February 12, 2011 |
Photo Credit: Tangled Web Photography
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The ruins of the American economy represent a massive crime scene. Wall Street built a house of cards on fraud and misrepresentation, it crashed, and Americans' aggregate net worth is now more than $12 trillion off of its peak. Unemployment remains sky-high and the prospects for a robust recovery anytime soon are dim.
But as Naomi Klein artfully laid out in her book, The Shock Doctrine, a catastrophe for you and I usually presents an opportunity for the Titans of capital. And the grievous economic crisis affecting so many American families is no exception -- big business has found a number of ways to profit, directly, from Main Street's economic pain. Like vultures descending on a rotting corpse, they've come up with a variety of innovative methods to pull the last scraps of meat off the bones of America's middle-class.
Here are five ways these scavengers are making coin from our economic devastation.
When Americans Go Hungry, JPMorgan Profits
It's been widely reported that 43 million Americans now require help meeting their basic nutritional needs. Less well known is that JPMorgan is the largest servicer of food-stamps in the U.S., offering benefit cards in 26 states. As Mary Bottari wrote for AlterNet, “The firm is paid per customer. This means that when the number of food stamp recipients goes up, so do JPMorgan profits.”
Perhaps that doesn't get your blood boiling. If not, Bottari adds: “JPMorgan is taking its responsibility to keep the U.S. unemployment rate high by offshoring the servicing of many of these contracts to India, according to ABC News.” Yes, they're profiting off of our pain, and offshoring the work required to do so.
JPMorgan was the recipient of $25 billion worth of taxpayer bailout, and its CEO, Jamie Dimon, took home $17 million in compensation last year – the biggest windfall on the Street.
Good Old-Fashioned Biblical Usury
When First Premier Bank first offered a credit card with a top interest rate of 79.9 percent, it evoked outrage. So they lowered it…to 59.9 percent. And, as Michael Snyder at the Economic Collapse noted, “Not only are the interest rates on those cards super high, but they also charge a whole bunch of fees on those cards as well.”
They include:
- $45 processing fee to open the account
- annual fee of $30 for the first year
- $45 fee for every subsequent year
- monthly service fee of $6.25
Some argue that anyone who would sign onto a deal like that must be "stupid." But these are cards pitched to those with bad credit – an ever larger group thanks to the recession. It's easy to scoff at such rubes until one realizes that the lion's share of these “stupid” people have no choice but to take on even very costly debt if they want to eat or pay the rent. 6.2 million Americans have been out of a job for 27 or more weeks; 3.9 million saw their benefits run out entirely last year.
CNN reported that 700,000 people have signed up for the card, and between 200,000 and 300,000 new applications are coming in each month. That's a lot of bread for First Premier.
Dunning the Desperate for Fun and Profit
One sector in this moribund economy is doing quite well: collection agencies. But they're not your father's collection agencies --the business is different today.
Across the country, savvy investors are buying up the debts of those who have run into difficulties for just pennies on the dollar. They then turn the screws on borrowers in order to get a return on their investments. As the Sarasota Post-Star reported, “Debt collectors often use threats and insults to intimidate consumers. But in recent years, collection has become more aggressive, more litigious and more prone to fraud.”
Creditors will call neighbors and family members in search of the consumer, and reveal information about their debt. They will contact the consumer's place of employment and threaten to get them fired with repetitive calls. They will say harsh and insulting things to force the person to pay.
"Around 9/11, a debt collector said to my client, ‘After all those people died in the towers, you won't pay your bills,'" said [attorney Ron] Kim. "It was an absurd statement, as if the two were connected, but she was so upset and ultimately ended up filing for bankruptcy."
They've increasingly resorted to filing lawsuits, which are often settled by borrowers who don't have good legal representation, even when the lender's claims are suspect. According to research by the Legal Aid Society, debt buyers filed over 450,000 lawsuits in New York City alone between January 2006 and July 2008, over 90 percent of which ended in judgments against consumers who “likely weren’t aware they were being sued and only 1% of whom were represented by an attorney.”
According to Moe Bedard of LoanWorkout, a newsletter about the loan modification industry, the now familiar robo-signing scam is popping up in the market for consumer debt as well as home-loans.
According to the Consumers Union, the nonprofit publisher of Consumer Reports magazine, collectors are increasingly taking disputes to court without proof that they own the debt in question, or even that the debt is valid.
Consumers Union points to automated software used to file lawsuits by the thousands and the proliferation of “robo-signers” who falsely claim to review and verify debtors’ records before taking legal action.
For a while after the crash, Americans had unloaded debt, but with wages stagnating and unemployment remaining above 9 percent for 21 straight months, the trend has reversed and they're again taking on mountains of debt to stay afloat. All of this means that while the recession takes its toll on the American middle class, the shaky debt industry is booming.
Pay-Day!
So-called pay-day loans are sold as short-term, stop-gap measures for people living paycheck to paycheck, but their interest rates often start at an annual rate of 600 percent – and some go much higher than that.
This recession has been great for the industry. Congress has tried several times to put a cap on their usury, but as the Huffington Post reported last year during the financial reform debate, “The influential $42 billion-a-year payday lending industry, thriving from a surge in emergency loans to people struggling through the recession, is pouring record sums into lobbying, campaign contributions, and public relations.”
It worked, they killed off any meaningful limits on the vig they can charge and business is booming.
A similar ripoff for the working (or the not-working) poor are those rent-to-own schemes that allow people to pick up a couch with no money down, only to end up paying far, far more than they would have otherwise paid. According to ABC News, “The rent-to-own industry has a history few retailers would envy but recent sales most would covet.” And contrary to popular belief, people rarely rent these items in order to own them at the end of the day; industry officials told ABC that “just 5% of their customers end up buying their products; customers are simply looking for short-term solutions when critical appliances go kaput.”
Can't Afford to Pay Back Taxes? There's a Ripoff That's Right for You!
A lot of folks are struggling with all sorts of costs, and some can't afford to pay the property taxes on their homes. The Huffington Post Investigative Fund dug into the problem, and found that Bank of America and a hedge fund called the Fortress Investment Group had “spotted a fresh money-making opportunity -- collecting the tax debts of tens of thousands of people.” What do they do with it? Well, the banksters add interest charges and fees, and then they bundle the debts into securities and sell them off to investors. (Sound familiar?)
In late May and early June, proxies for the two institutions quietly bought hundreds of millions of dollars in homeowners' property tax debts in Florida by bidding at a series of online auctions held by county tax collectors. They didn't use their names but donned multiple other identities, dominating the auctions and repeatedly bidding on the same parcels -- in the case of Walker's small home, more than 8,000 times.
Then, in September, Bank of America's securities division packaged $301 million worth of the tax liens it and Fortress had acquired into bonds pitched privately to major investors. The anticipated return -- estimated at between 7 to 10 percent -- is possible because buyers of tax debts can assess a panoply of interest charges and other fees. When the debt goes unpaid long enough, the liens buyer can seize properties through foreclosure.
That's Just Big Finance
All of these scams probably add up to a fraction of what the financial industry has gained from the Treasury's bailouts and the free money the Fed has showered on them.
But it's not just Wall Street that's profiting from the wreckage of our once-mighty economy. Good old fashioned wage theft is on the rise. With all sorts of subsidized programs to retrain workers – and with Americans feeling, rightly, that they need as much education as possible -- fly-by-night diploma mills are proliferating. Walmart, which had seen its profits languishing, is now making a killing on the cheap goods it imports from its overseas sweatshops.
It's the essence of the Shock Doctrine: never let a crisis pass without exploiting the potential to profit.
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