Middle Class Stories
Structural Change for the American Dream
Sad stories abound in the news about fellow citizens who have lost their place in society. Through no fault of their own, once prosperous middle class professionals and the working class struggle to survive because of job loss, underemployment, or no employment due to age discrimination. Realizing dreams are delayed for college graduates because school loans can not be repaid: can’t get a job.
Blame it on the business cycle, up and down, boom or bust, but point the finger where it belongs: Wall Street and their DC political cronies. Instead of organizing and allocating capital for business expansion, the banksters speculated and lost, temporarily, while the backbone of the country continues to suffer. Bankers should represent respected institutions instead of being demonized due to their self-centered common senseless egregious actions.
Structural changes in the economy that reduce standards of living have become normal for families and communities. For many millions, the American Dream has gone with the wind of change. State and local budgets have been greatly impacted by the loss of tax revenue. Property values have declined, neighborhoods have withered, and businesses have gone bust. Counties now pave roads with gravel instead of more familiar black top and cities cut back on emergency services.
Winning the Class War
By BOB HERBERT
Published: November 26, 2010
The class war that no one wants to talk about continues unabated.
Even as millions of out-of-work and otherwise struggling Americans are tightening their belts for the holidays, the nation’s elite are lacing up their dancing shoes and partying like royalty as the millions and billions keep rolling in.
Recessions are for the little people, not for the corporate chiefs and the titans of Wall Street who are at the heart of the American aristocracy. They have waged economic warfare against everybody else and are winning big time.
The ranks of the poor may be swelling and families forced out of their foreclosed homes may be enduring a nightmarish holiday season, but American companies have just experienced their most profitable quarter ever. As The Times reported this week, U.S. firms earned profits at an annual rate of $1.659 trillion in the third quarter — the highest total since the government began keeping track more than six decades ago.
The corporate fat cats are becoming alarmingly rotund. Their profits have surged over the past seven quarters at a pace that is among the fastest ever seen, and they can barely contain their glee. On the same day that The Times ran its article about the third-quarter surge in profits, it ran a piece on the front page that carried the headline: “With a Swagger, Wallets Out, Wall Street Dares to Celebrate.”
Anyone who thinks there is something beneficial in this vast disconnect between the fortunes of the American elite and those of the struggling masses is just silly. It’s not even good for the elite.
There is no way to bring America’s consumer economy back to robust health if unemployment is chronically high, wages remain stagnant and the jobs that are created are poor ones. Without ordinary Americans spending their earnings from good jobs, any hope of a meaningful, long-term recovery is doomed.
Beyond that, extreme economic inequality is a recipe for social instability. Families on the wrong side of the divide find themselves under increasing pressure to just hold things together: to find the money to pay rent or the mortgage, to fend off bill collectors, to cope with illness and emergencies, and deal with the daily doses of extreme anxiety.
Societal conflicts metastasize as resentments fester and scapegoats are sought. Demagogues inevitably emerge to feast on the poisonous stew of such an environment. The rich may think that the public won’t ever turn against them. But to hold that belief, you have to ignore the turbulent history of the 1930s.
A stark example of the potential for real conflict is being played out in New York City, where the multibillionaire mayor, Michael Bloomberg, has selected a glittering example of the American aristocracy to be the city’s schools chancellor. Cathleen Black, chairwoman of Hearst Magazines, has a reputation as a crackerjack corporate executive but absolutely no background in education.
Ms. Black travels in the rarefied environs of the very rich. Her own children went to private boarding schools. She owns a penthouse on Park Avenue and a $4 million home in Southampton. She was able to loan a $47,600 Bulgari bracelet to a museum for an exhibit showing off the baubles of the city’s most successful women.
Ms. Black will be peering across an almost unbridgeable gap between her and the largely poor and working-class parents and students she will be expected to serve. Worse, Mr. Bloomberg, heralding Ms. Black as a “superstar manager,” has made it clear that because of budget shortfalls she will be focused on managing cutbacks to the school system.
So here we have the billionaire and the millionaire telling the poor and the struggling — the little people — that they will just have to make do with less. You can almost feel the bitterness rising.
Extreme inequality is already contributing mightily to political and other forms of polarization in the U.S. And it is a major force undermining the idea that as citizens we should try to face the nation’s problems, economic and otherwise, in a reasonably united fashion. When so many people are tumbling toward the bottom, the tendency is to fight among each other for increasingly scarce resources.
What’s really needed is for working Americans to form alliances and try, in a spirit of good will, to work out equitable solutions to the myriad problems facing so many ordinary individuals and families. Strong leaders are needed to develop such alliances and fight back against the forces that nearly destroyed the economy and have left working Americans in the lurch.
Aristocrats were supposed to be anathema to Americans. Now, while much of the rest of the nation is suffering, they are the only ones who can afford to smile.
One family’s plunge from the middle class into poverty
By Wil Haygood
Washington Post Staff Writer
Thursday, November 18, 2010; 10:31 PM
IN FORT MYERS, FLA. Chrissanda Walker’s bourbon-glazed chicken is just out of the oven. The bread pudding is finished. The collard greens worry her, though; she doesn’t want to overcook them. Walker looks at the clock. It’s 10 a.m. She’s been on her feet since 6.
Walker used to make $100,000 a year as a nursing home executive until she lost her job a year and a half ago. Unable to find a new one, she shed her business suits and high heels and put on an apron and soft-soled shoes. This year, she and her daughter are living on $11,000: her unemployment benefits plus whatever she can earn selling home-cooked dinners for $10 apiece.
Her American Dream has taken a punch to the gut. “I never thought I’d be in a situation like this,” she says, smoke from the cooking swirling about her. “My friends say to me: ‘Listen to the Lord, Chris.’ I say, ‘No, I have to have a paycheck.’ ”
The Census Bureau recently reported that the poverty rate in the United States rose to 14.3 percent last year, the highest level in more than 50 years.
Texas and Florida saw the most people fall below the line. In Florida alone, 323,000 people became newly poor last year, bringing the state’s poverty total to 2.7 million.
The numbers tell another tale as well: Nationwide, in black households such as Walker’s, income plunged an average of 4.4 percent in 2009, almost three times the drop among whites. The number of blacks living below the official poverty line – $21,756 for a family of four – increased by 7 percent in just one year.
“The whole idea in an improving economy is that everyone will benefit,” says Marc Morial, president of the National Urban League. “When the train speeds up, everything does improve, but blacks are still in the caboose. When it slows down – in a bad economy – blacks fall out of the caboose.”
Now Walker, 50, feels a part of her future has been snatched. Gone like an old breeze. This year, the last dime of her savings vanished. Her health insurance is a thing of the past.
She has had some kind of job – from babysitter to server at a fast-food restaurant – since she was 12 years old. She has always believed in the work ethic. She retains the ethic, but the work is gone.
“My parents had always worked,” she says. “They always provided for us. It was never a ‘no.’ It’s what they always instilled in us: Do your best, strive for excellence. That’s why all of this is so hard for me,” she says, her words struggling to emerge through the sobs.
Sabrina Goodwin Monday, a college classmate, has held some long, late-night phone conversations with Walker. “It’s hard for her to believe in the American Dream anymore because there’s nothing dreamy about her life anymore.”
Alabama Town’s Failed Pension Is a Warning
By MICHAEL COOPER and MARY WILLIAMS WALSH
Published: December 22, 2010
PRICHARD, Ala. — This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry.
Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers, breaking a state law requiring it to pay its promised retirement benefits in full.
Since then, Nettie Banks, 68, a retired Prichard police and fire dispatcher, has filed for bankruptcy. Alfred Arnold, a 66-year-old retired fire captain, has gone back to work as a shopping mall security guard to try to keep his house. Eddie Ragland, 59, a retired police captain, accepted help from colleagues, bake sales and collection jars after he was shot by a robber, leaving him badly wounded and unable to get to his new job as a police officer at the regional airport.
Far worse was the retired fire marshal who died in June. Like many of the others, he was too young to collect Social Security. “When they found him, he had no electricity and no running water in his house,” said David Anders, 58, a retired district fire chief. “He was a proud enough man that he wouldn’t accept help.”
The situation in Prichard is extremely unusual — the city has sought bankruptcy protection twice — but it proves that the unthinkable can, in fact, sometimes happen. And it stands as a warning to cities like Philadelphia and states like Illinois, whose pension funds are under great strain: if nothing changes, the money eventually does run out, and when that happens, misery and turmoil follow.
The end of middle America? Working class white families are unraveling before our eyes
By Kay Hymowitz
Sunday, December 19th 2010, 4:00 AM
Foreclosures, plant closings, offshored jobs, underwater mortgages, miserable rates of unemployment, stagnating incomes: Is there any end to the woes of the struggling American middle? Apparently not, because now comes news of a trend guaranteeing trouble ahead for the more than half of the nation that make up the moderately educated and moderately earning middle — even if the economy improves.
That seismic shift, outlined in a new report from the National Marriage Project and the Institute for American Values, is towards more divorce, more out of wedlock births and, ipso facto, fewer kids with a hopeful future.
Family breakdown, to put it simply, has hit white middle America big time.
Researchers have known for a while now that there is a significant “marriage gap” between affluent couples and low-income, largely minority, ones. The children of well-to-do college educated couples are considerably more likely to be growing up in a home with both their mother and father present than the children of the poor — who are more often than not living without their fathers. It surprises most people to hear it, but rates of divorce among college-educated women have actually been declining since 1980.
The proportion of degreed women having children outside of marriage, always very low, remains at a very modest 6%, while among those without a high school degree the rate stands at a much, much higher 54%.
In the past, middle America — the report means by that the “moderately educated,” those with at least a high school but less than a college degree — resembled the more highly educated in their sexual and marital habits.
No more. In 1982, 13% of the births to those in the economic middle were out-of-wedlock. Today, that number is 44%; that’s a startling increase in such a short period of time. The middle folks are more likely to divorce than both the educated and high school dropouts. Only 58% of the 14-year-old daughters of moderately educated mothers are living with both parents. Not only is that down significantly from 1982 when the number was 74%; it is appreciably closer to the 52% of the daughters of the least educated than it is to the 81% of the girls of the college educated.
The middle Americans in the study are choosing to cohabit rather than to marry; the proportion living together is up 29 percentage points in just 20 years. This increase also well surpasses the numbers for both the most and least educated women.
That is not just surprising; it is deeply threatening to the nation as we know it.
This is, after all, mom and apple pie America; the moderately educated are “the silent majority,” “values voters,” people who dedicate themselves to the hard work, thrift and delayed gratification that will provide their children a chance to achieve the American Dream. An economy shifting away from manufacturing and a nasty recession has made that dream recede; family breakdown promises to erase it entirely.
Children growing up in single parent homes are at greater risk of a host of social ills, including educational failure and emotional problems. They are also more likely to become single parents themselves.
Making this scenario even more likely are the increasingly permissive attitudes of the moderately educated middle. Americans at all education levels remain fans of marriage; more than three-quarters of them describe it as a very important life goal.
But in other respects it’s the highly educated who wind up sounding traditional. Seventy-six percent of the teenaged children of highly educated parents say they would be embarrassed if they got — or got someone — pregnant. Only 61% of the kids of moderately educated parents said the same. Though premarital sex has become a widely accepted fact of American life, the few who disapprove of it are now about as likely to be from the brie and chardonnay crowd as the Budweiser and Doritos group.
On the subject of divorce, too, it’s the college educated who are trending more socially conservative. Close to half of both groups believe it ought to be harder to get a divorce. But while the highly educated group has grown substantially more anti-divorce, the moderately educated have not. One more example of the twilight of middle American traditionalism: In 1995, 62% of 25-to-44-year-old moderately educated women reported having three or more sexual partners; by 2008 the number was 70%. Among college grads, on the other hand, the percentages have gone down in the same period, from 59% to 57%.
The title of the National Marriage Project report, “When Marriage Disappears,” is an echo of an influential 1996 book by then- University of Chicago sociologist William Julius Wilson, with clear implications for the moderately educated middle. In that work, Wilson argued that the loss of manufacturing jobs was helping to create a dearth of “marriageable men,” mainly among minorities. Not only were there few men with a steady job earning decent wages in the poor, black neighborhoods of the nation’s cities; their joblessness coincided with more criminal and anti-social behavior. As women looked over the pool of available husbands, they often chose to have children on their own — that is, outside of marriage.
Wilson’s thesis helped to explain the ballooning rates of single-parent families among blacks; today, 72% of black children are born to unmarried mothers.
Though the numbers are lower for middle American children, the trends, unfortunately, now look similar. But Wilson’s theory tells us only part of the story. It underplays just how much marital breakdown is itself a cause of downward mobility. Manufacturing jobs may have disappeared, but knowledge economy jobs have grown in number and complexity. Those jobs require higher education, which in turn requires good primary and secondary schools, which for their part depend on families who support their children’s stability and learning. As families unravel, so do the chances of children thriving in school and, ultimately, in a complex economy.
Not so long ago, the moderately educated were the imagined heroes of the American Dream. With marriage disappearing, that dream is ending.
The social pathologies long associated with the inner-city poor – single-parent households, births out of wedlock, drug and alcohol abuse – now stalk the white working class in rural and post-industrial regions far removed from big cities. The middle is falling. Rich Lowry, editor of the conservative National Review, has noted that as wages and employment levels have fallen for the Americans who have graduated high school but not college, their level of out-of-wedlock births (44 percent) has approached that of Americans who haven’t completed high school (54 percent). Americans with college diplomas or more, by contrast, have a rate of just 6 percent.
The great sociologist William Julius Wilson has long argued that the key to the unraveling of the lives of the African American poor was the decline in the number of “marriageable males” as work disappeared from the inner city. Much the same could now be said of working-class whites in neighborhoods that may not look like the ghettos of Cleveland or Detroit but in which productive economic activity is increasingly hard to find.
Unions Yield on Wage Scales to Preserve Jobs
By LOUIS UCHITELLE
Published: November 19, 2010
MILWAUKEE — Organized labor appears to be losing an important battle in the Great Recession.
Even at manufacturing companies that are profitable, union workers are reluctantly agreeing to tiered contracts that create two levels of pay.
In years past, two-tiered systems were used to drive down costs in hard times, but mainly at companies already in trouble. And those arrangements, at the insistence of the unions, were designed, in most cases, to expire in a few years.
Now, the managers of some marquee companies are aiming to make this concession permanent. If they are successful, their contracts could become blueprints for other companies in other cities, extending a wage system that would be a startling retreat for labor.
Though union officials said they could not readily supply data on the practice, managers have been trying to achieve this for 30 years, with limited results. The recent auto crisis brought a two-tier system to General Motors and Chrysler. Delphi, the big parts maker, also has one now. Caterpillar, back in 2006, signed such a contract with the United Automobile Workers.
