WEBVTT - The Debt Bomb in Middle America, with Ken Brown 0:00:00.720 --> 0:00:04.080 I'm Bethany McLean and this is making a killing interviews, 0:00:04.160 --> 0:00:07.520 exploring the headlines you thought you understood and finding the 0:00:07.600 --> 0:00:10.800 lessons we can all learn from them. Already in this series, 0:00:10.840 --> 0:00:14.840 I've spoken with Sahel Patel about Netflix, Mike Isaac about Uber, 0:00:15.280 --> 0:00:19.040 and Peter Robeson about Boeing. I'm at Bethany mac twelve 0:00:19.239 --> 0:00:23.079 on Twitter. Families go deep in debt to stay in 0:00:23.120 --> 0:00:26.640 the middle class, reads the Wall Street Journal headline. In 0:00:26.680 --> 0:00:31.200 the article, we meet several responsible, educated, employed families who 0:00:31.200 --> 0:00:33.840 are making nearly one hundred and fifty thousand dollars a year, 0:00:34.280 --> 0:00:37.720 yet going deeper into debt with every paycheck. It sends 0:00:37.720 --> 0:00:41.120 a chill down my spine because it's true, it's widespread, 0:00:41.400 --> 0:00:44.640 and it might get worse. Here's what's going on. For 0:00:44.720 --> 0:00:47.360 the last two decades. Incomes have been pretty much stagnant. 0:00:47.720 --> 0:00:50.559 Over the same period of time, the average cost of cars, 0:00:50.840 --> 0:00:55.880 college tuition, healthcare expenditures, childcare, and housing have swelled at 0:00:55.920 --> 0:00:59.160 an alarming rate. In order to bridge this widening gap 0:00:59.200 --> 0:01:02.320 between earnings and costs, the middle classes turned to that 0:01:02.480 --> 0:01:06.199 night and not so shining armor debt, filling the gap 0:01:06.280 --> 0:01:09.679 between earning and spending is an explosion of finance into 0:01:09.760 --> 0:01:12.760 nearly every corner of the consumer economy. Is how the 0:01:12.840 --> 0:01:16.600 Journal put it. Consumer debt, not counting mortgages, has climbed 0:01:16.600 --> 0:01:19.640 to four trillion dollars, higher than it has ever been, 0:01:19.720 --> 0:01:23.280 even after adjusting for inflation. According to the Journal, our 0:01:23.319 --> 0:01:25.640 appetite for debt has been fueled by a decade of 0:01:25.720 --> 0:01:29.360 super low interest rates engineered by the Federal Reserve after 0:01:29.400 --> 0:01:33.080 the last financial crisis, interest rates that by design made 0:01:33.080 --> 0:01:35.640 it easier for us to spend and made the classic 0:01:35.640 --> 0:01:39.960 American middle class dream seem affordable. But of course, debt 0:01:40.000 --> 0:01:43.400 is a double edged sword. Yes, borrowing can spur spending 0:01:43.400 --> 0:01:47.200 in economic growth, but if borrowers can't repay, our collective 0:01:47.200 --> 0:01:50.480 pile of debt may turn into a dangerous economic landslide. 0:01:50.800 --> 0:01:52.800 There isn't much room for the low interest rates that 0:01:52.840 --> 0:01:55.360 have facilitated all of this to go any lower, and 0:01:55.480 --> 0:01:58.240 Federal Reserve data shows that the proportion of credit card 0:01:58.240 --> 0:02:01.560 balances that are seriously passed due is already on the rise. 0:02:02.120 --> 0:02:04.640 What will happen if the economy heads into a recession? 0:02:05.680 --> 0:02:07.680 The step bomb we are all sitting on raises a 0:02:07.720 --> 0:02:11.240 whole host of societal questions too, most of all, what 0:02:11.360 --> 0:02:14.200 does this mean for the beleaguered middle class? Here to 0:02:14.240 --> 0:02:16.639 help us answer these questions, and mores Ken Brown one 0:02:16.639 --> 0:02:18.920 of the three reporters on this Wall Street Journal piece 0:02:18.960 --> 0:02:22.320 that has gotten such a huge response. So, Ken, you've 0:02:22.320 --> 0:02:24.679 been thinking about debt for a long time. What made 0:02:24.760 --> 0:02:27.800 the Wall Street Journal tackle this particular topic. Now you 0:02:27.840 --> 0:02:30.120 look at the economy, which has done pretty well the 0:02:30.160 --> 0:02:32.440 past bunch of years, and then you look at how 0:02:32.480 --> 0:02:35.280 people feel about the economy, and it's not great. There's 