So, let’s link two recent financial stories:
1. According the Federal Reserve’s latest quarterly “Flow of Funds” report, household debt continues to climb, topping out at 24 percent of household net worth and 135.5 percent of disposable income.
2. CNBC reported that $20 million bonuses in financial services are passé; you need $40 million to truly be a player. Annual bonuses to the employees of five major investment banks will total $36 billion this year, or an average of over $200,000 a piece, with that loaded toward the top end of the pay scale.
The point? Most of us are getting poorer not because we’re buying more, or even that we’re making less — both of which are true — but because we’re paying more for debt. And to whom are we paying it? Without being too judgmental about it, to the bloodsucking, greedy, increasingly unrestrained capitalist leeches on Wall Street. Uh, sorry. I mean, to the burgeoning financial services industry.
Right now, American households pay out $1.4 trillion a year to service debt, says the Fed report. That’s more than 10 percent of our gross domestic product. If we feel strapped, it’s because we are. A large number of American families are coming to resemble developing countries: they’re foregoing necessities to service debt.
Why? Certainly we use charge cards more, but credit card rates, freed from legal limits on usury, have outpaced spending. And falling housing prices have reduced assets, increasing the percentage of debt against assets.
But according to Charles W. McMillion of MBG Information Services, “The real story — what is propelling total debt — is the abundance of exotic home loans. These are the interest-only, minimal-payment loans pushed not just by fly-by-night shops, but by many of the major banks and savings and loans. Many people had no idea what they were signing in order to buy huge houses that they couldn’t otherwise afford. Now the payments have jumped, debt is up, and they’re in trouble.”
Although Congress passed the bankruptcy-restriction bill, that won’t prevent people from running out of money. Nor will it save strapped homeowners from foreclosure. In the meantime, though, all that interest money keeps flowing into Wall Street and shows up as $40 million bonuses. And they accuse us of class warfare.
This article originally appeared at TomPaine.com.