The arrangement was a fairly common means of shrinking labor costs in the recession of the early 1980s. At the end of the contracts, however, wages generally snapped back up to a single tier. At G.M., Chrysler, Delphi and Caterpillar, the wages will not be snapping back.
Nor will that happen for workers at three big manufacturers here in southeastern Wisconsin — where 15 percent of the work force is in manufacturing, a bigger proportion than any other state. These employers — Harley-Davidson, Mercury Marine and Kohler — have all but succeeded in the last year or so in erecting two-tier systems that could last well into a recovery.
“This is absolutely a surrender for labor,” said Mike Masik Sr., the union leader at Harley-Davidson, the motorcycle maker, not even trying to paper over the defeat. His union recently accepted a new contract that freezes wages for existing workers for most of its seven years, lowers pay for new hires, dilutes benefits and brings temporary workers to the assembly line at even lower pay and no benefits whenever there is a rise in demand for Harley’s roaring bikes.
The New Poor
Unemployed, and Likely to Stay That Way
By CATHERINE RAMPELL
Published: December 2, 2010
The longer people stay out of work, the more trouble they have finding new work.
That is a fact of life that much of Europe, with its underclass of permanently idle workers, knows all too well. But it is a lesson that the United States seems to be just learning.
This country has some of the highest levels of long-term unemployment — out of work longer than six months — it has ever recorded. Meanwhile, job growth has been, and looks to remain, disappointingly slow, indicating that those out of work for a while are likely to remain so for the foreseeable future. Even if the government report on Friday shows the expected improvement in hiring by business, it will not be enough to make a real dent in those totals.
So the legions of long-term unemployed will probably be idle for significantly longer than their counterparts in past recessions, reducing their chances of eventually finding a job even when the economy becomes more robust.
“I am so worried somebody will look at me and say, ‘Oh, he’s probably lost his edge,’ ” said Tim Smyth, 51, a New York television producer who has been unable to find work since 2008, despite having two decades of experience at places like Nickelodeon and the Food Network. “I mean, I know it’s not true, but I’m afraid I might say the same thing if I were interviewing someone I didn’t know very well who’s been out of work this long.”
Mr. Smyth’s anxieties are not unfounded. New data from the Labor Department, provided to The New York Times, shows that people out of work fewer than five weeks are more than three times as likely to find a job in the coming month than people who have been out of work for over a year, with a re-employment rate of 30.7 percent versus 8.7 percent, respectively.
Likewise, previous economic studies, many based on Europe’s job market struggles, have shown that people who become disconnected from the work force have more trouble getting hired, probably because of some combination of stigma, discouragement and deterioration of their skills.
This is one of the biggest challenges facing policy makers in the United States as they seek to address unemployment. Its underlying tenet — that time exacerbates the problem — means that the longer Congress squabbles about how to increase job growth, the more intractable the situation becomes. This, in turn, means Washington would need to pursue more aggressive (and, perversely, more politically difficult) job-creating policies in order to succeed. Even reaching an agreement over whether to extend benefits yet again has proved contentious.
Several factors lead to this downward spiral of the unemployed.
In some cases, the long-term unemployed were poor performers in their previous positions and among the first to be terminated when the recession began. These people are weak job candidates with less impressive résumés and references.
In other instances, those who lost jobs may have been good workers but were laid off from occupations or industries that are in permanent decline, like manufacturing.
But economists have tried to control for these selection issues, and studies comparing the fates of similar workers have also shown that the experience of unemployment itself damages job prospects.
If jobless workers had been in sales, for instance, their customers might have moved on. Or perhaps the list of contacts they could turn to for leads is obsolete. Mr. Smyth, for example, says that so many of his former co-workers have been displaced that he is no longer sure whom to call on about openings.
In particularly dynamic industries, like software engineering, unemployed workers might also miss out on new developments and fail to develop the skills required.
Still, this explanation probably applies to only a small slice of the country’s 6.2 million long-term unemployed.
The New Poor
In Job Market Shift, Some Workers Are Left Behind
By CATHERINE RAMPELL
Published: May 12, 2010
JACKSONVILLE, Fla. — Many of the jobs lost during the recession are not coming back.
For the last two years, the weak economy has provided an opportunity for employers to do what they would have done anyway: dismiss millions of people — like file clerks, ticket agents and autoworkers — who were displaced by technological advances and international trade.
The phasing out of these positions might have been accomplished through less painful means like attrition, buyouts or more incremental layoffs. But because of the recession, winter came early.
The tough environment has been especially disorienting for older and more experienced workers like Cynthia Norton, 52, an unemployed administrative assistant in Jacksonville.
“I know I’m good at this,” says Ms. Norton. “So how the hell did I end up here?”
Administrative work has always been Ms. Norton’s “calling,” she says, ever since she started work as an assistant for her aunt at 16, back when the uniform was a light blue polyester suit and a neckerchief. In the ensuing decades she has filed, typed and answered phones for just about every breed of business, from a law firm to a strip club. As a secretary at the RAND Corporation, she once even had the honor of escorting Henry Kissinger around the building.
But since she was laid off from an insurance company two years ago, no one seems to need her well-honed office know-how.
Ms. Norton is one of 1.7 million Americans who were employed in clerical and administrative positions when the recession began, but were no longer working in that occupation by the end of last year. There have also been outsize job losses in other occupation categories that seem unlikely to be revived during the economic recovery. The number of printing machine operators, for example, was nearly halved from the fourth quarter of 2007 to the fourth quarter of 2009. The number of people employed as travel agents fell by 40 percent.
This “creative destruction” in the job market can benefit the economy.
Pruning relatively less-efficient employees like clerks and travel agents, whose work can be done more cheaply by computers or workers abroad, makes American businesses more efficient. Year over year, productivity growth was at its highest level in over 50 years last quarter, pushing corporate profits to record highs and helping the economy grow.
But a huge group of people are being left out of the party.
A permanently temporary solution
Many workers have settled into full-time temp positions as the job market remains tight
November 11, 2010 | by Alejandra Cancino, Tribune reporter
CHICAGO — After years searching for permanent jobs, many skilled workers are getting used to the new normal: temporary employment.
These are workers with established careers, who were making up to $100,000 a year as midlevel managers or executives before the recession. Now, they are temporary workers, hired without benefits and at a fraction of what they used to make.
They are workers like Bob Szabo, 48, who moved to Chicago in early 2007 to become the chief operating officer of a wireless services company. He was laid off a few months later, then rehired and laid off again in 2008.
“I figured the downturn would last five or six more months, and figured that, if nothing else, I would find a job as a loan officer at a bank,” Szabo said.
He has visited the local unemployment office more times than he can remember.
He’s worked as a salesman for a car dealership and as a U.S. Census worker. He’s become a master at using coupons and an expert at finding free events, but he’s twice racked up about $15,000 in credit-card debt. The first time, he sold his shares in Apple Inc. for $30,000 to pay his debt.
“My plans to retire are destroyed,” said Szabo. “I have less than half than what I had when I was 38. I am going backwards.”
Since Szabo lost his job, his partner of 18 years has become his sole support. Without him, Szabo would be in California, he said, living at his parents’ home.
He continues to look for a job, one he hopes will last until he can retire.
“I just want to manage something, I don’t care (what it is),” he said.
