Originally aired: February 6, 2004


For Americans at the top, the news seems all good. The economy in the last quarter expanded by 4 percent. The stock market is up 40 percent over the past 15 months. Big profits are back on Wall Street, and this week, The Wall Street Journal is chronicling how high flyers are spending their lavish year-end bonuses on things like Lamborghinis and weddings at the palace of Versailles.

Now, step down the ladder a few rungs, and life looks quite a bit different.

BILL MOYERS: For me it was summed up in a five-word sentence in The New York Times, "Family finances are being stretched." The story goes on to chronicle a prolonged borrowing spree in America: families piling on debt to buy homes, charging new computers to their credit cards and driving new cars bought on dealer credit, and renovating their houses with home equity loans. The result is a doubling of household debt since 1990.

Political candidates take note — we're not making this up — there's an invisible crisis building out there. By the end of this decade, says a new book, nearly one of every seven families in America with children may have declared itself flat broke. This year alone, more people will end up bankrupt than will suffer a heart attack. And more people will file for bankruptcy than will graduate from college.

For desperate Americans, it's scary. Look what happened in the Washington, DC area this week when WKYS, a hip-hop/R&B radio station, ran a contest offering to pay the winners' overdue bills.

DJ: I'm just payin' bills! Throwing them all over the place.

BILL MOYERS: More than 20-thousand people sent in their bills: mortgage, gas, tuition, child care bills. The station had to replace its fax machine three times to cope with the flood of paper.

DJ JEANNIE JONES: This contest proves that folks are still in a lot of pain. They're scraping up everything they have to survive day by day.

BILL MOYERS: Even though unemployment figures improved slightly last month, 8.3 million Americans are still on the rolls, and many families today are just one lay-off away from economic collapse. That is not our opinion.

This is the book I mentioned, The Two Income-Trap: Why Middle-Class Mothers and Fathers Are Going Broke. Elizabeth Warren is one of the co-authors. She's a leading expert on bankruptcy, debt, and the middle class. Cited five years ago as one of the fifty most influential women lawyers in America, she teaches at Harvard Law School. Elizabeth Warren wrote this book with her daughter, Amelia Warren Tyagi.

Welcome to NOW.

You say in here that every 15 seconds some American is filing for bankruptcy?

ELIZABETH WARREN: That's exactly right. That's 365 days a year, 24 hours a day. In fact, this year, more children will live through their parent's bankruptcy than will live through their parents' divorce.

BILL MOYERS: Well, what are we to make of that?

WARREN: I think what we're to make of it is the middle class has been pushed right to the edge. They are on a cliff. And increasing numbers are falling off every single day. Families live in a much more dangerous economic world than they did a generation ago.

They tried to deal with it by sending both mom and dad to work. You know, a generation ago, early 1970s, the median earning family had one person at work.

And today, just 30 years later, the median earning family has two people at work, and now here comes the zinger. Even though they're making 75 percent more money in inflation-adjusted dollars, because now they've got those two incomes, by the time they pay the mortgage payment, health insurance, a second car, because they're further out in the suburbs and mom needs to get to work, and pay for their pre-school and daycare, they actually have less money to spend than their one income parents had a generation ago.

And what we found was that well over 90 percent of the families who file for bankruptcy, when you look at the enduring criteria, are middle class families.

They're moms and dads who worked hard, played by the rules. They went to college. They bought a house. They had kids. And then they ended up in financial collapse.

Also, I need to make clear here bankruptcy's just a little piece of that iceberg. Not only will 1.6 million families file for bankruptcy this year, but in addition to that, we've got 9 million families who are in credit counseling already.

BILL MOYERS: Which means?

ELIZABETH WARREN: Those are the folks who have gone to see someone hoping they can get bailed out without having to go into bankruptcy, but it tells you they're in serious financial distress. And look at the other indications. Home mortgage foreclosures are up more than three-fold over the last generation. Credit card default rates are at record levels. Car foreclosures are at record levels.

In fact, let me give the closer on this.

One of the big national surveys trying to find out the things families are concerned about found that more than 70 percent of families interviewed said worry over money is now infecting their family lives.

BILL MOYERS: Infecting it?

ELIZABETH WARREN: Infecting their family.

BILL MOYERS: In a toxic way?

WARREN: Of course in a toxic way. What does it mean to be a parent who's trying to decide "If I buy Girl Scout uniforms and a band instrument this month, will I still be able to pay the mortgage?"

Parents are waking up at night worrying about whether they can make the utility payment, wondering how long they can run out on the car payment before someone comes and pulls the car out of the driveway and takes it off and sells it.

BILL MOYERS: The popular notion is that families are spending too much, buying things they don't need. What did you find out?

