On Friday, California became the first state to help “unbanked” residents — those with out checking or savings accounts — open starter accounts through the “Bank on California” program.

With the goal of opening 100,000 bank accounts over the next two years, the Governor has partnered with city mayors, community groups, Bank of America and other financial institutions, the FDIC, and federal and state regulatory agencies to put this innovative plan into action - bringing California’s unbanked the opportunity to gain access to lower-cost sources of credit and financial services, establish savings, build credit history and invest for the future.

Banks will supply the starter accounts and state officials will promote the accounts in underserved areas and “serve as a bridge to overcome distrust between their communities and financial institutions.”

In 2004, over 10 percent of families in the United States did not have a checking, savings, or money market account according to a report by the Federal Reserve Board.  This “unbanked” population is predominately low-income and minority:

Families that did not have any type of transaction account in 2004 were disproportionately likely to have low incomes, to be headed by a person younger than 35, to be nonwhite or Hispanic, to be headed by a person who was neither working nor retired, to be renters, or to have relatively low levels of wealth.

In California alone, nearly half of households do not have access to a savings account. It is also home to two of the top three areas with the nation’s highest percentage of unbanked citizens: Fresno and Los Angeles.

When families don’t have access to traditional banking options, they turn to fringe bankers - payday lenders, check cashers, etc. These alternative financial services (AFS) charge high fees and interest rates, often keeping low-income people trapped in a cycle of debt. These fringe lenders have also become a booming business. The Brookings Institution and Pew Charitable Trusts reports that the number of payday lenders have grown over 10 percent annually since the mid 1900s and now comprise a $100 billion business.

Bank on California is an expansion of the Bank on San Francisco program created by city treasurer, Joe Cisneros and Mayor Gavin Newsom, a program the DLC has highlighted in the past.

In today’s Washington Post, conservative columnist and former Bush speechwriter, opines about the next steps for the Obama transition team and administration. He writes:

Political indifference to durable poverty in our midst has long been a scandal; from Obama it would be a tragedy. America does need to “spread the wealth” — but not in the simply redistributionist sense. The racial divide in our country is widest when it comes to assets. The median net worth of white and Asian Americans in 2004 was $142,700. The median net worth of African Americans was $20,400. There are many reasons for this massive disparity, including what Lincoln called centuries of “unrequited toil.” Reparations are a politically self-destructive dead end. But what if President Obama, for example, proposed to set up tax-free savings accounts for every poor child at birth and seeded those accounts with a few thousand dollars? Addressing the wealth gap through the miracle of compound interest would be a lasting contribution to the justice of our country.

My colleague, Jason Newman, and I offered a similar policy proposal in our chapter published in Big Ideas for Children: Investing in our Nation’s Future. Check it out here.

On Monday I noted that unemployment has put a strain on state piggy banks leaving them in crisis. Today, Time published a startling article about how the credit crunch is causing budget crunches for states and localities that are having difficulty paying for basic public services like education, fire departments and public works. Many states sell bonds and other short term notes to pay for these services and projects, but as the article notes:

Since the Sept. 15 collapse of Lehman Brothers, the $2.6 trillion market for state and city bonds has been virtually frozen - partly because investors are scared to own anything more dangerous than Treasuries, and partly because interest rates cities must pay to lure buyers have shot up by 25% or more. As a result, some $15 billion worth of projects have been temporarily shelved in the past three weeks, according to the consultancy Municipal Market Advisors.

DLC and PPI Friend Jonathan Miller, who is currently Kentucky’s secretary for finance and administration, is quoted in the article saying “[w]e were really worried.  We had encountered a lot of pessimism and skepticism that we’d be able to sell these bonds.”  Fortunately, Miller was finally successful in selling $400 million in bonds this week, one of the first major issues of bonds since the federal government had to step into the credit markets.

