A SISTAH FROM ANOTHER MOTHER "THE EARTH"
HAVING FREEDOM OF SPEECHWhy do people defend unjust, inept, and corrupt systems?
Reed v. Reed Advances Equality for Women, but Must Always Be Defended | National Women’s Law Center
Reed v. Reed Advances Equality for Women, but Must Always Be Defended | National Women’s Law Center.
Goodbye to the ‘Middle-Class’? A Lesson for Labor From Occupy Wall Street – Working In These Times
Goodbye to the ‘Middle-Class’? A Lesson for Labor From Occupy Wall Street – Working In These Times.
The Veil of Secrecy at the Fed Has Been Lifted,
Now It's Time for Change
Sen. Bernie Sanders
Huffington Post
November 2, 2011
http://www.huffingtonpost.com/mobileweb/rep-bernie-sanders/the-veil-of-secrecy-at-th_b_1072099.html
As a result of the greed, recklessness, and illegal
behavior on Wall Street, the American people have
experienced the worst economic crisis since the Great
Depression. Millions of Americans, through no fault of
their own, have lost their jobs, homes, life savings,
and ability to send their kids to college. Small
businesses have been unable to get the credit they need
to expand their businesses, and credit is still
extremely tight. Wages as a share of national income are
now at the lowest level since the Great Depression, and
the number of Americans living in poverty is at an all-
time high.
Meanwhile, when small-business owners were being turned
down for loans at private banks and millions of
Americans were being kicked out of their homes, the
Federal Reserve provided the largest taxpayer-financed
bailout in the history of the world to Wall Street and
too-big-to-fail institutions, with virtually no strings
attached.
Over two years ago, I asked Ben Bernanke, the chairman
of the Federal Reserve, a few simple questions that I
thought the American people had a right to know: Who got
money through the Fed bailout? How much did they
receive? What were the terms of this assistance?
Incredibly, the chairman of the Fed refused to answer
these fundamental questions about how trillions of
taxpayer dollars were being spent.
The American people are finally getting answers to these
questions thanks to an amendment I included in the Dodd-
Frank financial reform bill which required the
Government Accountability Office (GAO) to audit and
investigate conflicts of interest at the Fed. Those
answers raise grave questions about the Federal Reserve
and how it operates — and whose interests it serves.
As a result of these GAO reports, we learned that the
Federal Reserve provided a jaw-dropping $16 trillion in
total financial assistance to every major financial
institution in the country as well as a number of
corporations, wealthy individuals and central banks
throughout the world.
The GAO also revealed that many of the people who serve
as directors of the 12 Federal Reserve Banks come from
the exact same financial institutions that the Fed is in
charge of regulating. Further, the GAO found that at
least 18 current and former Fed board members were
affiliated with banks and companies that received
emergency loans from the Federal Reserve during the
financial crisis. In other words, the people
“regulating” the banks were the exact same people who
were being “regulated.” Talk about the fox guarding the
henhouse!
The emergency response from the Fed appears to have
created two systems of government in America: one for
Wall Street, and another for everyone else. While the
rich and powerful were “too big to fail” and were given
an endless supply of cheap credit, ordinary Americans,
by the tens of millions, were allowed to fail. They lost
their homes. They lost their jobs. They lost their life
savings. And, they lost their hope for the future. This
is not what American democracy is supposed to look like.
It is time for change at the Fed — real change.
Among the GAO’s key findings is that the Fed lacks a
comprehensive system to deal with conflicts of interest,
despite the serious potential for abuse. In fact,
according to the GAO, the Fed actually provided conflict
of interest waivers to employees and private contractors
so they could keep investments in the same financial
institutions and corporations that were given emergency
loans.
The GAO has detailed instance after instance of top
executives of corporations and financial institutions
using their influence as Federal Reserve directors to
financially benefit their firms, and, in at least one
instance, themselves.
For example, the CEO of JP Morgan Chase served on the
New York Fed’s board of directors at the same time that
his bank received more than $390 billion in financial
assistance from the Fed. Moreover, JP Morgan Chase
served as one of the clearing banks for the Fed’s
emergency lending programs.
