL MOYERS: You’re not an economist. You’re a reporter who tell the stories. And you’ve been telling the stories of this for some time now?

BOB HERBERT: Sure. I was out in Chicago with a woman — predatory lending, in terms of mortgages. She was about to lose her home. They were going to foreclose the home. The woman was elderly. She was ill, and she was blind. And I sat in her living room with her attorney. And she’s showing me these papers. They were still offering — she was getting offers in the mail for another mortgage on a house, to refinance again. And she was getting offers in the mail to take out additional credit cards.

The final loan that she had signed, that pushed her over the edge, and caused her to lose her home, she signed in the hospital. The mortgage broker came into the hospital, and the woman is almost blind. And she had no idea what she was signing.

And as far as I understood, there was no hope. She was going to lose her home. I think one of the reasons this sort of thing is happening is because you don’t have anyone who’s looking out for the interests of ordinary people, whether they’re middle class or whether they’re poor. The government, for a long time now, has been on the side of the great corporations, on the side of Wall Street, on the side of the financial services industry. So who looks out for the little people?

DEAN BAKER: That’s exactly right. No one is looking out for them. And again, this is, you know, you have this great effort now to, you know, all the people who should have been looking out, the last six, seven, eight years, are all going, “Oh, well, who could have known? Who could have known?” And they’ll put Alan Greenspan here at the pedestal, because he’s going oh, he had no idea this was going on.

And you had to try not to know this was going on. Certainly, someone like Alan Greenspan, our reserve board chair, had all the data I have times a thousand. He absolutely knew what was going on. And, you know, he was doing his best to look the other way, because you had a lot of big interests who were making a lot of money. You could prey on people, as, you know, as was shown.

BILL MOYERS: How did the media ignore it or not deal with it? How did the two parties fail to rise to the occasion? Why did we accept it?

BOB HERBERT: I think the media has sort of, in many cases, gone along for the ride. It’s almost like with the war in Iraq. I mean, you just had so many people in the media who thought that the war in Iraq was a good idea and never blew the whistle, or whatever

Because I think the media’s part of the establishment, which is where the establishment has gone these days. When I go around the country talking to ordinary people, the thing that I hear over and over again is that people think they really do not have a voice, that they may feel that something is wrong, they may have an idea of something that should be changed. But they don’t think that they can translate that into action. That they are not heard in Washington.

DEAN BAKER: I’d like to pick up on that point about the media. I mean, you know, I’m writing about their reporting on economic issues. And, you know, it’s a real simple thing sometimes. You just look at some of these articles. So, you know, they’re writing something about mortgages. You know, well, they call up someone at Citigroup. You know, and they think that’s good. I mean, it’s fine to talk to someone at Citigroup. I’m not saying that-

BILL MOYERS: They’re calling somebody that has a stake in-

DEAN BAKER: Yeah, yeah. And they don’t think like the person has a stake. In fact, I remember through the — we actually did a search. And we looked, who is the most widely cited person about the housing market. It was David Lereah, who’s the chief economist of the National Association of Realtors. And very often, that’s the only source. And I actually had a reporter for a major newspaper, not a new reporter, someone who had been there for years, asking me, “Do you think David Lereah’s biased?” I just didn’t know what to say. I mean, I don’t want to say, “Well, I think — how could you not think he’s biased?”

BOB HERBERT: I think part of it is just common sense. I mean, you know, you learn this with the nuns back in grammar school. If you take the watchdog out of the picture, if you just get rid of regulation — oh, we don’t need regulation any more, you know, do you think that maybe some kind of chicanery is going to be out there? You’re talking about things running wild? I mean, that’s exactly what happens.

BILL MOYERS: Your colleague, Gretchen Morgenson, who’s been on this show-

DEAN BAKER: Been all over-

BILL MOYERS: Yeah. She says, “The credit crisis has exposed and worsened a dangerous and deepening divide in the country between a vast number of average borrowers and a fairly elite slice of corporations, banks and executives enriched by the mortgage mania.” I mean, and, you know, this morning, I saw a story that the CEO of Fanny Mae, Daniel Mudd, has made more than $42 million while the company has been tanking. And that doesn’t, that’s not the America that I want to remembered.

DEAN BAKER: No, it’s really incredible. And even as, you know, things are going down in flames, there’s still no interest in holding them accountable. So you have the CEO of Fanny Mae gets over 40 million, CEO of Freddie Mac got 19.6 million in a single year.

Both companies are essentially bankrupt. I mean, there’s been this charade, like, oh, it’s just bad press, and, you know, shorting their money. You know, they’re basically bankrupt. If anyone doubted that, well, just take away the government support and see how long they hold up. You know, they’re basically bankrupt companies. And the people who ran them into the ground are still sitting there, collecting millions of dollars. And it’s just kind of mind boggling.

