Friday, November 11, 2011

The 99%ers: Part 6

What do Greeks and 99%ers have in common?

It isn’t that they are bearing gifts. If one watches for specifics rather than assuming your grievance is their grievance, something interesting emerges. Rather than representing a broad based grievance that might be shared by some high proportion of the population, the 99%ers often represent a grievance of a small minority. Further, often the grievance isn’t with 1%, but actually with closer to 99% of the population.

Because the 99%ers represent this assortment of people with different grievances, it is probably impossible to list them all. A few examples will suffice before turning to what they have in common besides their resentment of a convenient scapegoat.

One grievance among the young members is the burden of student debt incurred to get a post-secondary (college) degree. Now that hardly represents even a large minority. First, the majority doesn’t get to go to college. Second, the vast majority of college grads get jobs (the unemployment rate among recent grads is only about 4% compared to 9% in general, and about 20% for recent high school grads). Third, most college grads pay back their student loans out of the higher income college grads tend to earn.

Does this minority have a grievance against the 1%? Seems to me the student loans aren’t an asset the 1% concentrates on creating. Rather, it is pension funds that create the demand for the asset-backed, fixed income bonds which is how student lenders get the money they lend. Do those 99ers expect pensioners to foot the bill for the money the students spent? That’s not the 1%. Further, most student loans wouldn’t have been made (certainly not at recent rates) without government guarantees. In a very real sense, their grievance is with the voters who made the loans available. It is the taxpayers who pick up the tab if the students don’t pay their bills.

If their college degrees had promoted some understanding, they’d realize that if they have a grievance, it’s with the college that sold them a degree that isn’t doing what they thought it would. At times it seems buyer’s remorse has become a basis for a class action lawsuit. They should be looking for lawyers willing to take their case. If that sounds too much like work to them, at least they should consider occupying their alma mater.

Having graduated into a slow economy with student loans, I appreciate that it’s no fun. I didn’t, however, think it was the fault of those who arranged for me to get the loans. Personally, I was quite thankful for the financial assistance my college facilitated.

A second group present at one “occupy” demonstration was people being foreclosed. One person had the audacity to represent themself as a 99%er based on foreclosure. Good God, foreclosures represent a much smaller group than people paying a monthly rent, probably a smaller group than renters who rent of necessity (i.e., never had the chance to try to buy). Throw in everyone who is underwater on their mortgage while keeping up with their payments (a larger group than foreclosures), and one still can’t get a majority, much less 99%. Even if one included everyone who has experienced a decline in the value of their house, one still isn’t at 99%. Too many people rent.

Foreclosures represent a problem, but the majority of people are still paying their mortgage. A substantial minority of home owners have paid off their mortgage. They represent a larger minority than people in foreclosure.

That said: it is still worth looking at their grievance. It seems hard to figure out how the 1% figure in. By wealth, the 1% tends to be entrepreneurs. By income, they’re more diverse, but well-represented by sports figures, entertainers, lawyers, etc. who have nothing to do with mortgages. Like asset-backed securities, the demand for the mortgage-backed securities that financed their defaulted mortgage didn’t originate with the wealthy or the high income.

Pensions and life insurers are the big holders while an entire raft of players dabbles. Banks, of course, hold some mortgages since the regulators place mortgage bonds high in the capital structure (i.e., count it as requiring less capital to cushion against default). Most importantly, when push comes to shove, one doesn’t have to look far for evidence of who is holding mortgages: it’s Fannie, Freddie and the FHA. It is taxpayers who are eating the largest portion of the defaults along with pensioners and life insurance policy holders. They come closer to being 99% than the 1%.

Debt does seem to be a widespread grievance among the 99%ers, although it’s hard to assess its importance compared to unemployment, bankers, investors, and a sense that someone else may be doing better than they are. Debt problems (as opposed to debt burdens) aren’t a 99% issue.

A lot of people have debt, but it’s not a problem because they assumed from the start that they’d have to pay it back (i.e., that the debt would be a burden). While aggregate data on debt service burdens shows they have fallen since the recession began, one can’t deny that Americans went on a debt-financed spending spree for decades. Yet, it’s unlikely 99% took it to a level they won’t be able to handle. Probably 99% would like to see their debt disappear, but among that 99%, there are many who would like it disappear because they paid it off. One thing is clear. To the extent 99ers don’t want to have to pay back their loans, they make common cause with Greek rioters.

There may also be a portion of 99%ers who lack a rudimentary understanding of what banks do. It’s hard to see how the tax-the-rich-they’re-to-blame argument can be squared with the banks-are-to-blame argument. Banks don’t have a lot of net wealth. Their assets and liabilities may be large, but regulators feel that the net (reserves or capital) are too low. Banks are middlemen. They process transactions.

Interestingly, among the financial elite there is a different grievance with banks. They see the intermediary roll as the problem. Their argument is that intermediaries don’t take responsibility for the transactions they facilitate, and they argue that banks should have that responsibility.

Recently, I ran across an alternative definition of a 99%er. One of the first emails about 99%ers I received was from someone who said simply: 99% of life is what you make of it and the other 1% should be ignored. I don’t know about that, but I’m pretty sure 1% of the population isn’t running my life. What binds the 99%ers and perhaps is common to 99% of the population is a feeling that they must be a victim. Looking for victims is as stylish as searching for someone to blame. That’s sad. Neither is a very productive use of time.

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