The economic free-fall is finally slowing down, although nobody expects the recovery to be very pleasant. Job losses and foreclosures are expected to increase well into next year. But even if our economic system gets back to normal, it's important to remember that gross inequalities are embedded in the global order. At home, minorities face significant barriers to economic security, while abroad, children in poor countries are denied access to basic nutrition. This is especially disheartening in the wake of the G-20 meeting in Pittsburgh, which demonstrated that the world's economic leaders are more focused on bailing out banks than eradicating global poverty.
Robert Reich sums up the domestic economic scenario succinctly for Salon. The stock market is humming along, even as most Americans are tightening their belts. It's a counterintuitive situation: Wall Street is celebrating an economic recovery, but the consumers that drive our economy are still cutting back. Reich explains that the government has stepped in to fill the hole caused by consumer spending. Business executives may scream "Socialism!" when the tax man comes around, but without massive government help, those same CEOs would be watching their earnings and companies collapse.
Without the jobs and tax cuts created by President Barack Obama's economic stimulus package, we'd see more red ink from just about every industry. The entire U.S. mortgage market is currently supported by the federal government via Fannie Mae and Freddie Mac, while other special initiatives like the Cash for Clunkers program brought the auto industry out of its recession-induced coma this summer.
The trouble is, while a few programs have been good for ordinary citizens, most of the government's economic salvage operations are aimed at giant corporations. Of all the paradoxes in today's economy, the most significant can be found in the financial sector. Bank stocks are up, even though banks are in serious trouble. Their customers are broke, foreclosures are soaring, and analysts are predicting a fresh round of multi-billion-dollar losses on commercial real estate loans soon. So what makes an investor want to buy a bank stock right now? Nothing but the government's limitless willingness to bail out banks.
How much bailout money did the government actually spend? We've all heard about the $700 billion Troubled Asset Relief Program (TARP), but the real haul for bankers is much, much bigger, as Nomi Prins and Christopher Hayes detail in a piece for The Nation. A whopping $17.5 trillion has been dedicated to subsidies, guarantees, below-market-rate loans, and other special perks for the financial industry. That's roughly one-fourth of the entire global economic output for a full year, and more than the entire annual productivity of the U.S.
Prins and Hayes make use of a clever thought experiment: What if, instead of spending the money on big institutions, the money had gone to a small-time gambler? It's an apt comparison. Taxpayer money went to financial speculators who used our homes and neighborhoods as poker chips in a global casino. The dozen or so bailouts the government has enacted seem absurd when we think of them as cheap financing for bets on the craps table. The number of programs is staggering. Bank executives love to proclaim that their banks didn't really need TARP money, they just accepted it because the government wanted them to. Next time you hear that boast (sometimes it sounds more like a whine), remember that every big bank in the country issued debt guaranteed by the government, then scored ridiculously cheap loans from the Federal Reserve while others got federal help through AIG, Fannie and Freddie.
"A fraction of the $17.5 trillion bailout could have been used to cut the principal of homeowners' mortgages (using homes, even devalued ones, as collateral) and cover student loans at zero percent interest," Prins and Hayes write. "Rather than pouring it into the top layers-the banks-a people's bailout would have cost less and been more humane. And it likely would have prevented the ongoing increase in defaults, foreclosures and general economic anxiety."
There are very good reasons to maintain a healthy financial sector, but only if banks actually do something useful. Banks are supposed to lend money to enable socially productive economic activity. This bailout money has not been spent on anything socially productive. Instead, it's covered losses from predatory lending and boneheaded speculation.
The dominant cause of the recession was the collapse of an $8 trillion housing bubble, which banks helped inflate with all outrageous loans. For decades, the value of a family's house was the foundation of most American middle-class wealth. When home prices took a nosedive, so did the spending power of every homeowner. Even borrowers who had affordable mortgage payments were hit hard. For borrowers stuck with expensive, predatory mortgages, the result was a wave of foreclosures. Writing for Mother Jones, Andy Kroll highlights a hard reality: Recovery in the housing market will not lead to middle-class financial security. It will be at least a decade before home prices reach pre-crash levels.