But, even if the credit freeze is slowly thawing, this article points out two critical consequences of this crisis for states and localities.  First, the premium paid by states for selling these bonds is much higher than it was before the crisis.  And second, the article notes that “the credit crisis has tumbled into the real economy” and will lead to significantly lower revenues from property, sales and income taxes.  As a result, many states and cities are already announcing budget shortfalls:

Arizona is projecting a billion-dollar budget shortfall, as is California. New Jersey is falling $1.7 billion short, while New York is $1.2 billion behind. Among the cities that have already announced spending and job cuts are Indianapolis, Tempe, Ariz., Columbus, Ohio, and New York City.

It is becoming more evident every day that state and local governments are going to be facing tough budget situations for at least a few years.  When their funds go dry, we all suffer, but low-income Americans take the hardest hit because they lack the resources for other options. State and local services serve as a great equalizer for Americans, ensuring that among other things we are safe and our children are educated. Moving forward, we must guarantee that working families aren’t left behind

Stateline published an article today about the effects of unemployment on state budgets. As the number of unemployed Americans reaches the highest point since 9/11, many states are struggling to find the money to pay unemployment benefits and if they do have the money, there are too many requests to deliver the benefits efficiently and on time. According to the article:

Unemployment insurance trust funds are in danger of insolvency in California, Michigan, Missouri, New York, Ohio, South Carolina and Wisconsin. According to the National Employment Law Project, a policy group based in New York that advocates on behalf of the unemployed, 11 additional states are facing financial challenges paying their jobless benefits.

One has to look no further than California to find evidence that the credit crisis is now hindering state governments. According to the Stateline article, state leaders have found it harder to borrow from their traditional lenders due to the tight credit market and may have to turn to the federal government for a loan to pay their unemployment benefits.

Experts do not expect unemployment to decrease anytime in the near future, despite the bailout bill.  But unemployment is not the only cause of concern for state governments worried about tight budgets:

The jobless not only will file for unemployment checks, but some will be forced to turn to Medicaid, the federal-state health insurance program for low-income Americans that already is pinching state treasuries.

At the same time states face a significant increase in demand for essential services, they are also facing significantly lower revenues due to weakening economies.  It is likely that the cycle of budget cutting will continue for the next year or two.  In fact, due to the credit crunch and the struggling economy, Governor Schwarzenegger announced that he may call a special session in California this month to address a budget that was just signed two weeks ago.

I think we can officially say that regular Americans — those who had nothing to do with the creation of those credit defalt swaps and derivatives — need extra help too.

Yesterday, the Wall Street Journal ran an article listing the federal policies they believe led to the economic crisis. They wrongly cite the Community Reinvestment Act (CRA) in this list:

Robert Litan, an economist at the Brookings Institution, told the Washington Post this year that banks “had to show they were making a conscious effort to make loans to subprime borrowers.” The much-maligned Phil Gramm fought to limit these CRA requirements in the 1990s, albeit to little effect and much political jeering.

It is irresponsible and frankly, just factually wrong, for the Journal and others to cite the CRA as a cause of the current financial mess. In April, Robert Gordon wrote a piece for the American Prospect in defense of the CRA that is worth revisiting. Gordon notes:

First, consider timing. CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation’s Ellen Seidman (and by Harvard’s Joint Center), that activity “largely came to an end by 2001.” In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law’s toughest standards. Yet sub-prime lending continued, and even intensified — at the very time when activity under CRA had slowed and the law had weakened.

Second, it is hard to blame CRA for the mortgage meltdown when CRA doesn’t even apply to most of the loans that are behind it. As the University of Michigan’s Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

Progressives cannot allow anyone to blame Wall Street’s recklessness on a successful policy that brings mainstream banking options to underserved people. If anything, now is the time to revisit the CRA and see how we can modernize it so that it includes more financial services and better serves low-income communities.

With the fall of Lehman Brothers and Merrill Lynch, and the uncertain future of AIG, it is no surprise that the economy has dominated political discourse.  Chris Cillizza at The Fix solicited advice for both candidates from Republican and Democratic strategists about how they can become the leader on economic issues.

While their advice centers on how Obama and McCain should reach out to middle-income Americans, Congress is debating a bill that involves a constituency most candidates rarely mention: those living in persistent and entrenched poverty.  Both the House and the Senate are considering a bill this month that would redefine who will be counted as homeless.

