The Great American Credit Catastrophe

The 911 of the Middle Class is the consumer credit debacle. It is the gift that keeps on giving. The reality is that the housing crisis is just one piece of this really big, ugly mess. It seems to me that our President MUST call for immediate reform and take action through executive order. Call me politically naïve, but we need action. Unemployment continues to hover close to 10%, and higher in badly hit areas. Interest paid by the banks on savings ranges from less than 1% to maybe 2.5% on a good day. The consumer credit card companies, though regulated now sort of, ran naked through the streets jacking up everyone’s interest rates to over 15 to 30%. Yes they have to notify the poor, irresponsible slobs now before they do things, but the banks still get to burn kerosene in the town square with no permits. And we haven’t even gotten to the health insurance yahoos that have four more years for their trickery. Oh Nelly, bar the door! It’s the Wild West again as the cattle are corralled – only this time it’s the American people being herded to ruin by the giddy-up bankers and health insurance companies, not just the mortgage guys.
People are getting sick from worry. Their backs hurt, their necks are out, and they are grinding their pearly whites. Few sleep well at night. Pharmaceutical sales are up. The banks we saved are savaging us. They are bulldozing the Middle Class under mountains of debt. People are losing their homes, divorces are up, businesses are closing, and unemployment is rampant. The consumer credit world and their FICO scores are broken. They are based on a world that no longer exists. In two short years, many consumers have watched their scores collapse under an avalanche of debt. The FICO scores were calibrated for a different time when consumer credit cards were not the only source of money available, mortgages were not under water, and unemployment was not soaring. If we are ever to unwind this situation, these algorithms must be reset. Otherwise the banks will never lend again. The Middle Class needs a do-over, just like the banks got.
Yes sir, Obama stood up against the broad sweeping foreclosure legislation, and Bank of America seized the moment halting foreclosures nationwide. But we’re all holding our breath waiting for the other shoe to fall as even Progressive strategist Mike Lux gens up the netroots to re-engage with the President and Congress. It is inconceivable that people have not taken to streets in protest over their lost pensions, and the absence of any kind of interest bearing bank account — except on consumer credit cards. In fact, this week Robert Sheer wrote brilliantly about Obama’s “No Banker Left Behind” — while every normal person has been thrown under the bank bus. How did we allow the bail-out of every financial institution, while abandoning the common folk? Why are Democrats — whether conservative, moderate or netroots – not able to channel this collective anger, rage and disappointment other than to take aim at one another? Given the data, there is no way out for the once resilient Middle Class without a do-over. Instead of “No Banker Left Behind” let us heal the Middle Class by fixing the credit industry; restricting the health care industry now, not in four years; and making those banks lend the money we gave them and not hide behind FICO scores. All of the Democrats are writing, but no one is demanding change now. The Tea Party has successfully harnessed the anger and rage, but has no plan. Frankly, they are just another distraction taking our attention away from the gravity of the problems.
Mr. President, come back to us as Mike Lux laments. We need you. We, in the Middle Class, are living this nightmare everyday of our lives. Figure it out, and get the Middle Class out from under. The numbers do not lie. This is our emergency, our call to action, our 911. Friends and neighbors are collapsing from the stress when they can ill afford it. Unemployment is not going away. Consumer debt is skyrocketing. Mr. Obama, Americans are not being frivolous and irresponsible as Dr. Summers would like you to believe. They are boxed in with no escape hatch. Consider enacting a nationwide job core like the WPA, putting the banks on real notice, corralling those nasty health insurance folks, redoing the credit industry, and loosening up cash. No one is sleeping at night. People are nervous and cannot see a future.
Please, inspire us again, show emotion, get messy, and let the wrinkles show. Mr. President raise your voice in outrage. Give us voice. Come back to us. The time is now.
This was originally published on the Huffington Post earlier today.
See the pearltree below for the references for this article.
US Economy

Stop Corporate Lobbying With Taxpayer Money

This post originally appeared at the Commonweal Institute’s Uncommon Denominator blog

Why are recipients of the Troubled Assets Relief Program (TARP) – better known as the Banking Bailout – allowed to continue to lobby? Taxpayer dollars should not be used to influence our government. We, the People should be telling them what to do, not the other way around.

TARP recipients spent $114 million on lobbying last year as the financial crisis emerged. In just the last quarter of the year eighteen bailout recipients spent $14.8 million to influence the government, as the TARP funds were distributed.