It's critical to remember how the recession is deepening existing inequalities, particularly along racial lines. In a post for In These Times, Michelle Chen explains how African Americans and Latinos are consistently paid less than whites during boom times, and are pushed even further down the ladder when things go bust. Communities of color are more likely to be targeted by predatory lending, which can devastate entire neighborhoods for generations. That means people of color are more likely to be foreclosed on, more likely to be laid off, and less likely to have access to basic necessities like health insurance.
The statistics are stark. In a story for New America Media, Christina Fernandez-Pereda, notes that while the overall unemployment stands at 9.7%, for minorities, the actual number is much higher. A full 15.1% of Blacks are unemployed, while unemployment among Asian Americans has doubled since early 2007. A full third of Latinos between the ages of 16 and 29 are unemployed.
The bank bailout has done nothing to improve the status of the global poor. The G-20 made grand promises to help those who need it most in developing countries this year, but so far, the talk has resulted in very little action. As Hayley Hathaway explains at Sojourners, only $50 billion has been dedicated to the 78 countries where humanitarian risk is greatest. As Hathaway notes, that's less than 25% of the TARP money received by the 20 largest U.S. banks.
Without major action, between 1.4 million and 2.8 million children will die of malnutrition in the next five years. Instead of pushing major humanitarian aid, the G-20 has promised $750 billion to the International Monetary Fund. The IMF was supposed to act as an international lender of last resort-if a nation's financial woes got really bad, they could get a loan from the IMF while they restructured. But IMF money ends up flowing to private-sector banks, and governments in need are forced to cut spending on programs that help the poor. When the G-20 met in Pittsburgh last week, a major topic of discussion involved giving developing nations a greater voice in IMF policies. But despite this talk, wealthy nations remain committed to the status quo, protecting the interests of their bankers eyeing future international bailouts.
For most people, it will be a long time before our economic recovery is a reality. But as the economy crawls out of the ditch, it's critical to build our future on a stronger foundation, one where we don't allow millions children to starve and where skin color does not determine economic security.
Low-wage workers are struggling to navigate the current recession. A new study conducted by a team of academics reveals that the majority of workers at the bottom of the economic ladder have been shorted on their paychecks as recently as last week. But the compensation crisis looks very different on Wall Street, where excessive pay tied to risky activities helped set the economy on its crash course. Despite the resulting deep recession, pay for high-level U.S. financiers remains over-the-top, even as low wage workers struggle to navigate the downturn.
The U.S. has made a few gestures toward scaling back executive compensation for banks that it bailed out under the Troubled Asset Relief Program, but the rules have amounted to little more than window-dressing, according to a paper published last week by the Institute for Policy Studies. The paper's authors, Sarah Anderson and Sam Pizzigati, found that ten of the 20 largest bailout banks have reported stock option compensation for 2009, and the top five executives at those companies have scored a full $90 million so far this year. That's just through stock options. The number gets even more obscene if you include bonuses, salary and other payouts.
As Anderson and Pizzigati explain in a companion piece published in AlterNet, bank executives collected huge bonuses based on the profits from subprime loans during the housing bubble. Since subprime mortgages were more expensive than traditional loans, profits were high-until borrowers stopped being able to pay back their predatory, unaffordable debt. Suddenly the banks were all busted, but the executives had already made a killing.
Katrina vanden Huevel emphasizes in The Nation that the U.S. government doesn't even try to tax this kind of income, much less regulate its connection to risk-taking. Billions of dollars in tax revenue are lost each year as financiers hide payouts in offshore tax havens, while on-the-books income from financial activities are taxed at arbitrarily low rates. Capital gains like stock price increases, for instance, are taxed at just 15%, while income from an ordinary paycheck is taxed at 35% for the wealthiest individuals.
