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The Credit Card Scams and Coming Collapse
#1
Why banks are boosting credit card interest rates and fees
Updated 11/14/2008
THE CREDIT TRAP

Part 1: How rising home values, easy credit put your finances at risk
Part 2: Why banks are boosting credit card interest rates and fees
Part 3: Credit cards' soaring rates bite consumers

By Kathy Chu and Byron Acohido, USA TODAY
Tommy Newsom was shocked when his bank nearly doubled his credit card interest rate this year, to 27%, for no apparent reason. A customer rep told him the law allowed the bank to do so, and that was all the justification it needed.

"I never missed a payment," says Newsom, 63, of Mesquite, Texas, who owes about $5,000 on the card. "The bank is just looking for a reason to maximize profits."

In recent years, banks have sharply raised interest rates and penalty fees on credit cards. As the economy tanks and banks' mortgage-related losses balloon, some banks are stepping up such increases to boost revenue. Bearing the brunt are consumers for whom a jump in rates and fees can make it tougher to pay their bills at a time when household budgets already are being stretched.

A key driver behind this trend: securitization. From 2003 to 2007, seven of the largest issuers of credit cards packaged an increasing amount of card debt into securities and sold them to investors, just as banks did with mortgages, a USA TODAY review of banking records found.

Selling off credit card debt has given banks a powerful incentive to raise card fees and penalties, according to interviews with dozens of industry analysts, academics and investment specialists.

Here's why: When banks package and sell card debt, they pass along to investors some of the risk the debt will go bad. Yet, banks often get to pocket much of the profit from rate and fee increases on those accounts. Imposing higher fees on more accounts — without a comparable rise in risk — lets banks raise revenue and keep profits up, at customers' expense.

Securitization has been a "major impetus" for banks to expand penalty fees and rates in recent years, says Adam Levitin, a Georgetown University law professor and card expert. Banks "have little to lose if they squeeze too hard (if consumers default), but a lot to gain if they can extract additional payments" from card users, he says.

Banks deny any link between securitization and rising penalties. They say fees are rising because of superior data-tracking tools that allow banks to draw precise profiles of card users. Banks can price debt fairly, officials argue, with riskier borrowers paying more, as they should.

"Securitization is a method of funding credit card loans," says James Chessen, chief economist at the American Bankers Association. "Penalty fees and rates are entirely separate and completely avoidable."

As the debate unfolds about whether — and how much — securitization drove up penalties, analysts are bracing for an acceleration in credit card losses. Already, delinquencies are at their highest point in six years. Defaults, triggered when banks give up on collecting bad loans, are rising rapidly, too.

By the end of 2009, banks are likely to write off a record amount — up to $96 billion, or about 10% — of all credit card debt, says Innovest Strategic Value Advisors, a research firm that was among the first to predict the mortgage meltdown. The credit card market is a fraction of the size of the mortgage world, but its collapse could threaten some issuers' solvency and make it harder for others to absorb financial shocks, says Gregory Larkin, a senior analyst at Innovest.

"Mortgages were simply the first storm to make landfall," Larkin says. "Credit cards are next."

Experts worry that the $700 billion authorized by Congress to help stabilize financial markets will do little to solve the underlying problems.

"Securitization is an important economic tool," says Rep. Carolyn Maloney, D-N.Y. "But when we saw the subprime (mortgage) meltdown occur, we started really looking at credit cards as the next crisis. We have to crack down on the abuses."

Several bills in Congress, including Maloney's Credit Cardholders' Bill of Rights, seek to clamp down on hair-trigger fee and rate increases. The Federal Reserve has proposed limiting rate increases on existing debt and curtailing excessive fees for borrowers with marred credit.

Meanwhile, amid the slowdown of the securitization markets, Sheila Bair, chairman of the Federal Deposit Insurance Corp., wants more restrictions on mortgage- and credit-card-backed securities. "We're finding in retrospect that being able to securitize debt … weakens underwriting discipline," Bair says. "Whether it's credit cards or mortgages, this dynamic needs to be dealt with."