0:02:35.320 --> 0:02:37.720 been this sort of unease out there, and so we 0:02:37.720 --> 0:02:40.080 were just trying to figure out why, you know, unemployment 0:02:40.200 --> 0:02:43.280 so low incomes her up decently and we're trying to 0:02:43.280 --> 0:02:46.520 figure out why. And when you look at the costs 0:02:46.720 --> 0:02:50.000 of being middle class, what people expect when you make 0:02:50.040 --> 0:02:52.320 one hundred and twenty thousand dollars a year, one hundred 0:02:52.320 --> 0:02:55.560 twenty thousand dollars a year is twice the median household 0:02:55.560 --> 0:02:58.120 income in the US, and so when you make one 0:02:58.160 --> 0:03:00.880 hundred twenty thousand, you feel like you should be middle class. 0:03:01.200 --> 0:03:03.880 And when you talk to people who feel like that, 0:03:03.360 --> 0:03:06.360 they can't make it, and so they end up the 0:03:06.360 --> 0:03:09.799 bottom is falling out somehow right, and so they can't 0:03:09.800 --> 0:03:13.240 afford a middle class lifestyle a house, two cars, college 0:03:13.240 --> 0:03:15.960 for the kids, etc. And so we were trying to 0:03:16.040 --> 0:03:19.200 understand why there was this unease. What surprised you the 0:03:19.240 --> 0:03:22.399 most in looking into this when you look at consumer 0:03:22.480 --> 0:03:25.520 debt it's low, like debt to income levels and all 0:03:25.560 --> 0:03:28.080 that stuff has come down a ton since the financial crisis. 0:03:28.480 --> 0:03:30.720 And you scratch your head because you're like, well, wait 0:03:30.760 --> 0:03:34.680 a minute, people don't feel they're not acting like that. 0:03:34.880 --> 0:03:36.880 And then you start to look at it and you say, well, okay, 0:03:37.040 --> 0:03:39.120 the reason debts down it's because mortgage debt is down 0:03:39.200 --> 0:03:41.720 so much. Mortgage that is down so much because there 0:03:41.760 --> 0:03:43.920 was so many defaults, and because interest rates so low. 0:03:44.000 --> 0:03:47.760 Then you look at student debt, auto debt, credit card debt, 0:03:47.880 --> 0:03:50.880 it's all at record highs and even if you adjust 0:03:50.920 --> 0:03:54.520 for inflation, and so what you realize is people are 0:03:54.560 --> 0:03:57.800 not buying homes like they were, but they're borrowing for 0:03:57.880 --> 0:04:00.760 everyday things. They're borrowing more than they would have in 0:04:00.760 --> 0:04:02.960 the past to buy a car, they're borrowing in their 0:04:02.960 --> 0:04:05.920 credit cards. Student debt, we all know, is up a 0:04:05.960 --> 0:04:10.040 ton in the past decade. And someone that's weighing on people. 0:04:10.080 --> 0:04:13.680 So the data is very compelling once you peel back 0:04:13.720 --> 0:04:16.760 a little bit of the overall debt data and you 0:04:16.839 --> 0:04:20.280 look at these areas like credit card debt or auto loans. 0:04:20.520 --> 0:04:23.119 The average car new car in the US cost thirty 0:04:23.120 --> 0:04:26.560 seven thousand dollars. The median household income is sixty one 0:04:26.560 --> 0:04:29.839 thousand dollars. Yeah, the median household incomes. They're not buying 0:04:29.880 --> 0:04:32.559 a new car every year. But the reason that works 0:04:32.640 --> 0:04:35.200 is because there's been this explosion of auto debt, and 0:04:35.240 --> 0:04:38.640 so auto loans are bigger than ever, they're longer than ever. 0:04:39.680 --> 0:04:42.200 And one of the trends we wrote about is people 0:04:42.240 --> 0:04:44.760 don't pay off that car loan. People roll the old 0:04:44.839 --> 0:04:47.720 car loan into a new car loan and basically keep 0:04:47.760 --> 0:04:49.679 paying it off. When you look at the surface number, 0:04:49.720 --> 0:04:51.640 it tells you one thing, and you look underneath and 0:04:51.720 --> 0:04:55.080 it's an entirely different picture. Before we get back to 0:04:55.120 --> 0:04:57.919 breaking down the numbers, what did you hear from the 0:04:57.960 --> 0:05:01.480 people that you talked to? Did you hear unease, frustration? 