The Two Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke

welcome to Books of our time produced by the Massachusetts school of law in the last thirty five to forty years women have entered the workforce in huge numbers this did not result however in families having an easier time of it financially as lots of people thought it would financial difficulties may if anything be more widespread among families today today we should discuss the book about the situation called the two income trap its authors are Elizbeth Warren a professor at the harvard law school and her daughter Amelia Warren Tyagi a consultant with me to discuss the book is professor elizabeth Warren and I am Lawrence R Velvel Dean of the Massachusetts school of law thank you Elizabeth for being with us today why don't we start out by you describing the the degree to which the extent to which bankruptcies have increased dramatically indeed in the last ten to twenty years in the early nineteen eighties we've had about three hundred thousand bankruptcies in the united states last year annually annually last year we had about one point six million families who filed for bankruptcy that's about five hundred percent increase that's right and and what you want to note about these families is that they are in terrible financial trouble at time they filed for bankruptcy on average the families who filed for bankruptcy owed more than a year's worth of income in credit cards and other short-term high interest debts forty or fifty thousand dollars a year well the average family filing for bankruptcy has a lower income at the time they file for bankruptcy more in the range of about thirty thousand dollars a year still pretty hefty but the point is most of the families who file really have no option if they don't file for bankruptcy the interest rate is running so that if they don't charge another thing they don't incur another debt they nonetheless next month will owe more than they owe this month the month after that a little more and the month after that more for most of the families who filed for bankruptcy it really is just a declaration of financial death they can't go along any longer and that's how they interact in bankruptcy the a quick calculation here tells me that I think that the population of theunited states has increased from roughly two hundred forty million to roughly three hundred million since nineteen eighty so the population has grown twenty five percent the number of people in bankruptcy has gone up five hundred percent and that is twenty to one thats right or another way to say it is that the rate of filing for thousands of the population has just about quadrupled in a little over twenty years in the united states you know we should add to this it's important to note the bankruptcy numbers but the bankruptcy numbers are not alone the bankruptcy numbers which is one signal for the kind of trouble American families are in take a look at home mortgage foreclosure rates these are people who have passed the most vigorous credit screen that we have for consumers in the united states and what's happened at home mortgage for foreclosures over the last twenty five years they're up three and a half fold that's remarkable particularly because interest rates are low today and housing taxes are strong so when you get into financial trouble if you're a homeowner many people can just back out of it and sell the house to someone else unless it's too loaded down with debt well we'll come back to that because one of your many significant points is that even if it is today currently one of the most significant credit checks that you can pass in the united states it's not much of a credit check anymore you you make the point early on in your book that bankruptcy is I think it's fair to say predominantly or at least largely a middle class phenomenon I'd like you to elaborate on that and tell us if you have any statistics showing that sure you know most people define middle class by income and by income I will be the first to confess a large proportion of the families in bankruptcy look like they're poor or at the ragged edge of the working class middle class but income alone doesn't really define class a fourth grade teacher lost their job and was out of work for a year would you describe them as not middle class any longer if the bank President lost his job would you describe him as not middle class any longer if we look at the enduring criteria education occupation having bought a home it turns out that population in bankruptcy is disproportionately middle class so if we take anyone who went to college that's some indication of being middle class anyone who has an occupation in the upper eighty percent of occupations in the united states that is cutting out day laborers house maids and the lower status jobs or anyone who actually went out and bought a home as middle class our population in bankruptcy is more than ninety percent middle class in other words when we look at the families who are filing for bankruptcy it's not the very poorest and of course it's not that the richest we under represent brings surgeons and now college professors but we also under represent day laborers and shop clerks bankruptcy is about the middle class and the kind of financial trouble that the middle class faces you know elizabeth just so people understand that defining a class by aspiration is nothing new we all know of the impecunious aristocrat in england for example who was not considered any the less an aristocrat I was just reading today a book by Richard pipes one of your colleagues about the terrorists a fellow named tagayev one of the terrorists of the eighteen eighties in Russian an impecunious aristocratic family but defining people by aspiration is nothing new and that's really all you've done and you know it's particularly important in bankruptcy to understand them that way two out of every three families that file for bankruptcy have had a significant job interruption before they filed for bankruptcy somebody's lost a job someone's had a serious cutback in the cases of husbands and wives which will be talking about in a minute often both of them have lost a job before the bankrupt filing so we're really talking about people who are way down on the income side but who in terms of their own aspirations class status vision of themselves our