BOB HERBERT: What is the point of having government on the side of the rich and powerful in this society? I mean, just off the top of my head. I mean, that seems insane. So, you have, for example, credit cards. People are, I mean, people are milking the equity out of their homes to pay off credit card debt, which is really insane.

But how can it possibly be okay to have credit rates of credit card interest that were usurious, and, you know, a few decades ago, if a loan shark was charging that kind of interest, the guy would have been — the guy would have been locked up. But that’s okay. The government comes down on the side of the corporations, making it more difficult for ordinary workers to organize. So you can’t become part of a union which could represent your interests. And you can just follow this all along the line.

BILL MOYERS: Listen to this. Quote: “Between 2000 and 2006, the last time since figures were available, those among the very top ten percent of all households, on average, increased their income by about two percent, while those in the bottom 90 percent lost more than four percent.” I mean, how is it we’re allowing this to happen, the stagnation of wages for the majority of people?

DEAN BAKER: Well, again, we just have policies in place that just keep skewing income more and more upwards. So, you know, unions, I think, are a great example, perhaps the best single one we could point to, that, you know, unions are a great institution for ensuring that ordinary workers got their piece of the pie. So, when productivity went up, their wages more or less went up with it. Now, you know, we went — you go back a quarter century, and almost 20 percent of the private sector workforce was union. Today, it’s about seven percent. I mean, it’s just an incredible difference over the-

BILL MOYERS: And there’s evidence that union organizing actually brought up non-union wages, too, right?

DEAN BAKER: Absolutely. You know, so you bring up wages for the whole sector, for the obvious reason. You know, if the union workers in the auto individual are getting 20 an hour, well, if you’re Honda or whoever, and you don’t want a union there, well, you’re going to have to pay something close to it, ’cause, you know, you’re not going to get away with paying the minimum wage and think you’re not going to have a union come in.

BILL MOYERS: I pulled a story off the internet this morning, that companies, big corporations are raising $100 million to put in the campaign this fall. In Walmart, we saw last week instructed its supervisors and managers to urge workers not to vote Democratic this fall. What’s going on there?

DEAN BAKER: Well, it’s really almost making a charade of the elections. I mean, you know, Bob was talking before about how, you know, it’s so difficult to unionize. Because ostensibly, you know, it’s supposed to be a neutral process. You know, the workers get to decide. But it’s absolutely standard practice now for employers to figure out who’s organizing, and they fire them. It’s against the law, but the penalties are so minor that, you know, so what? You know, six months, a year, two years down the road, they end up losing. They pay, you know, a very small fine. They’ve prevented their place from being unionized.

Now they’re applying the same strategy, it seems, to elections more generally. We’re going to have Walmart, that has, you know, over a million employees. And they’re going to be scaring them, or doing their best, that, you know, if Barack Obama and the Democrats win, you’re going to lose your job.

BOB HERBERT: By definition, if you can get yourself together, organize yourself, raise $100 million for whatever kind of effort, you are organized. And then, if the other side is not organized, you’re wealthy and organized. The other side is not wealthy, and not organized. Who has the advantage here? I mean-

BILL MOYERS: Every time guys like you talk like this, though “The Wall Street Journal” says you’re fighting a class war.

BOB HERBERT: The class war is over, and we lost. There was a class war. We’ve been defeated.

BILL MOYERS: What do you mean?

BOB HERBERT: We’ve had, instead of a redistribution of the wealth from the top down, we’ve had the opposite. We’ve redistributed the wealth from the bottom up. The top sliver of the population has done fabulously well over the past three decades or so. And the rest have either stagnated or fallen behind.

BILL MOYERS: You wrote a couple of weeks ago, Bob Herbert, that the biggest failings of the two parties right now is their unwillingness or inability to be forthright in telling the public about this crisis. What did you mean by “this crisis”?

BOB HERBERT: I think that the country is really in tough circumstances. The financial sector is in crisis. You have the economy in tough shape, in terms of employment and that sort of thing. You have the housing crisis that’s not going to go away for a while. And I think we’re really vulnerable in terms of people’s standards of living. And I don’t think the politicians are telling the truth about this. And I especially I don’t think the Democratic Party has been telling us the truth. They are the ones that generally should be on the side of working people.

DEAN BAKER: Yeah I agree with that completely. We actually did an analysis recently, looking at the impact on people’s wealth. We’re looking at the late baby boomers, myself included, 45 to 54, you know. So this group of people that are close to retirement, but they still have a few years left in the work force.

And we looked at the median wealth of this group. And this is, you know, obviously middle income people, by definition. The median wealth of this group is less than $100,000. Now, the vast majority do not have a defined benefit pension. So these are people that are approaching retirement, and they’re overwhelming majority of them are going to have almost nothing other than the Social Security and Medicare to support them in their retirement years.

