If I were to attempt to explain the present American economy, to do so honestly I would require the able services of the late writer of the "Twilight Zone" television series, Rod Serling. For it is only with his writing capabilities to envision the bizarre could we even begin to explain a system that contains so many gaps that defy common logic.

No, I am not a University Trained Economist, nor am I a CPA or even an H&R Block tax consultant - if you can call them that. On the other hand, I am a well-educated person with more that a passing familiarity with mathematics due to my technical background (chemistry) - and I hold a real estate license. But just to be certain that I knew what I was talking about, I did seek the sage advice of, not one, but three experts in the study of economics at local colleges and universities.

Therefore, when I am informed of an economic condition by either the televised media, periodical publications, or a host of dedicated financial columns, I fully expect to be able to fathom at least it's surface meaning. I am sad to report, however, that of late that has not been the case. Something is definitely wrong, for I refuse to accept that my intelligence is not equal to these 'Financial Gods of the Media.'

Genesis of the Mortgage Crisis

A perfect example of this quandary, not only for myself, but the entire American 'working class' is the Mortgage Crisis of late. Let's start out with what I call the 'Working Class Equation.' This is how Lower Middle Income to Upper Middle Income Americans were sold a deceptively packaged economic disaster in the making, fraudulently disguised as a 'sure bet' Yellow Brick Road to the American Dream - home ownership.

Home Ownership: A Fading American Dream

Working Class home ownership will definitely not 'vanish' from the American landscape, but it will recede from the view of achievability for a sizable majority of its citizens. Referencing a 2006 paper published by the Social Science Research Council -SSRC, and authored by Peter Strauss (writing under the pseudonym of Jacob S. Hacker), Associate Professor of Political Science at Yale University, has stated this point eloquently. The paper is entitled - "The Privatization of Risk and the Growing Economic Insecurity of Americans" yields the following revealing excerpt:

"Owning a home, for example, is beneficial to families and society. But it entails substantial financial risk (Shiller 2005). As families have bid up home prices in areas with good schools and strong communities (Warren and Tyagi 2003), more and more of family finances are tied up in risky home investments...".

Therefore, it becomes's very easy to work out what really happened to bring this mortgage crisis down upon us. Based upon a train of events so clear that just about anyone can track them, what took place was the following:

By the standard of the 'new' credit assessment processing environment of the financial and banking industry (note I have stated "Industry" not intuitions), virtually all of the Lower Middle Income and approximately half of the Upper Middle Income are now regarded as 'credit deficient.'

In short, this means that in the eyes of these 'power of life and death' elite credit brokers, they are 'low credit rated' and high risk loan applicants. And since mortgages are no longer doled out by the neighborhood bank, but instead are issued from conglomerate banking institutions, who then bundle and resell them to domestic and foreign interests, they are left with only a small pool of potential domestic borrowers whose credit status is considered to be acceptable. The mortgages so accorded are referred to as 'Prime Rate Mortgages.'

This self-imposed practice, however, restricted the major banks, mortgage and finance companies from access to a vastly larger and more lucrative pool of potential homeowner applicants: those whose credit ratings are not in the 'safe to loan to' bracket. In other words, they had painted themselves into a virtual corner. But these Low Income Middle-Class wager earners (through the cash flow engine of multiple jobs, or the combined incomes of two or more individuals), more often than not, had the initial 'minimum' required investment' to make. Therefore, the profit that could be derived from addressing the home ownership quest of so-called 'risky applicants', could only be garnered by the invention of a totally separate category of the mortgage market. And so be it we had the birth of the financial instrument that would come to be referred to as the - 'Sub-Prime Home Mortgage.'

However, before we go into this new category, for a full understanding of what has come down upon the American people, we need to know why such a group as the 'sub-prime mortgage candidate' even exists. Who are these people? How did they come about? Well they are the surviving remnants of the once vibrant and thriving Middle-Class of the 1940's to 70's - your grandparents generation

The Middle Class Economic Plague:Downsizing and Outsourcing

At the end of World War ll, it took approximately two to three years for the Middle-Class to develop a solid social structure, and to exhibit a phenomenal steady growth - right into the early 1970's. And with their advance so grew the fortunes of America: FDR's dream and prophecy for the Middle Class of "....a chicken in every pot and two cars in every garage." began to look achievable after all. American servicemen and women came home from the war, took full advantage of the G. I. Bill to finance their higher education, purchased modest homes on the new FHA mortgage loan system, achieved skilled jobs in industry and began to raise families. In turn, their offspring would go on to follow this template of social and economic success, and continued to do so - until sometime in the late 1970's.

It was during this time that the computer became readily accessible, not only to the private citizen, but to the captains of industry as well. And for the first time in industrial history they were given the opportunity to effectively calculate the cost of a well-educated skilled employee. Their eventual conclusion was that, on average, such employee staffing cost too much and severely cut into their profit margin. So they began to - downsize - this mid-management workforce. In the initial phase, that target group happened to be heavily populated by the - mid to Upper Income Middle-Class.

