Deregulating the American Dream

Just 1 percent of Americans currently hold about half the financial wealth of the entire United States.

Meanwhile, notes Washington University sociologist Mark Rank, the nation' s bottom 60 percent hold less than 1 percent of that wealth, and 75 percent of Americans, sometime in their adult lives, can now expect to "experience a year either in poverty or near poverty."

How much more unequal can the United States become? Plenty

If the United States keeps to its present course, Rank predicted last week at an insight-rich national conference on inequality in North Carolina, the nation could "begin to reflect the bifurcation patterns more typical of third-world countries," with the privileged opting to "physically separate themselves from the middle and bottom."

That separation, Rank added, has already begun -- via everything from gated communities to growing private school enrollments.

The good news? Inequality amounts to an unnatural disaster. Conscious political decisions have helped make the United States deeply unequal. Conscious political decisions can, by the same token, help undo that inequality.

That theme sounded repeatedly last week on the University of North Carolina campus as Mark Rank and dozens of other academics, activists, and policy makers converged for two days of discussion and debate on "Wealth Inequality and the Eroding Middle Class."

The conference-- hosted by the university law school' s Center on Poverty, Work and Opportunity-- didn' t make many headlines. The conference had perhaps a more important role: helping Americans make sense of the headlines we already see.

Headlines, for instance, on the subprime mortgage market collapse. The subprime market, University of Connecticut law professor Patricia McCoy explained last week, didn' t even exist a quarter-century ago.

But in 1980 "waves of federal deregulation" began reshaping the banking industry, stripping away meaningful limits on mortgage terms and rates. Lenders soon became able, for the first time, to "segment the mortgage market between stronger and weaker borrowers"-- and manipulate the weaker into paying through the nose.

By 2006, American families were carrying adjustable rate mortgages with interest rates that could double at the first reset. And if these families went to refinance those mortgages, they faced prepayment penalties that could hit as high as $9,000 on a $150,000 loan.

All this deregulation would prove spectacularly lucrative for the nation' s biggest lenders-- Countrywide Financial CEO Angelo Mozilo, for instance, pocketed $295.7 million over a five-year span-- and spectacularly devastating for struggling families.

"By year-end 2008," notes the University of Connecticut' s McCoy, "over 2 million subprime loans are expected to go into foreclosure."

The inequality that deregulation has nurtured could, in theory, be offset by tax policies that target extremely high incomes. But current tax policies, University of Oklahoma law professor Jon Forman pointed out last week, are doing precious little to redistribute excess.

We now have, Forman noted, "hardly any taxes on wealth and investment income." Taking just one small step to change this situation-- by eliminating the current tax break for capital gains and dividends-- "could raise about $130 billion a year."

Lawmakers could take all sorts of other steps, conference presenters made clear, to broaden the distribution of America' s wealth. You can check them out outline, where the Center on Poverty, Work and Opportunity is this week posting conference highlights.