And, you know, again, this is, you know, this is middle income people that you would expect we’re counting equity in their home, by the way. So they have most of their home is not paid off. So you have people that are approaching retirement. They still have a big mortgage left in their house, and basically, nothing else.

BILL MOYERS: So how is it that some people still worship at the altar of trickle down economics?

DEAN BAKER: I think they’re not given the story. I mean, again, it gets back to the media. You know, this is — you know, if the media were talking about this the way I think they should, and perhaps Bob would agree with me on this, this should be like, you know, front page every day. You know, here are the policies. You know, we have, well, I’ll beat up on the Republicans here. You know, they’re saying, you know, we’re going to have more trickle down economics-

BILL MOYERS: He would beat up on the Democrats. He’s been very critical about-

DEAN BAKER: But I mean, you know, Senator McCain is going to be running for, is running for President. And he’s saying, “Well, we have to have tax cuts.” You know, oriented primary towards upper income people. Now, that should be like, well, we’re just going to beat our heads against the wall a few more times. ‘Cause we’ve done this. You know, how many more times do you have to try an experiment and see it fail, and you could still get it taken seriously? I mean, they’ll make fun of, you know, Senator Obama. They’ll go talk about his minister. And we’re probably going to be hearing about that all through the fall. And here, you have John McCain with an economic program that we know does not work in terms of providing benefits and providing jobs for typical people. But he’s going to be treated seriously with it.

BILL MOYERS: You had the Republicans this week talking about drilling offshore and more drilling on our continent, that gas prices will come down.

DEAN BAKER: Well, this is again — I’ll beat up on the media for this. ‘Cause there’s really no ambiguity. I mean, if you’ve got any expert out here, we know, well, at least, let me put it this way: We have no reason to believe there’s a significant amount of oil there. I mean, maybe Saudi Arabia’s hidden under Florida somewhere that we didn’t know about. But in terms of, you know, the evidence we have, there’s very little oil there. I mean, I wrote a column making fun of that story. I said, “John McCain wants to drill in your toilet.” I mean, maybe, I don’t know he does. But-

BILL MOYERS: Even Obama this week said he’s willing to negotiate on the issue of-

DEAN BAKER: He gets intimidated by it.

BOB HERBERT: Because McCain is getting traction in the polls on this issue. I talked to Senator John Kerry just a couple of days ago on this issue. And he said, “This is the most fraudulent thing that you can imagine. It’s just absurd. You’re not even in the best case scenario, you’re not even gonna get any oil from these offshore operations for another ten years.”

And even maximum — what’s even maximum, like 200 and some thousand gallons a day.

DEAN BAKER: It’s only two-tenths of one percent of world supply.

BOB HERBERT: In 2030, I think-

DEAN BAKER: Yeah, yeah. So you’re talking about that by-

BOB HERBERT: -is when it maxes out.

DEAN BAKER: Yeah. That might drop the price of gas at that point, by three cents a gallon, you know.



BILL MOYERS: So let me show you a video we have here, of the former Speaker of the House, Newt Gingrich, who was on television this week, saying, “Drill now, drill here.” Watch this.

BILL KILMEADE: Let’s say we start drilling in two months of the coast of Florida right at the Continental Shelf. When can we get the oil when will it effect the price of gas and oil?

NEWT GINGRICH: I tell you what I’m going to get you a guest, if you’ll take him, whose an intern at the American Enterprise Institute and a junior at Princeton who has found an economics paper that argues that the price of oil will start to drop almost immediately on the expectation of future supply. Everybody who is a professional economist knows if there an expectation that supply is going to go up prices start to come down. And they start to come down immediately because speculators start to sell out of the market because they suddenly realize that they’re going to lose their position.

GRETCHEN CARLSON SOT: Yeah, but I find it interesting that more economists are not on the record saying that.

BILL MOYERS: Newt Gingrich says that all economists support more drilling. You’re an economist, Dean Baker. Will more oil drilling bring prices down immediately, as Gingrich says?

DEAN BAKER: Well, again, the point here is that there’s very little oil at stake. And it’s not gonna be coming online for ten years, the first drops. And we don’t get, you know, our full production, which again, is very, very modest for about 20 years. So the impact will be basically zilch.

The Republicans are selling garbage. I mean, you know, you can drill wherever you want. You can wreck the environment that way, but you’re not going to lower the price of gas. But yet, you’ve got a majority of people, according to the polls, that they’re going, “Yes, yes, yes. Let’s drill, ’cause we want cheap gas.”

BILL MOYERS: Do you see anything coming from Obama that deals with what we’ve been discussing that strikes you as serious?

