The Residual System in the US - Essay Example

The Residual System in the US Introduction The recent economic crisis that is still on-going has its origins in the home mortgage program that perpetuated some irresponsible lending practices. Potential borrowers were granted loans sometimes in disregard of one of the most basic banking principles – an investigation and a thorough evaluation of a borrower’s capacity to pay. In many instances, people who can hardly afford to make the monthly amortization payments were given loans far in excess of anything the pay slips indicated. Actually the home mortgage meltdown would have been tempered to something less bad than what it is today if bankers and borrowers exercised a modicum of caution. Property asset bubbles occur every time during a normal business cycle and especially during boom times but the severity of the current downturn and subsequent bursting is something unique. Many had compared its deleterious effects to the Great Depression of the 1930s when the stock market collapsed and millions were thrown out of work. The financial crisis led to a tightening of credit such that businesses find it hard to borrow money to finance expansion plans. This in turn caused an economic contraction in terms of employment and industrial production, leading to a vicious downward cycle that has continued until today although it had slowed down a bit. The end result is that once prosperous families find themselves on the bread line when their primary breadwinners lost their once secure jobs. It is as if the whole sky had fallen down on them and their own version of the American dream had turned into a nightmare of waiting in job lines. A cherished dream of self-worth was destroyed by these job losses when a primary sense of achievement is how much one can afford to buy in the first place. An individual’s self worth was once measured in fame and personal wealth but not anymore today. Discussion America’s social welfare system is called a residual-type of program compared to other Western industrialized nations where they are a central part of government welfare policies. By residual, this means aid is given only to those who were very poor, to those who were chronically unemployed, the sickly or the elderly. In other words, the social welfare programs are intended for individuals who cannot make it on our free market system of competitive employment. Welfare aid is given only temporarily to supposedly those people who were down on their luck and had fallen on hard times. The other industrialized countries of Europe (especially Scandinavian countries like Sweden) operate on virtual socialism in which social welfare is supported by very high tax rates and a working wealth transfer and distribution system such that state aid is an alternative to the usual social support systems like the family and the free capitalist market. The residual system in the US has been put to the test by the severity of economic downturn and the magnitude of job losses which cut across almost all industry sectors. In this regard, people who had taken to the American dream of owning their homes found out to their dismay they can no longer afford to pay the monthly amortization payments. A sad consequence is property foreclosure because home borrowers can only stay out of work for so long before their savings and other social welfare benefits dry up and they ran out of other options to meet those monthly payments. Most news we see today in newspapers and television often focus on the hardships of the married couples, especially those with young kids, to stay afloat in these trying economic times. What is not shown is the adverse effects on these children of being thrown out from their own homes. Being homeless is a very traumatic event for these kids, both emotionally and psychologically. It is obviously not easy for everyone but its bad effects on family relationships affects children the most in terms of a lost sense of security. The loss of a cherished home can be compounded by difficulty in getting adequate food on the table by parents who are out looking for work and may come home empty handed. The American social welfare system is now being increasingly seen as an acceptable alternative to going hungry and no longer with the stigma of being a charity or a doleout intended only for the dregs of society. Many respectable middle-class families have found out they had slid downwards on the poverty line with no immediate relief in sight unless the economy bounces back quickly and creates again those millions of well-paying jobs lost. A high unemployment rate had weakened the labor unions but unexpectedly, it did not weaken the welfare state and even strengthened it by showing how important it is in a downturn as severe as this current one (Pierson 151). This is why retrenchment programs about cutting back on some social welfare benefits are meeting such stiff opposition from everywhere.1 Some families had gone on to living in temporary shelters such as tent cities or in trailer parks. Those lucky enough to have relatives willing to take them in can heave a sigh of relief but the ultimate reality is they had been given a raw deal by an economy that turned sour based on the wrong societal