The lobbying has paid off. According to the Center for Responsive Politics, “The companies’ political activities have, in part, yielded them $295.2 billion from TARP, an extraordinary return of 258,449 percent.”

TARP recipients are currently lobbying against compensation caps at companies receiving TARP, against increasing bank regulation – and even against increased oversight of the use of TARP funds in the TARP Reform and Accountability Act! They are also lobbying against the Arbitration Fairness Act, the Fairness in Nursing Home Arbitration Act, the Mortgage Reform and Anti-Predatory Lending Act and the Helping Families Save Their Homes in Bankruptcy Act, Credit Card Holders Bill of Rights and the Stop Unfair Practices in Credit Cards Act!

But these companies are not just lobbying in favor of their own(ers) interests; they are lobbying against those of the rest of us. Recently it has come to light that Bank of America, Citigroup and other TARP recipients are organizing efforts to oppose the Employee Free Choice Act – federal legislation that would enable workers to organize unions, which results in increased income and benefits for working people, thereby enabling them to make their credit card and mortgage payments.

Use of corporate funds to influence our government is a larger problem than just this current misuse of TARP. In fact, this BofA and other companies’ use of TARP funds to oppose the Employee Free Choice Act supports an argument that the current economic crisis is a result of corporate lobbying. A corporate-funded assault on government has resulted in de-legislation and deregulation, enriching a few at the expense of the rest of us, while eroding the foundations of our economy and our democracy. Now the public has been harvested in one scheme after another, plundered for every dollar as incomes stagnated, debt skyrocketed and savings fell. Consumption fell off the cliff as the work- and debt-load tapped out people’s ability to participate in the economy. The resulting crisis has led to taxpayer dollars propping them all up.

And now millions of those taxpayer dollars are being used for … even more lobbying.

Whether or not this collapse occurred as a direct result of lobbying and other influence buying, it was not a grassroots movement that led to repealing the Glass-Steagall Act of 1933, allowing financial giants to trade mortgage-backed securities and collateralized debt obligations. It was not citizens holding politicians’ feet to the fire that killed the Financial Services Antifraud Network Act. At the same time the lobbying-bought deregulation and suspension of oversight allowed these companies to sell trillions in credit default swaps without the necessary reserves to cover the potential downside. And here we are.

Companies understand lobbying as a way to profit, not to advance policies that serve all of us. A 2006 New York Times article discusses how Google felt it had “no choice but to get into the arena” to start “spreading its lobbying dollars” around to politicians and quotes a Google lobbyist saying the “policy process is an extension of the market battlefield.” According to the Washington Post, a lobbyist explosion occurred in the last decade, doubling to 34,750 between 2000 and 2005, the result of “wide acceptance among corporations that they need to hire professional lobbyists to secure their share of federal benefits.”

This lobbying does not bring We, the People any benefit, it only boosts the financial interests of certain individuals. This is not competition to improve a product or service or the efficiency of the company. It is paying off politicians to gain unfair competitive advantage or to receive subsidies or tax breaks.

Clearly it is time to demand that TARP recipients stop using corporate funds for anything other than operating their companies, and get their noses out of our business.

Lobbyists say they serve a necessary function, providing information to legislators. But corporations can’t have it both ways. If lobbying is purely informational and not intended to sway favor for particular corporations, then the funds are not being used to generate profit for the shareholders and the use of funds and resources is theft from the company. But if the lobbying is intended to tilt the playing field and gain benefits for a company over others it is really just bribery, an affront to our democracy and laws, corrupting our system. If the use of corporate funds to lobby is for the financial gain of a few executives, this is also theft from the company by those few for their personal gain.

We should immediately prohibit companies from engaging in lobbying while accepting taxpayer dollars. Restricting lobbying by TARP recipients would be a bipartisan solution, as Republican lawmakers have called for exactly this approach in the past. The 1981 Heritage Foundation Mandate for Leadership called for a ban on lobbying by recipients of federal funds, as did the 1995 Republican “Istook Amendment.”

And it is time to open a discussion about whether any corporate funds – whether the company is a recipient of TARP funding or not – should be used to influence our government. We should be telling them what to do, not the other way around.