While the U.S. dallies on executive pay, key leaders in Europe are moving to rein in risky compensation practices in the financial sector, as detailed in this video report over at The Real News. President Barack Obama will meet with U.K. Prime Minister Gordon Brown, French President Nicholas Sarkozy, German Chancellor Angela Merkel and other leaders of the G-20 in Pittsburgh later this month, and financial regulatory reform will be at the top of the agenda.
For ordinary workers, there are few positive signs in the current economy. The Washington Monthly's Steve Benen dissects the latest batch of unemployment numbers from the Labor Department. The good news is that the overall pace of layoffs seems to be abating. The bad news? The U.S. still lost a whopping 216,000 jobs in August. And broader measures of workplace woe are even worse. The unemployment rate does not include discouraged workers who have stopped looking for a job, and it doesn't include those who want to work full-time but have to settle for part-time employment. That statistic actually declined slightly in July, giving some economists cause for optimism. But the metric soared again in August, reaching the highest level on record.
And unemployment is not the only problem workers face. Both Tim Fernholz of The American Prospect and Elizabeth Palmberg of Sojourners highlight a New York Times story by labor reporter Steven Greenhouse, which details how low-wage workers are routinely cheated by their employers. According to a recent study, a full 68% of these workers report having experienced an illegal workplace abuse in the past week, such as being denied overtime pay or being required to work for less than minimum wage. On average, workers lost 15% of their weekly income as a result of this exploitation.
We have good laws to protect workers, but they just aren't being enforced. Companies have successfully intimidated their employees into not reporting blatantly illegal pay practices. The best way to resolve this situation is to expand unionization and give workers a stronger voice in the workplace, making it safe to speak out against abuses. And the best way to expand unionization is to enact the Employee Free Choice Act, which lowers barriers to creating a union. But the legislative process has been delayed by a smear campaign organized by executives and managers claiming that unions, and not corporate elites, are the actual source of workplace coercion.
"It ought to make your blood boil-especially as people decry union thugs 'intimidating' people into joining unions when that doesn't happen and most workers want to join a union," Fernholz writes.
The U.S. needs to get its economic priorities in order. We should be protecting low-wage workers from executive excess, not the other way around. President Obama will have an opportunity to coordinate that effort globally at the G-20 summit later this month. Let's hope he doesn't squander it.
The U.S. economy may finally be bottoming out. But if the worst is really behind us, we are likely facing a painful period of "growth" that looks very much like the present. Without increasing unionization and mitigating racial inequality, our economic progress will prove as hollow as it is slow. While the economy may improve in a dry, statistical sense, the foundation for a productive economy has been decimated over the past three decades.
The economy has shown some encouraging signs of strength lately. Home prices have actually increased and the pace of layoffs slackened quite a bit in July. But that data doesn't signify a strong recovery, as Andrew Leonard notes in a pair of blog posts for Salon. Even in areas where there is some good news-housing and the job market-there is plenty of contradictory bad news. First, mortgage delinquencies are at an all-time high, and the souring loans are not just subprime. Even people with relatively affordable mortgages have problems paying when they lose their jobs, and with the unemployment rate at 9.4%, a lot of people are losing their jobs.
What's worse, Leonard notes, new claims for unemployment benefits escalated in August, suggesting that last month's job market improvements may have been a fluke. And while home prices may be ticking up slightly, they have been abysmal for the past two years. Since many households accumulated debt based on higher home values, the overall ratio of consumer debt to household net worth is perilously high.
Household net worth is a crucial statistic and is often overlooked by a focus on day-to-day measurements of worker well-being, like wage growth. While wages matter for paying the rent and buying groceries, our long-term economic security is defined not by what we make each week, but by the value of the things we own. In a piece for The American Prospect, economists Derrick Hamilton and William Darity Jr. detail the massive racial disparities in household net worth in the U.S. While the median white family has roughly $90,000 to its name, the median Latino family has just $8,000, while the median Black family has only $6,000.
