A New Type Of Poverty Is Crushing The Middle Class

Monday, April 30, 2018
By Paul Martin

by Tyler Durden
ZeroHedge.com
Mon, 04/30/2018

As if the current global monetary system didn’t put the middle-class at a structural disadvantage versus the wealthy, by taxing them disproportionately with inflation, encouraging dissaving and taxing labor (ordinary income) much higher than capital (long-term gains), we now find out that the middle class has a new reason they’re being pushed into poverty: banks are willingly trying to put them there.

In a report by the Sydney Morning Herald, the newspaper notes that more middle-class Australians are being pushed into poverty. The simple explanation why this is happening: Australian banks are trying to figure out exactly how much they can charge customers before pushing them into poverty; to do this they are using a formula which incorporates a poverty index to calculate the last marginal dollar of disposable income that the middle class has for fees and charges.

Here’s more:

The banking and finance royal commission has cast light on a new type of poverty to emerge in our society: middle class poverty.

To understand it, we have to go back to an earlier government inquiry: the 1972 Commission of Inquiry into Poverty, conducted by Professor Ronald Henderson. That commission had no real policy impact, but its cultural impact was profound. It gave prominence to the Henderson Poverty Index: a measure of consumption described by Henderson as so austere that it was unchallengeable. Updated versions of this index remain a standard benchmark of poverty.

But more than 45 years on, the royal commission into finance is revealing that poverty is no longer just about low income. The commission has heard that Australian banks have adopted actual lending practices (as distinct from their official lending policies) that claim so much household income for contract payments that borrowers are left without enough money to fund basic consumption levels: they are living in poverty.

This isn’t an accident: it is a strategic policy by banks. How much do banks think households need for daily living? According to the Australian Prudential Regulation Authority’s submission to the royal commission, banks “typically use the Household Expenditure Measure [a relative poverty measure] or the Henderson Poverty Index in loan calculators to estimate a borrower’s living expenses”.

And regulators in Australia aren’t doing much to help – in fact, they’ve simply made a blanket “don’t worry about it” type statement while conducting a “targeted review”:

So measures designed to capture the impacts of low incomes are now targeting financially-enmeshed middle-income households, and not as a statement of social shame, but as strategic objects of bank policy.

This has caused embarrassment to APRA, the regulator charged with overseeing those bank practices. In response, it was permitted to make a supplementary submission to the royal commission in March.

APRA now distances itself from use of these lowly measures, claiming them to be an “under-estimation” of household expenses. It reports that in 2017 it conducted a targeted review of a sample of loan files, using external audit firms to ensure independent integrity.

The Rest…HERE

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