Click through to the Commonweal Institute’s Uncommon Denominator blog

Huckabee Makes Sense

this is interesting, Huckabee Calls McCain Debate Ploy a ‘Huge Mistake’,

Former Arkansas Gov. Mike Huckabee said Thursday that Sen. John McCain made a “huge mistake” by even discussing canceling the presidential debate with Sen. Barack Obama.
. . . Huckabee said Thursday in Mobile that the people need to hear both candidates. He said that’s “far better than heading to Washington” to huddle with senators.
He said the candidates should level with the people about the financial crisis and say the “heart of this is greed.”
. . . Huckabee also was critical of President Bush’s handling of the crisis.
He said to lay the $700 billion obligation on the nation “in 24 hours” amounts to “holding the country hostage.”
“I just think the American people ought to be screaming their lungs out, saying to Congress, not so fast. That’s our money you’re giving away,” Huckabee said.

Bailout Comment

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If this story, Deal said near on big financial bailout is correct I think I feel a bit better about the bailout. Not completely better, but a bit.
1) If executives are really limited in pay (and stock) by this deal they won’t be involving their firms unless it is really necessary. They won’t be in it for themselves.
2) If we get equity in the companies that get bailout money then WE profit if they do.
3) It is phased in, so we don’t just dump all the rest of our money onto a few companies at once. Instead we can see if it is working – and a new President can change what is being done.
If we get these things, it’s a start. I think we should get rid of many of the executives responsible. I also think we need to redesign the system from scratch, insist that ALL corporate money be removed from politics immediately, impost a 90% or higher top tax rate and several other things.
And about this meeting with McCain and Obama at the White house today… is it possible they’re going to be injected with something, and then replaced by pod-people?
Update – Through Atrios, here is an example of what we are paying to bail out:

When we the taxpayers foot the bill for the excesses of the bubble, we are bailing out the lenders who enabled the behavior below:
* The house was purchased on 2/6/1998 for $183,000. There was a $173,500 first mortgage and a $9,500 downpayment.
* On 8/21/2002 they refinanced the first mortgage for $165,500. They actually paid down their debt.
* On 3/12/2003 they opened a HELOC for $50,000, just in case… Their first taste of kool aid.
* On 2/13/2004 they opened a HELOC for $226,000. The kool aid is flowing now.
* On 10/22/2004 they opened an Option ARM for $492,000.
* On 5/2/2005 they opened a HELOC for $75,100.
* On 10/21/2005 they opened a HELOC for $126,000.
* On 9/28/2006 they opened a HELOC for $150,000.
* Total debt on the property, $642,000 plus accumulated negative amortization.
* Total mortgage equity withdrawal, $468,500 including their tiny downpayment.
Basically, these people put $9,500 into the property and made $459,000 in 8 years.
. . . If this property sells for its asking price, and if a 6% commission is paid, the US taxpayer is going to lose $209,694.

Note - at the asking price we ONLY lose $209K. But at the asking price the buyer has to come up with $90K AND have an income of $115K for a CONDOMINIUM.
The bailout’s success depends on housing prices not dropping any more.

Let’s See If We Can Get The Rest

Picture an evening drinking session a couple of months ago (2008), four or five top Bushies around a table.
“Hey, I’ve got an idea.”
“What is it?”
“Oh, you’re going to like this one.”
“So OK, what is it?”
“Let’s see if we can get the rest.”
“What?”
“The rest. Let’s get the rest of it before we go.”
“Really? The rest? We already have about $4 trillion stashed. Why bother.”
“Because it would be cool. Then we can say we got it all. No one has done that before. We’ve still got a few months. What the heck, let’s give it a try.”
“Huh. How much is left?”
Calculator noises. … “I figure we could borrow another $700 billion if we do it right.”
“What? That’s all that’s left?”
“Yeah. We were pretty thorough.”
“Wow. That’s it? Pretty cool.”
“So OK. OK. I like it. Let’s go with this. What’s the cover story? What do we say?”
…Silence. Fingers drumming on the table.
“Hey, I have an idea. Let’s tell them we really, really screwed up the economy. They’ll buy that for sure. And we need $700 billion immediately to fix it.”
“Why do we need $700 billion to fix it?”
… “uh. No, never mind.”
… “How about … no, that won’t work.”
“Wait. Look, if we’re going to go for it, let’s do it right. We tell them that WE JUST DO! Tell them to just shut up and give it to us. We need $700 billion, and we need it in 48 hours, and no one is allowed to know what we’re going to do with it and no court can review it or anything. In fact, we could throw in something about it being “non-reviewable by any court or any agency.”
“Wow. That’s harsh. But you know, that might actually work. A lot of our guys love that kind of stuff.”
“Yeah, they’ll eat that up. The more we make them look like absolute woosies, the more they like to give us.”
“Hey, this is cooking. Heck I was wondering what I was going to do with myself until January. This will really put us in the history books for sure. … Wow. … The rest. All of it. We could actually get all of it. They’ll be writing about that for a thousand years. No one will ever top this.”