Centuries of discrimination have resulted in today's inequality, but Hamilton and Darity propose a simple, straightforward solution: The government should establish savings accounts for children born into poor families, and fund it with a relatively small amount of money. Children will not be able to access the accounts until they turn 18, but over the years, interest will accrue on the accounts to the point where children should have between $50,000 and $60,000 by the time they can withdraw funds. Since so many people of color are born into households with relatively low net-worth, establishing a policy to use government money to boost the wealth of those born without it would have the effect of promoting racial economic equality.
But we also have to worry about jobs. President Barack Obama's economic stimulus package has succeeded in creating or saving hundreds of thousands of jobs since going into effect earlier this year, but it is important to focus not only on creating jobs, but on creating good jobs. As Laura Flanders of GritTV emphasizes in a roundtable discussion with key academics and labor representatives, our increasingly hostile attitude towards unions has created major barriers to a sustainable economic recovery.
The legislation critical to ending this intimidation is known as the Employee Free Choice Act, one of the most important bills presented to Congress in decades, although it has been overshadowed by the debates surrounding health care reform and financial regulatory overhaul. Flanders' panelists include Kate Bronfenbrenner, a Columbia University Professor who wrote a recent paper for the Economic Policy Institute examining 1,000 attempts to establish unions all over the country, and found that employer opposition to unionization is more aggressive than ever. A full 30 million workers want to be part of an organized union, but only 70,000 workers successfully organize each year.
"It's always been hard to organize, but employers now have made it harder than ever. They've literally have said to workers that, 'If you try to organize, we will go after you in every way possible,'" Bronfenbrenner said. "They threaten workers, they harass them, one in every three employers fire workers for union activity . . . . There literally is a war on workers who try to organize."
Another panelist, Mark Winston Griffith, Director of the Drum Major Institute, notes that the decline of unionization has weakened the economy. In the 1950s, when one-third of all U.S. workers belonged to a union, the potential foundation for the economy was strong. Workers were well-paid and had excellent job security, which created a strong source of demand. With less than 8% of U.S. workers unionized today, our economic demand is fueled by household debt, which has left families struggling for financial security and has injected a heavy dose of instability into the entire economy.
Writing for The Nation, Sarah Jaffe details the difficulties faced by a group of security officers in Philadelphia trying to unionize under current labor laws.
But while the workers who form the foundation of our economy are gasping for air, the elite have almost never had it better. A recent study found income inequality to be deeper than any period since World War I, and this absurdity plays out in public policy. While workers struggle to get a fair shake from their employers, executives and managers evade taxes through elaborate international financial deception. Swiss banking giant UBS recently agreed to turn over the names of thousands of its clients who allegedly used the company's banking operations to skip out on the bill for Uncle Sam.
UBS has been caught with its hand in nearly every cookie jar labeled "bank scandal" over the past two years, from the subprime mortgage crisis to phony securities peddling to diamond smuggling. But as Robert Scheer explains at Truthdig, former senator and deregulation hawk Phil Gramm (R-Texas), has been an executive at the firm while the company has been destroying its reputation. Gramm helped pass some two key anti-regulation bills later years of the Clinton administration, and was unabashed about jumping to UBS immediately after leaving office. Scheer notes that the public knows almost nothing about Gramm's role at the company, including any potential involvement in its laundry list of scandals.
Real economic progress in the U.S. is impossible without a stronger base of unionized workers. But it's just as important to invest in our future by giving the children of poor families an even economic playing field.