Currently, the federal government considers a person homeless if they live on the street or in a shelter. Congress, however, is debating whether the official homeless population should include people who live with friends and family, in motels, or who are on the brink of losing their housing.

According to a New York Times article, the House is debating whether to expand the definition to include:

about a million additional people - a subset within the group of children and their families in desperate need of stable housing - or to add a much smaller group that would include only people fleeing their homes because of domestic violence and those who can prove they will lose their housing within 14 days.

The Senate version, as it stands now, would only include people who have been forced to move “three times in one year or twice in 21 days.”

To truly help homeless Americans and those on the brink of a housing disaster, it’s important that we expand the definition of homelessness. The first step in solving a problem is clearly defining the problem. However, even with a broader definition of homelessness we will remain stuck at step one. Neither the Senate nor the House version of the bill provides for any new programs or funding to help these individuals get back on their feet, which will inevitably leave housing organizations to decide who must go without assistance.

Today, Barack Obama addressed voters about one of the most important social mobility issues: education. In outlining his “New Vision for a 21^st Century Education,” Obama pledged to give parents “real choices about where to send their kids to school” by doubling federal funding for responsible charter schools to $400 million annually.

Increasing parental choice through charter schools is good policy. Public charter schools are independent public schools that are tuition-free, open to all children, and publicly financed. Because, these schools don’t have to answer to traditional bureaucracies, they have greater flexibility to govern from within, and try flexible and creative methods to educate their students.

Since their inception in the early 1990’s, many charter schools have shown tremendous results.  But others have not been as successful.  Charter schools must be accountable for producing real progress in educating children.  If they don’t succeed, in theory, charter authorizes should close their doors. However, this has not always been the case.  Too many have produced no better results than other public schools, yet have remained open.

That is why Obama was right to not only pledge to increase funding, but to couple that with holding all charter schools accountable for producing results:

I’ll work with all our nation’s governors to hold all our charter schools accountable.

President Clinton first brought the concept of charter schools to the national stage when he made them a centerpiece of his education reform agenda. During his speech Obama, sounded like one of President Clinton’s “New Democrat” protégés:

If we’re going to make a real and lasting difference for our future, we have to be willing to move beyond the old arguments of left and right and take meaningful, practical steps to build an education system worthy of our children and our future.

The way to the White House is through the middle, a group that we has been particularly volatile in recent weeks. Speaking directly to these moderate and independent voters about solutions that couple choice with accountability is not only good policy, but it is also good politics. It gives these voters a concrete idea of the sensible changes Obama would bring to the White House.

Update: Check out the post by Andy Rotherham at Eduwonk about the significance of Obama making this particular speech in Ohio.

With more low-income Americans struggling each month to make ends meet, saving for the future sits low on their priority list. Yet, without asset accumulation it is almost impossible to build the wealth needed move securely into middle class. Thankfully, Senator Robert Menendez (D-NJ) spent his final days before August recess introducing a bill that would create incentives for low-income Americans to save. People making up to 120 percent of eligibility for the Earned income Tax Credit could benefit from his Saver’s Bonus Act which would:

Provide automatic savings options on tax forms, offer a match of up to $500 for low-income taxpayers who allocate money into qualifying savings accounts, and allow taxpayers to open new accounts directly on their tax forms.

Reid Cramer over at New America’s the Ladder notes that it is hard price out this particular proposal because it depends on the number of qualifying recipients and actual take up rates. He estimates that the program will:

end up as a $1 to 2 billion a year proposal. Increasing the EITC by $500 would cost the Treasury about $10 billion a year. But making receipt of this $500 contingent on savings would cost much less. A 20% take-up rate with savings of $250 a year would cost about $1.25 billion and provide a real good marker that this is behavior public policy should be encouraging.

Saving is crucial for the economic health of individuals and families and the country at large. Menendez’s bill comes just in time to help a country that has faced negative personal savings rates two years running - the first time since the Great Depression.