0:05:01.880 --> 0:05:06.760 What was the predominant emotion that came through? Yeah, well, anxiety, fear. 0:05:07.480 --> 0:05:11.200 It's worse than that, you know. So the stories repeat themselves. 0:05:11.240 --> 0:05:13.840 To some extent, we talk to people in that one 0:05:13.880 --> 0:05:17.000 hundred two hundred and fifty thousand dollars income range because 0:05:17.000 --> 0:05:19.640 we wanted to talk to It's not necessarily the middle 0:05:19.680 --> 0:05:22.560 class statistically, but these are people who've done well right. 0:05:22.600 --> 0:05:25.080 These are people who should be okay, and they fall 0:05:25.120 --> 0:05:28.440 into two categories. One category is student debt. So a 0:05:28.520 --> 0:05:32.400 bunch of people graduated school would say fifty thousand dollars 0:05:32.400 --> 0:05:34.720 in debt, thirty thousand dollars in debt, and they just 0:05:34.880 --> 0:05:38.280 can't catch up because they're making their debt payments. Maybe 0:05:38.320 --> 0:05:40.840 they have a mortgage, maybe they have a car payment, 0:05:40.880 --> 0:05:44.719 and they just can't get ahead. And so while in 0:05:44.760 --> 0:05:46.560 the past, you know, most people didn't have a lot 0:05:46.640 --> 0:05:49.000 of debt when they were young, and then they would 0:05:49.080 --> 0:05:51.280 take on a house, they'd get a car loan, and 0:05:52.200 --> 0:05:54.760 the debt would build up, these people are starting out 0:05:54.760 --> 0:05:57.480 with debt and so then it just builds on itself 0:05:57.480 --> 0:05:59.760 and they can't get out from under. The other group 0:06:00.560 --> 0:06:04.920 that we run into, there's people who've had unexpected expenses, 0:06:05.360 --> 0:06:07.800 so they have their student debt, or they have a 0:06:07.839 --> 0:06:10.120 car loan and they have a mortgage or something, and 0:06:10.160 --> 0:06:13.000 they get hit with something a healthcare costs, erect car, 0:06:13.200 --> 0:06:15.520 something like that, and it just tips them over the 0:06:15.640 --> 0:06:18.279 edge and again they can't catch up. Let's break down 0:06:18.279 --> 0:06:20.640 each of those categories a bet. Why when you look 0:06:20.680 --> 0:06:23.440 at auto debt, why has it exploded so much? What's 0:06:23.480 --> 0:06:26.120 the primary reason for that? Our car is more expensive 0:06:26.120 --> 0:06:28.200 than we used to. Are we buying more expensive cars 0:06:28.200 --> 0:06:31.120 than we need? Yeah, so cars are more expensive. So 0:06:31.960 --> 0:06:36.200 the average new car in the US thirty seven thousand dollars, 0:06:36.320 --> 0:06:40.720 and the price has gone up steadily over the past 0:06:40.760 --> 0:06:43.440 bunch of years. And part of it is people want SUVs. 0:06:43.560 --> 0:06:46.839 People want again the trappings of a middle class lifestyle. 0:06:46.880 --> 0:06:48.919 I have a couple of kids. Everyone around me has 0:06:48.960 --> 0:06:52.240 an suv. Whether you agree that they should buying an 0:06:52.279 --> 0:06:54.320 suv or not, that's what people are buying, and so 0:06:54.360 --> 0:06:56.640 that's why the prices have gone up. The auto industry 0:06:56.640 --> 0:06:59.480 has feasted on this stuff. Auto sales have been up 0:06:59.520 --> 0:07:01.640 until last year, we had the best four year stretch 0:07:01.640 --> 0:07:04.120 of auto sales ever in the history, and a lot 0:07:04.160 --> 0:07:06.760 of it was driven by this consumer debt. So thirty 0:07:06.760 --> 0:07:10.160 two percent of new car loans are now six to 0:07:10.200 --> 0:07:13.480 seven years long. So in the past, the typical new 0:07:13.520 --> 0:07:16.680 car loan was three to five years, and then you'd 0:07:16.720 --> 0:07:18.640 have the car for a few years and you without 0:07:18.760 --> 0:07:20.720 car loans. I mean we all remember, right, you paid 0:07:20.760 --> 0:07:22.520 down the car loan and you had the car and 0:07:22.520 --> 0:07:24.160 you didn't have that monthly payment. It was like a 0:07:24.240 --> 0:07:27.120 great time, and then you hoped the car would last. Well, 0:07:27.160 --> 0:07:30.360 now there's six or seven years long, and people don't 0:07:30.400 --> 0:07:33.040 even pay them down. I mean, first they roll over 0:07:33.360 --> 0:07:35.440 the old debt into a new loan. The second thing 0:07:35.520 --> 0:07:38.840 is car leases is the cheapest way to own a car, 0:07:38.960 --> 0:07:40.920 although you don't really own it. The cheapest way to 0:07:40.960 --> 0:07:43.239 get a car in terms of monthly payments is to lease. 