A proposal by the Financial Accounting Standards Board could lead banks to keep more card debt on their balance sheets, and hold more capital in case those loans sour. Banks' inadequate capital levels have prolonged the economic crisis, analysts say.

Reform is needed, says Travis Plunkett, legislative director for the Consumer Federation of America, because many of the credit card practices under fire "have been fueled at least in part by securitization."

A downward spiral

"Securitization," he says, "has increased the willingness of credit card companies to offer riskier loans. And to compensate, they have moved to a business model that involves hitting consumers with very high — often unjustifiably high — rates and fees."

Banks cite the destabilization of their industry as a reason regulators should refrain from cracking down on their ability to raise fees and interest rates as they wish.

Reforms would "clearly affect issuers' profitability" at a time when they're already struggling, says Mark Furletti, a lawyer at Ballard Spahr Andrews & Ingersoll, which represents banks.

Banks also warn that restrictions would reduce investors' appetite for card-backed securities. That, in turn, would force banks to cut back on card loans and raise credit costs, says the American Securitization Forum, which represents banks and investors.

Consumer advocates fear these arguments could sway regulators away from enacting strong measures to protect consumers from hair-trigger pricing. Proposed card reforms, while a good first step, won't dismantle a system that is increasingly relying on punishing fee practices to boost profitability, advocates say.

"In a bad economy … consumers need more protection from unfair practices, not less," says Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group.

Already, a downward spiral is unfolding, banking analysts say, as more consumers, pushed over the edge by penalties, default on their credit card bills. Banks are pulling back on credit to risky card borrowers even as consumers' access to other loans, including home equity, has dried up.

Revolving debt — most of it on credit cards — is soaring, topping $970 billion in September. The average household now owes $10,678 in credit card debt, up 29% from 2000, according to CardWeb.com, a research firm.

And more borrowers are paying their credit card bills before their mortgage bills, credit bureau data reveal, an alarming shift that suggests people are walking away from mortgages and using credit cards to get by.

Borrowers are also piling up card debt for other necessities.

Newsom, for example, began relying heavily on his Bank of America credit card after $25,000 in health costs depleted his savings. As his card balance climbed, Bank of America almost doubled his rate even though he regularly paid above the minimum and did so on time.

"I'm still managing," says Newsom, an energy company manager. "But it's tough."

Bank of America declined to comment on Newsom's case but says it "regularly assesses the risk profile of accounts." If the bank decides to raise a customer's rate, it will notify the customer first and give him or her the chance to "opt out" and pay off the card balance at the existing rate, bank spokeswoman Betty Riess says.

Banking specialist Levitin says credit cards have become "the drip pan of the economy," a short-term fix that merely delays a day of reckoning for many people and makes their crisis all the more ruinous once it arrives.

Rising rates and fees

Bank One helped pioneer credit card securitization in 1986, when it packaged $50 million in debt and issued securities linked to them. In doing so, it tapped a funding source that financial institutions had previously used mainly for home and car loans.

Other banks followed. They sold card-backed securities to pension funds, hedge funds and other investors. Today, nearly half the nation's household revolving debt is securitized via major banks.

Among large card issuers, Bank of America, Citigroup, Discover and Washington Mutual securitized more than half their outstanding credit card debt last year. JPMorgan Chase — which acquired Washington Mutual in September — securitized nearly half its card debt and American Express close to a third. Capital One sold off almost three quarters of its portfolio.

Outstanding card debt securitized by Capital One, Washington Mutual, Bank of America, Citigroup, Discover, JPMorgan Chase and American Express has doubled since 2003, hitting nearly $400 billion in 2007. Investor demand for securitized card debt has slowed with the economy, but not disappeared.

Securitization has helped large banks expand their dominance of the card market, says Arthur Wilmarth, a law professor at George Washington University. That, in turn, has given banks the "market power to charge such high fees to consumers."

As securitization ballooned, banks also won legal battles that gave them greater leeway to set credit card rates and fees. They've replaced cards with fixed rates and few fees with those carrying multiple rates and a variety of charges, such as phone-payment fees, balance-transfer fees and late and over-the-limit fees.

