Profiting from Food Stamps, Student Loans, Unemployment

Wall Street, US Congress, Obama Cash-in

Despite being the richest country in the world, poverty remains an important social issue in the United States. All too often poverty in America is used as a political weapon by both political parties to galvanize their voting base. What is lost in the midst of such politicking is the crony connection of corporations that have positioned themselves to profit from poverty. The welfare programs we use to attempt to alleviate poverty actually play directly into the plans of companies that lobby on behalf of legislation lauded as anti-poverty programs. Rather than overcoming poverty, these programs line the pockets of their promoters. Such crony connections must end.

– Government Accountability Institute

According to the US Census Bureau’s Median Value of Debt by Household (2011), the median household debt (both secured and unsecured) for 35-44 year olds was $108,000 (USD); for those 45-54, $86,500; and for 55-64 age group it was $70,000. The data in the Census Bureau report also shows that the less formally educated one is the less debt one has.

The median debt for someone with no high school diploma is $20,000 (with a high school diploma is $42,000), while the median debt for a holder of a graduate or professional degree is $130,705. So while America’s educational leaders say that a college degree will likely lead to increased income over the years, they don’t mention that secured and unsecured debt increases the “smarter” one becomes.

Debt for You, Profit for Them

Maybe Americans should dump the pursuit of a college degree particularly in the face of rising interest rates for federal student loans and increased tuition and ancillary fees at colleges and universities across the land. High interest rates (the cost of money) on student loans can also serve as a barrier to college entry. Perhaps the “hidden hand of the market” is sending a message of some sort, that the financially sound path is to get an education in the 21st Century trades that combine, say, computers and engines or computer systems and networks. Add a Cisco or Microsoft certification to the tradecraft and a job for life is possible. But buyer beware, earning an Associate’s Degree earns you a median debt of $63,000.

Moreover pushing the myth that a college education is a must-have in the USA tends to generate excellent profits for investors, and makes college/university presidents, administrators and senior faculty, quite comfortable. Take the case of Sallie Mae. According to the Huffington Post’s September 2013 report “Sallie Mae Profit Boosts College Endowments and Pension Funds As Students Pay More”:

University endowments and teachers’ pension funds are among big investors in Sallie Mae, the private lender that has been generating enormous profits thanks to soaring student debt and the climbing cost of education…previously unreported investments [obtained by Huffington Post] mean that education professionals are able to profit twice off the same student: first by hiking the cost of tuition, then through dividends and higher valuations on their holdings in Sallie Mae, the largest student lender and loan servicer in the country, which profits by charging relatively high interest rates on its loans and not refinancing high-rate loans after students graduate and get well-paying jobs. Sallie Mae is a former government-sponsored enterprise that was fully privatized in 2004 and now trades publicly as SLM Corp…

Sallie Mae reported $939 million in net income last year, the highest since 2006. The publicly-traded company, which enjoys a government guarantee on most of its $174 billion in assets, has been profitable in eight of the last 10 years, generating a cumulative $7.3 billion profit. Its shares have risen 54 percent over the past year, outpacing the 19 percent gain in the Standard & Poor’s 500 Index, America’s benchmark equity gauge…The endowments of Furman University, Harvard University, Mount Holyoke College, and University of Michigan all hold stakes in Sallie Mae through their investments in Highfields Capital Management, a hedge fund that manages more than $11 billion and is the second-biggest Sallie Mae shareholder… Pension funds for teachers and other school employees such as the New York State Teachers’ Retirement System, State Teachers Retirement Board of Ohio, Pennsylvania Public School Employees Retirement System, New Mexico Educational Retirement Board, Teacher Retirement System of Texas and California State Teachers Retirement System (CalSTRS) also own significant chunks of Sallie Mae, as does asset manager TIAA-CREF, which oversees retirement funds for teachers, among others… Federal records show the company spent more than $1.4 million lobbying members of Congress last quarter.

Rockefeller, Obama Nest Eggs Turn Gold

The Government Accountability Institute has an eye-opening study titled “Profits from Poverty: How Food Stamps Benefit Corporations.” Published in September 2012, the report indicates that three corporations dominate the “food stamp market.” One of the three, and the largest in the USA, is JP Morgan with 24 state contracts. It is the leading provider of Electronic Benefit Transfers, or EBT’s, that channel funds for food to those impoverished Americans that qualify for government assistance. Coming in at the number two slot is Affiliated Computer Services. This firm was acquired by Xerox Corporation in February, 2010. It has a total of 15 state contracts. The third is eFunds Corporation, a subsidiary of Fidelity National Information Services (not connected to Fidelity Investments) and owns 10 state contracts for EBT services and one U.S. territory.

Originally conceived as a means to prop up sagging crop prices to support American farmers, the Food Stamp Program, now called the Supplemental Nutrition Assistance Program, or SNAP, has exploded into a welfare program that costs tax payers a record $75.67 billion in 2011. Almost everyone has heard this [tired] story, but few realize that only three corporations have cornered the market for providing SNAP services to the needy and destitute. According to JP Morgan, the largest food stamp industry player, the business of food stamps ‘is a very important business to JP Morgan. It’s an important business in terms of its size and scale…. Right now volumes have gone through the roof in the past couple of years or so. The good news from JP Morgan’s perspective is the infrastructure that we built has been able to cope with that increase in volume.’ And JP Morgan has good reason to be pleased, since the bank profits from programs designed to help the poor.