0:07:43.640 --> 0:07:45.720 And leases used to account for about ten percent of 0:07:45.760 --> 0:07:48.800 car sales and now it's about a third. And so 0:07:48.840 --> 0:07:52.400 again people don't have the cash, and so everything is 0:07:52.560 --> 0:07:56.400 termed out. Everything is paid over longer periods. With leases, 0:07:56.480 --> 0:07:58.240 you kind of pay forever. Right, you have a lease, 0:07:58.280 --> 0:07:59.400 you go to the next lease, you go to the 0:07:59.440 --> 0:08:01.440 next lease. I actually never thought about that, and it's 0:08:01.480 --> 0:08:05.000 really interesting that combination, whether you lease or whether you 0:08:05.040 --> 0:08:07.240 have a loan, that you now pay back over a 0:08:07.320 --> 0:08:09.520 much longer period of time. Both me and you never 0:08:09.560 --> 0:08:11.200 have a period in your life where you're not making 0:08:11.240 --> 0:08:14.600 that payment, right, it's there every single month, right, right, 0:08:14.840 --> 0:08:18.480 And so it's kind of interesting. And you know, you 0:08:18.560 --> 0:08:21.560 talk to car dealers, which we did, they make more 0:08:21.600 --> 0:08:23.680 money from the financing of a car than they do 0:08:23.720 --> 0:08:26.080 from the sale of a car. Everyone knows. You walk 0:08:26.120 --> 0:08:27.640 into a car dealer, you pretty much know, you have 0:08:27.680 --> 0:08:29.920 all these services on your phone. You pretty much know 0:08:30.360 --> 0:08:32.439 what you should be paying roughly for a car. And 0:08:32.480 --> 0:08:34.160 you know, these guys can do their song and dance, 0:08:34.160 --> 0:08:35.560 but you can you can kind of look and see 0:08:35.559 --> 0:08:38.400 what you should be paying. Then you go into the 0:08:39.320 --> 0:08:42.960 finance office of the dealership and then they get you 0:08:43.040 --> 0:08:46.640 into this loan and it's longer term, and it has 0:08:47.040 --> 0:08:50.240 all these bells and whistles, and the dealer makes more 0:08:50.320 --> 0:08:53.040 money because they all sell on these loans. They make 0:08:53.080 --> 0:08:55.079 more money on the loan they do on the car. Wow. 0:08:55.120 --> 0:08:56.800 And are you hearing when you go and talk to 0:08:56.840 --> 0:08:59.319 dealers about this, are you hearing any worries from them? 0:08:59.440 --> 0:09:01.400 Or are they all excited? Did they think this is 0:09:01.600 --> 0:09:04.720 an unqualified good thing or do they say, oh, maybe 0:09:04.720 --> 0:09:07.079 this poses a danger does in the future. They say 0:09:07.080 --> 0:09:10.160 two things. One is we serve our customers. They want 0:09:10.160 --> 0:09:11.920 to buy these cars. We're going to get them into 0:09:11.960 --> 0:09:13.880 this car. You know, you get a customer walks in 0:09:13.880 --> 0:09:15.839 the door with a car with a five thousand dollars 0:09:15.840 --> 0:09:17.400 balance on the loan and they want a new car. 0:09:17.520 --> 0:09:20.079 We're going to get them into that car, they say that, 0:09:20.160 --> 0:09:22.719 And so they they're very short term oriented. They want 0:09:22.720 --> 0:09:25.120 to make the sale. They're quarter to quarter. These guys 0:09:25.200 --> 0:09:28.520 do not think about the financial health of their customers. 