Getting this type of disclosure was not easy. Wall
Street and the Federal Reserve fought it every step of
the way. But, as difficult as it was to lift the veil of
secrecy at the Fed, it will be even harder to reform the
Fed so that it serves the needs of all Americans, and
not just Wall Street. But, that is exactly what we have
to do.
To get this process started, I have asked some of the
leading economists in this country to serve on an
advisory committee to provide Congress with legislative
options to reform the Federal Reserve.
Here are some of the questions that I have asked this
advisory committee to explore:
1. How can we structurally reform the Fed to make our
nation’s central bank a more democratic institution
responsive to the needs of ordinary Americans, end
conflicts of interest, and increase transparency? What
are the best practices that central banks in other
countries have developed that we can learn from?
Compared with central banks in Europe, Canada, and
Australia, the GAO found that the Federal Reserve does
not do a good job in disclosing potential conflicts of
interest and other essential elements of transparency.
2. At a time when 16.5 percent of our people are
unemployed or under-employed, how can we strengthen the
Federal Reserve’s full-employment mandate and ensure
that the Fed conducts monetary policy to achieve maximum
employment? When Wall Street was on the verge of
collapse, the Federal Reserve acted with a fierce sense
of urgency to save the financial system. We need the Fed
to act with the same boldness to combat the unemployment
crisis.
3. The Federal Reserve has a responsibility to ensure
the safety and soundness of financial institutions and
to contain systemic risks in financial markets. Given
that the top six financial institutions in the country
now have assets equivalent to 65 percent of our GDP,
more than $9 trillion, is there any reason why this
extraordinary concentration of ownership should not be
broken up? Should a bank that is “too big to fail” be
allowed to exist?
4. The Federal Reserve has the responsibility to protect
the credit rights of consumers. At a time when credit
card issuers are charging millions of Americans interest
rates of 25 percent or more, should policy options be
established to ensure that the Federal Reserve and the
Consumer Financial Protection Bureau protect consumers
against predatory lending, usury, and exorbitant fees in
the financial services industry?
5. At a time when the dream of homeownership has turned
into the nightmare of foreclosure for too many
Americans, what role should the Federal Reserve be
playing in providing relief to homeowners who are
underwater on their mortgages, combating the foreclosure
crisis, and making housing more affordable?
6. At a time when the United States has the most
inequitable distribution of wealth and income of any
major country, and the greatest gap between the very
rich and everyone else since 1928, what policies can be
established at the Federal Reserve which reduces income
and wealth inequality in the U.S?
Given the growth of the Occupy Wall Street movement and
given the concerns of millions of Americans about Wall
Street, we now have a unique opportunity to make
significant changes to one of the most powerful and
secretive agencies of the federal government. One thing
is abundantly clear: Americans deserve a Federal Reserve
that works for them, not just the CEOs on Wall Street.
It’s Time To Break Up the Big Banks Pushing to reinstate the Glass-Steagall Act would be a smart move for Obama both politically and economically
Robert Reich blog October 25,2011 http://robertreich.org/post/11930107240
Next week President Obama travels to Wall Street where he’ll demand – in light of the Street’s continuing antics since the bailout, as well as its role in watering-down the Volcker rule – that the Glass- Steagall Act be resurrected and big banks be broken up. I’m kidding. But it would be a smart move – politically and economically. Politically smart because Mitt Romney is almost sure to be the Republican nominee, and Romney is the poster child for the pump-and-dump mentality that’s infected the financial industry and continues to jeopardize the American economy. Romney was CEO of Bain & Company – a private-equity fund that bought up companies, fired employees to save money and boost performance, and then resold the firms at a nice markups. Romney also epitomizes the pump-and-dump culture of America’s super rich. To take one example, he recently purchased a $3 million mansion in La Jolla, California (in addition to his other homes) that he’s razing in order build a brand new one. What better way for Obama to distinguish himself from Romney than to condemn Wall Street’s antics since the bailout, and call for real reform? Economically it would be smart for Obama to go after the Street right now