50 years ago The American dream to own a home got the politicians to broker with the banks. They developed policy to make home ownership affordable for nearly anyone. Special incentives were invented to encourage even folks who had no money for a down payment to seek homes through assistance programs—because “home ownership provides an opportunity to build equity and wealth.” No one questioned how these programs would build exponential wealth for the bankers and the politicians.
30 years later
The plot thickens. At just about the time the first generation home owners payed nearly three times their original loan amount (in interest) to finally earn the deed to their homes, a new idea was launched. Offer home equity loans at a low rate. Encourage home owners to buy big ticket items with their loans—things they always wanted but were unable to buy without saving. And to further discourage the idea of saving, reduce the interests banks pay on savings accounts. This way, taking out a loan on their homes would be a more favorable option.
But what about the folks who had poor credit? Offer adjustable rates that are low initially but will eventually rise so high that home owners could no longer manage their payments. In other words, lure them in with the fantasy of wealth and material goods and then change the rules. The banks could repossess those homes and sell them again (and maybe even earn interest on those new loans too).
20 years later
Another strategy surfaced. Use marketing and story telling to convince people who made too little money at their jobs that it was still possible to have more than they can earn. And by the way, have private meetings with the corporate CEOs to convince them that keeping wages low not only maximizes their profits, but will further stimulate their shareholders.
10 years later
A new twist develops. How about offer easier access to money markets, online investing, and retirement investing? This way blue collar workers can feel like they have more control of their financial futures. Convince them that it’s not enough to pull themselves up by their bootstraps. Tell them that they can even take out low interest loans on their homes to invest in the stock market. Demonstrate that if they make high-risk investments, their money will grow quicker. And to add a bonus, defer their tax liability to ensure that they believe that the government is empowering them.
Hard working people are ready to retire. Public employees who couldn’t invest for their retirement are now learning that the politicians borrowed from those public funds intended for their pensions. The healthcare that they used to get as a part of their benefits package are now a liability for which they must pay. And now they are earning less money than they did years ago.
All along the way
The American public was convinced that a college education was necessary to improve their standing in the community. Parents who could not afford to send their children to college learned that their kids will be guaranteed opportunities as long as their children were willing to take out college loans. Some parents even took loans against their homes, their pensions/retirement savings, or student loans of their own (all the while realizing that they may never recover from their own debts) to ensure that their legacy would continue.
That leads us up to the present
So many people have been unable to keep their homes. But the banks earned their interest. There are more foreclosed homes than there are homeless people. Yet there are no incentives to reverse that trend. The promise of home values increasing stalled years ago. The loans that were made resulted in borrowers spending on things that no longer have value. The students that enrolled have skills that are no longer relevant. There’s a new trend towards trade schools instead. Meanwhile we’ve developed a pool of over-educated and under-employed Americans who can’t find jobs that pay more than minimum wage or that can offset that student debt. The CEOs continue to capitalize as the controversy to maintain a livable wage continues.
The trend to mislead and capitalize has had various forms in the past 50 years, with new twists evolving at a steady pace. As a result we can expect to see mega companies like Amazon and Walmart begin to partner with banks, home developers, and academic institutions to mirror the successes of those political partnerships, market analytics, and the American desire that undermines the American Dream.