From January 2003 to December 2007, the average late fee charged by large card issuers rose 17%, to $35.24, and the average fee charged to those who spend beyond their credit limits surged 23%, to $26.88, according to CardWeb.com.

Late and over-the-limit fees have grown at a "remarkably similar" pace to the growth of securitized credit card balances, Levitin says. Such fees have boosted banks' profits. In 2007, lenders collected a record $18.1 billion in credit card penalty fees, up 69% from 2003, according to R.K. Hammer, a consulting firm. Fee income is likely to rise another 5.5% this year as people struggle to pay bills and get hit with more late fees, Hammer says.

Ken Clayton of the American Bankers Association notes that users who abide by terms of their loans pay no penalties. He contends that securitization has allowed banks to meet growing demand for cards, resulting in a "lower cost for consumers and more access to credit for everyday Americans."

Yet, while the average interest rate has fallen from 18.2% in 1990 to 14.7% in 2007, those who pay late or exceed the credit limit — even once — can be hit with far higher rates, up to 32%.

The average card rate has declined only "because banks have figured out (other ways) to get their revenues," says Duncan MacDonald, a former group counsel at Citigroup. "These guys have figured out how to deconstruct pricing."

Rising demand for credit card securities enabled banks to become more innovative in raising rates and fees, says Nomi Prins, who formerly ran a Bear Stearns group that analyzed securitized consumer debt.

"As long as investor demand grew for credit card collateral embedded with these fees and higher rates, issuers knew they had a place" to offset their risk and boost their profits, says Prins, now a senior fellow at Demos.

Securitization gives banks "more of the upside with less of the downside," agrees Elizabeth Warren, a Harvard law professor. If a bank that sells off card debt doubles a borrower's interest rate, it will typically keep most of the profits from this increase — yet, may not bear all the exposure if the account later defaults.

Vernon Wright, former chief financial officer at MBNA, now part of Bank of America, says that selling off credit card debt doesn't give an issuer more incentive to raise card fees than if it held the loans on its books.

Banks may raise rates and fees if card defaults rise because these profits will be "part of the cash flow that's going to make up for the losses," says Wright, regarded as the "grandfather" of credit card securitization.

But the banks would do so, he adds, whether or not they sell off debt.

Indiscriminate lending

Tom Deutsch of the American Securitization Forum, a trade group for banks and investors, argues that by spreading the risk to investors, securitization has become "one of the largest reasons why credit is available to borrowers in low-income, minority neighborhoods."

But experts say card securitization led banks to offer too much credit, too fast, to too many, similar to what happened in the mortgage world.

Patrick Sargent, a partner at Andrews Kurth law firm, says that banks wanted to get as many cards securitized as possible. To do so, he says, they expanded lending indiscriminately.

"They were being too flip with underwriting," says Sargent, whose firm worked on some of the first card-securitization deals.

As securitization took off in the 1990s and boomed in the 2000s, banks' card mailings to households with less than $50,000 in income also surged, peaking in 2001 at a record 2.1 billion offers, compared with 1.2 billion offers five years before, according to Synovate Mail Monitor.

Lower-income consumers who carry a balance can be more profitable for banks than other borrowers.

A 2006 Demos study reveals that households with incomes below $25,000 are twice as likely to pay credit card rates of more than 20% than those earning $50,000 and five times more likely to pay such rates than those earning $100,000. Lower-income, single and minority borrowers were also more likely to pay late fees than others were.

"When you have higher risk, you have to charge more, which is what investors (in credit card securities) demand," says Michael Brosnan, a deputy comptroller at the Office of the Comptroller of the Currency, which regulates national banks.

Yet, in a society where credit has become a necessity rather than a luxury, many people who can ill afford it are now paying high rates on debt swollen with penalty fees.

Tim Bellamy, 35, of Grove City, Ohio, says he opened a card account in 2005 with the best of intentions: to fix a credit record marred by a bankruptcy filing.

Card offers poured in. He racked up $5,000 in card debt after his girlfriend lost her job and he had to pay the couple's bills. Eventually, he fell behind on card payments. The banks increased his rates and tacked on hundreds of dollars in fees.

