Here are several excerpts of the latest Business Week Magazin’s cover story (May 19, 2007)

Federal Reserve data show that in relative terms, that debt is getting more expensive. In 1989 households earning $30,000 or less a year paid an average annual interest rate on auto loans that was 16.8% higher than what households earning more than $90,000 a year paid. By 2004 the discrepancy had soared to 56.1%. Roughly the same thing happened with mortgage loans: a leap from a 6.4% gap to one of 25.5%. “It’s not only that the poor are paying more; the poor are paying a lot more,” says Sheila C. Bair, chairman of the Federal Deposit Insurance Corp…

did you say outrageous?

… Armed with the latest technology for assessing credit risks—some of it so fine-tuned it picks up spending on cigarettes—ambitious corporations like Byrider see profits in those thin wallets. The liquidity lapping over all parts of the financial world also has enabled the dramatic expansion of lending to the working poor. Byrider, with financing from Bank of America Corp. (BAC ) and others, boasts 130 dealerships in 30 states. At company headquarters in Carmel, Ind., a profusion of colored pins decorates wall maps, marking the 372 additional franchises it aims to open from California to Florida. CompuCredit Corp., based in Atlanta, aggressively promotes credit cards to low-wage earners with a history of not paying their bills on time. And BlueHippo Funding, a self-described “direct response merchandise lender,” has retooled the rent-to-own model to sell PCs and plasma TVs…

You see exactly now why ‘In Debt We Trust’ is no fiction.

Some economists applaud how the spread of credit to the tougher parts of town has raised home- and auto-ownership rates. But others warn that in the long run the development could slow upward mobility. Wages for the working poor have been stagnant for three decades. Meanwhile, their spending has consistently and significantly exceeded their income since the mid-1980s. They are making up the difference by borrowing more. From 1989 through 2004, the total amount owed by households earning $30,000 or less a year has grown 247%, to $691 billion, according to the most recent Federal Reserve data available… “Having access to credit should be helping low-income individuals,” says Nouriel Roubini, an economics professor at New York University’s Stern School of Business. “But instead of becoming an opportunity for upward social and economic mobility, it becomes a debt trap for many trying to move up.”

Stagnant for three decades… how could have this remained ignored by Congress. Is there a plot again the working poor? A plot to keep them even poorer?

… Nobody, poor or rich, is compelled to pay a high price for a used car, a credit card, or anything else. Some see the debate ending there. “The only feasible way to run a capitalist society is to allow companies to maximize their profits,” says Tyler Cowen, an economist at George Mason University in Fairfax, Va. “That will sometimes include allowing them to sell things to people that will sometimes make them worse off.”

Let’s face it: It not about capitalism but knowledge. What if we were all taught the consequences of usury and debt hangovers on a personal and national level in high school, our (world) economic situation would be a lot more different. If is not up to the government which did nothing to prevent predatory lending, but us to demand that high schools to include monetary education in their programs. Talking of ‘the debt trap’ on a broader picture we spent more than we earned in 2005; a negative savings rate of 0.5 percent for the year. That’s the first time that’s happened since the Great Depression - Bankrate.com says. But that was in 2005 and the situation is worsening by the day. Let’s do not forget that compounding interests are exponential. So now back to our article:

… Others worry, however, that the widening income gap between the wealthy and the less fortunate is being exacerbated by the spread of high-interest, high-fee financing. “People are being encouraged to live beyond their means by companies that are preying on low-income consumers,” says Jacob S. Hacker, a political scientist at Yale.

Being encouraged to live beyond our means. Does the message go through? Apparently not that on a higher scale: congressional Democrats have sealed an agreement on a $2.9 trillion budget blueprint for the 2008 fiscal year, a House Budget committee spokesman said.

Would Washington happen to prey on the middle-class?

Higher rates aren’t deterring low-income borrowers. Payday lenders, which provide expensive cash advances due on the customer’s next payday, have multiplied from 300 in the early 1990s to more than 25,000. Savvy financiers are rolling up payday businesses and pawn shops to form large chains. The stocks of five of these companies now trade publicly on the New York Stock Exchange (NYX ) and NASDAQ (NDAQ ). The investment bank Stephens Inc. estimates that the volume of “alternative financial services” provided by these sorts of businesses totals more than $250 billion a year”.

Changing the industry rules would surely hit the economy but acting responsibly is key here. There is no point in burying our heads in the sand and wait to the bubble to burst either.

Mainstream financial institutions are helping to fuel this explosion in subprime lending to the working poor. Wells Fargo & Co. (WFC ) and U.S. Bancorp (USB ) now offer their own versions of payday loans, charging $2 for every $20 borrowed. Based on a 30-day repayment period, that’s an annual interest rate of 120%. (Wells Fargo says the loans are designed for emergencies, not long-term financial needs.) Bank of America’s revolving credit line to Byrider provides up to $110 million. Merrill Lynch & Co. (MER ) works with CompuCredit to package credit-card receivables as securities, which are bought by hedge funds and other big investors.

Again to understand the stakes and why a debt based economy is now out of control, we ought to see the bigger picture. The lax credit practices eventually reach a point of absurdity and show the worthlessness of money since we have to default and purchases are repossessed. Consumer credit: where did it all go wrong?

Once, major banks and companies avoided the poor side of town. “The mentality was: Low income means low revenue, so let’s not locate there,” says Matt Fellowes, a researcher at the Brookings Institution in Washington, D.C. Now, he says, a growing number of sizable corporations are realizing that viewed in the aggregate, the working poor are a choice target. Income for the 40 million U.S. households earning $30,000 or less totaled $650 billion in 2004, according to Federal Reserve data…

The fact is that poor is the most sincere when it comes to debt repayment as Danny Schechter outs it in his documentary.

In the 1990s, Jackson Hewitt franchises blanketed lower-income neighborhoods around the country. They soaked up fees not just by preparing returns but also by loaning money to taxpayers too impatient or too desperate to wait for the government to send them their checks. During this period, Congress expanded the Earned-Income Tax Credit, a program that guarantees refunds to the working poor. Jackson Hewitt and rival tax-prep firms inserted themselves into this wealth-transfer system and became “the new welfare office,” observes Kathryn Edin, a visiting professor at Harvard University’s John F. Kennedy School of Government. Today, recipients of the tax credit are Jackson Hewitt’s prime customers.

This says it all… it has never been about helping the working poor but a gigantic collusion between powerful pals.

The businessweek.com article is surely a yearly best of. All the victims have the same profile: helpless. Their stories read like Greek dramas. We were delighted to hear that pay-day lenders like BlueHippo and Jackson Hewitt are being investigated and/or charged with deceptive practices. Surely encouraging as a start but those payday lenders are in fact affiliated with big brand names such as HSBC,Wells Fargo and Co exposed in In Debt We Trust.

The battle is going to be long.