It Wasn’t the Butler

By Karen and Basil Petrou

Summary

In the raft of crisis retrospectives released during the ten-year anniversary of the Great Financial Crisis, general consensus continues the conventional wisdom that subprime mortgages were the spark of the subsequent conflagration.  A new study from the Federal Reserve Banks of Atlanta and New York mobilizes formidable data to show that hapless subprime purchase-money borrowers were victims, not perpetrators.  The borrowers who did the damage that precipitated the debacle were, they find, prime borrowers whipped into a speculative frenzy by the combination of low rates and flagrantly-unwise mortgage lending.  Theoretically, post-crisis reforms have solved for this.  Actually, maybe not given the exodus of mortgage securitization from regulated entities, sharp rise in cash-out refis, and investment-focused borrowing with house prices well above affordability thresholds in many major markets.  Continue reading “It Wasn’t the Butler”

Hard Work, Low Pay, High Costs: Life on the Ground in a “Well-Performing” Economy

By Matthew Shaw and Drake Palmer

Recent jobs data sparked excitement as news reports talked of how America is finally going back to work.  This is understandable optimism, based as it was on a concurrent rise in labor-force participation and a drop in the government’s preferred measure of unemploymentHere, we assess whether the Fed’s “solid” and “very well performing” economy has finally allowed low-and-moderate income (LMI) households to share the prosperity rapidly pooling at the very top of the income and wealth distribution.  In short, and sad to say, it isn’t – hourly pay for low-wage/low-skill workers has declined in real (i.e., inflation-adjusted) terms over the past four decades and is essentially flat since 2010.  As we noted in our last blog post, wealth concentration has soared since the financial crisis.  Even if a corner has now been turned for everyone else, it’s just a very tight one at the bottom of the equality canyon. Continue reading “Hard Work, Low Pay, High Costs: Life on the Ground in a “Well-Performing” Economy”

How to Craft a 21st-Century Equality Bank

By Federal Financial Analytics

Reflecting a lot of questions and commentary, the American Banker last week published an op-ed by Karen Petrou showing how to build the bankers’ banks to solve at least some of our economic-inequality problems.  Many proposals seek to do so via the U.S. Postal Service, but an Equality Bank is at least as powerful and comes only from the private-sector. Continue reading “How to Craft a 21st-Century Equality Bank”

Disquiet on the Home Front

By Karen Shaw Petrou and Basil N. Petrou

On June 20, FRB Chairman Powell said, “Nine years into an expansion that has sometimes proceeded slowly, the U.S. economy is performing very well.”  Although Mr. Powell noted low labor participation, puzzling inflation, and problematic wage growth, he said that all will come right as long as the Fed stays the course.  No mention was made of unprecedented U.S. income and wealth inequality or of a housing market serving mostly the oldest, wealthiest, and most coastal among us.  Too bad – inequality and the impediments to effective monetary-policy transmission it erects are among the most important reasons that the nine years Mr. Powell cites have seen the slowest recovery in decades in concert with new threats to financial stability. Continue reading “Disquiet on the Home Front”

What a Post-Office Bank Can and Can’t Do for Economic Equality

By Karen Shaw Petrou

Yes, I know – getting the post office into finance when you despair of getting your own mail, not the neighbor’s, is a stretch.  But the economics of small-dollar banking under the post-crisis monetary and regulatory framework force a hard choice:  create an equality-focused utility for otherwise-unbankable customers or consign them to the only financial sector that profits from them:  predatory companies.  Maybe someday fintech will figure out a way to handle huge volumes of small transactions, but some day is far away and un- and under-banked customers are losing income and wealth every day they cannot obtain affordable, sustainable financial services. Continue reading “What a Post-Office Bank Can and Can’t Do for Economic Equality”