solidly middle-class people you make the point which I think is very intimately related that % these are fundamentally people that I'd like you to explain what you mean by this these are fundamentally people who play by the rules and the reason I think this is related you might comment on this as well these folks went broke trying to be middle class I wish it were otherwise I have to tell you our research started with a single fact and that is the likelihood of a family with children would end up bankruptcy we discovered that families who have children in the household are nearly three times more likely to end up filing for bankruptcy than families who don't have children this whole book was an enterprise to try to understand that because I could understand a story that says the young and irresponsible we're going bankrupt they're out there fresh out of college they have those newly minted credit cards and they're just saying charge it charge it charge it too often I can at least understand that story I can't understand a story about the elderly that's says declining health limited incomes no prospects to earn more in the future too little set aside for retirement they'll go broke in greater numbers I can even understand a story about singles who are self indulgent but tell me a story about how it is that married couples or that women or men trying to raise children on their own would be at disproportionate risk for going bankrupt and it doesn't add up two a story of people who are hooping off money on fancy things they can't afford what our date ultimately show is the principal reason these families end up in bankruptcy is they're trying to make mortgage payments health insurance payments car payments they now have to have two cars when they have both mom and dad in the work force and child care payments and that by the time they make those four payments today's two-income family the focus on what was supposed to be our economic success story has less money left over than their one income parents had a generation ago Elizabeth we'll get into that extensively but one of the you say this surprises you well uh it doesn't surprise me I guess my question is why should it surprise you because my own children one of my own and kids is going through this now and I went through it and i'd be surprised if most people don't go through it when you have children boy your expenses leap astronomically and %uh every book I'll tell you a story I went to Washington in nineteen sixty three with my wife immediately after graduating from law school and I made seven thousand a year my wife made five thousand a year we made a total of twelve thousand a year we were rich as pigs you know a few years later we had kids and I was making more money and boy were we in the poor house so why is this a surprise well in one sense it's a surprise because all that we read now in the popular media and actually many of the finger waggers out of Washington and that is that Americans are spending too much on stuff that the reason they're going broke is they're going broke because of too many game boys too many sneakers that costs two hundred dollars too much consumption too much consumption but let me get back to what these data show what these data show is that todays family with children it's going broke over the basics what's happened in the last generation is a fully employed fathers wages a mans wages have gone up as we know less than one percent depending on the data you want to look at they've actually declined slightly or stayed flat when adjusted for inflation but the family income has gone up seventy five percent in that period why because they've added a separate worker the standard household Mom dad and two kids but that family today by the time it makes its mortgage payment it's health insurance payment it's car payment and its after school or its preschool care for its children the payments for those four things in that family today has let's money left over than the one income family had a generation ago so with two people in the workforce all the added expenses of lunches out their clothes and gasoline to get to work the underlying reality is that todays two-income family is having to spend so much more just for the core just for the basics just for the mortgage and health insurance and the car and preschool than parents had to spend a generation ago and thats what it is thats driving them into bankruptcy so in other words and one sense that you can say yes we always understood having children is expensive but what's happened in a single generation is the cost of having children has shot way out of reach of the of the average median earner I want to come back to that in just a moment because %uh a I want to come back your idea that in effect it is what you call fixed costs those are not fixed costs in the economy sense but they are fixed costs in the human sense but before we do that isn't the real problem here maybe a problem %uh when you point out for example that the income and inflation adjusted basis everything equal is seventy five percent and yet people are going broke the problem is that the cost of living index from nineteen seventy three to now is up four hundred percent and from nineteen sixty to now is up six hundred percent family would have to be making depending what year you choose four hundred percent more or six hundred percent more not seventy five percent more it's a nice way to put it indeed one of the things that interesting to look at when you compare family budgets from I just picked the early nineteen seventies tried to pick that is one generation so we're not loading the numbers by moving back into the fifties or even sixties so in thirty years what's happened is that typical budget for the typical family clothing families today surely are spending more on clothing what the data show when you pull them apart and you adjust for inflation is that todays mom dad and two kids is spending twenty one percent less for clothing than a family spend a generation ago how about food today's families are eating out more than ever so lets add it al together how much family spent at the grocery store how much they spend eating out all that designer water that they buy that nobody but a generation ago what's happened today's family is spending twenty to percent less on food including eating out then they spent