"It's my fault I got in this problem, and I understand that banks need to make money," Bellamy says. "But they are ruthless."
Reply
#2
If credit card debt is hard to pay now, wait till the tax charges for the financial bailout begin to bite in earnest (after next year's election in the UK).

[Image: article-1159677-03C00321000005DC-173_634x312.jpg]

Tent cities spring up in the US due to mortgage repossessions:

http://www.dailymail.co.uk/news/worldnew...erica.html

Quote:Pictured: The credit crunch tent city which has returned to haunt America
By PAUL THOMPSON
Last updated at 12:35 PM on 06th March 2009
Comments (80)
Add to My Stories


A century and a half ago it was at the centre of the Californian gold rush, with hopeful prospectors pitching their tents along the banks of the American River.

Today, tents are once again springing up in the city of Sacramento. But this time it is for people with no hope and no prospects.

With America's economy in freefall and its housing market in crisis, California's state capital has become home to a tented city for the dispossessed.



Rich and poor: The tents and other makeshift homes have sprung up in the shadow of Sacramento's skyscrapers



Shanty town: The tent city is already home to dozens of people, many left without jobs because of the credit crunch

Those who have lost their jobs and homes and have nowhere else to go are constructing makeshift shelters on the site, which covers several acres.

As many as 50 people a week are turning up and the authorities estimate that the tent city is now home to more than 1,200 people.


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In a state more known for its fantastic wealth and the glitz and glamour of Hollywood, the images have shocked many Americans.

Conditions are primitive, with no water supply or proper sanitation.

Many residents have to walk up to three miles to buy bottled water from petrol stations or convenience stores.



Ben Cardwell, carries supplies to his tent at a homeless settlement



Tammy Day, a homeless woman, cooks potatoes on a campfire at the site

At other times, charity workers arrive to hand out free food and other supplies.

Joan Burke, who campaigns on behalf of the homeless, said the images of Americans living in tents would shock many.

'It should be an eye- opener for everybody,' she said. 'But we shouldn't just be shocked, we should take action to change things, because it's unacceptable.

'It is unacceptable that in this day and age we have gone back to a situation like we had during the Great Depression.'



Homeless: Keith and Tammy Day cook dinner

Authorities in Sacramento, where Governor Arnold Schwarzenegger has his office,
admit the sight of families living in such poverty is not pretty.
But faced with their own budget crisis and a £30billion deficit, they have had little choice but to consider making the tent city a permanent fixture.
The city's mayor Kevin Johnson said: 'I can't say tent cities are the answer to the homeless population in Sacramento, but I think it's one of the many things that should be considered and looked at.'


Shanty towns sprung up during the Great Depression as people lost their jobs and homes



Migrant Mother: Dorothea Lange's famous photograph from the Great Depression features Florence Owens Thompson, 32, a mother-of-three who had just sold the family's tent to buy food

As America's most powerful state California had the same gross domestic output as Italy and Spain, but it has been among the hardest hit by the recession and housing crisis.

Foreclosure rates last year rocketed by 327 per cent, with up to 500 people a day losing their home.

Coupled with massive job cuts that have seen one in ten workers laid off, many people who once enjoyed a middle class existence are now forced into third world conditions.

Former car salesman Corvin and his wife Tena are among the newest residents of the tent city.



Tent city residents queue up to receive supplies handed out by a local charity

The couple, who are in their fifties, lost their home and jobs around the same time.

With homeless shelters full in Sacramento, they had little choice but to use what savings they had left to buy a tent.

The couple admit they have yet to tell their grown-up children about their hand-to-mouth existence.

Tena said: 'I have a 35-year-old son, and he doesn't know. I call him, about once a month and on holidays, to let him know that I'm well and healthy.

'He would love me anyway, but I don't want to worry him.'

The shame of Sacramento's tent city was given a much wider airing after it was featured on the Oprah Winfrey show which is watched by more than 40million people a week.

Many of those who have found themselves homeless worked in the building trade.