Another temporary worker, Tim Halas, works full time as a midlevel manager with a competitive salary, but for short periods of time and without benefits.
“Every time the contract is near its end, he gets nervous but doesn’t say anything,” said Halas’ wife, Sharon.
About every six months, Halas applies for another short-term job. He has looked for permanent positions but hasn’t found one. It’s unsettling, he said, but he is adjusting.
“Like any person, when you are the primary bread winner, you get that feeling in the pit of your gut and wonder how will you support your family,” said Halas, 53.
In addition to saving Sharon Halas’ paycheck, the couple plan dinner dates at home, and Tim Halas bikes to the store to save on gasoline. In the mornings, instead of driving separately, Sharon Halas takes him to the Arlington Heights Metra station.
“If this is what I do the rest of my life, I will make do,” he said. “But if the right (permanent) position came along, I will (take it).”
Then, there are people like Mark Lyons, who doesn’t think he’ll land a permanent job again.
The way he sees it, companies will continue to hire full-time workers on a temporary basis. After all, he said, it’s an employer’s market.
“Employers are more demanding,” he said. “If the position has 10 requirements, you have to have 11 of them.”
That’s why companies have been able to hire him at a fraction of what he’s worth, he said. Before he was laid off in April 2008, Lyons was a midlevel manager, doing market research for food companies.
When he lost his job in April 2008, he signed up with 17 temp agencies. He got a two-week gig at a health-care nutrition company. The company kept him on as a temp for almost two years, paying him $17.25 an hour, or about $35,000 a year, $53,000 less than his previous job.
“It was below my skill level and quite low in pay, but I was happy. I was working and making money to support myself,” Lyons said.
Lyons, 47, kept sending out resumes, following leads and calling companies to pitch himself. He went on a few interviews, but those didn’t materialize into jobs. He earned enough to stay current on the mortgage on his Palatine town house and make ends meet. But, he said, he has occasionally accepted help from his parents.
“It can be difficult because I don’t like to have to ask someone else (for money),” he said.
When the job with the health care nutrition company ended in August, Lyons landed a temporary consulting job that has continued to keep him afloat. To supplement his income, he is teaching a vegetable gardening seminar at a local library and night classes at a few colleges. He also lines up singing gigs on his days off.
Lyons said he still sends out resumes and continues to network, but the past two years have made him think about what he wants out of life. So he’s starting a business teaching people how to grow food in their gardens.
“I’m going after the things I like to do,” Lyons said.
Where are the jobs? For many companies, overseas
U.S. businesses hire more overseas than domestically
By PALLAVI GOGOI Associated Press
Dec. 28, 2010, 7:22AM
Corporate profits are up. Stock prices are up. So why isn’t anyone hiring?
Actually, many American companies are — just maybe not in your town. They’re hiring overseas, where sales are surging and the pipeline of orders is fat.
More than half of the 15,000 people that Caterpillar Inc. has hired this year were outside the U.S. UPS is also hiring at a faster clip overseas. For both companies, sales in international markets are growing at least twice as fast as domestically.
The trend helps explain why unemployment remains high in the United States, edging up to 9.8 percent last month, even though companies are performing well: All but 4 percent of the top 500 U.S. corporations reported profits this year, and the stock market is close to its highest point since the 2008 financial meltdown.
But the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9 percent, says Robert Scott, the institute’s senior international economist.
“There’s a huge difference between what is good for American companies versus what is good for the American economy,” says Scott.
American jobs have been moving overseas for more than two decades. In recent years, though, those jobs have become more sophisticated – think semiconductors and software, not toys and clothes.
And now many of the products being made overseas aren’t coming back to the United States. Demand has grown dramatically this year in emerging markets like India, China and Brazil.
Meanwhile, consumer demand in the U.S. has been subdued. Despite a strong holiday shopping season, Americans are still spending 3 percent less than before the recession on essential items like clothing and more than 10 percent less on jewelry, furniture, electronics, and big appliances, according to MasterCard’s SpendingPulse.
“Companies will go where there are fast-growing markets and big profits,” says Jeffrey Sachs, globalization expert and economist at Columbia University. “What’s changed is that companies today are getting top talent in emerging economies, and the U.S. has to really watch out.”
With the future looking brighter overseas, companies are building there, too. Caterpillar, maker of the signature yellow bulldozers and tractors, has invested in three new plants in China in just the last two months to design and manufacture equipment. The decision is based on demand: Asia-Pacific sales soared 38 percent in the first nine months of the year, compared with 16 percent in the U.S. Caterpillar stock is up 65 percent this year.
“There is a shift in economic power that’s going on and will continue. China just became the world’s second-largest economy,” says David Wyss, chief economist at Standard & Poor’s, who notes that half of the revenue for companies in the S&P 500 in the last couple of years has come from outside the U.S.
Take the example of DuPont, which wowed the world in 1938 with nylon stockings. Known as one of the most innovative American companies of the 20th century, DuPont now sells less than a third of its products in the U.S. In the first nine months of this year, sales to the Asia-Pacific region grew 50 percent, triple the U.S. rate. Its stock is up 47 percent this year.
DuPont’s work force reflects the shift in its growth: In a presentation on emerging markets, the company said its number of employees in the U.S. shrank by 9 percent between January 2005 and October 2009. In the same period, its work force grew 54 percent in the Asia-Pacific countries.
“We are a global player out to succeed in any geography where we participate in,” says Thomas M. Connelly, chief innovation officer at DuPont. “We want our resources close to where our customers are, to tailor products to their needs.”
New sources of talent
While most of DuPont’s research labs are still stateside, Connelly says he’s impressed with the company’s overseas talent. The company opened a large research facility in Hyderabad, India, in 2008.
A key factor behind this runaway international growth is the rise of the middle class in these emerging countries. By 2015, for the first time, the number of consumers in Asia’s middle class will equal those in Europe and North America combined.
“All of the growth over the next 10 years is happening in Asia,” says Homi Kharas, a senior fellow at the Brookings Institute and formerly the World Bank’s chief economist for East Asia and the Pacific.
Coca-Cola CEO Muhtar Kent often points out that a billion consumers will enter the middle class during the coming decade, mostly in Africa, China and India. He is aggressively targeting those markets. Of Coke’s 93,000 global employees, less than 13 percent were in the U.S. in 2009, down from 19 percent five years ago.
The company would not say how many new U.S. hires it has made in 2010. But its latest new investments are overseas, including $240 million for three bottling plants in Inner Mongolia as part of a three-year, $2 billion investment in China. The three plants will create 2,000 new jobs in the area. In September, Coca-Cola pledged $1 billion to the Philippines over five years.
The strategy isn’t restricted to just the largest American companies. Entrepreneurs, whether in technology, retail or in manufacturing, today hire globally from the start.
It makes Yahoo Travel go
Consider Vast.com, which powers the search engines of sites like Yahoo Travel and Aol Autos. The company was founded in 2005 with employees based in San Francisco and Serbia.
Harvard Business School Dean Nitin Nohria worries that the trend could be dangerous. In an article in the November issue of the Harvard Business Review, he says that if U.S. businesses keep prospering while Americans are struggling, business leaders will lose legitimacy in society. He exhorted business leaders to find a way to link growth with job creation at home.
Other economists, like Columbia University’s Sachs, say multinational corporations have no choice, especially now that the quality of the global work force has improved. Sachs points out that the U.S. is falling in most global rankings for higher education while others are rising.
“We are not fulfilling the educational needs of our young people,” says Sachs. “In a globalized world, there are serious consequences to that.”
