To the upper and middle classes, they're all but invisible, but to the working poor, they're a fact of life: pawnshops, payday lenders, storefronts offering high-rate mortgages, tax preparers promising instant cash refunds. They sprouted throughout America's poorest communities over the past two decades, eventually saturating the slums and expanding outward into the suburbs. By late 2008 when they were at the core of a nationwide economic collapse, they were too big to ignore.
In "Broke, USA: From Pawnshops to Poverty, Inc. — How the Working Poor Became Big Business," business journalist Gary Rivlin unravels the events that led to the crisis, explaining how the dark corner of the financial services sector he calls "the poverty industry" was allowed to rage out of control with the backing of Wall Street and the inaction of Washington and state governments, despite the warnings of consumer advocates.
The size of "Poverty, Inc." is not insignificant. According to Rivlin, consumers spent $11 billion on payday loans and check cashing fees in 2008 — as much as they spent on movie tickets that year. They spent an additional $7 billion on rent-to-own stores, which attract cash-strapped customers with low entry fees, but over time sell home furnishings and electronics at markups far higher than any conventional retailer.
Rivlin appears to hold particular contempt for the subprime lenders who cater to clientele with tarnished credit. He describes a Wild West mentality that led these lenders to usher their customers into mortgages they couldn't possibly afford, hit them with huge hidden fees and pressure them into multiple refinancings that put them deeper into debt. The pattern often continued until customers owed more than their homes were worth, sometimes resulting in entire once-vibrant working-class neighborhoods being reduced to urban wastelands of foreclosed and abandoned homes.
Rivlin's look at the rise and fall of subprime lenders and the rest of "Poverty, Inc." is painstakingly researched, involving both industry leaders and their opponents. "Broke, USA" is vital reading for those seeking to deepen their understanding of the economic crash of the past few years.