because the Street’s lobbying muscle has reduced the Dodd-Frank financial reform law to a pale reflection of its former self. Dodd-Frank is rife with so many loopholes and exemptions that the largest Wall Street banks – larger by far then they were before the bailout – are back to many of their old tricks. It’s impossible to know, for example, the exposure of the Street to European banks in danger of going under. To stay afloat, Europe’s banks will be forced to sell mountains of assets – among them, derivatives originating on the Street – and may have to reneg on or delay some repayments on loans from Wall Street banks. The Street says it’s not worried because these assets are insured. But remember AIG? The fact Morgan Stanley and other big U.S. banks are taking a beating in the market suggests investors don’t believe the Street. This itself proves financial reform hasn’t gone far enough. If you want more evidence, consider the fancy footwork by Bank of America in recent days. Hit by a credit downgrade last month, BofA just moved its riskiest derivatives from its Merrill Lynch unit to a retail subsidiary flush with insured deposits. That unit has a higher credit rating because the Federal Deposit Insurance Corporation (that is, you and me and other taxpayers) are backing the deposits. Result: BofA improves its bottom line at the expense of American taxpayers. Wasn’t this supposed to be illegal? Keeping risky assets away from insured deposits had been a key principle of U.S. regulation for decades before the repeal of Glass-Steagall. The so-called “Volcker rule” was supposed to remedy that. But under pressure of Wall Street’s lobbyists, the rule – as officially proposed last week – has morphed into almost 300 pages of regulatory mumbo- jumbo, riddled with exemptions and loopholes. It would have been far simpler simply to ban proprietary trading from the jump. Why should banks ever be permitted to use peoples’ bank deposits – insured by the federal government – to place risky bets on the banks’ own behalf? Bring back Glass-Steagall. True, Glass-Steagall wouldn’t have prevented the fall of Lehman Brothers or the squeeze on other investment banks in 2007 and 2008. That’s why it’s also necessary to break up the big banks. In the wake of the bailout, the biggest banks are bigger than ever. Twenty years ago the ten largest banks on the Street held 10 percent of America’s total bank assets. Now they hold over 70 percent. And the biggest four have a larger market share than ever – so large, in fact, they’ve almost surely been colluding. How else to explain their apparent coordination on charging debit card fees? The banks aren’t even fulfilling their fiduciary duties to investors. Last summer, after Groupon selected Goldman Sachs, Morgan Stanley, and Credit Suisse to underwrite its initial public offering, the trio valued it at a generous $30 billion. Subsequent accounting and disclosure problems showed this estimate to be absurdly high. Did the banks care? Not a wit. The higher the valuation, the fatter their fees. Just last week Citigroup settled charges (without admitting or denying guilt) that it defrauded investors by selling them a package of mortgage-backed securities rife with mortgages it knew were likely to default, but didn’t disclose the hazard. It then bet against the package for its own benefit – earning fees of $34 million and net profits of at least $126 million. So what’s Citi paying to settle this outrage? A mere $285 million. Its CEO at time (Charles Prince) doesn’t pay a dime. I doubt the President will be condemning the Street’s antics, or calling for a resurrection of Glass-Steagall and a breakup of the biggest banks. Democrats are still too dependent on the Street’s campaign money. That’s too bad. You don’t have to be an occupier of Wall Street to conclude the Street is still out of control. And that’s dangerous for all of us. 30107240.
New “Unity Unions” Self-Organize to Confront Workplace Abuses
Thursday 20 October 2011
by: Amy Dean, Truthout | Interview
(Image: JR / t r u t h o u t)
The last five years have been grim and isolating ones for immigrants and working people, right? Overall, this may be the case, but if you talk with organizers at Fuerza Laboral, an independent workers’ center in Rhode Island founded in 2006, you might get a different impression.
Despite difficult times, the group has taken on some bold and determined organizing. And they have some important victories to show for their efforts.
“Fuerza’s roots are really and truly the essence of what the labor movement is: workers organizing themselves and getting together with their communities to identify some real injustices that are systemic throughout the country,” says Josie Shagwert, the group’s executive director. “They got together to say, ‘How can we put a stop to this? Because the system is failing us.'”