a generation ago appliances everyone wants to talk about how todays family has microwave ovens ovens and popcorn poppers is an espresso machines that we didn't have a generation ago in inflation adjusted dollars today's families are spending forty four percent less on appliances then they spent a generation ago less on furniture less on floor coverings let's on tobacco a little more on alcohol its understandable i think so but the real point here is that Americans have actually cut where they spend they are spending on these big costs that in human sense the fixed costs once you've committed to that mortgage once you committed to make health insurance payments what you've committed to make those car payments they've committed to big fixed costs that they have to make month after month after month and today it takes two salaries just to make this fixed costs and families have actually ended up spending less in all those categories where there was at least some discretion in the past now to argue with it but let me make the opposite point and see how you respond to it and not to argue with you thats what people see before they argue with you I can take it I'm sure you can at harvard law school you probably get it every day even though what people are spending less on a lot of consumer goods proportionately their spending less than they were twenty thirty years ago nevertheless when you're financially close to the bone shouldn't people avoid spending money on eating out home entertainment centers shouldn't they buy particularly given the increased equality of cars in the last twenty years you know a car these days is nothing for a car to go fifty or two hundred thousand miles shouldn't they be buying used cars in other words putting aside the question of mortgages for one moment because mortgages and schools seem to me to be the really big problem and I think you present them as such putting those aside for just one moment are there ways people ought to be cutting back to give the ove-rconsumptionists their due one might say we all have an intuition don't we and I don't know if it's born of the newspapers if it's born of casting a covetous eye at what the neighbors are purchasing I don't know for sure where it comes from let me put it this way most of the families who are in financial trouble have cut back until there is is no muscle left so the median family who files for bankruptcy their cars are nine to eleven years old there not driving new cars most of them haven't bought new clothes in they bought shoes for for the kids because you have no options there and they've dressed their children and hand-me-downs to the extent that they can for the families who are in real financial trouble talking about cutting back it's often a cruel joke these are families we've done everything they can in the small ways they've clipped every coupon they've bought pasta in bulk they haven't bought new cars they haven't bought new clothes they don't have cable in the television not if you want to move to those who are a little more financially secure no doubt about it there's a segment of the American population has spent a lot more they're spending a lot more on clothing they're spending a lot more on food they're having a great time but we don't want to be fooled by looking at the lives of the upper twenty percent that that's what's happening in the median indeed the way I'm coming to understand much of the economics of the family is that America could have been described for most of the twentieth century as economics that looked like this there weren't many people at the bottom there weren't many people at the top people were mostly clustered in the middle and the people in were mostly making it they were mostly doing pretty well in fact let me give you the average in nineteen seventy one the average family remember a one income family was putting aside eleven percent of its take-home pay in savings and it was carrying only three percent of its take-home pay in car payments credit card payments other kinds of consumer payments other than mortgage now let's take a look at what's happened in the middle by the year two thousand two the median family is putting away about one percent of it's take-home pay in savings they've got mom and dad at work they're putting away about one percent and now carrying twelve percent of their take-home pay on car payments and principally now credit card debt in other words these families are upside down financially what we're starting to see is more pressure toward the two ends if you will something of a hollowing out in the middle a lot of people who were middle class families whove clipped coupons bought pasta in bulk and who are waking up in the middle of the night scared let me ask you a question we're supposed to go to a break now but I want to ask you this question first and then we'll go to the break I don't remember reading in the book maybe i missed it normally i'm a pretty careful reader don't miss too much I think but I remember reading in the book some of the things that you've just said as for example the people who are entering bankruptcy are driving nine and ten-year-old cars cut back on clothes and cut back on food and I I think that's a very crucial point that you make and doesn't that point also mean that bankruptcy is the middle class phenomena by aspiration what we're seeing is lots of families who seek middle classness so to speak are actually descending into the poor because of the economic situations is too much for them one of the things that was most wrenching about doing this research was that we not only collected questionnaire data for most families and collected all of the information out of the court records which are filed under penalty of perjury we also did telephone interviews with these families and more than half of the people we interviewed at some point or another in the conversation would start to cry about what happened to their lives these are people who've worked hard who played by the rules they got decent educations they got married they had kids they bought homes they made their big financial commitments try to educate their children to try to keep their children safe to try to keep their children in decent neighborhoods these are families who see themselves as losing their already tenuous hold on the middle class many of these people are