But with no new home builds and as many as 80,000 people losing their job every month, there is little chance of employment. Governor Schwarzenegger last month approved a budget to address the state's deficit, ending a three-month stalemate among lawmakers.

As well as increasing taxes, he has imposed drastic cuts in education, healthcare and services that will affect everyone living in the state.

Many of those living in the tent city are pinning their hopes on President Obama's $787billion stimulus package which is aimed at rescuing the economy and creating jobs.

The President has also announced plans to save the homes of nine million people from foreclosure by restructuring their mortgage debt.
The shadow is a moral problem that challenges the whole ego-personality, for no one can become conscious of the shadow without considerable moral effort. To become conscious of it involves recognizing the dark aspects of the personality as present and real. This act is the essential condition for any kind of self-knowledge.
Carl Jung - Aion (1951). CW 9, Part II: P.14
Reply
#3
People will help themselves more or less but why doesn't the state of California give land to these people and get students at the architectural faculty of one or all of the universities to design sustainable dwellings and plant garden plots and get some of the big construction businesses to donate materials and they could build themselves decent homes. Most of the people there are from the building trade so the skills are there and the rest can be laborers, landscapers. Houses not to be sold just lived in and to build a sustainable community for the future. Seems logical to me.
"The philosophers have only interpreted the world, in various ways. The point, however, is to change it." Karl Marx

"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.

“I think it would be a good idea” Ghandi, when asked about Western Civilisation.
Reply
#4
Magda Hassan Wrote:People will help themselves more or less but why doesn't the state of California give land to these people and get students at the architectural faculty of one or all of the universities to design sustainable dwellings and plant garden plots and get some of the big construction businesses to donate materials and they could build themselves decent homes. Most of the people there are from the building trade so the skills are there and the rest can be laborers, landscapers. Houses not to be sold just lived in and to build a sustainable community for the future. Seems logical to me.

That's socialism and is verbotten.
The shadow is a moral problem that challenges the whole ego-personality, for no one can become conscious of the shadow without considerable moral effort. To become conscious of it involves recognizing the dark aspects of the personality as present and real. This act is the essential condition for any kind of self-knowledge.
Carl Jung - Aion (1951). CW 9, Part II: P.14
Reply
#5
In most places in the US homelessness is a crime and you can be arrested for it. Many are - or worse in some ways, just made to always move by the police - so a tent or even a box can't become 'home'. While there are a few homeless shelters, they are mainly only for women or women and children. Single men in many places are on year[s] long waiting lists and/or must wait until the weather gets very hot or very cold to enter. Possessions are not allowed beyond what is on your back and a very very small bag. Most are so horid and dangerous, people prefer the park, woods, whatever - and the risk of arrest or worse. About 5-10,000,000 are homeless [or semi-homeless] at any given moment in the 'richest' country on Earth. [depending on how you define it]. The 'official ' numbers are bad enough 3.5 million. Most homeless can not vote and are somtimes denied benefits poor homefull can get, as they can not PROVE they live in a certain county, city, state, etc. Shamefull and getting worse. The tolerance of tent cities and setting up car-camping areas is NEW since the economic collapse.

Familial composition
40% are families with children—the fastest growing segment.
41% are single males.
14% are single females.
5% are minors unaccompanied by adults.

39% of the total homeless population are children under the age of 18.
Ethnicity
49% are African American (compared to 11% of general population).
35% are Caucasian (under-represented compared to 75% of general population).
13% are Hispanic (compared to 10% of general population).
2% are Native American (compared to 1% of general population).
1% are Asian-American (under-represented compared to 4% of general population).
Health-concerns.
22% are considered to have serious mental illnesses, or are disabled.
30% have substance abuse problems.
3% report having HIV/AIDS.
26% report acute health problems other than HIV/AIDS such as tuberculosis, pneumonia, or sexually transmitted infections.
46% report chronic health conditions such as high blood pressure, diabetes, or cancer.
55% report having no health insurance (compared to 16% of general population).
58% report having trouble getting enough food to eat.
Backgrounds.
23% are veterans (compared to 13% of general population).
25% were physically or sexually abused as children.
27% were in foster care or similar institutions as children.
21% were homeless at some point during their childhood.
54% were incarcerated at some point in their lives.
Education
38% have less than a High School diploma.
34% have a High School diploma or equivalent (G.E.D.).
28% have more than a High School education.
Employment
44% report having worked in the past week.
13% have regular jobs.
50% receive less than $300 per month as income.
Location.
71% reside in central cities.
21% are in suburbs.
9% are in rural areas.