0:09:28.559 --> 0:09:32.120 Like a mortgage broker in two thousands. They don't own 0:09:32.160 --> 0:09:35.760 the loan, right The loan goes to carlanders. And it's interesting, 0:09:35.800 --> 0:09:38.880 so you mentioned mortgage crisis, so we all know all 0:09:38.920 --> 0:09:42.480 these mortgages went bad and banks got crushed, right, Well, 0:09:42.720 --> 0:09:45.520 back then, car loans didn't go bad. I mean some did, 0:09:45.760 --> 0:09:48.280 but not nearly to that extent. And one reason is 0:09:48.320 --> 0:09:51.360 because consumers, if you lose your house, you go to 0:09:51.400 --> 0:09:53.840 rent somewhere and you have a place to live. For 0:09:53.960 --> 0:09:56.400 most people, you can't get to work without a car. 0:09:56.720 --> 0:09:58.439 So the last thing you're not going to pay off 0:09:58.440 --> 0:10:00.160 as a car loan. And the people who don't don't 0:10:00.160 --> 0:10:02.600 pay off the car loan, they repossessed a car. And 0:10:02.640 --> 0:10:04.800 so it was a low risk form a lending. So 0:10:04.840 --> 0:10:07.520 there's been a ton of money pouring into car lending 0:10:07.880 --> 0:10:09.920 since the financial crisis because it was seen as a 0:10:09.960 --> 0:10:11.880 good bet. Because of course, what was seen as a 0:10:11.880 --> 0:10:13.720 good bet last time has to be a good bet 0:10:13.720 --> 0:10:17.600 this time around, exactly. And also it's low interest rights. 0:10:17.600 --> 0:10:19.000 It's hard to make a return on your money, and 0:10:19.000 --> 0:10:21.240 so car lending is a pretty good way to make 0:10:21.240 --> 0:10:24.040 a return, especially for people with low credit. And you said, 0:10:24.080 --> 0:10:26.040 they said two things, So what's the other thing the 0:10:26.120 --> 0:10:30.320 dealers told you. The other thing is these people want SUVs, 0:10:30.360 --> 0:10:33.080 will give them SUVs they want. You know, they can 0:10:33.120 --> 0:10:35.520 be irresponsible with their money, but you know it's not 0:10:35.559 --> 0:10:37.760 our job to judge them. Did you think it with 0:10:37.800 --> 0:10:41.199 the people you talked to were making irresponsible decisions or 0:10:41.280 --> 0:10:43.880 did you see them more being backed into a corner 0:10:43.920 --> 0:10:46.520 where they didn't have all that much choice. It's usually 0:10:46.559 --> 0:10:50.040 a combination. I mean, so sometimes people spend too much 0:10:50.040 --> 0:10:54.320 on a car, Sometimes people ran up credit card bills, 0:10:54.800 --> 0:10:59.560 and sometimes they had unexpected expenses and they thought, wow, 0:10:59.600 --> 0:11:01.800 I one hundred and forty thousand dollars a year, I 0:11:01.840 --> 0:11:05.120 can afford all this stuff. So we got a ton 0:11:05.200 --> 0:11:08.760 of response on the story, and a lot of it was, 0:11:09.559 --> 0:11:11.960 these people are responsible when I grew up, when I 0:11:12.000 --> 0:11:14.160 went to college where I didn't borrow, We didn't borrow 0:11:14.200 --> 0:11:16.800 back then. Oh he's these answers. And my response to 0:11:16.880 --> 0:11:21.120 those people was, look, first of all, for the people 0:11:21.160 --> 0:11:24.319 who grew up twenty thirty years ago, the amount of 0:11:24.360 --> 0:11:27.760 credit available today is far bigger than the amount of 0:11:27.760 --> 0:11:30.439 credit that was available back then. I mean, people didn't 0:11:30.440 --> 0:11:33.720 have lots of credit cards. Car Loans were harder to get, 0:11:33.960 --> 0:11:37.240 there were no leases. It's credited. I'm thinking of that. 0:11:37.280 --> 0:11:39.439 Ask our wild quote. Most morality is only the lack 0:11:39.480 --> 0:11:42.400 of opportunity, maybe in most debt free lifestyles, or only 0:11:42.400 --> 0:11:45.040 the lack of credit. Yeah, exactly, exactly. So that's one thing. 0:11:45.040 --> 0:11:49.400 The other thing is it doesn't really matter whether people 0:11:49.840 --> 0:11:54.440 are being irresponsible or not. The fact is this debt 0:11:54.559 --> 0:11:57.880 level out there in the economy, and so the real 0:11:58.240 --> 0:12:01.600 thing that matters is the US economy is driven by 0:12:01.600 --> 0:12:05.040 consumer spending. Two thirds of you know, the US economy 0:12:05.240 --> 0:12:07.960 is consumer spending, and a big chunk of consumers have 0:12:08.000 --> 0:12:11.880 been spending by borrowing. And so two things happen. Either 0:12:12.200 --> 0:12:14.480 they reach a limit, you can't keep borrowing, you've maxed 0:12:14.480 --> 0:12:16.960 out your credit cards, they won't lend you a more 0:12:17.360 --> 0:12:19.280 money for a new car. You know you're maxed out, 0:12:19.640 --> 0:12:22.880 or