ELIZABETH WARREN: I thought I was gonna write a book about overspending. I thought this is it. I got it. This book is gonna be about too many trips to the mall, too many Game Boys, too many…

BILL MOYERS: That's been done. AFFLUENZA. Remember that book? That…

ELIZABETH WARREN: I do remember that book. Exactly. I thought, "This is the book I'm gonna write." I mean, I can't get a parking place at the mall. Right? That had to be the problem. So what we did is we got old, unpublished, government data. It turns out the government's been collecting this for a long time about how families actually spend their money.

And we look at mom, dad and two kids 30 years ago, and mom, dad and two kids today. And remember, today, they've got two incomes. You know what we discovered about… Let's start with clothing. How much more are they spending today on clothing than they spent a generation ago? All those designer clothes. All those $200 sneakers. You want to know the answer?

Twenty-two percent less than they spent a generation ago. Less. Okay, food. They're eating out today, right?


ELIZABETH WARREN: Mom's not there in the household. She's not cooking those meals at home. So when you add up all that they're spending on food, all the designer water, all the fancy things they're buying, all the pre-prepared food, all the eating out, how much more is today's mom, dad and two kids spending on food than they spent a generation ago? Answer: 21 percent less.


ELIZABETH WARREN: Appliances. Hey, they have microwaves, and nobody had a microwave a generation ago. They have espresso machines today, right? Fancy popcorn poppers. The answer is today's family is spending 44 percent less on appliances than they spent a generation ago.

BILL MOYERS: So, where's the money going?

ELIZABETH WARREN: It's going to the mortgage. It's going to the health insurance.

Daycare, childcare, nursery school. Something to take care of the little ones. And a second car, so that mom can get to work. Those four expenses have more than eaten up all of mom's income that she's brought into the game, and eroded what dad earned.

BILL MOYERS: I want people to read the book, because they'll get the full answer to this. But give me a quick summary of why this has happened.

ELIZABETH WARREN: The causes are disparate. They're scattered everywhere. Part of the cause is in health insurance, and what it's cost to be able to ensure a family against the extraordinary medical cost that any family faces, if something goes wrong.

Another part of the cause is the failure in our public school system. You know the reason that housing prices are shooting up is not because families want spa bathrooms and granite countertops, right?


ELIZABETH WARREN: That's right. This is another version of the over-consumption myth. Hey, if the top ten percent buying spa bathrooms and granite countertops, absolutely. The median earnings family's house has gone from 5.8 rooms to 6.3 rooms. Okay, they've picked up half a room.

But they are paying extraordinarily more money. As I said in inflation-adjusted dollars they're paying more than 70 percent more than their parents paid for a house a generation ago. But here's the difference.

A generation ago, mom and dad bought a house they could afford. That's how they shopped, and they counted on being able to send the kids to the school down the block. And it mostly worked for the middle class.

What's happened today is that young parents buy houses with just three thoughts in mind, schools, schools and schools.

You know, and I want to be clear. It's not just that they're all trying to buy into the fanciest school district, whatever that is in the neighborhoods. Where can I buy a house that will give my children a chance to move forward?

BILL MOYERS: It's distressing to hear you, because I think you are describing reality. I have read the book, and I've looked at the data that you back it up with. But what's happening as you describe this reality is that wages are not rising anywhere near the needs that you are describing and defining.

ELIZABETH WARREN: I think that's exactly right. What's happening today is that men's wages are flat. Women's wages are rising, because they're approaching men's, although that seems to be flattening out a lot.

But costs, costs for what it takes to be middle class, those costs have shot way out of control.

Families have controlled what they can. They've cut back on clothing. They've cut back on food. They've cut back on appliances. They've cut back on furniture. They've cut back on floor covering. All of those costs have been pushed down in the family, and that's why I say the families now are right against the wall. They don't have any flex in these budgets. If something goes wrong, they're in high fixed expense territory. And if they have to give something up, they're giving up the things that make them middle class.

BILL MOYERS: You haven't even talked about the single-parent family.

ELIZABETH WARREN: Oh, we have a chapter in this book called "Trying To Make It On One Income In A Two Income World." When we talk about the two-income trap, we picked the two-income family to focus on, on the notion that that's the one all of us believed is the successful economic unit. The family that's going to succeed.

If I'd written a book about how one income families are in trouble, you'd have said, "Well, gosh, Elizabeth, why didn't you look at the ones who are really out there and making it?" But the consequence of a world that has shifted from one income to two income as the norm, two incomes just to make the basic expenses of the mortgage, the health insurance means one income families have been left in the dust.

Today's one income family, whether it's headed by a man with a wife who tries to stay at home or whether it's headed by a woman who's trying to make it after a divorce are at the ragged edge of the middle class.

BILL MOYERS: Have the political decisions in Washington contributed to the trap you're talking about, to the dilemma you're discussing?