Not long ago, workers’ centers were seen as service providers, staff-driven organizations where individuals could go to have caseworkers help with their problems. That has changed over the past decade, and the Rhode Island group is part of the transformation. “Fuerza Laboral builds worker power,” the organization’s web site explains. “[We] organize to end exploitation in the workplace. We train workers in their rights, develop new community leaders, and take direct action against injustice to achieve real victories.”
This work sounds a lot like what unions do. And, yet, Fuerza Laboral is not formally affiliated with the labor movement. Instead, it is an affiliate of National People’s Action (NPA), and shares with other NPA members an organizing model rooted in communities. Fuerza Laboral’s campaigns show two things: why organizing among workers remains essential, and how the labor movement still has work to do in bridging the gap between its traditional practices and new groups doing cutting-edge organizing, especially among immigrants and low-wage workers.
What Good Are Laws Without the Power to Enforce Them?
When Fuerza Laboral first started organizing, it focused on the abuses of temp agencies in Rhode Island, “employers who were underpaying, not paying, taking illegal deductions,” Shagwert says. Having first coalesced around this industry, the group soon moved to take on other businesses with unjust labor practices – notably a local manufacturer called Colibri. On a cold morning in January 2009, some 280 workers showed up for work at the Colibri jewelry factory, a nonunion shop in East Providence. They found a handwritten sign taped to the factory door reading, “Plant Is Closed. Go Home.”
“Shock turned to anger pretty quickly,” says Shagwert, “with people asking, What kind of treatment is this? People had worked there for 5, 15, 20 years.” One of the workers called a local Spanish-speaking radio station and complained on the air about the closing. The radio host suggested that he get in touch with Fuerza Laboral.
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“For the first meeting they had 12 people,” Shagwert says. “By the time they got together for a second meeting there were 60 people in the living room of one of the workers, crowded in to talk about what to do and what an organizing campaign would look like.”
The group discovered that Colibri’s closing violated the federal Worker Adjustment and Retraining Notification Act (WARN), which mandates that any business with 100 or more employees must give 60-days notice before closing. (The WARN Act was in the news during the December 2008 occupation of the Republic Windows factory by the Chicago company’s laid-off workers, which Kari Lydersen chronicles in her book “Revolt on Goose Island.”) The law affords an important protection for employees. Unfortunately, there is no federal agency to enforce it. The Colibri workers decided that they would take it upon themselves to make the company obey the law.
“The vast majority of those workers had never organized before,” Shagwert says. Yet, in the course of the campaign, they pulled together a 250-person rally at the Colibri site and also began engaging in direct action. “The workers practiced civil disobedience at the auctions [of company assets],” says Shagwert, “which resulted in 13 people getting arrested.”
During the action, one observer told the local NBC affiliate, “I’d like to see them get justice … This is another AIG deal. The rich get richer, and the workers get the shaft.”
The activists subsequently brought 100 people to the headquarters of the private equity firm in New York that had purchased the company, and workers held a sit-in in the firm’s lobby. “As a result of all those actions,” Shagwert explains, “a prominent labor lawyer in Rhode Island, Marc Gursky, felt inspired by this grassroots surge of energy. He stepped forward and said, ‘I know that to enforce the WARN Act you are going to need a lawyer.'”
For two years, Fuerza Laboral pursued the case in court, and it ultimately reached a settlement. The precise terms of the agreement have not yet been made public. Nevertheless, Shagwert notes, “I will say that the workers felt really happy that after two years they were vindicated.”
“Unity” and Unions
Fuerza Laboral’s efforts show why, even with only 7 percent of workers in the private sector of the American economy covered by traditional unions, there is no substitute for organizing among working people. Even with pro-employee laws on the books, there is little hope of justice without a grassroots demand. Prior to the labor laws enshrined in the New Deal, mutual aid among workers was the very essence of union life. With collective bargaining in decline, the revival of this type of action may be important for labor’s future as well.
Asked what Fuerza Laboral takes from the organizing model of National People’s Action, the national coalition of which it is a member, Shagwert says, “Networking and constantly building leadership. It’s a real belief that everyone who belongs to your organization, or wants to belong, has the potential to take leadership.”