The Phantom 15 Million
Taming unemployment starts with solving the mystery of the jobs that were supposed to have been created in the past 10 years but weren’t.
By Jim Tankersley
Friday, January 21, 2011 | 6:15 a.m.
The forecasters said that the economy would create 22 million jobs over the next 10 years. At the decade’s economic peak, though, that number stood at only 7 million. Job growth in the 2000s was the lowest of any decade ever recorded by the federal government, stretching back to the 1940s. As a result, workers were extremely vulnerable to the tidal-wave recession that washed away all of the decade’s meager gains.
U.S. payrolls, by their 2008 peak, had grown about 5 percent from the start of the decade. Ever since the Labor Department began tracking employment in the late 1930s, no previous decade produced less than 20 percent payroll growth.
The national population grew faster than the labor force; in 2008, about 63 percent of working-aged Americans held a job, down from 65 percent in 2008, reversing decades of improvement in the employment-population ratio. Real middle-class incomes fell from 2000 to 2007—from a median of $58,500 to $56,500 another first in U.S. record-keeping.
It’s easy to see today why such alarming numbers went so undetected. The national unemployment rate stayed persistently low, between 4 and 6 percent, until the financial crash. Voters tend to associate the jobless rate with the strength of the economy. But the rate was low not because the economy was adding a lot of jobs, but because fewer people were joining the workforce—specifically, fewer women.
…A recent paper by researchers at the Asian Development Bank Institute concluded that the iPhone, one of the United States’ top innovations of the past decade, actually contributes nearly $2 billion to our trade deficit because it is almost entirely produced and assembled in Asia. The paper also raises a conundrum for lawmakers and business leaders alike: If Apple moved its assembly line to the United States and created domestic jobs but didn’t raise the cost of the iPhone, the company would still turn a 50 percent profit on every one it sold.
Maybe Apple’s greed is at fault. Maybe the government is to blame for not making the industrial climate more hospitable to Apple and other job producers. The harsh reality is that workers, companies, and lawmakers all need to readjust if we ever hope to rev up the job-creation machine again.
Camden City council approves Massive Police And Fire Layoffs
December 2, 2010 11:05 PM
CAMDEN, NJ (CBS) – Camden City Council, as expected, voted Thursday to lay off almost 400 workers, half of them police officers and firefighters, to bridge a $26.5 million deficit.
That’s about a quarter of the city’s entire work force.
Five members of City Council voted unanimously to approve the layoff plan — two other members were absent. The cuts take effect in mid-January.
Michigan Town Is Left Pleading for Bankruptcy
By MONICA DAVEY
Published: December 27, 2010
HAMTRAMCK, Mich. — Leaders of this city met for more than seven hours on a Saturday not long ago, searching for something to cut from a budget that has already been cut, over and over.
This time they slashed money for boarding up abandoned houses — aside from circumstances like vagrants or obvious rats, said William J. Cooper, the city manager. They shrank money for trimming trees and cutting grass on hundreds of lots that have been left to the city. And Mr. Cooper is hoping that predictions of a ferocious snow season prove false; once state road money runs out, the city has set nothing aside to plow streets.
“We can make it until March 1 — maybe,” Mr. Cooper said of Hamtramck’s ability to pay its bills. Beyond that? The political leaders of this old working-class city almost surrounded by Detroit are pleading with the state to let them declare bankruptcy, a desperate move the state is not even willing to admit as an option under the current circumstances.
“The state is concerned that if they say yes to one, if that door is opened, they’ll have 30 more cities right behind us,” Mr. Cooper said, as flurries fell outside his City Hall window. “But anything else is just a stop gap. We’re going to continue to pursue bankruptcy until the door is shut, locked, barricaded, bolted.”
Bankruptcy, increasingly common among corporations and individuals, remains rare for municipalities. Local leaders who want to win elections find it unappealing and often have other choices for solving financial woes. Besides, states have a say in whether a municipality may pursue bankruptcy at all, and they have every reason to avoid such an outcome, not least of all for fear of a creating a ripple effect that could cripple the municipal bond market and drive up the cost of borrowing.
Yet with anemic property tax revenues and forecasts of more dire financial times ahead, some experts and elected leaders fear that more localities may have to at least consider bankruptcy.
“There could be many cities in this position next year,” said Summer Hallwood Minnick, director of state affairs for the Michigan Municipal League, who added that in this state, cities had already struggled with billions less than expected in state revenue sharing. “All our communities have done is cut, cut, cut. They’re down to four-day workweeks and the elimination of parks, senior centers, all of that. So if there’s anything else that happens, they will be over the edge.”
This month, the authorities in Rhode Island said the City of Central Falls could face bankruptcy if immediate, drastic changes — perhaps the city’s annexation into a neighboring municipality — failed. Some leaders in Harrisburg, Pa., which owes millions in debt payments tied to an incinerator project, say bankruptcy may eventually be the only choice.
Prichard, Ala., which stopped paying monthly checks to retired city workers when its pension fund ran out last year, is appealing a bankruptcy judge’s ruling that it did not qualify for Chapter 9 under Alabama law.
Retrained for green jobs, but still waiting on work
By Michael A. Fletcher
Washington Post Staff Writer
Monday, November 22, 2010; 10:07 PM
OCALA, FLA. – After losing his way in the old economy, Laurance Anton tried to assure his place in the new one by signing up for green jobs training earlier this year at his local community college.
Anton has been out of work since 2008, when his job as a surveyor vanished with Florida’s once-sizzling housing market. After a futile search, at age 56 he reluctantly returned to school to learn the kind of job skills the Obama administration is wagering will soon fuel an employment boom: solar installation, sustainable landscape design, recycling and green demolition.
Anton said the classes, funded with a $2.9 million federal grant to Ocala’s workforce development organization, have taught him a lot. He’s learned how to apply Ohm’s law, how to solder tiny components on circuit boards and how to disassemble rather than demolish a building.
The only problem is that his new skills have not resulted in a single job offer. Officials who run Ocala’s green jobs training program say the same is true for three-quarters of their first 100 graduates.
“I think I have put in 200 applications,” said Anton, who exhausted his unemployment benefits months ago and now relies on food stamps and his dwindling savings to survive. “I’m long past the point where I need some regular income.”
With nearly 15 million Americans out of work and the unemployment rate hovering above 9 percent for 18 consecutive months, policymakers desperate to stoke job creation have bet heavily on green energy. The Obama administration channeled more than $90 billion from the $814 billion economic stimulus bill into clean energy technology, confident that the investment would grow into the economy’s next big thing.
The infusion of money is going to projects such as weatherizing public buildings and constructing advanced battery plants in the industrial Midwest, financing solar electric plants in the Mojave desert and training green energy workers.
But the huge federal investment has run headlong into the stubborn reality that the market for renewable energy products – and workers – remains in its infancy. The administration says that its stimulus investment has saved or created 225,000 jobs in the green energy industry, a pittance in an economy that has shed 7.5 million jobs since the recession took hold in December 2007.
The industry’s growth has been undercut by the simple economic fact that fossil fuels remain cheaper than renewables. Both Obama administration officials and green energy executives say that the business needs not just government incentives, but also rules and regulations that force people and business to turn to renewable energy.
Without government mandates dictating how much renewable energy utilities must use to generate electricity, or placing a price on the polluting carbon emitted by fossil fuels, they say, green energy cannot begin to reach its job creation potential.