Length of current homeless period
5% Less than one week
8% Greater than one week, less than one month
15% One to three months
11% Four to six months
15% Seven to twelve months
16% Thirteen to twenty four months
10% Twenty-five to sixty months
20% Five or more years

There are many working homeless. High-class homelessness is living in a car [illegal in most all places and will get you both arrested and sometimes your car confiscated]. Luxury homelessness is in a tent. In campgrounds the laws usually do NOT allow persons without homes to camp. In the mountains of Colorado and in forested areas many homeless squat old miners shacks etc. The Forest Service hunts for ones that are being lived in and tears them down.
Reply
#6
Peter Lemkin Wrote:Backgrounds.
23% are veterans (compared to 13% of general population).
25% were physically or sexually abused as children.
27% were in foster care or similar institutions as children.
21% were homeless at some point during their childhood.

These proportions are quite similar, perhaps even larger, in the UK.

I've worked with grassroots (ie not Ministry of Defence) veteran's groups, and the spiral from young men experiencing wartime trauma, leaving the highly structured military to a largely unstructured civvy street, to a violent and self-destructive life on the streets, is a familiar story to them.

A familiar but still shameful story for TPTB.

As are the all-too-frequent cases of childhood abuse - whether within families or orphanages - and its consquences.

Meanwhile, the "bailed-out" bankers, kept temporarily afloat by our taxpayer money, carry on screwing ordinary folk.

:mad:
"It means this War was never political at all, the politics was all theatre, all just to keep the people distracted...."
"Proverbs for Paranoids 4: You hide, They seek."
"They are in Love. Fuck the War."

Gravity's Rainbow, Thomas Pynchon

"Ccollanan Pachacamac ricuy auccacunac yahuarniy hichascancuta."
The last words of the last Inka, Tupac Amaru, led to the gallows by men of god & dogs of war
Reply
#7
Quote:In most places in the US homelessness is a crime and you can be arrested for it.
I agree it is a crime but the criminal is not the homeless person but the society that does not provide for its citizens.


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A city in Brazil recruited local farmers to help do something U.S. cities have yet to do: end hunger.
[Image: 1x1trans.gif]

“To search for solutions to hunger means to act within the principle that the status of a citizen surpasses that of a mere consumer.”
CITY OF BELO HORIZONTE, BRAZIL