you'll lose your job, or you get a pay cut, 0:12:23.280 --> 0:12:25.440 and or you know there's a recession and you can't 0:12:25.440 --> 0:12:28.800 pay and you default, right, right, So in both cases 0:12:28.840 --> 0:12:32.200 it hurts the economy. And so the biggest point we 0:12:32.280 --> 0:12:34.320 try to make is like, you could say what you 0:12:34.320 --> 0:12:36.480 want about these people, but you've got to understand that 0:12:36.520 --> 0:12:41.440 there is an economic cost to this, and policymakers need 0:12:41.480 --> 0:12:44.920 to understand what's going on. And you see in the economy, 0:12:45.080 --> 0:12:48.400 So the economy has stayed relatively strong, and you know, 0:12:48.679 --> 0:12:51.360 largely because the jobs market has been so great, but 0:12:51.440 --> 0:12:53.640 you know, when interest rates went up over the last 0:12:53.640 --> 0:12:56.840 couple of years, we saw hired defaults on credit cards, 0:12:57.240 --> 0:13:01.320 We saw the housing markets slow down, and so people 0:13:01.520 --> 0:13:04.240 very sensitive to debt. They've borrowed a lot, they're very 0:13:04.240 --> 0:13:06.920 sensitive to interest rates, and so that's an economic impact. 0:13:07.040 --> 0:13:10.080 I hate just make too many analogies to the financial crisis, 0:13:10.080 --> 0:13:12.680 although although they're they're right, they're waiting to be made. 0:13:12.880 --> 0:13:15.160 But there was such a debate about where borrowers and 0:13:15.160 --> 0:13:17.640 the financial crisis irresponsible, right, And in the end it 0:13:17.679 --> 0:13:21.200 didn't matter because whether it's a predatory borrower, predatory lender, 0:13:21.240 --> 0:13:23.320 if there's debt in the system that can't be paid back, 0:13:23.440 --> 0:13:26.839 that's that's a massive problem. Right before we get to 0:13:26.880 --> 0:13:29.040 those broader economic questions, I want to come back to this, 0:13:29.440 --> 0:13:31.400 the way in which you broke down the categories of 0:13:31.440 --> 0:13:34.320 debt and tell me about student debt. Were you It's 0:13:34.400 --> 0:13:37.240 it's been a headline, but were you. Were you surprised 0:13:37.240 --> 0:13:39.880 by the magnitude of the impact it's had on people's lives. 0:13:40.000 --> 0:13:42.240 I knew the numbers. We all know the numbers. You 0:13:42.280 --> 0:13:43.840 see the chart going up and up and up and 0:13:43.880 --> 0:13:45.840 up and up. But then you talk about the impact 0:13:45.960 --> 0:13:49.280 and it just weighs on people. It's just at the 0:13:49.360 --> 0:13:52.280 time in your life when you are kind of just 0:13:52.440 --> 0:13:56.080 making it. You have a lot of expenses, You've gotten married, 0:13:56.120 --> 0:13:59.040 you may start a family, You're you're needing things, you know, 0:13:59.160 --> 0:14:03.240 and it's a tough financial times. Everyone has a story 0:14:03.320 --> 0:14:05.719 of I was twenty eight years old and I was 0:14:05.760 --> 0:14:07.800 down to my last nickel and then something how, you 0:14:07.840 --> 0:14:10.200 know whatever. Everyone has that story. But when you have 0:14:10.240 --> 0:14:12.720 fifty thousand dollars with the debt sitting on you, especially 0:14:12.800 --> 0:14:15.840 like married couples, you know, eighty thousand dollars whatever, you know, 0:14:15.960 --> 0:14:18.800 you can't there's no margin for error, and there's no 0:14:18.880 --> 0:14:23.640 margin for error meeting either screwing something up, having some 0:14:23.720 --> 0:14:26.720 kind of financial surprise, or spending too much going on 0:14:26.760 --> 0:14:29.520 a vacation. You know. One of the couples, one of 0:14:29.560 --> 0:14:32.560 the families we wrote about, deep in debt, really struggling, 0:14:32.960 --> 0:14:37.440 and they were slowly getting their arms around things. One 0:14:37.480 --> 0:14:39.080 of the cars got wrecked, so they had to buy 0:14:39.080 --> 0:14:43.480 a new car, and then they were invited to three 0:14:43.760 --> 0:14:49.880 out of town weddings in a row, so airfare, hotels, gifts. 