values we had imposed on ourselves based on individual achievements and materialism. For the parents, the risks they face are stress and probably divorce. For the children who can realize what is happening, homelessness has far more serious implications such as poor health care, a decline in school attendance or dropping out altogether, increased truancy or vagrancy and a sharply reduced standard of living (Attles 15). Congress had passed laws to avert a growing national problem. Among these laws is the Stewart B. McKinney Homeless Assistance Act of 1987 because the government realized that homelessness threatens the nation’s productivity and a total loss of children’s lives and potential. There were so many other federal and state laws passed since then to help address this problem but one of its primary and very strikingly useful provision is to allow homeless children continued access to education. However, the sheer magnitude and depth of the present economic downturn has placed so many other families at growing risk of homelessness due to the slow uptake in some loan modification programs offered by the banks to those financially distressed. If the present homeowners who are technically already in default will not avail of these concessionary programs, the banks will have no choice but to repossess and throw these families out. A financial crisis this severe is exacting a heavy toll on family life and it is particularly hard on the children who often begin to exhibit some behavioral problems and stress-induced mental disorders (Luo, the NYT, 1), “children are the hidden casualties of this recession.” Children affected by the recession may not express themselves openly about their feelings but often use other means such as an angrier attitude towards everything in their lives or resorting to more temper tantrums. Many studies have shown repeatedly that kids from low-income groups are likely to repeat a grade or drop out of school. Other ill side effects are the results of a changed family atmosphere dynamic due to more conflicts or arguments turn nasty regarding the family’s finances about a parental job loss (especially fathers) and children get affected through lower self-esteem and emotional worth. If a parent becomes unemployed, this often results to depression, emotional withdrawal or in more frequent parental conflicts that affect the children more than their financial woes.2 Conclusion The recent mortgage meltdown has resulted in unprecedented numbers of families being evicted from their homes. Children are usually hapless victims of this foreclosure mess but they are often overlooked when government and health authorities consider the overall family well-being. Kids are badly affected by the sudden loss of a home that is viewed as something very secure to them and this unexpected upset in their routine lives places a high emotional and psychological toll on their well-being. This disruption can result in children who grow up to be stunted emotional and intellectual adults because of increased absences from school or totally dropping out of school for a year or altogether abandoning school that results in fewer or reduced job opportunities later in life. It is a serious social issue but social workers are often overwhelmed by the sheer enormity of the problem with so many families losing their homes to foreclosures. A big number of homeless children seriously depletes a nation’s productivity when these kids end up not finishing school altogether due to the problem of homelessness. Another very serious problem is the increased number of people at risk of losing their homes due to failure to complete paperwork on their loan modification programs that the government had extended to those at risk so they can continue staying in their homes. This $75 billion program is about to end soon (later this year) and modifications have to be permanent before homeowners can avail of its benefits like reduced rates. The recession’s impact is worst on the children but they sometimes never open up completely. The nation’s array of various government aids like unemployment insurance and its cash welfare program is strained to the limits. New pressures also include the sudden increased demands on health care3 and even use of food stamps which are no longer stigmatized. A lot of families now depend on food stamps and the eclectic mix of users include married couples, single parents, the chronically poor, the newly unemployed, workers on reduced working hours or on furloughs and the recipients of welfare checks (DeParle, NYT, p. 1). Works Cited Attles, H. S. Children of Poverty: The Effects of Homelessness on the Academic Achievement of Children. London, UK: Taylor & Francis, 1997. Print. DeParle, J. & Gebeloff, R. (November 28, 2009). “The Safety Net: Food Stamp Use Soars and Stigma Fades.” The New York Times. Web. Accessed December 01, 2009 from http://www.nytimes.com/2009/11/29/us/29foodstamps.html?em Lou, M. (November 11, 2009). “Job Woes Exacting a Toll on Family Life.” The New York Times. Web. Accessed December 01, 2009 from http://www.nytimes.com/2009/11/12/us/12families.html Pierson, P. The New Politics of the Welfare State. Baltimore, MD: Johns Hopkins University Press, 1996. Print. Read More