Some of the largest U.S. banks may be on the ropes these days, but the disparity between the plight of financial executives and ordinary Americans has never been starker. Over the past two decades, the banking system has grown accustomed to scoring massive profits by preying on its own customers, making 2009's transition to pilfering taxpayer wallets an easy one. After burying the economy under a mountain of unaffordable debt, bank CEOs are now finding ways to subsidize their own paychecks with taxpayer bailout funds.
by Zach Carter, Media Consortium MediaWire blogger
Despite a lofty launch last week, the good ship Bipartisan is sunk, at least so far as the economic stimulus is concerned. President Barack Obama and House Democrats bent over backwards to appease the GOP by including several tax breaks and excluding a major anti-foreclosure measure from the package, but when it came time to vote, zero House Republican backed the bill. Lawmakers who actually care about the fate of the U.S. economy are furious. Every day spent haggling with obstinate Republicans means heavier economic damage. What's more, many of the tax breaks the GOP insisted on are simply terrible policies, whatever the economic climate.
As Wall Street continues its slow-motion hari kari, tens of millions of people on the lower-end of the income spectrum are finding that their access to credit is becoming all but nonexistent. As banks set aside ever more cash to cover themselves against potential future losses, the credit spigot that flowed so promiscuously to riskier customers is now not flowing at all.
(A helpful little model and stimulus for discussion. - promoted by Paul Rosenberg)
Analogies are never perfect, but here's one using horse racing. Don't expect a perfect correspondence to the banking situation, but I think it is close enough for government work.
You'll have to forgive me in advance - I'm a bit of an amateur on this issue, but I think I understand the broad trends. If I'm factually off somewhere or conceptually a bit incoherent, please do correct me.
There are a lot of things that progressives and the MSM discuss in terms of progressive policies - protecting the environment, health care, the right to organize, etc. However, beyond noting repeatedly that Americans are in a "mountain" of debt (latest example), I haven't seen very many stories on policy responses to this massive problem that is at the heart of the current economic crisis. This is an issue not just for the countless people who have debt problems, but also for the global economy, and so it should be winnable, in some form or another, and be extremely popular politically within the United States. It even has Christian roots. This debt forgivess MUST be packaged with debt forgiveness for other countries as well, if it's going to be advocated by progressives, because otherwise it's not going to help the hundreds of millions - if not billions - of people that are going to be damaged by the global financial crisis, and is more broadly going to endanger world security, including for Americans.
Some policies, like expanded health insurance coverage or a revision of the draconian bankruptcy bill that was passed recently or reducing the possibility of deportations of undocumented people, would reduce the possibility of danger incurred with existing debt, but they won't fundamentally redress the power that debt gives banks over people in the United States and everywhere else. This principle is true whether it's a loan from the IMF to Bangladesh or whether it's a credit card bill from Bank of America to John Q. Public.
Now, banks and the banks that bought their debts are not stupid (now). They know that in order to avoid going belly up, they need to make sure that as much of the income stream they're counting on comes in. Which means that they'll support something like a federal bailout, as happens everytime a company goes bankrupt, and they'll support one for consumers as long as they get their debt written off by the government. However, this is where their interests and the interests of citizens of the United States and every other country that is in debt to finance capital as well as other sectors of big business diverge.
Whereas banks will want the government to assume the debt and have people pay them or some other mechanism that will displace the risk from them to the government, what this will not do is liberate people from the actual debt. More succinctly, it doesn't matter to an individual company if you're broke - as long as you get you debt paid off by taxpayers or government borrowing. However, this does nothing to increase the spending power of the American consumer - which in turn contributes strongly to the global economy's prospects. And so this is an area where big business can be split in half and part of it allied with ordinary people (i.e. how "progressive policies" get implemented in the U.S.).
This post is by Mark Winston Griffith, Senior Fellow of The Drum Major Institute for Public Policy.
If there is one thing that distressed homeowners need right now is smart, forward thinking legislation that can help slow down the wave of subprime mortgage inspired foreclosures, and establish strong anti-predatory lending measures.
Unfortunately, the Foreclosure Prevention Act of 2008 which the Senate is poised to vote on, is not the one. Commentators on both the ideological right and left have plenty to complain about. It's the kind of bipartisan, patchwork Frankenstein monster that only a politician's mother could love.