0:14:50.160 --> 0:14:51.840 They have a young child, so they had to get 0:14:51.880 --> 0:14:55.360 either childcare or whatever. It was a lot of money. 0:14:55.360 --> 0:14:57.400 It was a few thousand dollars, and it went on 0:14:57.400 --> 0:15:00.400 the credit cards because there's no other way, and so, 0:15:00.720 --> 0:15:03.080 you know, and then credit cards at twenty percent interest 0:15:03.200 --> 0:15:06.920 or eighteen percent interest, which they're not paying off anytime soon. 0:15:07.280 --> 0:15:10.240 It's tough. Yeah. I thought one of the most pointed 0:15:10.320 --> 0:15:12.120 lines in your story it was a quote from one 0:15:12.160 --> 0:15:14.400 of the people you talked to, and he said, what 0:15:14.520 --> 0:15:17.440 was supposed to be an asset became a liability. And 0:15:17.840 --> 0:15:20.640 I think that about education and that seems to me 0:15:20.720 --> 0:15:23.640 to have deeper societal ramifications if people are starting to 0:15:23.680 --> 0:15:26.560 perceive that this thing, and education is supposed to be 0:15:26.600 --> 0:15:29.280 all of our goals, has actually become a liability. Did 0:15:29.280 --> 0:15:31.600 that stand out to you in the same way. Yeah, 0:15:31.640 --> 0:15:36.640 I mean people didn't regret their education. They regretted going 0:15:36.720 --> 0:15:40.960 to private colleges, They regretted maybe not working while they 0:15:40.960 --> 0:15:43.600 were in school, they regretted taking on so much debt, 0:15:43.840 --> 0:15:45.640 and they didn't understand it. But again, like when you're 0:15:45.680 --> 0:15:50.600 eighteen nineteen years old, you don't understand it. And it's 0:15:50.600 --> 0:15:53.720 also interesting you go back to the financial crisis. You 0:15:53.840 --> 0:15:58.760 look at the rise in student debt and it picks 0:15:58.840 --> 0:16:02.720 up when the financial crisis hit. And you talked to 0:16:02.720 --> 0:16:04.640 a bunch of experts and they say, look, a lot 0:16:04.720 --> 0:16:07.680 of people counted in equity in their homes for to 0:16:07.720 --> 0:16:10.040 pay for college tuition because the home was a piggy 0:16:10.080 --> 0:16:14.760 bank in the two thousands. Everyone that fascinating connection ten 0:16:14.800 --> 0:16:17.680 or twenty percent a year. And so you know, you 0:16:17.760 --> 0:16:19.920 had yourself one hundred thousand dollars in equity in a 0:16:19.960 --> 0:16:21.840 home or whatever, fifty thousand and that was going to 0:16:21.880 --> 0:16:24.400 help pay for college. Once that equity got wiped out 0:16:24.640 --> 0:16:27.600 and you couldn't borrow against your house, it was tough, 0:16:27.680 --> 0:16:30.040 and so parents took on student debt and kids took 0:16:30.040 --> 0:16:33.280 on student debt, and so it's sort of this lingering 0:16:33.360 --> 0:16:37.720 echo of the financial crisis, and it just left people 0:16:37.800 --> 0:16:41.240 vulnerable and it's plays out. I had not thought about that, 0:16:41.320 --> 0:16:43.760 about the connection between the rise and student loan debt 0:16:43.800 --> 0:16:46.480 and the financial crisis. And what's interesting is that it's 0:16:46.480 --> 0:16:48.920 a vicious circle, isn't it. Because you have a lack 0:16:48.960 --> 0:16:51.600 of home equity means that people have to pay outright 0:16:51.680 --> 0:16:54.480 for education where they might have been able to finance 0:16:54.520 --> 0:16:57.200 it with borrowing on their home. And then because people 0:16:57.200 --> 0:16:59.680 have so much student loan debt, they're not able to 0:16:59.760 --> 0:17:02.720 buy homes right. And so so this one of the 0:17:02.760 --> 0:17:06.000 odd components in here is mortgage debt. Right, And were 0:17:06.000 --> 0:17:08.199 there surprises for you and what you saw on the 0:17:08.200 --> 0:17:11.200 picture and mortgage debt? People still want to buy homes 0:17:11.400 --> 0:17:13.960 the people we talk to. The statistics don't really bear 0:17:14.000 --> 0:17:15.760 that out. I mean, we've seen a decline in home 0:17:15.760 --> 0:17:19.680 ownership from the peak, but but people we talked, we 0:17:19.800 --> 0:17:22.800 still want to buy homes. They feel like it is 