In addition to developing leadership through their campaigns, Fuerza Laboral has also actively pursued a program of political education. “The essence of Fuerza Laboral is having the passion to develop leaders who will confront social injustice,” says Heiny Maldonado, a community organizer at the group. “We have a year-round calendar of trainings for our members and leaders.”
Shagwert adds: “Since 2006, we have put at least 3,000 workers through a really aggressive popular education model within which our members and leaders get trained to teach basic workers rights. We also hold democracy schools: a multi-week school that teaches about organizing, the history of the labor movement, and the history of immigration. Many of our leaders have come through those courses. They take a course, get fired up, and then we look for ways to plug them into the regular organizing we do. That feels like a huge victory.”
If there’s going to be a progressive revival in this country, having a broadly inclusive approach to worker education and developing community leadership will be just as important to traditional unions as they are to workers’ centers. Currently, the labor movement is engaged in efforts to reach out beyond its established membership in shops covered by collectively bargained contracts. From the AFL-CIO’s Working America program to Service Employees International Union’s (SEIU) Fight for a Fair Economy, labor organizations are seeking to expand their reach into working-class communities at large, recognizing that if they are perceived as a narrow special interest that benefits only a few workers, the movement will be destined to permanent decline.
Operations such as Fuerza Laboral represent another strain of organizing among workers that is taking place outside of traditional labor structures. A decade ago, the relationships between emerging workers’ centers in different parts of the country and traditional labor unions tended to be mistrustful – if not outright hostile, as Janice Fine discussed in her book “Worker Centers: Organizing Communities at the Edge of the Dream.” Few ties existed in most cities. Since then, both sides have made inroads into this challenge and have strengthened their relationships with one another. In the past five years, the AFL-CIO has formed partnerships with the National Day Laborer Organizing Network (NDLON) and with Interfaith Worker Justice.
Yet, gaps in organizational cultures and strategies still remain. The relationships between traditional unions and workers’ centers are continually being redefined, and the interaction of the groups represents a vital ongoing conversation.
As for Fuerza Laboral, Shagwert says: “Our board president has started calling us Unity Union. Which is what we are doing: Representing people in terms of grievances, doing a lot of the things a union would do for its members. But we’re not a union. We don’t identify with workers based on where they are working, we identify with them based on the abuses they are experiencing.”
While she cites alliances with unions such as SEIU and labor groups like Jobs with Justice as crucial to Fuerza’s work, she views her organization differently: “It’s the way I compare working on human rights to working on the rights of one small minority,” she says. “It doesn’t feel right to throw our hat in the ring and fight for one particular group of people. We are fighting for all of us because we are fighting for the most vulnerable.”
She adds, “I want to find a way to say this that isn’t critical of unions. Without unions what would our country be? But I see Fuerza as able to be a little more flexible than a union can be because we don’t represent one particular group of workers.”
Fuerza Laboral at once embodies an impulse toward mutual aid that has deep roots in the history of workers’ struggles and represents a new breed of organization that is expanding in areas where traditional union structures have not been able to reach. For a labor movement that desperately needs to make clear its relevance for all Americans, the task of deepening partnerships with such community allies could not be more urgent.
Wall Street Protest Plans Global Rally Ahead of G20 | Common Dreams
Wall Street Protest Plans Global Rally Ahead of G20 | Common Dreams.
Why a Mortgage Cramdown Bill Is Still the Best Bet to Save the Economy
Many Americans believe that the financial crisis stems from the Bush administration’s running up the federal debt and out-of-control spending by the American consumer. But much of the blame for the country’s current economic woes lies with the Obama administration’s failure to forcefully tackle the biggest threat to the American economy today: the housing crisis.
Nearly 6 million Americans have already lost their homes to foreclosure since the housing bubble popped, and about 3.5 million are in foreclosure proceedings. But the worst is yet to come. This past September, a US Senate Banking subcommittee heard testimony from a prominent mortgage industry analyst that 10.4 million mortgages, approximately one of every five outstanding mortgages in the country, could default, if Congress does not take action to address the housing crisis.