people on the way down this happened in the weimar republic which is not a good sign before we go to break again I don't want them to be overly concerned I know we were supposed to have a break %um is part of the problem didn't part of the problem arise in part because feminists who wanted women to get out to get a fair break and get out into the work force and at the same pay that men get you know it's not perfect by a long shot yet but strides are being made and have been made they never foresaw this one could even argue that even the care about the possibility because they were very concerned with women at long last getting a decent break in American society and %uh and %uh it's it's like the rules of the game changed in the middle the rug got pulled of from under people and really the only people as I understand who are not subject to what I'm talking about two income families are those who and I thin a lot of feminists would fall in to this class decided that they were going to become lawyers or doctors they're doing very nicely thank you it's that the rug has been pulled out from under the rest of the world is there any merit in any of that the feminist movement very much had its roots in opportunity that women have to have the opportunity to go into the work force but feminists by themselves can't be blamed for not seeing what no one saw either and that is most families saw and believed that if he's at work and bringing in a certain amount of money and we could add my salary on top of that that's how it is we can afford the house in the suburbs that's how it is that we can keep health insurance for our family that's how it is that we can have a safe heart that we can put those big bubble car seats in indeed there are books not just from the nineteen seventies but from the two thousands in which economists and other social commentators say the family that has both mom and dad in the work force is economically diversified if he loses his job she still has her job if she loses her job he still has his job to me that is the heart of the two income trap when the budget shifted to take account of both of those incomes so that going from needing fifty two paychecks a year in order to make their mortgage payments and health insurance payment to needing a hundred and four paychecks a year his and her paychecks in order to make the mortgage payments and health insurance payment the family didn't get financially safer the family got riskier so as prices are shooting up prices for homes in suburbs for example what's happening is women mothers were increasingly going back to work to try to hit the target to try to find a way to pay that mortgage and what happened the prices shot up more of them went to work the prices shot up again more of them went to work and they got caught in a trap that no one foresaw least of all the families themselves well you're quite right we have to go to a break before we do I'll give the audience let me put it this way a little lesson in economics the consumer price index calculated as one hundred as of seventeen ninety was only a hundred and one in eighteen sixty just before the beginnings civil war it was only about two hundred and forty-five in nineteen forty five at the end of world war two as of two thousand which doesn't even include all the inflation stood at something lie two thousand and ninety nine and that tells a big story about why what happened to the two-income family did happen okay at long last we're going to a break we'll be right back stay with us hello my name is Arthur Broadhurst I'm a graduate of the Massachusetts School of Law's first class of ninety ninety I practice law in both Massachusetts and new Hampshire and my law firm is called Broadhurst Tabit I also served in the Massachusetts house of representatives fourteen years what made this possible I was among the first graduates of Mass School of Law we were devoted dedicated and ambitious people from all walks of life who wanted to learn and practice law many of my classmates are now successful attorneys some are even law professors because of my gratitude to Mass School of Law I am a trustee of MSL and I'm also a trustee of the MSL's new American College of History and Legal Studies called ACHLS ACHLS will give you an opportunity to be among my initial group just like my classmates and I were as a twentieth at MSL over twenty years ago American College of History and Legal studies is it undergraduate college located in salem new Hampshire ACHLS will give you a rigorous education that will be able to do well in many fields it also offers pathways into law school ACHLS offers a bachelor degree in history and legal studies all classes are taught using a combination of the discussion method used at MSL and the Harkness table from Phillips Exeter ACHLS will teach you to think write and speak well be a part of the inaugural class of the America College of History and Legal studies the start your future like I did at MSL to apply and find out more about generous tuition scholarships go to WWW dot ACHLS.org or call today six zero three two zero four three nine one nine three nine one nine thats six zero three two zero four three nine one nine thank you and I hope to see you all on campus soon Elizabeth lets just spend this segment talking about the deregulation of the bank and credit card companies the kinds of interest rates this freed the companies to charge why don't we start off by talking about %uh deregulation when it occurred and what it meant you know we've had usury laws around the world since biblical times and it just means there's a cap on how much someone can charge for interest rates %um they were there in colonial times there have been united states laws well through the twentieth century isn't there a Christian tradition not to charge usury well that's the question or what defines usury whether or not the rate to high is it any interest at all or is it a more than reasonable rate of interest biblical scholars go back and forth about this question but the point is we've been wrestling in humankind about the question of how how to put some constraints on the one who has the money and lends it to the one in need so what happened is in the early nineteen eighties %uh we had at almost at the same time within months of each other the credit card industry was effectively deregulated by the