THROW Them Out Don’t Bail Them Out

Everything I have read about this massive bailout proposal sounds like they’re going to try to treat the symptoms of a sick and failed system instead of the causes and instead of reforming or replacing the failed system itself. Nothing I have heard addresses the CAUSES of the problems!
I say THROW the system out and start building one that WORKS for US, don’t bail the failed, corrupt system out. A bailout just keeps in place a bad system that has bankrupted all of us in order to enrich a very, very few.
Example: The CAUSE of this was corporate corruption of our political system. The deregulation, bankruptcy bill, oil company favoritism, “free” trade agreements that caused massive trade and job deficits, cronyism, etc. happened because corporate money was used to buy the political system. SO a bailout should prohibit ANY use of corporate funds to influence the political system in ANY way. This includes giving money to organizations like Heritage Foundation, Cato, CEI, DLC and the hundreds of other corporate front groups that influence our politics and our thinking.
Example: Why bail out the very people who caused this mess? Any company receiving a dime of bailout money from the taxpayers should agree to certain terms that benefit the taxpayers. Their taxes on any profits should be doubled or tripled for ten or twenty years. Their management should not be allowed to receive pay that is above ten times the American average. They should agree to start retrofitting their companies to be carbon-neutral. I can think of a hundred other things they should have to agree to.
Example: Lots of people have run up debt and can’t pay their credit card bills because wages have not been going up, jobs are being outsourced, etc., while a few people at the very top of the system are getting vast, vast income and wealth out of the current system. SO reforming the system and imposing very high taxes of 90% or more on high incomes above, maybe $2 million, and using this money FOR THE PEOPLE should be a part of a bailout. These high taxes remove the INCENTIVE to lie, cheat and steal. They remove the reason a few people have been gaming the system. And with a 90% top tax rate hedge fund managers would STILL bring in $300 million a year. Think about that.
Example: Lots of people can’t pay their mortgages and credit card bills because of health care costs. Completely reforming the health care system to provide everyone with health care would cost VASTLY less than this trillion-dollar bailout. SO a national health care system should be ONE component of a bailout.
These are just a few ideas for approaching any bailout. I have more. ALL of us would have many, many more if we get the time to think about it. And THIS is why they are trying to force this to happen immediately – THIS WEEK. If we get a chance to take a breather and think about what we’re doing — giving them all the rest of the money the country has — we might have time to see a better way to proceed. They DON’T want that.

Shock Doctrine Bailout: Taxpayers To Cover Debts Of Wall Street Zillionaires

Treasury Secretary Paulson just used the words, “A significant investment of taxpayer dollars.” That’s OUR dollars. And where is the money going? The plan is for U.S. taxpayers to bail out Wall Street. Not just a few firms this time, but all of it. The financial markets are, of course, soaring on the new bailout plan.
Where did all this bad debt come from? In the last few years millions were talked into borrowing money from Wall Street using houses as collateral. Sometimes to buy those houses, other times to buy cars and … stuff. This paid for Wall Street’s multi-million-dollar salaries and bonuses for the past several years. The easy borrowing ran up the price of houses, but now the party is over and the bill comes due.
What does this bailout plan mean to regular Americans? First: It means no money for a health care plan.
Second: it means no money for retirement. It means no money to cover what the government borrowed from Social Security to give those tax cuts to the rich. (The corporations long ago quit providing pensions to the people who did the work. THAT scam — 401Ks instead of pensions; money transferred from workers to shareholders — is what started the big Wall Street runup.)
In summary, this plan means our standard of living will drop in order to cover the mess Wall Street made while handing out those multi-million dollar bonuses.

The plan will be presented to Congress in these last days of the Bush administration, and a climate of disaster emergency urgency will be used to get it passed before anyone has time to consider the ramifications of what is happening.

Alternative: instead use the money to retrofit the entire country to a green economy. Make every building energy efficient. Replace the oil and coal-based electricity generation with alternatives. Build efficient power lines to the new wind generation system we will build in the Plains states. This would give every unemployed person a job, create an efficient economy, and pay dividends forever. This would probably cost much less than the bailout.