Over the past several months, editorial pages and economists such as Paul Krugman and Carmen Reinhart have stressed that restructuring US household debt would be one of the most effective means of speeding economic growth and putting Americans back to work. According to a recent report by The New Bottom Line, a coalition of labor groups and grassroots networks, if all underwater mortgages were written down to market value and refinanced into thirty-year fixed mortgages, it would add about $71 billion a year to the economy and create 1 million jobs.
But despite the outcry, Washington currently does not have a viable plan to deal with the plight of the more than 14 million Americans who are currently underwater on their mortgages by more than $700 billion. With the mortgage meltdown showing no signs of abating, it is the time to set the record straight on the best plan we have had for reviving the housing market: the 2009 bankruptcy reform bill known as the cram-down bill. That controversial piece of legislation would have given bankruptcy judges the authority to write down mortgages on a primary residence to the current fair-market price of the property. In addition, cram-downs would have enabled bankruptcy judges to monitor and stop some of the widespread robo-signing abuses—where banks have been using fraudulent documents to foreclose on homeowners.
Proponents of the bill believe many if not most of the homeowners who would have benefited from it would not have even needed to file for bankruptcy. Indeed the cram-down provision would have provided homeowners and their advocates with a critical bargaining chip to negotiate sustainable loan modifications from the banks.
When Senator Barack Obama was running for president he told voters that he would support legislation to allow homeowners to get relief in bankruptcy court. The legislation would have repealed a bankruptcy provision that prohibits modifications of mortgages on a primary residence. “I will change our bankruptcy laws to make it easier for families to stay in their homes,” he told voters at a campaign rally in September 2008, describing the bankruptcy exemption for mortgages as “the kind of out-of-touch Washington loophole that makes no sense.”
Today cram-downs make even more sense than they did in 2009. The various bank proprietary loan modification programs and the government-sponsored loan modification programs are widely acknowledged to be failures for not helping enough homeowners and also for having high re-default rates. But one of the biggest unmitigated disasters about these programs is that homeowners who have succeeded in obtaining loan modifications actually have become mired in more debt. That is because instead of reducing homeowners overall debt, these loan modification programs have focused on lowering monthly payments on a homeowner’s primary mortgage by reducing interest rates and extending the term of the loan. In 2010, nearly 95 percent of active, permanent loan modifications resulted in homeowners’ actually owing more debt on their homes than before the modification according to a Congressional Oversight Panel report.
The reason that we don’t have cram-downs is that the banks lobbied heavily against the 2009 bill. They said it would further destabilize home prices and that they would have to raise interest rates to account for the risk of underwater homeowners’ having their mortgages modified in a bankruptcy. They also argued that bankruptcy reform would create a “moral hazard” by rewarding irresponsible borrowers who took out mortgages that they couldn’t afford.
The misleading message on cram-downs that stuck in the minds of many voters came from CNBC host Rick Santelli. It was Santelli’s 2009 rant about cram-downs that launched the Tea Party. “This is America!” Santelli told cheering traders on the floor of the Chicago Mercantile Exchange, “How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills?”
In contrast to candidate Obama, President Obama was conspicuously silent on cram-downs. According to ProPublica, Treasury Department staffers actually cautioned lawmakers against the bankruptcy reform legislation. Unfortunately for underwater homeowners, although the cramdown legislation passed Congress in March 2009, it was defeated the following month in the Senate by a vote of 45 to 51. Georgetown Law School professor Adam Levitin, who has written extensively on cram-down legislation, says that Obama’s lack of support doomed the bill. “Had Obama put his weight into it, it would have passed,” says Levitin, “It would have been a fight, but he was too chicken to have the fight.”
“The principal objective of the Obama administration and the Bush administration before that was to let the banks avoid taking immediate losses,” says Democratic Representative Brad Miller of North Carolina, who sponsored the cram-down bill, “The bankruptcy law change was incompatible with that, it would have required the banks to recognize a lot of losses immediately and might very well have revealed some of them to be very nearly insolvent or actually insolvent.”