supreme court and the whole mortgage lending industry was deregulated by congress now what's interesting about this it's the usery camps were effectively erased with no public policy debates no discussion about what the real implications would be may I ask you a question you may not know the answer and its not directly relevant but its humanly relevant wasn't that the case that was argued by Bob bork in favor of the credit card industry on the side of the credit card industry after he was solicitor general now I don't know honestly marquette is the decision in the united states supreme court that effectively deregulated so I don't know if of bork was involved in it or not again I interrupted you that's okay he shouldn't have been because it should have been before Bork was solicitor general but but I'm trying to think what the years would be anyway what happened is they deregulated so that credit card companies mortgage lenders could charge whatever they wanted a few years go because you may remember in the early nineteen eighties we have very high inflation rates we're just beginning to deregulated thats right but that's right beginning to deregulate the savings and loans the banks are becoming a little more competitive and starting any the early nineties a new industry is born again very quietly but it is known as the subprime industry and that's the part of the lending industry that doesn't do the old-fashioned kind of lending that is they look at someone like elizabeth warren and they say hmm we think she'll be able to pay back without any difficulty and therefore will lend her whatever's the interest rate that they think reflects risk and the possibility of inflation instead what happened is they said you know someone from whom we could make really good money is not to lend it to elizabeth warren because she pays back on time and in full it's to lend to her nephew who doesn't have an income yet whose a college student who is sporadically employed lets lend to him and count on the fact that he'll make minimum monthly payments and he may even occasionally skip a payment and if he's already built up some debt by the time he skipped a payment we can jack up the interest rate on that and that may improve our overall profit picture you mean they charge a higher interest rate when they're charging interest on interest that's right well and a higher interest rate even though you borrowed the money back at eight point nine nine percent it turns out that most credit card contracts are written today so that the credit card company has an unfettered ability to change the interest rate so the interest rate may be changed because interest rates change generally in the country but it may also be changed because you missed a payment because you went over limit because you missed a payment on another bill and that changes your credit report and so they change the interest rate or because you apply for credit cards somewhere else and the current company found out that you applied for another credit card and that changes your credit score and so they up you're interest rates what the credit card companies discovered is that profits to be made in lending to people who make minimum monthly payments who pay pay pay for a while and then skip a payment or they may fall behind that's where the real profits in the industry are to be made I'm not a very profitable customer because I do pay in full on time eighty five percent of revenues from credit card companies come from interest payments for people making those low minimum monthly payments and from fees indeed companies have figure out what are the fees fees are everything from your annual fee which is actually been going down because people like me who don't want to pay it to the fee if you're check doesn't clear to the fee if you're bill arrives one-day late your payment arrives one day late on your if you go to the credit limit on your card fees were about one point seven billion dollars in nineteen ninety eight that's what credit card companies collected last year they collected more than ten billion dollars Are these the companies elizabeth just to take one example I watch the history channel lot which is a version of history particularly if you love war and %um and a lot of the stuff they do know is quite good some of it is reputedly not that accurate but in the commercials you these companies are always to advertising you know you don't have to qualify for credit just call us this that and the other why are people %uh you know why people taking them up on the bluff they're paying through the nose well you know it's both hands we market debt today in ways that just didn't exist fifteen years ago think about that today there's no one marking savings to speak of actually I've seen one commercial for why it's good to invest to hold off for the future and you know there's the schwab's of the world who say if you have an investment portfolio be sure to come to us but no one's marketing the notion of set aside a little of your paycheck that's going to help you buy things in the future is going to help you have a safer future it's going to help you provide for your children or for your retirement some things just you know but there are multi million dollar campaigns launched in the US week after week to try to get people to lay down that credit card over and over now try to get people to put a second mortgage on their home to try to get people to go by brand new cars and zero financing right over and over and over we market the market in the most sophisticated ways possible take on some debt you have to look at this the other way too that's a part of this story about what's happened but the other part of the story is that families have turned to debt when the economics of the times have become far more than they can manage on their income so for example many of the families that we interviewed in bankruptcy as I said two out of three had a significant job loss fifty percent of them had had a serious medical problem and you see the overlap so that it's about seventy five percent have had either a medical or a job problem and throw in divorce in were up to ninety percent of the families to file for bankruptcy that's often when families turn to credit cards um doctors now emergency rooms if you don't have health insurance lay down that credit card middle class families