WARREN: Absolutely. I mean let's talk the long view. Following the Great Depression and the heart of the Great Depression, we began to understand that we'd better change our policies to support that middle class, because without a middle class, we don't have an economy and we don't have a safe democracy.

Following World War II, we got another big focus on the middle class. Remember the G.I. Bill?


ELIZABETH WARREN: It was all about getting a free education, so that you were ready to go into that work force. It was also about how can we help people buy homes, affordable homes, right? The whole notion of FHA grew up then, and the V.A. loans, the idea that we're gonna aim our government policies towards supporting the middle class.

There was a fundamental change in the early 1980s, and the fundamental change was that we switched over to letting all of those little boats go it alone. And the focus moves to the two ends of the spectrum.

There were the advocates who fought on behalf of those who lived in abject poverty. God bless them for doing that. And there were the advocates who fought on behalf of "let's unleash the power of corporations. Let's make it possible for the rich to be incentivized to get out there and earn and work and do what they can." And that's where government moved. That's where policies moved. That's where interest groups moved. That's where focus moved.

And the middle class, look, we all thought the middle class was strong enough to take care of itself. Over time what happened was an eroding educational system with no support for changing demands and the kind of education that parents need to provide for their children, pre-school, college. We began to leave all that to be privatized, to be born by the individual family. And the middle class is starting to get hollowed out economically.

BILL MOYERS: What did it mean when 25 years ago, the lending industry, the banking industry was deregulated? What did that mean for these people?

ELIZABETH WARREN: The deregulation of the consumer credit industry gave us lots of good things. Lots of credit available out there. Lots of people who can go out and borrow at low interest rates, but it also gave birth to a monster. And that monster is now eating middle class American families. That monster…

BILL MOYERS: And that monster?

ELIZABETH WARREN: It's sub-prime credit. It's predatory lenders. It's learning that when the wholesale cost of money, that is what the banks can borrow the money for is down around two percent and they can find ways to lend it out at 18 percent, 22 percent, 26 percent, 34 percent that there are staggering profits to be made here.

And it's middle class families who are paying that money, and more to the point, it's middle class families who get tangled in that debt when they lose a job, when somebody gets sick and they don't have health insurance, when they divorce.

So, the consequence is that credit card companies which this year will collect $78 billion, that's billion dollars, in interest charges are in effect taxing a middle class. And it's principally the middle class that's already in financial trouble.

BILL MOYERS: You tell a story that to me illustrates what has happened to our political system in regards to the middle class, in regards to democracy in the country as a whole. And it involves Hillary Clinton.

ELIZABETH WARREN: I had written an op-ed about a piece of pending bankruptcy legislation. The credit card companies have been pushing to try to tighten the bankruptcy laws, sort of like locking the doors to the hospitals and then claiming nobody's sick in America.

So, they were trying to get the bankruptcy laws constrained, constricted, so that fewer families could get in. Why? Because you can make more money if those families don't go into bankruptcy, if you're a credit lender.

And so I'd written an op-ed about how this would fall disproportionately hard on women who were raising families and who would be put in the position under this bill of trying to compete with Citibank, MasterCard, Visa, Bank One for getting alimony and child support from their ex-husbands.

Mrs. Clinton evidently saw…

BILL MOYERS: The First Lady then.

ELIZABETH WARREN: The First Lady. She was then First Lady. This is the 1990s. Late 1990s. Mrs. Clinton saw the piece, and I got a call from the White House. And they said Mrs. Clinton was going to be in town to give a speech in Boston and would I come and meet with her. I said, "Sure."

And so I put together all my files. I show up at the appointed place. After she's finished her speech, we're ushered into a tiny, little room somewhere in the bowels of this hotel, and just the two of us. They close the door. Mrs. Clinton sits down. We have hamburgers and french fries.

BILL MOYERS: You tutor her.

ELIZABETH WARREN: And she says, "Tell me about bankruptcy." And I got to tell you, I never had a smarter student. Quick, right to the heart of it. I go over the law. It's a complex law. Went over the economics. Showed her the graphs, showed her the charts. And she got it.

Within 20 minutes, she could play where the rest of it would come. Well, then that will mean this part's happened. That will mean this has happened. I said, "Yes, that's right." And at the end of the conversation, Mrs. Clinton stood up. She said, "Let's get our picture taken" which we did, and she said, "Professor Warren, we've got to stop that awful bill," referring to this bankruptcy bill that sponsored by the credit card companies.

So I left. She went back to White House, and I heard later from someone who is a White House staffer that there were skid marks in the hallways when Mrs. Clinton got back as people reversed direction on that bankruptcy bill. President…

BILL MOYERS: That was supporting the industry. And because of her…

ELIZABETH WARREN: President Clinton had been showing that this is another way that he could be helpful to business. It wasn't a very high visibility bill. And when Mrs. Clinton came back with a little better understanding of how it all worked, they reversed course, and they reversed course fast. And indeed, the proof is in the pudding.

