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

m4s0n501

The Bonuses and the Damage They Do

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
This is a story we are all too familiar with: Wall Street vs. Main Street. Irresponsible behavior leads to bonuses for Wall Street while working hard and playing by the rules leads to unemployment and foreclosure for Main Street.
You’ve heard the elements of the story: For quite some time Wall Street and the banks were operating irresponsibly, fomenting a huge credit bubble which led to the financial collapse. At the end of 2008 millions and millions of regular people – popularly known as “Main Street” – began losing their jobs, losing their houses, losing their savings and forgetting about ever retiring.
Wall Street: Huge Wall Street bonuses are in the news: Bank Bonus Tab: $33 Billion

Nine banks that received government aid money paid out bonuses of nearly $33 billion last year — including more than $1 million apiece to nearly 5,000 employees — despite huge losses that plunged the U.S. into economic turmoil.
… The nine firms in the report had combined 2008 losses of nearly $100 billion. That helped push the financial system to the brink, leading the government to inject $175 billion into the firms through its Troubled Asset Relief Program.

The Cost: The same amount, used for the people, would bring over 2.5 million good-paying jobs.
The “financial collapse” bonus pool is $33 billion. For comparison, look at what $30 billion could buy for We, the People, if only we had some control over things. $30 billion is the amount requested in Senator Sherrod Brown’s (D-Ohio) Impact Act. $30 billion = more than 2.5 million jobs:

“IMPACT (Investments for Manufacturing Progress and Clean Technology) creates a $30 billion Manufacturing Revolving Loan Fund to help small and medium-sized manufacturers finance retooling, shift design, and improve energy efficiency.
. . . the IMPACT Act could create 680,000 direct manufacturing jobs nationally and 1,972,000 indirect jobs over the next five years.”

Gas Prices and Bonuses: Do you remember those soaring gas prices that hit Main Street so hard last year. They play a part in this bonus story. For some background, see Matt Taibbi’s Rolling Stone piece, Inside The Great American Bubble Machine,

So what caused the huge spike in oil prices? Take a wild guess. . . . [Wall Street] persuad[ed] pension funds and other large institutional investors to invest in oil . . . The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.
[. . .] But it wasn’t the consumption of real oil that was driving up prices — it was the trade in paper oil. By the summer of 2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country’s commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.

This fits our story because the top bonus-getter this time around is Andrew J. Hall. Hall “earned” it by helping to run up the price of oil last year. Hall is getting a $100 million bonus. (Thanks to previous years’ bonuses Hall already owns a 1000-year-old castle called Schloss Derneberg. Go look at some of the pictures of what these nice Wall Street bonuses can buy.)
Here’s some more bonus news: Goldman may pay out largest bonus pool ever,

Looks like things are back to normal, or perhaps even better, at Goldman Sachs Group Inc. (NYSE:GS) as the firm is reportedly on track to pay out its largest bonus pool in the firm’s 140-year history thanks to soaring profits in the first half of 2009.

Yes, that’s right “back to normal.” Huge bonuses, in some cases the largest ever.

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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