Today’s Housing Bubble Post – Foreclosures Double

Ypu’ll be seeing this headline every month for a while, I expect: Foreclosures nearly double from year ago: report,

Cities in California, Florida and Ohio dominated the 25 U.S. metro areas with the highest home foreclosure rates, though rates jumped in most of the top regions during the third quarter, RealtyTrac said on Wednesday.
. . . A broad credit and liquidity crisis during the third quarter exacerbated U.S. housing industry troubles, pushing sales sharply lower and unsold inventory to record highs.
Overall, residential foreclosure filings nearly doubled in the third quarter from a year earlier, RealtyTrac reported earlier this month.

HOW many foreclosures?

Stockton’s rate of one foreclosure filing for every 31 households, the highest of the metro areas, was a surge of more than 30 percent from the prior quarter. A total of 7,116 filings on 4,409 properties were reported in the metro area during the quarter.
In Detroit, the foreclosure rate of one filing for every 33 households ranked second and was more than double the number of filings reported in the previous quarter, RealtyTrac said. A total of 25,708 filings on 16,079 properties were reported.

Today’s Housing Bubble Post – What A Bank Run Looks Like

This is filed under Housing Bubble, because this is more fallout from the bubble’s bursting. Here’s the deal: financial institutions loan out money to people (and companies and countries, etc.) who, because of the “credit crunch,” might not be able to pay it back. That means that the financial institutions might not be able to pay back the money THEY owe, including to depositors.
It’s housing bubble burst time – do you know where YOUR money is?
Calculated Risk: Northern Rock Bank Run, with photos:

From Bloomberg: Northern Rock Customers Crowd London Branches, Withdraw Money
Hundreds of Northern Rock Plc customers crowded into branches in London today to pull out their savings after the mortgage-loan provider sought emergency funding from the Bank of England …

A bank run happens when people feel that a bank might be having trouble, and realize they might not be able to get THEIR money out of the bank if they don’t hurry. Everyone knows that a bank (money market, stockbroker, etc.) only keeps so much cash on hand. So they show up to withdraw their money before it is too late. It is a “run” because you have to run down to the bank to get your cash before other people get their cash. Only the first people in line are going to get their money.
In the US bank deposits up to $100,000 are insured by the government, so if the worst happens you will eventually get your money (up to $100,000) — after all the paperwork gets done. So if you feel like running down to the bank, you don’t really need to take out more than you will need to pay you bills for a few months.

Today’s Housing Bubble Post – Big Houses Cost More To Heat And Cool, Bad For Environment

Here is one more problem from the housing bubble – all those big houses they built cost much more to heat and cool than regular houses. As utility costs rise this will compound the monthly-payment problem. Then, on top of that there’s the maintenance costs like eventually re-roofing them, watering the lawns, etc.
And then there is the terrible environmental impact. Very few were built withing walking distance of stores and public transportation so cars are required. How many of the world’s trees were cut down to build them?
And, if the public somehow manages to regain their senses, these house monstrosities – like the huge, pre-oil-embargo land-barge cars of the 1970s – will become even harder to sell.
AlterNet: Environment: Big Houses Are Not Green: America’s McMansion Problem,

The just-popped housing bubble has left behind a couple of million families in danger of losing their homes to foreclosure. It has also spawned a new generation of big, deluxe, under-occupied houses bulked up on low-interest steroids.
The National Association of Home Builders (NAHB) estimates that 42 percent of newly built houses now have more than 2,400 square feet of floorspace, compared with only 10 percent in 1970. In 1970 there were so few three-bathroom houses that they didn’t even to show up in NAHB statistics. By 2005, one out of every four new houses had at least three bathrooms.
…the manufacture and transportation of concrete to build a typical 2,500-square-foot house generates the equivalent of 36 metric tons of carbon dioxide.

Continue reading

Today’s Housing Bubble Post – Foreclosures Set record

New Mortgage Foreclosures Set Record,

The number of homeowners receiving foreclosure notices hit a record high in the spring, driven up by problems with subprime mortgages.
The Mortgage Bankers Association reported Thursday that mortgage-holders starting the foreclosure process in the April-June quarter reached 0.65 percent, marking the third consecutive quarter that this figure has set an all-time high.
The delinquency rate, which tracks the number of people who are behind in their payments but have not yet entered the foreclosure process, was also up sharply during the spring, rising to 5.12 percent of all loans, up nearly three-fourths of a percentage point from the same period a year ago.

And don’t forget, NEXT year is when MOST adjustable mortgages reset upwards, greatly increasing monthly payments. This is just the very tip of what is coming.