So financially successful was this process in increasing their profits, they then decided to go one step further, and proceeded to downsize their manufacturing workforce as well. The corporate world accomplished this feat by outsourcing 'manufacturing' jobs to foreign markets with lower cost workers. This outsourcing effectively cut the economic legs from under the - Lower Income Middle-Class.

Of course, once started, the process did not stop there. In the nineties America was rapidly moving away from manufacturing and well on its way to becoming a 'service economy'. But the American worker was not initially willing to work for the low Minimum Wage positions that were replacing their former higher wage manufacturing jobs. In fact, they rebelled in the only way they knew how - they appealed to their congressional representatives. Unfortunately for them, those representatives had already been bought, paid for and virtually owned by industry and corporate America.

As running for office became increasingly expensive, with costs ballooning well beyond the fund-raising capabilities of the average congressperson, more and more they began turning their productive attention toward being re-elected, and away from satisfying the elected requirements of their office. Very soon, the vacuum in the congressional campaign wallet began to be filled from the coffers of the corporate world, and more and more they demanded compliance with their wishes.

This process began the slow but ever increasing erosion of the American Middle Class, the economic engine and backbone of all that we have become as a nation, should be referred to for what it really is: an act of Treason.

Structure of the American Middle Class Identity

So who is the American Middle-Class and how does the current mortgage crisis affect them? Well it did not affect to any major degree that initial Middle Income group who made it after World War ll. But it is affecting about 35 percent of their offspring who were trying to upgrade to larger newer homes and, for the most part, it is coming down very hard on their grandchildren who were endeavoring to be first time home buyers.

Yet despite this glaring fact, it is not unusual to hear the common man or woman on the street, usually a gainfully employed homeowner state that these people, without any outside assistance, got 'themselves' into trouble by - buying homes they knew they could not afford.

The "Achilles Heel" of the Middle-Class is a symptomatic fragmentation at the base of this very important socioeconomic group : many regard themselves as a separate distinct economic identity. They regard themselves as a sort of undiscovered bottom rung of the 'upper class.' - they're not. But this prejudicial belief allows them to be split politically into large subsections that spew such criticism. And it is particularly pronounced when speaking to those who work in municipal or federal Middle Income wage positions: such as those employed in the by the United States Postal Service. These federal union protected jobs are heavily weighted with tax-payer-provided benefits, and their employee retirement is guaranteed by a well-funded private pension system.

These securely vested individuals regard themselves as economically safe and somewhat above their everyday-working brethren, in what they consider to be a secure employment status. Therefore, they feel completely free to rain down such derogatory and untrue assessments upon fellow working Americans not so fortunate to share such secure positions.

To this attitude I am moved to state in utter disbelief - really! Do these highly judgmental fellow Middle-Class citizens honestly believe there is a subgroup of Americas out there, willingly working multiple exhausting Minimum Wage jobs for years, all to earn the down payment for a piece of the American Dream - their own home? And insane as it may sound, knowing at the time that, in the end, they would not be able to afford those homes? Of course not. No one is that stupid!

Any attempt to blame the current Sub prime Mortgage mess on these people would be criminal. No one would be so foolish to labor so hard to earn the down payment on a home they "knew" they couldn't afford or, in the end, keep. They had to be sold this idea.

The Real Subprime Culprits

The blame must be placed squarely of the heads of the Mortgage Originators within the banks and financial institutions, and in some instances operating independently. They committed the act of selling homes to people who were 'financing novices' , and who were never made fully aware that they could not withstand an increase in their initial interest rate. Instead, the originators convinced them that their homes would appreciate to a level that would allow them to refinance to cover the ballooned interest rate. But at no time did they mention that those homes, purchased in a hot market, were over valued to begin with. And in most cases, they simply neglected to spell out the full consequences that could ensue when the balloon payments kicked in, and those homes could not be refinanced. Nor was there any taking into account that the fudged figures worked out to reflect mortgage affordable income to the lending institutions, were in fact an amalgam of two or more sets of multiple incomes masquerading as one - which normally we refer to as Fiction.

In fact, the Lower Income Middle-Class can best be describes as was revealed in the previously excerpted paper published by the SSRC:

"...On the other hand, family incomes have certainly increased in the United States since the late 1970s—particularly at the top of the economic ladder. Yet in the middle of the economic ladder, the average rise has been surprisingly modest: median family incomes increased by around 15 percent between 1979 and 2000. Furthermore, about three-quarters of the rise in median family incomes, according to Jared Bernstein and Karen Kornbluh, can be accounted for by the increasing work hours of women. Median families are richer, albeit modestly so. But they are richer not principally because employees are earning more, but because they are working more hours than they used to.

