Monday, February 23, 2015

Middle class and poor people need the risk of debt to stay in the game

Here’s an important piece, “Debt’s Two Sides: Riches and Misery”, by Jeff Sommer, p. 6 in the Review Section of the Sunday New York Times, link here
The article examines the long-known idea that people can make more return on leverage investments, by incurring debt and borrowing some of it, as has long been supported by government tax policies regarding mortgages. 

The problem is that poorer people carry a lot more debt relative to their net worth than to rich people  Middle class people, often needing space to raise families, practically have to go into debt to provide housing.  It became so pervasive that often only "poorer" people remained renters in many cities.  This all is not to mention student debt. 
The film “American Denial”, reviewed on the Movies Blog today, mentioned that a disproportionate portion of subprime (and upside down) mortgages were taken by African-Americans.

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