don't have Medicaid what do they have they have master card and visa is that what you mean when you talk about extensively I must say about the lack of a safety net because people are quote mortgaged up to the hilt that it takes every nickel of their two incomes and if they have one disaster medical job everybody's got these disasters that's right o boy they are SOL is not something to be said on television but that's what it is that is the problem and that is how much of the middle class is living just one misstep away from complete collapse I've talked to families since this book has coming out who will say to me professor warren we're living the life you described in the two income trap if I lost my job if my husband got sick for an extended period of time if one of our children had a really serious health diagnosis and one of us needed to stay home with her we'd lose our house within three months we would have lost everything that keeps us in the middle class our house our car our health insurance would be gone you said to me before the next break I want to get to two questions first you said to me that city citicorp just announced it's coming out a credit card that has a forty one percent interest rate fourteen one percent interest rate how do they do that they do it by financing people who are already in financial trouble so they say fine you've got this credit card if you've missed a payment your going to be upforty one percent or are they saying we're glad to offer you some more money even though you are already skipping payments missing payments you've lost your job you've been in the hospital because your sick but down in the fine print but let's face it they did not put on the front of the envelope inside a credit card for forty one percent interest its that it's that the experts at reading the card have figured out that this is a forty one percent interest this is loan sharking it used to be back when it was illegal but you have to understand today citibank and MBNA the second biggest credit card issuer are hailed on Wall street for doing things that would have landed their CEO in jail just twenty five years ago that's how quickly we've changed another way to emphasize this is to tell you the story we tell the story in the book about jamal can I tell you that story briefly this is a fellow who works for a major company he had health insurance and he had a massive coronary he thought he would be protected his wife's at work they have three children they've committed all of their income to their mortgage their car payments to their health insurance so he has this massive heart attack the insurance company is going to take care of the medical bills but what happens he can't work for more than three months they do everything they can to try to stay current with their payments but the inevitable happens they miss a mortgage payment and now it's bearing down on the second mortgage payment and the day comes when the phone rings and jamal said I knew that call was coming who was on the phone it was the mortgage company and the first words are we see that you are now late on your second mortgage payment here and he said he closed his eyes and is waiting to hear how they were going to threaten him how they were going to insist that he pay how they were going to add additional charges but what was the next sentence We think you may be in some financial difficulties so we'd like to help you out by refinancing your mortgage we'll offer you some cash we'll put just a little larger mortgage on your house and you pay us back when you can now jamals no dummy he kept asking questions about it and figured out that what they're really talking about doing was more than doubling the interest rate on his house and that if he couldn't make the mortgage payment right now he sure as heck have couldn't make the mortgage payments once they double it that's the problem genetic tests other great threat that's exactly right they're going to take the house and sell it at great profit they're going to make money if he pays and they're going to make money if he doesn't pay and that's become the heart of the industry and the difference is jamal and his family will be on the street and that's what happened with the credit industry it has divided I'm getting a great mortgage at a low interest rate but I have lifetime tenure I can make my payments on time the world that lives with job loss and with medical problems that they can't pay for who end divorced those families are ending up in a very different credit world but let me ask you something thats one of the reasons that the vox populi the people at large don't have much sympathy for academics who have tenure but let me ask you a question we'll delay the break until your finished 0:42:12.789,0:42:14.309 %um a major point in the book as I said before and we didn't really elaborate it is that people are undertaking mortgages that are far too large because that is necessary in order to get into a good school district and it's one of the places where there's been the maximum %uh the most inflation but do people really have to buy houses is quite as big as the houses their buying wouldn't it be possible to buy less expensive smaller or older houses in some of these areas and undertake therefor a lesser mortgage you know this is a variation on the overconsumption myth its sort of the overconsumption myth housing division and people see the new houses springing up in the suburbs and they see that the square footage is up they see that they have spa bathrooms and granite counter tops that's fine that's what's happening at the top end let's talk about where the median earning family is living in the united states today the family earning at the median has increased its housing size it's gone from five point seven rooms to six point one rooms and what the federal data show is that on average that either means they've picked up a second bathroom or a third bedroom so we're not talking about families who are living in huge housing indeed todays median earning family is more than twice as likely to be living in a house that's more than twenty five years old than their families were a generation ago so they are moving in to older housing they're moving into modestly sized housing but here comes the *** of what's happened to the prices of the houses they're living in today's median