SNAP and JP Morgan? SNAP and Xerox? That the poor and needy of America earn profits for JP Morgan and Xerox seems wacky. Welcome to the accelerating Age of Austerity in the USA. Nothing, absolutely nothing must interfere with the free flow of capital in the USA.

More’s the pity in this tale of bleeding the middle to lower classes dry is how the political system was used to increase the level of profits for JP Morgan. According to the Profits of Poverty report by the Government Accountability Institute:

[we] uncovered a clear trend of increasing contributions to the Agriculture Committee members of both the [US] House and Senate on the part of JP Morgan…The US Department of Agriculture and its presidential appointees also influence the direction of program policy. This can be seen in the development of broad based categorical eligibility. JP Morgan’s donations to political campaigns also show a clear trend. During the 2008 presidential election, Barack Obama received more than twice the contributions of John McCain: $807,000 for Obama compared to McCain’s $345,505. After Obama’s election, the American Recovery and Reinvestment Act made two important changes to existing SNAP policies. First, it increased SNAP benefits by 13.6 percent. Second, it actively encouraged states to adopt broader rules to increase SNAP caseloads. From 2009 to 2012, 32 states adopted the interpretation. The first change creates a stronger incentive for individuals to enroll for food stamps, and the second change accommodates this increase in enrollment. All of this, working together with an underperforming economy, sets the stage for increasing profits for the companies providing EBT services. The more persons enrolled in the program, the more money the EBT industry makes.

We Need More Poor, Insecure Americans!

Members of the US House and Senate are savvy hustlers, particularly when they are able to rig the system so that corporations can corner markets, reap profits and increase share value. It is a wonderfully devious and perfectly legal system for the rich to get richer and the middling senator or representative to join the ranks of the rich. The Center for Responsive Politics, a must visit for anyone wishing to understand how the US political really works, lists the investment portfolios of many in the US Congress. But for an excellent case study in cronyism, we turn back to the Profits of Poverty report and the tidy relationship between JP Morgan, Congress and the White House.

Unfortunately, the crony connections do not stop with congressional lobbying. Several members of Congress and the executive branch have significant investments in JP Morgan stock. President Obama has up to $1 million in a private client asset checking account. In 2010, then White House Chief of Staff William M. Daley also had invested up to $5 million with JP Morgan. In 2007, West Virginia Senator Jay Rockefeller had over $50 million with the bank. Increasing profits for JP Morgan in turn means increasing returns for investors. EBT card systems were guaranteed expansion on December 13, 2010, when President Obama signed the Healthy, Hunger-Free Kids Act. This legislation requires all states to develop and implement the use of EBT cards for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) by October 1, 2020. According to the most recent participation data released by the USDA’s Food and Nutrition Service, WIC served 8.9 million consumers in FY 2011, which means that EBT card providers are looking at many new customers thanks to the legislation. The expansion of the EBT program did not happen in a vacuum. In fact, JP Morgan was lobbying on issues related to the use of EBT cards in the WIC program during 2009, months before the Healthy-Hunger-Free Kids Act was introduced in the Senate.

Corporations Wage War on Unemployed

American employees are generally viewed by American corporations/businesses as a necessary evil, a burden to the shareholders and profit margins. That view is reflected openly in the US House and Senate, the Executive Branch and even in the US Supreme Court (pro business rulings, Citizen’s United, etc.). With the Great Recession of 2008 lingering still and with unemployment hovering at 15 percent (unofficial), business owners large and small are not shy about speaking distastefully about the slovenly American worker who wants a living wage, health insurance, some vacation and the security of unemployment benefits when markets leave town.

ADP, the giant payroll and benefits operator in the USA, and around the globe, puts it so, “Your workforce helps you earn money. But it’s also costing you a ton of money. So here’s the million dollar question: how can you maximize the value of your people and minimize what you spend on managing them?” Stated more bluntly, How can you bleed productivity out of your employee whilst paying him/her as little as possible and reducing benefits?

Equifax is well known to all American employees. Equifax, along with Experian and Trans Union, dominate the credit scoring industry in the USA. Credit scores of the type Equifax provides are not unlike College Board’s SAT scores. Both scores are predictors: one for the ability to pay debt with interest, and the other for academic performance at the college/university level. As such, low SAT scores significantly reduce the chances of getting into a long sought after school or even a job (some employers now require SAT scores). Multiple SAT tests may be required to push up the scores and, of course, the fee based SAT testing means more profit for the College Board. In similar fashion, low credit scores can mean the difference between refinancing a brutal interest-only mortgage loan or not. It may also mean being unable to co-sign for that student loan for the daughter.

Equifax is in the profitable business of fighting on behalf of corporations for unemployment claims. It is also the owner of Talx/Equifax Workforce Solutions which was featured in a New York Times article titled “Contesting Jobless Claims Becomes a Boom Industry.” Equifax apparently engaged in underhanded practices aimed at individuals claiming unemployment benefits. Hearings are typically conducted at the state level to determine the legitimacy of claims but employers do not normally have the staff available to attend and protest them all. Enter Equifax: its website states that for one company it serviced “in 2009, the increase in the number of hearings attended resulted in $342,676 in liability avoided. For 2010, this amount was $663,913.”

The street offers the only escape. Otherwise: Workers of the World! Capitulate!

John Stanton is a Virginia based writer specializing in political and national security affairs. He wrote The Raptor's Eye, and his latest book is US Army Human Terrain System. He can be reached at: captainkong22@gmail.com. Read other articles by John.