The country’s four largest banks stand to lose the most from cram-downs. The legal fees they would face in bankruptcy courts would be enormous. In addition, these banks hold a substantial amount of the outstanding unsecured debt on underwater homes in the form of hundreds of billions of dollars of second loans and home equity lines of credit. Because they are in second-lien position, with the drop in housing prices, many of these loans have become partially or completely unsecured, meaning they no longer attached to any underlying equity in the home. And while some bankruptcy courts have allowed wholly unsecured second-lien mortgages to be written off completely, other courts have ruled against writing down these mortgages. Under the 2009 proposed cram-down legislation, the law would have been much clearer, and many of these junior loans would be written off completely.
Aside from propping up the country’s largest banks, there’s very little reason not to pass bankruptcy reform. In contrast to the Obama administration’s Home Affordable Modification Program, under which the taxpayer is partially footing the bill, court ordered mortgage cram-downs would cost the federal government nothing. Indeed, cram-down legislation requires no government bailouts or financial incentives for lenders or for borrowers. The 2009 CBO cost estimate of the proposed cram-down legislation shows that the federal government actually would have made money on the bill through the increase in bankruptcy filing fees.
What about the argument that cram-downs would force banks to raise interest rates, thus making credit more expensive for borrowers and depressing home values in the very neighborhoods hit hardest by the meltdown? Interest rates on fixed-rate mortgages have been on a downward trajectory, and in early October the rate on a thirty-year fixed-rate mortgage fell below 4 percent, the lowest it has been in recorded history. But prospective homeowners still are not buying. In an era of falling home prices, lenders understandably are worried about lending on an asset that is losing value and prospective homebuyers understandably are worried about making a bad investment. Indeed the debate over whether or not cram-downs would have resulted in market crippling higher interest rates proved to be a major red herring from the main ailment afflicting the housing market today—the inflated mortgages, many of which were based on fraudulent appraisals, that were originated during the bubble.
The argument that cram-downs would have rewarded irresponsible borrowers is also misleading. Chapter 13 Bankruptcy is not a get-out-of-debt-free option. It requires borrowers to live on a court-monitored budget for three to five years. Further, in many parts of the country, there are Americans who owe more than twice as much on their mortgages as their homes are worth. Many of these people are victims of predatory lending and appraisal fraud. The most authoritative official report that we have on the events that led to the 2007 meltdown, the Financial Crisis Inquiry Commission’s final report cites widespread instances of predatory lending during the housing bubble. For example, the commission’s report discusses how the quality assurance department of New Century, once the nation’s second-largest subprime lender, found evidence of predatory lending, legal and state violations and credit issues in 25 percent of the mortgages that they audited. Yet instead of reforming the company’s business practices, New Century executives dissolved their quality assurance department and terminated its personnel.
In addition to potentially helping millions of Americans get back on track, bankruptcy reform actually would have benefited the entities that own most of the outstanding secured mortgage debt in this country—Fannie Mae, Freddie Mac, pension funds and private investors. “Investors recognize that a 20 or 30 percent principal write down creates re-performance,” says Joshua Rosner, managing director at Graham Fisher & Co, a company that advises investors, “and it beats absolutely a 70 percent plus loss in a default.”
Even one of the major unstated reasons for not passing the bankruptcy reform bill, protecting the nation’s largest banks, no longer holds water. Failure to pass the cram-down legislation has not in fact saved the banks from their travails. Bank of America, the nation’s largest bank, is going wobbly due in large part to its continuing problems with mortgage meltdown. If the cram-down legislation had passed and BoA had failed as a result, then so be it. Millions of Americans facing foreclosure would have had a much better shot at saving their homes, and that would have been a much bigger boon to the overall economy than bailing out the banks.
However, although the big banks are tottering, they still appear to call the shots in Washington. “There seems to be an unstated but perhaps conscious policy of not forcing them [banks] to recognize losses,” says Miller, “ And almost everything that we can do to help the balance sheet problems for households—to help reduce household debt—would require the banks to recognize losses.”
A SISTAH FROM ANOTHER MOTHER "THE EARTH" 