Who to help in this financial crisis? On the FT web site I argue that the 37 million Americans in poverty (about 12% of the population) should be first in line for help (for US poverty statistics go here).
Many Americans on low-incomes have been sucked into loans that they cannot now service as house prices collape. African Americans will be hit hard (their poverty rate, 24.5%, is twice the average). And the relentless rise in US inequality will continue (see the graph here). The financial services industry feasted for years on selling mortgages to people who wanted to own the roof above their heads. The scandal of teaser-rate mortgages will run and run.
And the financial crisis is causing unemployment to jump. As Ken Rogoff in the FT says:
“A large expansion in debt will impose enormous fiscal costs on the US, ultimately hitting growth through a combination of higher taxes and lower spending”.
The history of financial crises demonstrates two common outcomes. First, bank crises almost always become fiscal crises – as public money has to be used to keep the credit wheels turning. Second, capital gets help first, and labour last (see for instance Mexico’s ‘peso’ crisis of the mid-90s). Will history repeat itself?