Synopses & Reviews
The financial crisis lay bare how the financial system failed the nation but left hidden the many ways in which that system still fails the most vulnerable Americans. In this volume, Michael S. Barr explores how low- and moderate-income households cope with financial stress, use financial services to make ends meet, and often come up short.
Reporting on the empirical results of an in-depth survey of 1,000 households in metropolitan Detroit, Barr finds that high-cost financial services, barriers to saving, lack of insurance, and credit constraints contribute to poverty and other socioeconomic problems. He describes how households attempt to overcome these barriers, juggle expenses and borrowing every month, and find ways to save. The author shows, for example, how tax refunds for working families can be an important avenue for saving but are often diverted in no small part to pay for expensive refund anticipation loans or check cashing services.
No Slack describes the use of banks as well as alternative financial services providers, such as check cashers, payday lenders, pawnshops, and the like. Particularly salient in light of the nation's housing crisis, the author also explains how many low-income and minority households received high-cost, complicated mortgages.
Barr analyzes how technological innovation, particularly payment cards, can help overcome barriers to financial services for these households. He then explores how insights from behavioral economics can contribute to private sector and governmental initiatives to improve financial services for households and lead to better financial services regulation. The book concludes with a set of policy recommendations to improve consumer protection and financial access as we rebuild our financial system in the years ahead.
The financial crisis exposed the potentially unsavory results of the interaction between low- and moderate income households and alternative and mainstream financial institutions. Many households were overleveraged or paid high costs for financial services, while others lacked access to useful financial products that can cushion against economic instability. The financial services system is not well designed to serve low- and moderate-income households, leaving them without financial slack: they did not have adequate breathing room for making the financial adjustments that would permit them to better meet their own needs. No Slack shows us why these families were the least prepared to handle the shock of the deep recession.
This pivotal analysis focuses on the Detroit metropolitan area's low- and moderate-income neighborhoods, which are similar to those of other Rust Belt communities. The Detroit Area Household Financial Services study --conducted at the height of the subprime lending boom --examines these households' decisionmaking processes, behaviors, and attitudes toward a full range of financial transactions.
No Slack reveals widespread problems in home mortgage lending, the common threads among people who file for bankruptcy, the reasons so many households are unbanked, and how behaviorally informed financial regulation can make the market work better. Drawing on his deep policy experience, Michael Barr advocates helping families seek financial stability in three primary ways: enhancing individuals' financial capability, using technology to promote access to financial products and services that meet their needs, and establishing strong protections for consumers.