Let's be fair. It's not all bad. In fact there is alot about the bill that is promising. It includes much needed FHA modernization provisions, monies for foreclosure prevention and housing counseling, and Community Development Block Grants for state and local governments to purchase foreclosed properties and turn them into affordable housing.
But ultimately, in an effort to satisfy Senate conservatives, none of whom are particularly interested in helping out distressed homeowners, it's filled with unnecessary tax breaks and measures designed to serve the interests of homebuilders and, bizarrely enough, perhaps even speculators. Even the "enhanced" mortgage disclosures are a cruel joke for those hoping for full-scale, subprime mortgage era, anti-predatory lending provisions.
And of course, it wouldn't be a real piece of patriotic American legislation without a nod to veterans. Fine, but quite a few civilians could use the 9 month stay on foreclosure proceedings too.
Perhaps most conspicuously absent is the bankruptcy reform that many progressives were advocating for, which would have given bankruptcy judges the ability to make mortgages more affordable, the way they already do with other kinds of debt.
Is this the best that this senate could salvage given opposition to more meaningful proposals? Perhaps. Bush is announcing weak measures of his own which are designed to do an end-run around this bill.
Nonetheless, the Senate has missed a real opportunity to create a broad mechanism for modifying mortgages destined for disaster, or to put in place landmark public policy that could help prevent abusive lending practices. The most enduring legacy of this bill could be that it serves to preempt stronger congressional measures, like those introduced by Durbin and Dodd for example. To add insult to injury, it lends credence to critics of foreclosure prevention efforts who have been warning against bloated government bailouts.
Another classic example of government action. By aiming too widely, it misses the mark.
(This piece is by Drum Major Institute Senior Fellow Mark Winston Griffith)
It's hard to imagine that there could be a serious presidential candidate who would declare a "no-action" position on the subprime loan and foreclosure crisis. John McCain, however, holds that dubious distinction.
Not a day goes by that we don't hear another grim announcement about the downward spiral of the economy, or how homeowners with subprime loans are losing their homes in record numbers. Estimates of likely foreclosures over the next few years related to subprime mortgages have ranged between two and three million. In some parts of the country, foreclosures are outpacing home sales. Recession looms and the National Association for Business Economics recently declared the subprime foreclosure crisis as the greatest threat to the American economy.
The scariest part is that hundreds of thousands of subprime loans are scheduled to re-set in the latter part of this year and into 2009, which means that the economic policies of the next president will have a profound impact on the lives of ordinary working- and middle- class Americans.
How has John McCain responded to this call to leadership? By essentially saying that nothing should be done. In his remarks at a conference in Santa Ana, California on Tuesday, McCain rejected any broad policy response and actually staked out a far weaker role for the federal government in addressing the foreclosure crisis than even the Bush Administration has offered. Although he was quick to blame homeowners and "rampant speculation", there was scant recognition by McCain of exhaustively documented predatory lending practices or the scandalous oversight failures of federal regulators, legislators and a president who arguably encouraged abusive lending practices through his ownership society".
To the extent that McCain offered any specific "solutions" at all, it was to encourage mortgage lenders to reach out to distressed borrowers - something that banks working with Secretary Paulson under the Hope Now alliance are supposedly doing already. His other bright idea was "to convene a meeting of the nation's accounting professionals to discuss the current mark to market accounting systems."
Great. Just what homeowners and the economy need: The formation of a committee of accountants.
McCain has buried his head in the sand all along about the role of the federal government in the foreclosure crisis. In December 2007 he told the editorial board of New Hampshire's Keene Sentinel that he is "not smart enough" to offer a "specific solution". While this might qualify in McCain's book as "straight talk", it's also shockingly weak-kneed and irresponsible.