earning family living in that median family house it's more than four times more likely to be house poor that is dedicating more than thirty five percent of their income to just making the mortgage payment then they were a generation ago what's happened in the united states is that families with children believe that the number of places where they can buy homes and still send their children to public schools is shrinking and some families arm bidding up prices in places with decent school districts and the consequence is their mortgage as a proportion of their total income is reaching way out of proportion at a time when the average males wages have not increased by a full one percent thus the amount that the family spending on mortgages has gone up sixty nine percent you know there was a story in the times just this week or last week about families who bought in the poconos and live in new york city I was interviewed for this story I talked to these people well it was a textbook example of what you're talking about they'd sell them at prices that were too high they end up losing their houses any you know this is the consequence of losing a house is more than just financial the children lose their schools the family loses a lot of their self identity and a lot of their hold on the middle class we're watching middle-class families who are being pushed out of their homes who are being foreclosed against who are selling under duress it turns out to be the same thing they're moving back in with mom and dad so we end up with three generations in modestly sized housing they're moving into apartments and much rougher neighborhoods families are losing their hold on their place in the middle class and more critically for the families they're losing what they see as the opportunity for their children to get the kind of education they're going to need to make it into the middle class themselves Our producers are really having a nervous breakdown because they don't call a break here so i'll call a break we'll be back in just a moment stay with us again for the final segment of this particular program hello my name is Anne Hemingway I earned my juris doctorate degree from the Massachusetts School of law in two thousand nine I currently practice law in Massachusetts I also assist in bar preparation at MSL I'm here to talk to you about the new American college of history and legal studies in salem new Hampshire which is being created by the Massachusetts school of law the ACHLS offers a BA degree in history and legal studies to students who already have sixty college credits or an associates degree it is a completion college offering the junior and senior years of undergraduates study The ACHLS also offers guaranteed pathways to law school for those who wish to go on to law school and it likewise provides a rigorous education to others it offers one half tuition remission scholarships of five thousand dollars to those who qualify tuition is ten thousand dollars per year but it is only five thousand dollars for those who qualify for scholarship the ACHLS has convenient evening programs that meet three nights a week the college will be located right off of exit 2 off of I 93 in salem new hampshire the American college of history legal studies is a school where you can begin your future so going to www.achls.org or call 603-204 three nine one nine thats 603-204 three nine one nine today to apply and to learn more about scholarships you can also become a fan of ACHLS on facebook or follow us on twitter at lawandhistory thank you and I hope to see you in class the prosecution at least six thousand miles from home would you go for a week mom would you go for two years somewhere and in the process for instance that life is colin the school Massachusetts School of Law at Andover offers an accessible affordable legal education to both full-time and part-time law students when making admissions decisions MSLaw looks at all aspects of the candidates qualifications and does not consider the flawed LSAT at a tuition of less than half of all the other law schools in new england it is by far the most affordable our teaching and standards are rigorous our students learn to think clearly to write well decide today to make a difference welcome back elizabeth I presume that the mortgage and credit card and banking industries would say something like the following that %uh you and your daughter have focused on what might be called the pathology the down side of easier credit that in general the easing of credit that occurred from nineteen eighty onward has benefited the country immensly by making credit and therefore a better economic life available to people who never could get it before you know the old story banks will loan all you need when you don't need the money all you want but when you don't need the money but god forbid you should need the money you cant get one red cent from a bank that goes back to the days before the easing of credit and they'll say that that were we to %uh re-regulate credit as you suggest there would be a lot of hardship on people who once again would be relegated to not being able to get credit as women couldn't as minorities couldn't in the old days and %uh values in the economy %uh will go down dramatically and really we'll be facing economic disaster what's your response to that I've heard them make this argument you're exactly right this is the standard argument from the credit industry year all better off for our lending all this money and ] making these profits off middle class families who are having trouble repaying so lets start with the home mortgage industry this is the classic right if we hadn't leant you so much money you wouldn't be out there buying houses the subprime mortgage industry that is the one thats charging fifteen percent for these mortgages instead of six percent for these mortgages that was city financial the subprime arm of citibank was charging an average of about fifteen and and a half percent on its mortgages at a time when mortgage rates were around six percent where do most of those mortgages go do to they go to help poorer families or or or less well-off families get into homes in the first instance no more than eighty percent of subprime mortgages are refinances they're financing people out of their six percent mortgages and financing them into their fifteen