Senator Sherrod Brown Takes on the Fed's Support of Wealth Stripping the Middle Class

Wed Jan 31 08:24:21 PST 2024

https://wallstreetonparade.com/2024/01/senator-sherrod-brown-takes-on-the-feds-support-of-wealth-stripping-the-middle-class/

By Pam Martens and Russ Martens: January 31, 2024 ~

Senator Sherrod Brown
Senator Sherrod Brown

Smart Americans have found two ways to outwit the wealth extraction
machinery on Wall Street. They buy a home and build its value over time
with sweat equity; and/or they start their own small business. A very large
number of Americans who are living comfortably in retirement today built
their wealth through one or both of these avenues.

Wall Street banks, on the other hand, typically extract wealth from the
little guy in a multitude of insidious ways – from high interest credit
cards to excessive fees, tricked-up mortgages and outright frauds.

Nothing better illustrated this wealth stripping than the 2013 PBS program
from Frontline called The Retirement Gamble. The program documented the
following: If you work for 50 years and receive the typical long-term
return of 7 percent on the stock mutual funds in your 401(k) plan, and your
fees are 2 percent, almost two-thirds of your account will go to Wall
Street. (We fact-checked the math and it’s correct; read our report here.
Also see Related Articles linked below for more insight into how wealth
stripping works.)

If an individual attempts to legally challenge being ripped off by Wall
Street, they will end up in a private justice system created by Wall Street
lawyers and run by a self-regulatory agency. You will not be allowed to
take your claim to one of the nation’s courts where juries are randomly
selected from a large pool of fellow citizens. You will have limited
discovery and the arbitrators of your claim do not have to follow legal
precedent or case law.

Even when serious financial crimes are committed against our cities and
counties, causing mass layoffs and economic suffering to millions, no one
will go to jail. Prosecutors will allow Wall Street to pay a fraction of
the amount stolen and walk away.

After each illegal cartel on Wall Street is exposed, removing any doubt
that this is an institutionalized wealth transfer system, new Wall Street
cartels crop up faster than you can say “where are the customers yachts.”

Add dark pools, high frequency trading, and stock exchange collusion to the
401(k), private justice system and cartel fleecing activity and you have an
almost perfect system for wealth transfers with impunity.

Many Americans believe that the Federal Reserve (“the Fed”) is the linchpin
to Wall Street’s wealth transfer program to the 1 percent. Yesterday, the
Chair of the Senate Banking Committee, Senator Sherrod Brown (D-OH), raised
similar concerns in a hard-hitting letter to Fed Chair Jerome Powell. Brown
wrote in part:

“…Because monetary policy operates on a lag, keeping interest rates
elevated will continue to apply downward pressure on the labor market and
wages, and drive up mortgage costs, while doing nothing to tackle the cause
of continued high prices. When the Fed justifies higher interest rates for
the sake of weakening demand, that is, in effect, a euphemism for
suppressing wages and job creation. The burden of attaining price stability
should not fall on the backs of workers and home-buyers…

“To lower costs for all Americans, we must address inflation’s root causes
without undercutting economic growth. Monetary policy does nothing to
address the underlying cause of higher prices – namely, corporate
price-gouging – but it does undermine economic growth. Higher rates are
locking Americans out of the two primary means for building wealth—buying a
home and starting or growing a small business…

“Higher rates hurt prospective home buyers. I hear from so many Ohioans
that they feel trapped – those who rent feel like they’ll never be able to
afford to buy and those who already own their homes feel like they will
never be able to afford a larger one if they decide to grow their family.
Prices have been too high for too long for both renters and homebuyers
across the country, and these challenges have only grown more acute as
interest rates have stayed elevated. For prospective home buyers, the same
mortgage for a home purchased today costs nearly double what it did in
2020. Higher rates have also given corporations an advantage over consumers
in the housing market. As consumers face elevated interest rates, many of
the biggest real estate investors have access to cheaper Wall Street
financing, allowing them to buy up real estate with all-cash offers based
on financing costs a working family could never get. As a result,
institutional investors – including private equity and S&P 500 companies –
are buying up formerly affordable manufactured housing communities and
affordable single-family homes in far too many communities. Homeownership
is the primary means for working-class and middle-class families to acquire
wealth, and higher interest rates are making it harder for them to afford a
mortgage to purchase a home, denying them the opportunity to build
intergenerational wealth.

“Higher interest rates are hindering growth in the housing supply. High
interest rates are also contributing to high housing costs by exacerbating
our years-long housing shortage as they limit affordable housing providers’
ability to finance new construction at price points that workers can
afford. As a result, housing production remains thousands of units behind
each year in communities across the country, and renters are forced to pay
high prices month after month. In 2022, a record half of renters were
paying more than they could afford for housing, pushing their ability to
save for a down payment further out of reach. If affordable housing
providers remain unable to build new units that these workers can afford,
housing costs will only continue to contribute to rising prices.

“Higher interest rates stall small business growth. Tightened credit
conditions are making it difficult for small businesses to thrive. Keeping
the policy rate higher for longer has driven up the cost of credit for
small business loans. Today, a small business seeking to take out a loan
will pay on average 9.3% in interest. For the small businesses who have
already taken out loans, higher rates will increase their interest burden
in 2024. Consequently, 9-out-of-10 small businesses think now is not a good
time to expand their business. Small businesses employ half of America’s
workers and higher rates are discouraging them from both hiring workers and
increasing their employees’ wages to keep up with inflation.

“For working Americans and small businesses who already feel the crush of
inflation, higher housing costs and reduced access to credit will only make
it worse. Keeping interest rates high will be detrimental to American
workers and their families and do little to bring down prices or promote
moderate economic growth. While more must be done to address the fact that
costs remain too high, it is becoming increasingly evident that restrictive
monetary policy is no longer the right tool for combatting inflation, and I
urge the Federal Reserve to ease monetary policy early this year.”

The wealth extraction machine on Wall Street does, however, benefit from
higher interest rates. Because those rates drive more people into the need
to borrow, the mega banks on Wall Street, which are also among the largest
credit card providers, can charge higher interest rates on their credit
cards to a growing number of desperate consumers.

Today, the Fed will make its announcement on interest rates at 2 p.m.,
followed by Fed Chair Powell’s press conference at 2:30 p.m. One thing you
can expect to hear from Powell is how everything the Fed does is to help
the American people. Powell came from the private equity wealth extraction
firm, the Carlyle Group.