The last bill that came before President Clinton was that bankruptcy bill that was passed by the House and the Senate in 2000 and he vetoed it. And in her autobiography, Mrs. Clinton took credit for that veto and she rightly should. She turned around a whole administration on the subject of bankruptcy. She got it.

BILL MOYERS: And then?

ELIZABETH WARREN: One of the first bills that came up after she was Senator Clinton was the bankruptcy bill. This is a bill that's like a vampire. It will not die. Right? There's a lot of money behind it, and it…

BILL MOYERS: Bill, her husband, who vetoed…

ELIZABETH WARREN: Her husband had vetoed it very much at her urging.


ELIZABETH WARREN: She voted in favor of it.


ELIZABETH WARREN: As Senator Clinton, the pressures are very different. It's a well-financed industry. You know a lot of people don't realize that the industry that gave the most money to Washington over the past few years was not the oil industry, was not pharmaceuticals. It was consumer credit products. Those are the people. The credit card companies have been giving money, and they have influence.

BILL MOYERS: And Mrs. Clinton was one of them as Senator.

ELIZABETH WARREN: She has taken money from the groups, and more to the point, she worries about them as a constituency.

BILL MOYERS: But what does this mean though to these people, these millions of people out there whom the politicians cavort in front of as favoring the middle class, and then are beholden to the powerful interests that undermine the middle class? What does this say about politics today?

ELIZABETH WARREN: You know this is the scary part about democracy today. It's… We're talking again about the impact of money. The credit industry on this bankruptcy bill has spent tens of millions of dollars lobbying, and as their profits grow, they just throw more into lobbying for how they can get laws that will make it easier and easier and easier to drain money out of the pockets of middle class families.

BILL MOYERS: You have some very original solutions to propose in this book that go beyond ideology. Both liberals and conservatives are talking about this book. I highly recommend to my viewers that they get The Two Income Trap: Why Middle Class Mothers and Fathers Are Going Broke With Surprising Solutions That Will Change Our Children's Futures by Elizabeth Warren and your daughter, Amelia Warren Tyagi. Thank you very much, Elizabeth, for being with us on NOW.

ELIZABETH WARREN: Thank you for giving me the chance to talk to you.

BILL MOYERS: The bankruptcy bill Elizabeth Warren calls the vampire that won't die has risen from the grave again.

For seven years the banking and credit card companies lobbied hard to get it, and last week, yet one more version of the bill passed the House. The Senate is now considering it before sending it to the White House for President Bush's signature.

The companies, of course, are reaping record profits by urging consumers to borrow more. At the same time, they have long wanted to make it harder for people of modest means to use bankruptcy to erase their debt. Well, this bill gives the companies what they wanted.

It will not surprise you to learn that banks and credit card companies are among the most generous of political donors, over $37 million in one election year alone.

They were the top two sources of campaign cash for this man, former representative George Gekas of Pennsylvania, who had taken the lead in pushing the House bill.

M.B.N.A. American bank,is the second largest credit card issuer in the country, and the top donor to President George W. Bush.

One more postscript to this story: the Washington Post reported that the bill passed by the House is "salted with language benefiting landlords, condo owners, auto lenders, shopping center owners, and even entertainment companies." And I'm not making this up: some clever lobbyist even got a provision slipped into the bill that enables landlords to evict families during bankruptcy.

Elizabeth Warren on America’s Invisible Crisis

February 6, 2004

In 2004, Bill spoke to bankruptcy expert Elizabeth Warren, who was a Harvard Law professor at the time, about the problem of excessive borrowing by Americans. Families were taking out loans and using their credit cards more than ever before, resulting in a doubling of household debt since 1990. “Politicians take note, we’re not making this up, there’s an invisible crisis building out there,” Moyers said.

When she set out to write a book about overspending by America’s two-income families, Warren discovered something that defied conventional wisdom. “I thought this book is going to be about too many trips to the mall, too many Game Boys,” Warren said of her book, The Two-Income Trap: Why Middle-Class Parents are Going Broke. But what she found was that expenses, such as mortgages, health insurance and child care, were eating up “all of mom’s income and eroded what dad earned.”

Warren went on to explain how lobbying efforts by the credit card industry swayed congressional votes on bankruptcy legislation. She tells Bill a story about Hillary Clinton, whose views on the bill suddenly changed after she became a New York senator. “As Senator Clinton the pressures are very different… the industry that gave the most money to Washington over the past few years was not the oil industry, not pharmaceuticals, it was consumer credit products. [Clinton] had taken money from the groups, and more to the point, she worries about them as a constituency.”

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