In comparison, Clinton and Obama have presented specific proposals that have been subjected to intense scrutiny. Clinton has called for billions in government assistance, a foreclosure moratorium, and rate freezes. Obama has proposed a universal mortgage credit, the establishment of a mortgage refinance fund, and greater loan disclosure. While critics on the left and right may take issue with these approaches, Clinton and Obama have at least acknowledged the severe financial distress confronting homeowners and would offer Americans specific plans to address it.
But a different legacy is in store for McCain if he is elected president. As a member of the Keating Five, that notorious group of Senators accused of currying favor for Charles Keating, chairman of the failed Lincoln Savings and Loan Association, McCain became a face of the Savings and Loan crisis of the eighties and nineties. With breathtaking irony, McCain is poised to associate himself with another banking meltdown by sitting idly by, in Herbert Hoover-esque fashion, as working class Americans and communities are devastated by the effects of homeowner displacement, property devaluation, family asset depletion, and the loss of real estate tax revenue.
One possible explanation for McCain's hands off approach is that some of the biggest names in the subprime mortgage industry, Citibank, Goldman Sachs, Merrill Lynch and Lehman Brothers, for example, have been among McCain's largest campaign contributors.
But these Wall Street giants have figured just as prominently in Clinton and Obama's campaigns. And unlike during the S&L debacle, McCain, now the presumptive Republican presidential nominee, has gained the moral authority and opportunity to actually intervene.
So the issue isn't whether John McCain is "smart" enough to propose government actions and market reforms that could relieve some of the nation's financial pain while attempting to make predatory mortgage lending a thing of the past. The question is; does he care enough to bother.
As the housing/mortgage crisis intensifies, some courageous Democrats like Rep. Brad Miller (D-NC) are trying to let judges help people stay in their home and stop foreclosures. Unfortunately, as my new nationally syndicated newspaper column out today shows, Miller is facing serious opposition not just from Republicans, but from "conservative" Democrats.
Miller's bill, HR 3609 (which you can find out about here), would improve the 2005 Bankruptcy Bill by simply giving regular homeowners a few of the same protections that millionaire mansion owners and Enron executives have. Yet, the Blue Dog Democrats, citing their supposed "conservatism," are trying to stop the legislation dead in its tracks. Somehow, we are expected to believe that the social/cultural conservatism of their rural and exurban districts mean their constituents want Congress to help banks throw people out of their houses.
I've blogged a bit on mortgage reform, noting that Bush Dogs are trying to block changes to the Bankruptcy Bill out of fealty to their corporate donors. The housing crisis is hitting swing areas like Florida's central corridor viciously, so getting on this topic as the economy becomes one of the two top issues in 2008 is extremely important for Democrats going into 2008.
One of the reasons the situation is so messed up is that mortgage brokers have an incentive to lie and steal from their clients. This is couched in a complicated term called the 'yield spread premium'. What this basically means is that if you are a mortgage broker and you get a client to take a loan that costs more than it should, with higher penalties and interest rates, you get a kickback from the bank.
Ergo, lots of people got crappy loans they can't afford. It hurts minorities disproportionately, and it's bad for everyone. There's more detail here and here. The Democrats are trying to do something about it and ban the practice, but mortgage brokers have organized and are phoning Congress off the hook because apparently stealing is profitable. And now, Barney Frank is considering axing the change because the groups pushing for the change - NAACP, the Urban League, La Raza AARP, the AFL-CIO and SEIU - probably didn't expect this to be a major point of contention.
If you have a moment, write your representative and ask him/her to support HR 3915, the "Mortgage Reform and Anti-Predatory Lending Act of 2007."
It's fucking ridiculous that Congress doesn't stand up to the mortgage industry after they have ripped off millions of borrowers and are in the midst of destroying communities all over the country. Write your rep.
If you want to know why we haven't heard much about the subprime mortgage mess from Democrats, it's because there's an intraparty fight brewing in the House of Representatives over what to do. The Judiciary Committee has the votes for a good bill, but the floor is a 'crapshoot'. Now, let's go into the housing crisis for a second so we can understand the dynamics of the fight. The housing crisis is hitting people all over the country in swing areas like the central corridor of Florida, so you'd think this would be a good time for Democrats to offer a solution. And they are doing so, or at least some of them are doing so.