and a half percent mortgages why are people doing that why don't we ask city financial in the book we talk about what happens when citi financial got sued for some of its motgage practices and one of its loan officers gave a deposition now remember thats a sworn deposition and he was asked exactly this question how did you charge people so much at a time when interest rates were so low his response I'll have to paraphrase but the exact words are in the book well when we talked to somebody because these were usually over the phone and they sounded like they were old or young and unsophisticated or a minority we just loaded on all the fees and charges that we have and they usually would go ahead in other words they counted on the fact that there's a lack of sophistication about mortgage products among many folks and that they would not reveal true costs can I summarize what I think you're saying you're saying that their argument is false because it is not creating a stronger economy they're taking advantage of people who don't know better indeed today's subprime mortgages one in every eleven in the united states today is in default and foreclosure they're not helping people get into homes they're helping people get out of homes this is the lose your home business not the get your home business how about the credit card industry thats making money available to people lets talk about the credit card industry last year alone do you know how much people paid interest and fees on credit cards ninety billion dollars in the united states and who do you think paid I don't pay it it wasn't paid in the top twenty percent it wasn't paid by the bottom twenty percent this is ninety billion dollars that was drained out of the pockets of the middle income families yeah but money alone amount alone doesn't say much it's a question of percentages isn't it well percentage of whaqt families are now carrying twelve percent of their annual income in credit card and other short-term debt families are going broke under this load of debt let's look at the big picture the credit card companies want to look at the big picture than lets back is all the way up what exactly is the long term interest here if families have spent next week's income and next month's income and goodness we're at the point now next years income what exactly is going to happen to the economy we only have two options here either there's going to be an extended period where consumers now have to under consume to pay that debt back right you don't spend this year's salary you have to spend twenty percent less than this years salary to pay off that old debt or there's going to be massive default in the united states a day of reckoning will come the day of reckoning will come the idea that we have a strong economy because we have pumped up consumer debt is just false it's worse a bubble in this case this is one for which we must either pay back or have massive default on the other end we have only about two minutes left and there for I shall as is my want rudely interrupt and ask you to tell a story because I think it's indicative of the kinds of problems we face in trying to remedy this tell the story about your relationships with Hillary Clinton I wrote an op-ed in the late nineteen ninety's that ended up in the new York times talking about the then pending bankruptcy legislation credit card companies were pushing for a bill to make it harder for families to go into bankruptcy and get rid of credit card debt very straightforward piece of special interest legislation I pointed out through the data some of the data that is in this book that would fall disproportionately *** women with children misses Clinton evidently saw the op-ed placed a phone call her office called and said she's going to be in boston would you be willing to meet with her I said sure I went down to the hotel where she was giving on speech when she was through with her speech we were ushered off into a tiny room and %uh had our little lunch hamburgers and French fries and I had my charts graphs and I started in they had tea for you and a hamburger for her that that's right misses Clinton looked at the charts and graphs I start talking through here's how the bankruptcy system works heres how consumer credit works heres how pieces go here's how the bill would change the following pieces I gotta tell you missus Clinton got it she's the smartest student I've ever dealt with twenty minutes into this conversation she could finish the sentence that she can predict what the data would show she could see how the pieces get together and she said at the end of our conversation we were together about half an hour she stood up and she said professor warren I'm going to count on you to help me stop this awful bill and we had our picture taken she goes back to Washington now I learned from a white house staffer a little bit later that President Clinton had been quietly supporting the bankruptcy bill it was one of those economic issues that would show that the new democrats could play ball with banking interests and besides which its under the radar screen it doesn't make the front page of today's we only have thirty seconds I want you to get to your ultimate point misses Clinton got the white house reversed on this one of the last things her husband did was veto the bankruptcy bill and in in her autobiography she takes credit for getting the bankruptcy bill vetoed misses Clinton then gets elected to the senate and one of the first bills that comes up in the senate is the bill the same bill that her husband had vetoed misses Clinton as Senator Clinton rather than as first lady turned around and voted in favor of it she got a hundred forty thousand bucks from the industry its more than just money it's the pressure the industry bares in making campaign contributions in lobbying in organizing its constituency in the area of consumer finance it is not a level playing field all the money is on the side of banks we have to wrap this up what it comes down to right is we have a liberal hero who was bought off we have a liberal hero who was pressured and pressured by an industry that understands that getting its weight in Washington will improve its bottom line we have to wrap our people have had an actual nervous breakdown that they're on the floor thank you very much for being here its a pleasure to be here.