Rising economic volatility, in short, is not the result of massively improved social mobility or runaway prosperity for the middle class. Instead, it appears to result from the complex interaction of two profound changes in the economic environment of middle-class families: rising job instability and the transformation of the American family.(Click here to read entire article)

That's correct! The American Middle Income 'lifestyle' is rapidly becoming a two income per family, two jobs per person reality. Welcome to the New America - back to the beginning.

Sub-Prime Mortgages Didn't Have to Be

The truth in this matter lies in the fact that the "Sub-Prime" home mortgage, as a financial instrument, was invented specifically to accommodate the desires for home purchase by the Middle-Class home buyer. And it was equally designed to do so at a substantial profit to the mortgage lender and, for the record, everyone attached to the chain that led to the sale. However, what was left out of that revelation was that the institutions who made these 'magic-mortgages' available, were in fact the same ones who made it necessary for the Middle-Class homebuyer to need such a method of home ownership finance. You see, it was these institutions, originators of the 28 percent credit card rate (the first ever corporate license to steal), who invented the Borrower's Credit Rating System, that made it virtually impossible for a mid-income borrower to obtain a standard low interest mortgage.

There was absolutely no need for lending institutions to develop the Sub-Prime Mortgage. The needs of the Middle to lower Middle Income could just as easily have been addressed by the following simple system:

(A) Insert that five-year balloon payment at the beginning of the mortgage process. This would allow even the most dim witted of applicants to clearly discern if they could or could not afford the home they desired, or any home purchase at all. And this process would cull the field, immediately, of those who could not qualify..

(B) Of those applicants who qualified and were granted a mortgage, decrease the balloon payment by one fifth (20 percent) each year if payments are made in a timely fashion.

(C) Upon their achieving the fifth year, if all has gone well to the lending institution's satisfaction, drop the rate to that of those who qualified for a standard low interest mortgage.

The advantage to the creditors and lending institutions is that they would, in the end, gain a very lucrative risk payment income over a five-year payment period. And needless to say, they would end up with a reasonably safe pool of long-term mortgages.

Of course, this conservative lending process would not have netted them the expected 'tidal wave' of long-term profit they were seeking. Instead, driven by greed, they settled upon a process that has brought down upon them and the country a tidal wave of debt.

The Shifting Middle-Class Economic Identity

Taking all of this into account, you will also notice that the description of Middle Class has been made deliberately amorphous: so as to change with the tone the presenter wishes to effect. Sometimes they are referred to as Middle Income, but quite often as Median Income as well. And sometimes they are meshed in conveniently as a amalgamation of the middle and lower income described as the 'Working Class.'

In reality, the Middle-Class is composed of three parts: The Central Core who can earn up to $75,000 per year, the Upper Level who can earn up to $150,000 per year, and the Lower Caste - who, depending geographical location within the country, usually earn just enough to remain teasingly above the federal poverty line - $27, 000 to $37,000 (sometimes referred to as the - working poor). Surprisingly however, very few of those who should recognize these facts actually do.

On a recent edition of the Sunday news show "This Week", conservative columnist and weekly roundtable participant, George Will, made a most remarkable statement for a man normally so astute. In revealing his political distaste for the SCHIP program for Lower Middle income children, he made the remark that if it were ever made law, "...some father out there earning $80,000 could qualify for it."

Mr. Will is apparently blind to the fact that a family man who is earning $80,000 per year is indeed Middle Income. Should he be the sole income for a family of three (himself, wife and child) and is 'downsized' in the present economic climate, within months he and his family could easily enter the realm of the 'working poor.' And should that family be earning $80,000 as the result of two adult earners making $40,000 a year, the loss of one job or illness takes them right to that feared bottom tier.

Unfortunately, even with this breakdown into earning ranges Middle-Class remains difficult to define. The reason for this confusion being that various areas of the nation dictate not only wages, but cost of living standards as well. Such a status takes the quest for a Middle-Class unified national identification, from the difficult to the near impossible. While at the same time it leaves this vital socioeconomic group at the mercy of, and exposure to, the political exploitation of both politicians and pundits alike. However, if this group ever did manage to get their political act together and voted as a single force, they could finally elect the leaders necessary to address their specific needs.

Middle America's Struggle to Stay Afloat

It must always be remembered that no developed society has ever survived the loss of its Middle-Class. Therefore, at a time when newly reconstituted countries like Russia and China, and emerging industrial powerhouses such as India are struggling to build a Middle-Class, one has to question the almost insane dedicated domestic economic policy in this country to destroy America's Middle-Class. It makes no sense at all.

Your comments - The voices of our readers

Dear CI, You have really hit it on the head this time.  My wife and I can't find any argument with this commentary. We see it all around us here in Indiana.  What a mess.  What else is there to say?  It's a mess. B. Stafford, Elkhart, IN