BOB HERBERT: Well, you know, it’s easy to underestimate Barack Obama. And I’ve underestimated him — for a while. He put together a brilliant primary strategy. But, you know, I frankly wish he was taking a more populist tack on the economy, talking much more about jobs, talking much more about how recent policies that some of them are not so recent any more, have really harmed the interests, the economic interests of the middle class, and working people. And sort of hammered that home, so that you would get a response to guys like Gingrich coming on television and talking nonsense, and that sort of thing. But that, so far, has not been Obama’s way. So I don’t know whether we’re going to see that or not.

BILL MOYERS: I have a story on my desk now, a study done, showing that while Obama has been very successful, as he himself boasts, of raising money from small contributors on the internet, he also has his Goliaths.

BILL MOYERS: He has huge, large numbers of people who have given him multi millions of dollars.

DEAN BAKER: And that’s, I think, a very big issue. Because right now, I mean, what’s front and center, at least for me, is, you know, look, we have — we’re going into this recession because of Wall Street, you know, just incredible corruption. I mean, you know, the amount – the “Times” had an article about a month or so back, where they just documented that more than half of the profits of the Wall Street banks over the years ’04 to ’07 — you know, just golden years for Wall Street have already been lost in write downs. I mean, which is just ungodly incompetence and/or corruption. Take your pick.

BILL MOYERS: What does that mean for ordinary people?

DEAN BAKER: Well, what it means is that they were paying money in all sorts of fees, you know, the sub-prime or up — they were paying all this money. And it, you know, it evaporated because, you know, they had their loans lost. Now, if you went to the pockets of the executives, you know, you have people who are running the Wall Street firms who made out like bandits, made tens of millions, sometimes hundreds of millions.

But it did nothing for the economy. And a lot of those people are working in Obama’s campaign. They’re the big funders. You know, so that raises serious issues, because again, if I were — what I’d like to see Barack Obama doing is going, “We’ve got a real problem that’s going on Wall Street.” You know, we should be reining them in.

BILL MOYERS: But he’s not?

DEAN BAKER: He’s not.

BOB HERBERT: No. And, you know — and this idea that the Republicans are trying to portray Obama as sort of this raving liberal or raving leftist, and the sort of thing. He’s never been that. He’s always been a moderate in terms of his policies, a moderate Democrat. It remains to be seen whether sort of this posture he’s pursuing is in fact, a winning strategy in a national election when the country’s going through economic hard times. I don’t know whether it is or not.

BILL MOYERS: No matter who wins this election, the next administration will inherit the mess. You know, ten trillion dollars in debt, two in these wars, stagnating paychecks, growing inequality. What’s the first thing each of you would like to see the next administration do, whether it’s McCain or Obama?

DEAN BAKER: Well, I’m going to give you two. I do want to see us get out of Iraq. You have to put that front and center. But the other thing I’d really love to see them do is health care. We have to fix our health care system, because it’s just, it’s outrageous. People don’t get coverage. But we also can’t afford it. So even if people that are getting coverage, they’re seeing high bills. The employers, I mean, not employers here. But they do have to pass on those costs. So if they’re seeing higher insurance premiums year by year, that means less money for paychecks. We have to fix our health care system. It’s broken.

BOB HERBERT: I agree on the war. I think you’ve got to get out of Iraq. I don’t think anything substantive is going to go forward in this country, until we start to bring most of the troops out of Iraq. I’m not sure how much of a or how big a health care bill a Democrat could get passed. I think jobs, employment, is a real issue I would focus on. And I think the infrastructure, where we need to redevelop it, repair it-

BILL MOYERS: Bridges, highways, roads.

BOB HERBERT: -is a source of good jobs. And I would really focus on that. And I don’t know if you can get a major health care bill early, and also a major effort on infrastructure at the same time.

BILL MOYERS: Bob Herbert, Dean Baker, let’s continue this conversation in the fall, and see what’s going on after the two conventions.


BILL MOYERS: Thank you for being with me today.

BILL MOYERS: Finally, as local broadcast journalism is beaten senseless by layoffs and cutbacks, consolidation and dumbing down, next month, The Society of Professional Journalists will honor one newsman who said, enough.

Glen Mabie was news director at WEAU TV, that’s the NBC affiliate in Eau Claire, Wisconsin. The station was negotiating a deal with Sacred Heart Hospital making them the exclusive source for medical stories, Mabie cried foul and quit. He protested the blatant conflict of interest and threat to his newsroom’s objectivity. Subsequently, the deal with Sacred Heart was killed but Mabie was out on the street.

He’s going back to college to finish the journalism degree he abandoned when he got his first job at WEAU. One of the remaining requirements? A course in ethics. Perhaps they’ll let Glen Mabie teach it.

That’s it for the Journal. See you next week.

This transcript was entered on May 26, 2015.

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