Tthe reason the subprime mortgage meltdown is so problematic is because homeowners can't renegotiate mortgages for primary residences in bankruptcy court. If you declare bankruptcy, you still can't get out from under your mortgage debt, which essentially enslaves people whose home value has dropped lower than their debt amount.
The good news is that Brad Miller, Linda T. Sánchez, Barney Frank, and Mel Watt have a bill in Congress that empowers bankruptcy courts to restructure mortgages for primary residences. You can find out more here and here. It's a very sane and reasonable approach that lets people declare bankruptcy and get our from under horrific levels of debt.
The interesting news is that 16 fellow Democrats are opposing this bill because it will impact the Bankruptcy Bill provisions they passed in 2005. Who are these lovely people? If you guessed 'Blue Dogs', you'd be right. This is from Congress Daily:
As House Judiciary Committee Democrats quickly prepared last month to move legislation that would make it easier for bankruptcy judges to refashion home mortgages that are on the verge of foreclosure, the banking industry had to mobilize quickly to slow the bill they contend would rattle the shaky home mortgage market.
The bankers quickly worked sympathetic lawmaker offices with their in-house lobbyists. And they knew exactly whom to go to in order to stop the bill in its tracks: the Blue Dog Coalition of moderate-to-conservative Democrats.
Sixteen members of the coalition of business-friendly lawmakers sent a letter Oct. 16 to Judiciary Chairman Conyers asking him to delay consideration of the bill because it might undermine implementation of the 2005 bankruptcy overhaul law.
"We had concerns that a judge could come in and retroactively change the loan terms," said Rep. Dennis Moore, D-Kan., who organized the letter.
"I consider myself very consumer friendly; I also want to look out for business."
The Blue Dog letter forced Conyers to yank the bill from a full committee markup Oct. 24. He scheduled another hearing in the Judiciary Administrative and Commercial Law Subcommittee to go over concerns....
The letter represented the first time the Blue Dogs have flexed their political muscle in public this year on a business issue, much to the relief of lobbyists who are worried that a Democratic-controlled Congress will bring greater regulation and scrutiny of their industries...
Many K Street sources hope that as more substantial bills come forward -- tax overhaul, mortgage lending, and energy -- that the 47-member Blue Dog caucus will have more sway to make the outcome of any legislation less burdensome on business...
"We do a lot of reach-out to them for a lot of reasons," said Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce. "You have to work where you can work. They are go-to people."
Eight Blue Dogs joined in an Oct. 24 letter with other Democrats to Pelosi and Majority Leader Hoyer regarding two bills that would have restricted the use of how businesses could use Social Security numbers, stating the potentially adverse impact on financial institutions.
Those bills have not advanced to the House floor.
"We have tried when we can to have a clear understanding of where the Blue Dogs and where the [more moderate] New Democrats are on issues we care about. They can keep a bill from coming to the floor. If they are together, they can affect the outcome of something. ... They can affect the floor schedule," said one Democratic financial services lobbyist.
Aside from industry whore Dennis Moore, here are the other Bush Dogs that signed the letter. The letter is on the flip, and argues against amending the 2005 Bankruptcy Bill:
Lincoln Davis, John Tanner, Tim Mahoney, Jim Matheson, Alan Boyd, Jim Marshall, David Scott, Melissa Bean, Mike Ross, Baron Hill, Mike Thompson, Bart Gordon, Stephanie Herseth, Charlie Melancon, Dan Boren, Lincoln Davis, John Tanner, Tim Mahoney
What I find fascinating about the letter is how only 16 members of the Blue Dog caucus signed it, but the rhetoric speaks for the entire set of Blue Dogs. Do Patrick Murphy or Kirsten Gillibrand agree with these people? If not, why are they letting them trash their caucus brand?