“We keep getting these stops and starts in the industry. There is no way it can work like this,” said Bill Gallagher, president of Solar-Fit, a Florida energy company whose fortunes have fluctuated with government incentives in its 35 years in business.
Like many people who run renewable energy companies, Gallagher said he sees no need to expand his 25-employee firm because the business is simply not there.
As Chinese workers build the Martin Luther King memorial, a union investigates
By Annys Shin
Washington Post Staff Writer
Tuesday, November 23, 2010; 1:33 PM
Francis Jacobberger’s plan was simple – show up with a six-pack of beer and talk his way into a Crystal City apartment. An investigator for the Washington area union that represents stonemasons, Jacobberger was working a case dear to the members: Who should build the centerpiece of the Martin Luther King Jr. National Memorial – Americans or imported Chinese workers?
In September, the foundation building the $120 million memorial on the Mall promised in writing to use local stonemasons to assemble and install the 159 blocks of granite that will make up two massive sculptures at the center of the site, including one bearing King’s likeness.
But when construction of the sculptures began three weeks ago, it appeared that the foundation had reneged. Jacobberger, a wiry 32-year-old former bricklayer from Delaplane, was asked to find the Chinese laborers who were brought in to work on the King memorial and determine whether they were being exploited.
One evening last week, Jacobberger and a Mandarin translator, Josh Bassan, sat parked beneath the Arlington high-rise where the workers live. As they waited for the men to return from the construction site, Jacobberger schooled Bassan on how to chat them up.
“This should be easy going,” he said. “It’s like leading a horse to water.”
If all went well, Jacobberger would finally know what the workers were paid and what their living conditions were like. His suspicion was that they were not being paid anything close to the prevailing wage for an American stonemason – $32 an hour, plus $12 an hour in benefits.
Bassan’s efforts might not mean more jobs for American masons, but union members had demanded that their leadership do something. The possibility that cheap imported labor was being used to build any portion of the King memorial was anathema to them. King was assassinated in 1968 while in Memphis to support a sanitation workers strike.
The use of Chinese workers at the memorial is also deeply unsettling for a union that has had a hand in building every major monument in Washington since the end of the Civil War.
“Why do they need to come over to do the work when there are so many people here who can do it?” asked Scott Garvin, president of the Washington area local of the Bricklayers and Allied Craftworkers union, whose membership has dropped in the past three years from 2,000 to 850 because of a decline in building projects. “It’s kind of a thumb in the eye.”
American Dream lost on McPherson Street in East Price Hill
Street a microcosm of nation’s reality
By Dan Horn • firstname.lastname@example.org • November 22, 2010
Ed Stacey could see disaster coming to McPherson Avenue from his front porch.
“It was like a storm,” he says.
First came the “For Sale” signs, from one end of his East Price Hill street to the other, as investors and long-time residents tried to bail out of the crashing real estate market a few years ago.
Then came the foreclosures, more signs, more foreclosures and, finally, the exodus.
Neighbors lost their life savings and moved. Houses emptied. Vandals stripped them of copper pipes and wires. Roofs sagged from neglect. Yards became jungles of weeds and trash. City inspectors slapped “condemned” notices on houses that had stood for 100 years or more.
An Enquirer analysis of property records found that at least 49 of the 110 properties on McPherson went into foreclosure in the past decade, with many falling victim more than once. The street has a total of 65 foreclosures since 1999.
“It’s a nightmare, I’m telling you,” says Stacey, who lives next to a vacant house and can see about a half-dozen others from his porch. “This used to be a great place to live.”
The story of what happened to McPherson Avenue is the story of what happened to America when the housing boom went bust. It’s a story about how greed, recklessness and poor judgment combined to wreak havoc on a scale not seen since the Depression.
Almost every player in the housing crisis – from risk-taking banks and free-spending home buyers to speculators looking for a big score – had a hand in the devastation that befell McPherson.
Most are gone now, but the damage left behind is visible every day on a street that has suffered from the crisis like few others in Cincinnati.
Fourteen houses on McPherson are vacant and boarded up, four have been demolished and 17 are in violation of city codes for trash, broken windows and dozens of other infractions. Property values have plummeted by as much as 90 percent in some cases and police report an increase in burglaries.
Signs taped to vacant houses warn trespassers to “Keep Out” while all but begging thieves not to break in again.
“This building has been completely stripped,” one sign reads. “No copper. No radiators. No sinks. No boiler.”
Stacey, a retired construction worker, still marvels at how fast it all happened to a street that once was vibrant and filled with working-class families. He raised a daughter on McPherson, befriended his neighbors and tended to the small yard in front of his one-story house.
Yet today he barely recognizes the street he’s called home for 41 years.
“You look down your street,” he says, “and it looks like a war zone.”
Cheap houses, easy money
McPherson’s troubles began long before Stacey noticed those “For Sale” signs popping up about five years ago.
The street, which stretches from West Eighth Street to Glenway Avenue, had been changing for decades as more middle-class families and young professionals opted for suburban cul-de-sacs. By the late 1990s, long-time residents were leaving and owner-occupied homes were becoming rental properties.
Those changes would make McPherson a hot spot for speculators at the start of the housing boom.
Armed with easy-to-get loans, investors could scoop up houses on McPherson for $50,000 or less and then sell, or “flip,” them for a quick profit. Most put little or no money down and some took out more loans based on the rising value of their newly purchased properties – and used that money to buy even more houses.
“It was booming pretty well,” says Steve Sieving, a Cincinnati Realtor who got into the business in 2005. “We were going up the roller coaster and it was going to be a great ride.”
Joe Ruthemeyer, who grew up at 833 McPherson, was one of the first on the street to climb on the roller coaster. He’d bought his childhood home from his parents in 1993 and decided in 1999 to fix it up so he could rent out the second floor.
Ruthemeyer knew investors were starting to get some big loans for properties on McPherson, sometimes at double their assessed value. But he was surprised when he got a 15-year, $99,900 loan on his house, which he had bought six years earlier for $40,000.
When he asked the lender if he was getting too much, he was told an appraiser found a comparable house nearby to justify the loan.
“They said, ‘Don’t worry about it. We found a house that would cover it,’” Ruthemeyer says.
The lender, Decision One Mortgage in North Carolina, specialized in subprime loans, or those that are considered riskier than traditional loans. “Subprime” was not yet a dirty word in American finance and lenders were expanding their use of the loans, which typically carry higher interest rates or adjustable rates that change over time.
Ruthemeyer, a metal worker, got a 9.99 percent rate at a time when 15-year mortgages were averaging 6.85 percent. He thought he could handle the payments because he planned to do most of the rehab work himself and would soon collect rent.
But those plans quickly went awry. The work took longer and cost more than he expected. Every time he fixed something, he found something else was broken.
Less than a year into the project, he lost his job and ran out of money. He cleaned out his savings and his wife emptied her 401(k) to try to keep up with the bills, but nothing worked.
They declared bankruptcy and his house went into foreclosure in 2002.
“My wife and I tried,” says Ruthemeyer, a Vietnam veteran with three grown children. “It hurt. I grew up in that house. We expected to stay there.”
Decision One Mortgage, his original lender, closed in 2007 after losing hundreds of millions of dollars on defaulted subprime loans like the one it gave Ruthemeyer.
Ruthemeyer now lives in a trailer home in Harrison.
“I wouldn’t mind getting another house,” he says. “But at age 61, I’m unemployed. Who in the world is going to give me a loan?”