[Image: 1x1trans.gif][Image: 49Lappe_schoollunch.jpg][Image: 1x1trans.gif][Image: 1x1trans.gif]More than 10 years ago, Brazil’s fourth-largest city, Belo Horizonte, declared that food was a right of citizenship and started working to make good food available to all. One of its programs puts local farm produce into school meals. This and other projects cost the city less than 2 percent of its budget. Above, fresh passion fruit juice and salad as part of a school lunch.
Photo by Leah Rimkus[Image: 1x1trans.gif]In writing Diet for a Small Planet, I learned one simple truth: Hunger is not caused by a scarcity of food but a scarcity of democracy. But that realization was only the beginning, for then I had to ask: What does a democracy look like that enables citizens to have a real voice in securing life’s essentials? Does it exist anywhere? Is it possible or a pipe dream? With hunger on the rise here in the United States—one in 10 of us is now turning to food stamps—these questions take on new urgency.To begin to conceive of the possibility of a culture of empowered citizens making democracy work for them, real-life stories help—not models to adopt wholesale, but examples that capture key lessons. For me, the story of Brazil’s fourth largest city, Belo Horizonte, is a rich trove of such lessons. Belo, a city of 2.5 million people, once had 11 percent of its population living in absolute poverty, and almost 20 percent of its children going hungry. Then in 1993, a newly elected administration declared food a right of citizenship. The officials said, in effect: If you are too poor to buy food in the market—you are no less a citizen. I am still accountable to you.
The new mayor, Patrus Ananias—now leader of the federal anti-hunger effort—began by creating a city agency, which included assembling a 20-member council of citizen, labor, business, and church representatives to advise in the design and implementation of a new food system. The city already involved regular citizens directly in allocating municipal resources—the “participatory budgeting” that started in the 1970s and has since spread across Brazil. During the first six years of Belo’s food-as-a-right policy, perhaps in response to the new emphasis on food security, the number of citizens engaging in the city’s participatory budgeting process doubled to more than 31,000.
[Image: 49Lappe_produce.jpg][Image: 1x1trans.gif][Image: 1x1trans.gif]The city of Belo Horizonte puts “Direct From the Country” farmer produce stands throughout busy downtown areas.
Photo by Leah Rimkus[Image: 1x1trans.gif][Image: 1x1trans.gif]The city agency developed dozens of innovations to assure everyone the right to food, especially by weaving together the interests of farmers and consumers. It offered local family farmers dozens of choice spots of public space on which to sell to urban consumers, essentially redistributing retailer mark-ups on produce—which often reached 100 percent—to consumers and the farmers. Farmers’ profits grew, since there was no wholesaler taking a cut. And poor people got access to fresh, healthy food.When my daughter Anna and I visited Belo Horizonte to write Hope’s Edge we approached one of these stands. A farmer in a cheerful green smock, emblazoned with “Direct from the Countryside,” grinned as she told us, “I am able to support three children from my five acres now. Since I got this contract with the city, I’ve even been able to buy a truck.”
The improved prospects of these Belo farmers were remarkable considering that, as these programs were getting underway, farmers in the country as a whole saw their incomes drop by almost half.
In addition to the farmer-run stands, the city makes good food available by offering entrepreneurs the opportunity to bid on the right to use well-trafficked plots of city land for “ABC” markets, from the Portuguese acronym for “food at low prices.” Today there are 34 such markets where the city determines a set price—about two-thirds of the market price—of about twenty healthy items, mostly from in-state farmers and chosen by store-owners. Everything else they can sell at the market price.
[Image: 1x1trans.gif][Image: 49Lappe_markets.jpg][Image: 1x1trans.gif][Image: 1x1trans.gif]ABC bulk produce markets stock the items that the city determines will be sold at a fixed price, about 13 cents per pound.
Photo by Leah Rimkus[Image: 1x1trans.gif]“For ABC sellers with the best spots, there’s another obligation attached to being able to use the city land,” a former manager within this city agency, Adriana Aranha, explained. “Every weekend they have to drive produce-laden trucks to the poor neighborhoods outside of the city center, so everyone can get good produce.” Another product of food-as-a-right thinking is three large, airy “People’s Restaurants” (Restaurante Popular), plus a few smaller venues, that daily serve 12,000 or more people using mostly locally grown food for the equivalent of less than 50 cents a meal. When Anna and I ate in one, we saw hundreds of diners—grandparents and newborns, young couples, clusters of men, mothers with toddlers. Some were in well-worn street clothes, others in uniform, still others in business suits.
“I’ve been coming here every day for five years and have gained six kilos,” beamed one elderly, energetic man in faded khakis.
“It’s silly to pay more somewhere else for lower quality food,” an athletic-looking young man in a military police uniform told us. “I’ve been eating here every day for two years. It’s a good way to save money to buy a house so I can get married,” he said with a smile.
[Image: 49Lappe_restaurant.jpg][Image: 1x1trans.gif][Image: 1x1trans.gif]The line for one of three “People’s Restaurants” a half hour before opening time. Meals cost about 50 cents; diners come from all socio-economic groups.
Photo by Leah Rimkus[Image: 1x1trans.gif][Image: 1x1trans.gif]No one has to prove they’re poor to eat in a People’s Restaurant, although about 85 percent of the diners are. The mixed clientele erases stigma and allows “food with dignity,” say those involved.Belo’s food security initiatives also include extensive community and school gardens as well as nutrition classes. Plus, money the federal government contributes toward school lunches, once spent on processed, corporate food, now buys whole food mostly from local growers.
“We’re fighting the concept that the state is a terrible, incompetent administrator,” Adriana explained. “We’re showing that the state doesn’t have to provide everything, it can facilitate. It can create channels for people to find solutions themselves.”
For instance, the city, in partnership with a local university, is working to “keep the market honest in part simply by providing information,” Adriana told us. They survey the price of 45 basic foods and household items at dozens of supermarkets, then post the results at bus stops, online, on television and radio, and in newspapers so people know where the cheapest prices are.
The shift in frame to food as a right also led the Belo hunger-fighters to look for novel solutions. In one successful experiment, egg shells, manioc leaves, and other material normally thrown away were ground and mixed into flour for school kids’ daily bread. This enriched food also goes to nursery school children, who receive three meals a day courtesy of the city.