0:17:22.920 --> 0:17:26.080 what a middle class family should do. But one of 0:17:26.080 --> 0:17:29.000 the things that we have written about, and we'll write 0:17:29.000 --> 0:17:33.240 about more, is there's been this big rise in the 0:17:33.400 --> 0:17:38.160 rent rentals of single family homes. So typically people rent 0:17:38.200 --> 0:17:41.960 apartments and condos and they own homes, and the economics 0:17:42.080 --> 0:17:45.720 of trying to rent homes at scale rent a thousand 0:17:45.720 --> 0:17:48.199 homes has always been really hard. But a bunch of 0:17:48.200 --> 0:17:52.239 folks brought up homes post financial crisis, big investors, and 0:17:52.280 --> 0:17:54.960 they have them and they've been very popular. And the 0:17:55.000 --> 0:17:58.400 people who rent these homes say, listen, our people make 0:17:58.400 --> 0:18:00.879 one hundred thousand dollars a year. Our tenants make one 0:18:00.960 --> 0:18:03.360 hundred thousand dollars. You they're not poor people, but they 0:18:03.359 --> 0:18:06.760 have no assets. They have debt. You know, when you 0:18:06.800 --> 0:18:09.040 add up I own X, Y and Z, and I 0:18:09.080 --> 0:18:11.360 have X, Y and Z debt and it nets out 0:18:11.400 --> 0:18:14.159 to zero or only a little bit, and so they 0:18:14.200 --> 0:18:16.639 don't have the money to put down. We talk to 0:18:16.680 --> 0:18:19.280 a guy at the Federal Reserve who studies this stuff, 0:18:19.280 --> 0:18:22.320 and he said, you know, buying a home for the 0:18:22.400 --> 0:18:25.520 average person in the average city is becoming a luxury. 0:18:25.600 --> 0:18:29.160 It's really a luxury and that is a difference from 0:18:29.280 --> 0:18:31.240 the past. I thought it was stunning. I had no 0:18:31.320 --> 0:18:34.160 idea that Blackstone, the big private equity firm, is now 0:18:34.200 --> 0:18:38.560 the largest renter of single family homes. That it's really interesting. 0:18:38.560 --> 0:18:40.240 I thought, I've I've done a fair amount of work 0:18:40.240 --> 0:18:42.919 on housing, and someone said to me about our broken 0:18:43.240 --> 0:18:47.240 homeownership policy. Let them meet rent. And you think about 0:18:47.280 --> 0:18:50.800 that now, because in the end, right this has huge ramifications, 0:18:50.880 --> 0:18:53.600 and that it's people's homes that paid for them to 0:18:53.640 --> 0:18:57.800 retire often, and so what's the spillover effect of a 0:18:57.960 --> 0:19:01.359 nation of renters who with no assets. One element of 0:19:01.400 --> 0:19:05.800 this story is income inequality, right, and wealth disparity, and 0:19:05.920 --> 0:19:09.480 they go hand in hand, but just on the wealth side. 0:19:10.000 --> 0:19:14.919 So people accumulate wealth basically in two ways. For the 0:19:14.960 --> 0:19:18.679 average person, One is they invest in the stock market, 0:19:18.720 --> 0:19:21.840 bond market, you know, whatever. And one is their own 0:19:21.920 --> 0:19:26.000 real estate and stocks and bonds and all that are 0:19:26.040 --> 0:19:28.960 basically the vast majority are owned by the wealthiest people 0:19:29.080 --> 0:19:33.479 top ten percent own a huge amount of securities, and 0:19:34.320 --> 0:19:38.280 real estate is owned by the middle class. And so 0:19:39.480 --> 0:19:43.000 wealth creation for the middle class is depended on real estate. 0:19:43.560 --> 0:19:45.879 And you go back to post World War two, for 0:19:46.040 --> 0:19:48.840 sort of. The three decades after World War Two, real 0:19:48.960 --> 0:19:51.160 estate prices were up and the middle class did really well, 0:19:51.200 --> 0:19:53.439 and wealth gap, the wealth gap in the US was 0:19:53.480 --> 0:19:57.919 pretty was relatively small. You go back to more recent years, 0:19:58.440 --> 0:20:01.120 the stock market has done much better than housing, and 0:20:01.320 --> 0:20:04.000 there's been this gap. Now, this is a complicated story. 0:20:04.040 --> 0:20:06.760 I don't want to oversimplify. Well, that's fascinating. When you 0:20:06.840 --> 0:20:10.520 don't own a house, you lose that opportunity both for 0:20:10.720 --> 0:20:13.960