‘Everybody is doing it’
Ruthemeyer was one of McPherson’s early casualties, but neither banks nor borrowers learned from his mistake.
The housing market was heating up and, within a few years, lenders were handing out loans like his to dozens of investors up and down the street.
“There was enormous pressure to give loans to people who might not otherwise get them,” says Shaun Bond, a University of Cincinnati real estate professor. “The way they were assessing risk, they weren’t checking things they should have been checking.”
He says the banks were inspired in part by a loosening of lending standards that both Democrats and Republicans had touted for years as a way to help people fulfill the American Dream of owning their own home.
Banks also were motivated by profits from fees and the perception they had little to lose because they packaged their high-risk mortgages as securities and sold them to investors – seemingly spreading the risk and limiting the danger if some loans went bad. “People gambled,” Bond says. “It never occurred to them we could have this widespread fall in housing prices.”
The gambling on McPherson was fast and furious at the start of the decade. Sale prices on the street climbed dramatically, sometimes doubling or tripling in the span of just a few years.
A two-bedroom house at 910 McPherson sold for $40,000 in 2004 and $80,000 one year later. A three-bedroom house at 832 McPherson sold for $39,500 in 2002 and $85,000 a few months later. Both houses ended up in foreclosure and are vacant.
Ruthemeyer’s old house was sold to an investor for $30,000 in 2004 and was sold again for $89,900 just 18 months later.
The buyer, Khalisa Loveless, went into foreclosure the next year, but her bank modified her loan so she and her three young children could stay in the house.
“I got in in the middle of the boom, when they were giving away money,” Loveless says.
Several banks behind the loans on McPherson met the same fate as their borrowers.
Washington Mutual, Lehman Brothers and People’s Community Bank in West Chester Township all had loans fail on the street and eventually failed themselves. In some cases, the banks gave investors more loans on properties for much more than they’d paid for them.
One buyer paid $32,500 for a house in May 2000 and got a loan on the same property from People’s Bank one month later for $70,400. The house went into foreclosure in 2007.
“Some of these, I look at the mortgage and I think, ‘Who loaned on that?’” says Tammy Cappel, a Realtor who has sold properties on McPherson. “We’ve had cases where a bank gave a loan of $150,000 and we say it’s worth $20,000.”
Some loans looked suspicious for good reason. The FBI investigated several investors and brokers in Price Hill in the past decade, accusing them of using sham appraisals to trick buyers into overpaying for properties they could not afford.
If the banks had paid attention, they might have noticed the loans they were writing on McPherson were bad bets. A small wave of foreclosures rippled down the street between 2001 and 2003, and another, larger wave hit between 2005 and 2007, at the height of the national housing boom.
At that point, the street averaged 10 foreclosures a year.
But even as the foreclosures piled up, banks kept signing off on loans.
“When there’s too much money going into people’s pockets, people will always opt for the money,” says Sister Barb Busch, executive director of the nonprofit Working in Neighborhoods. “It’s the everybody-else-is-doing-it thing.”
Bad timing, bad deals
Ozeme Bonnette was looking for a safe investment four years ago when a friend in Cincinnati told her about an apartment building on McPherson.
Bonnette, a personal financial adviser, lives in California but had visited Cincinnati several times. She checked out the eight-unit building, looked at the rising sale prices on McPherson and decided it was a good deal.
She and two other investors bought the building in 2006 for $249,000 – more than twice what the previous owner had paid one year earlier.
“Financially, it made sense,” she says.
But her purchase reflected a fundamental change that was occurring in the relationship between borrowers and lenders, one that now is blamed for helping to inflate the housing bubble.
Decades ago, most home loans involved local banks and local buyers who had a good idea of what the real estate was worth and whether the buyer could afford it. Both parties knew the area, understood the market and felt they had a stake in the outcome.
That wasn’t always the case during the housing boom, when investors and lenders often were far from the property being bought and sometimes never saw it in person.
“Those are the ones that made the biggest mistake,” says Mick Meyer, a Price Hill landlord who owns several houses on McPherson. “The investors were thinking, ‘I can get a house for $50,000 in Cincinnati.’ If you live in California, you think, ‘Wow, what a deal!’
“But they don’t know the neighborhood. They didn’t know what they were buying.”
The deal for the apartment building at 901 McPherson involved a buyer from California and a lender from Florida.
The loan, like many during the boom, was not investor-friendly: It was an adjustable-rate mortgage that started with an 11 percent interest rate.
Eighteen months later, the building was in foreclosure.
Bonnette says the local manager hired to run the building didn’t collect rents and didn’t make repairs the investors paid him to make. As the management problems worsened, the housing market faltered.
“The timing probably was bad,” Bonnette says. “It was a mess. So many people were impacted.”
The apartment building sold last year for $30,000, almost 90 percent less than Bonnette and the other investors paid. It’s been vacant for almost two years. The windows are boarded and thieves ripped out the plumbing, wiring and sinks.
The building is the most vivid example of how rental properties have suffered on McPherson, but it’s not the only one.
Speculators bought several large houses on the street, split them into rental units and used the income from those units to justify more loans. Some rentals became subsidized housing for the poor – there are 14 such units on the street now – but most did not.
By 2008, some big rental property investors were essentially living loan to loan, counting on money from the next loan to make payments on the last one.
When the market crashed, the houses fell into foreclosure.
Many remain vacant.
“It’s like a Ponzi scheme,” says Ken Smith, executive director of Price Hill Will, a neighborhood development group. “Eventually, it all collapses.”
‘It got stupid’
Jim Knolle saw the foreclosure problems spreading on McPherson early on, but he wasn’t too worried.
He owned two houses on the street and about 95 rental properties citywide. He also had a bank he trusted, People’s Community Bank, and a plan to responsibly expand his real estate investments.
He says that plan worked well until a loan officer at People’s asked him in 2004 to combine about a dozen of his loans into one large adjustable-rate loan.
“It all looked good on paper,” Knolle says. “That was a mistake. That was the worst thing you could do.”
Within three years, his interest rate rose from 5.5 percent to 9.5 percent and his monthly payments jumped $6,000.
Because the mortgages had been bundled into a single loan, he lost everything when he couldn’t keep up, including his own home.
“When one of them failed, they all failed,” Knolle says. “It got stupid in a hurry.”
Knolle’s houses on McPherson, one of which was valued at $73,000 in 2000, were sold out of foreclosure in 2008 for a total of $17,500.
That kind of drop is typical for foreclosed houses on McPherson, where the average sale price was $68,700 before foreclosure and about $32,700 after.
“The whole area has been decimated,” says Sieving, the Realtor who started working on the West Side in 2005. “It’s just terrible to see.”
As the foreclosure crisis worsened, so did McPherson.
Foreclosed and vacant houses became eyesores that caused a ripple effect, scaring off potential buyers and lowering the values of other houses.
Homeowners who had invested little or no up-front money walked away when they fell behind on mortgages for houses no longer worth what they paid for them. Some banks did the same when they weighed the falling value of the property against the cost of maintaining it.
That’s what happened to the four-bedroom brick house at 911 McPherson after it went into foreclosure in 2007. The bank that held the loan, Deutsche Bank, dropped the case after concluding the house wasn’t worth taking.
The owner had received an $81,000 loan on the property in 2005, but by 2009 it was vacant and falling apart.
The city tore it down last summer after declaring it “a dangerous and unsafe premises.” It was the fourth house on McPherson to suffer that fate since 2004.