“I knew we had so much hunger in the world. But what is so upsetting, what I didn’t know when I started this, is it’s so easy. It’s so easy to end it.”

The result of these and other related innovations?
In just a decade Belo Horizonte cut its infant death rate—widely used as evidence of hunger—by more than half, and today these initiatives benefit almost 40 percent of the city’s 2.5 million population. One six-month period in 1999 saw infant malnutrition in a sample group reduced by 50 percent. And between 1993 and 2002 Belo Horizonte was the only locality in which consumption of fruits and vegetables went up.
The cost of these efforts?
Around $10 million annually, or less than 2 percent of the city budget. That’s about a penny a day per Belo resident.
Behind this dramatic, life-saving change is what Adriana calls a “new social mentality”—the realization that “everyone in our city benefits if all of us have access to good food, so—like health care or education—quality food for all is a public good.”
The Belo experience shows that a right to food does not necessarily mean more public handouts (although in emergencies, of course, it does.) It can mean redefining the “free” in “free market” as the freedom of all to participate. It can mean, as in Belo, building citizen-government partnerships driven by values of inclusion and mutual respect.
And when imagining food as a right of citizenship, please note: No change in human nature is required! Through most of human evolution—except for the last few thousand of roughly 200,000 years—Homo sapiens lived in societies where pervasive sharing of food was the norm. As food sharers, “especially among unrelated individuals,” humans are unique, writes Michael Gurven, an authority on hunter-gatherer food transfers. Except in times of extreme privation, when some eat, all eat.
Before leaving Belo, Anna and I had time to reflect a bit with Adriana. We wondered whether she realized that her city may be one of the few in the world taking this approach—food as a right of membership in the human family. So I asked, “When you began, did you realize how important what you are doing was? How much difference it might make? How rare it is in the entire world?”
Listening to her long response in Portuguese without understanding, I tried to be patient. But when her eyes moistened, I nudged our interpreter. I wanted to know what had touched her emotions.
“I knew we had so much hunger in the world,” Adriana said. “But what is so upsetting, what I didn’t know when I started this, is it’s so easy. It’s so easy to end it.”
Adriana’s words have stayed with me. They will forever. They hold perhaps Belo’s greatest lesson: that it is easy to end hunger if we are willing to break free of limiting frames and to see with new eyes—if we trust our hard-wired fellow feeling and act, no longer as mere voters or protesters, for or against government, but as problem-solving partners with government accountable to us.
Frances Moore Lappé wrote this article as part of Food for Everyone, the Spring 2009 issue of YES! Magazine. Frances is the author of many books including Diet for a Small Planet and Get a Grip, co-founder of Food First and the Small Planet Institute, and a YES! contributing editor.The author thanks Dr. M. Jahi Chappell for his contribution to the article.
http://www.yesmagazine.org/article.asp?ID=3330
"The philosophers have only interpreted the world, in various ways. The point, however, is to change it." Karl Marx

"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.

“I think it would be a good idea” Ghandi, when asked about Western Civilisation.
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#8
The Marines will be in Belo by sun-up! How dare they! Don't they know who we are and that no one gets a free lunch [or breakfast or dinner] here - except the rich?!
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