“They’re kind of fragile as they are because of their age,” says Ed Cunningham, the city manager for property maintenance and code enforcement. “As soon as a property turns up vacant, it gets broken into. They tear out the copper. They tear out the walls to get wiring. They tear out everything of value.
“When they get damaged, that tips them over the edge.”
Hoping for turnaround
Stacey, who watched the crisis begin from his front porch, was there again when the wrecking ball took down the 95-year-old house at 911 McPherson.
As he looked on from across the street, he remembered the roofer who once lived there with his wife and 14 children. He remembered how nice they kept the yard and how the kids played every day on the sidewalk.
And he wondered again what would become of his street.
“That one had a lot of history,” Stacey says. “It should’ve been fixed up.”
For awhile, he feared the houses on either side of his own might suffer the same fate. Both were vacant for more than a year after going into foreclosure.
But he got some good news this spring when a young couple with a baby moved into one of them. He hasn’t gotten many new neighbors lately because the houses are in such bad shape and the banks, after years of reckless loans, tightened credit dramatically.
So he was thrilled when Brian Speicher and his wife paid $20,000 for the house next door.
Speicher considers that price a bargain and says he believes McPherson can recover. He put a new roof on his house two months ago and plans to be there for awhile.
“I have a feeling it’s going to turn around,” he says.
He’s also optimistic that others will see value in the homes here and will follow his family to McPherson. There have been few takers so far, but he says the street might have a chance if it draws buyers looking to find a real home instead of a quick profit.
He says the boarded windows and overgrown yards on McPherson are a testament to the dangers of buying for the wrong reasons, or buying too much, too soon.
“I know it’s the American Dream and all, but if you can make it renting you should make it renting,” Speicher says. “Some people shouldn’t buy houses.”
Deepening crisis traps America’s have-nots
The US is drifting from a financial crisis to a deeper and more insidious social crisis. Self-congratulation by the US authorities that they have this time avoided a repeat of the 1930s is premature.
By Ambrose Evans-Pritchard 7:39PM GMT 09 Jan 2011
There is a telling detail in the US retail chain store data for December. Stephen Lewis from Monument Securities points out that luxury outlets saw an 8.1pc rise from a year ago, but discount stores catering to America’s poorer half rose just 1.2pc.
Tiffany’s, Nordstrom, and Saks Fifth Avenue are booming. Sales of Cadillac cars have jumped 35pc, while Porsche’s US sales are up 29pc.
Cartier and Louis Vuitton have helped boost the luxury goods stock index by almost 50pc since October. Yet Best Buy, Target, and Walmart have languished.
Such is the blighted fruit of Federal Reserve policy. The Fed no longer even denies that the purpose of its latest blast of bond purchases, or QE2, is to drive up Wall Street, perhaps because it has so signally failed to achieve its other purpose of driving down borrowing costs.
Yet surely Ben Bernanke’s `trickle down’ strategy risks corroding America’s ethic of solidarity long before it does much to help America’s poor.
The retail data can be quirky but it fits in with everything else we know. The numbers of people on food stamps have reached 43.2m, an all time-high of 14pc of the population. Recipients receive debit cards – not stamps — currently worth about $140 a month under President Obama’s stimulus package.
The US Conference of Mayors said visits to soup kitchens are up 24pc this year. There are 643,000 people needing shelter each night.
Jobs data released on Friday was again shocking. The only the reason that headline unemployment fell to 9.4pc was that so many people dropped out of the system altogether.
The actual number of jobs contracted by 260,000 to 153,690,000. The “labour participation rate” for working-age men over 20 dropped to 73.6pc, the lowest the since the data series began in 1948. My guess is that this figure exceeds the average for the Great Depression (minus the cruellest year of 1932).
“Corporate America is in a V-shaped recovery,” said Robert Reich, a former labour secretary. “That’s great news for investors whose savings are mainly in stocks and bonds, and for executives and Wall Street traders. But most American workers are trapped in an L-shaped recovery.”
It is no surprise that America’s armed dissident movement has resurfaced. For a glimpse into this sub-culture, read Time Magazine’s “Locked and Loaded: The Secret World of Extreme Militias”.
Time’s reporters went underground with the 300-strong `Ohio Defence Force’, an eclectic posse of citizens who spend weekends with M16 assault rifles and an M60 machine gun training to defend their constitutional rights by guerrilla warfare.
As it happens, I spent some time with militia groups across the US at the tail end of the recession in the early 1990s. While the rallying cry then was gun control and encroachments on freedom, the movement was at root a primordial scream by blue-collar Americans left behind in the new global dispensation. That grievance is surely worse today.
The long-term unemployed (more than six months) have reached 42pc of the total, twice the peak of the early 1990s. Nothing like this has been seen since the World War Two.
The Gini Coefficient used to measure income inequality has risen from the mid-30s to 46.8 over the last quarter century, touching the same extremes reached in the Roaring Twenties just before the Slump. It has also been ratcheting up in Britain and Europe.
Raghuram Rajan, the IMF’s former chief economist, argues that the subprime debt build-up was an attempt – “whether carefully planned or the path of least resistance” – to disguise stagnating incomes and to buy off the poor.
“The inevitable bill could be postponed into the future. Cynical as it might seem, easy credit has been used throughout history as a palliative by governments that are unable to address the deeper anxieties of the middle class directly,” he said.
Bank failures in the Depression were in part caused by expansion of credit to struggling farmers in response to the US Populist movement.
Extreme inequalities are toxic for societies, but there is also a body of scholarship suggesting that they cause depressions as well by upsetting the economic balance. They create a bias towards asset bubbles and overinvestment, while holding down consumption, until the system becomes top-heavy and tips over, as happened in the 1930s.
The switch from brawn to brain in the internet age has obviously pushed up the Gini count, but so has globalization. Multinationals are exploiting “labour arbitrage” by moving plant to low-wage countries, playing off workers in China and the West against each other. The profit share of corporations is at record highs across in America and Europe.
More subtly, Asia’s mercantilist powers have flooded the world with excess capacity, holding down their currencies to lock in trade surpluses. The effect is to create a black hole in the global system.
Yes, we can still hope that this is a passing phase until rising wages in Asia restore balance to East and West, but what it if it proves to be permanent, a structural incompatibility of the Confucian model with our own Ricardian trade doctrine?
There is no easy solution to creeping depression in America and swathes of the Old World. A Keynesian `New Deal’ of borrowing on the bond markets to build roads, bridges, solar farms, or nuclear power stations to soak up the army of unemployed is not a credible option in our new age of sovereign debt jitters. The fiscal card is played out.
So we limp on, with very large numbers of people in the West trapped on the wrong side of globalization, and nobody doing much about it. Would Franklin Roosevelt have tolerated such a lamentable state of affairs, or would he have ripped up and reshaped the global system until it answered the needs of his citizens?
While Wall Street is pumping, Main Street bleeds. This middle- to upper-middle-class suburban town of 14,000 bordering Columbus has 22 percent of its students getting subsidized lunches. That’s up from 6 percent in 2005, when the economy was booming.
Statewide, 43 percent of Ohio public school students are disadvantaged, as measured by free and reduced lunches, compared with 33 percent in 2005, according to a recent survey byKidsOhio, a nonprofit educational organization based in Columbus. A sign of how deep this recession has reached into the middle class: here in Franklin County, 44 percent of the disadvantaged attend suburban schools, compared with 32 percent five years ago.