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

Stopping Banks From Fleecing, Looting, Scamming, Robbing, Swindling, Tricking, Cheating, Conning, and Generally Ripping Us Off

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.
In the last several years we have all been fleeced, looted, robbed, swindled, thieved, tricked, cheated, scammed, exploited, ponzied, stung, conned, extorted, ripped off and bankrupted by the banks and other big financial companies. Finally the Congress is working on reigning them in. This week the Congress takes up whether to create a new Consumer Financial Protection Agency (CFPA). This is a very important bill, creating an analog to the Food and Drug Administration (FDA) and the Consumer Product Safety Commission (CPSC), designed to protect consumers from financial scams and general fleecing.
I was on a blogger call today with Elizabeth Warren to discuss this bill. This call was hosted by Heather Booth, Americans for Financial Reform, a coalition of 200 organizations fighting for this other reforms of our banking and financial system. Warren is Chair of the Congressional Oversight Panel – COP – but was not on the call in that capacity. She was on the call to explain why we need the CFPA. Warren originally proposed the idea of a CFPA, and you might know her from Michael Moore’s movie, Capitalism: A Love Story.
Here is what Warren had to say: (from notes)

She has been studying what has been happening to people around the country. The status quo is bad. It created financial crisis and subprime mortgage meltdown with all of its implications, including millions losing homes, 10-12 million could lose to foreclosure before this is over.
Dangerous products were fed into the system. These products destabilized families and destabilizing families destabilized the economy. It’s not just mortgages. Look at payday loans, and the traps involved… And credit cards.
What it comes down to is that people who never thought they were at risk, but then when interest goes from 9.9% to 29% it is just unmanageable. People are thrown to ground. When families get cheated we are all at risk. This destabilization at a family level echoes throughout the economy.
Safety works. People getting cheated. Agencies work.
Look at how credit card business models have shifted. The old model was a you getting a card based on your good credit, if you qualified. But now they hold up low interest or a free gift or say it is a cool card to have, and you get the card, and then they make their money from the traps and tricks in the fine print that people just do not know about. Lenders hide costs and prey on customers. So no one can compare the cards. It is a market driven by the tricks and traps they can hide.
We have the FDA. In the 1920s anyone with a box of chemicals and a bathtub could start a pharmaceutical company. How many people are alive today because now we have basic safety protections on drugs. And this makes it safe to invest in good products and good companies.
Look at the Consumer Product Safety Commission – the agency sets standards, and child car seats are safer etc.
Safety works.
The David and Gioliath nature of this story shows up in multiple ways. Lawyers that create these deceptive and dangerous products – come in well-funded teams. These companies use these teams of lawyers and sociologists and psychologists, and find as many ways as they can to trick people.
In contract law an equal contract is both sides have good knowledge and that is basis of legal binding in contracts. Both sides have an understanding of what they are agreeing to. But here we have had large financial institutions writing contracts no one understands and writing the regulatory rules over the last 15 years, and that is what got us into this mess. Then they turned to the taxpayer and said, “Bail us out.”
They have survived because of that taxpayer bailout and their response is to turn around and fight to continue to be the ones who write the rules so they can do it all again.
This is about survival of families but also fundamentally a question of where our country and economy goes.

Then Ed Mierzwinski of U.S. PIRG talked:

We are up against a massive well funded lobby trying to protect the status quo. They are using the big lie.
This will create 1 agency instead of 7. It is replacing, not creating a new layer. The analog agency is the FDA.
The big issue now is preemption, where they are trying to override stale rules that might be stronger. We must allow states to have stronger regulations. Let the federal agency and regulations be a floor not a ceiling.
Mierzwinski then listed members of Congress who should be contacted to let them know that there is support for creating this CFPA:
Top of the list: Melissa Bean, D-Ill., because of her opposition to state preemption.
Also on the list:
Paul Kanjorski, D-Pa.
Dennis Moore, D-Kan.
Gregory W. Meeks, D-N.Y.
Carolyn McCarthy, D-N.Y.
Charley Wilson, D-Ohio
Ed Perlmutter, D-Colo.
Joe Donnelly, D-Ind.
Bill Foster, D-Ill.
Walt Minnick, D-Idaho
Mary Jo Kilroy, D-Ohio
Ron Klein, D-Fla.
Travis W. Childers, D-Miss.
Steve L. Driehaus, D-Ohio
Jim Himes, D-Conn.
Gary Peters, D-Mich.
Dan Maffei, D-N.Y.
Joseph Crowley, D-N.Y. (not a member of the committee, but is chief deputy whip and is the chairman of the New Democrat Coalition.)

Here is Elizabeth Warren talking about this agency, in July:

Also working on this: The Center for Media and Democracy is launching the Real Economy Project this week to “to simplify these complex issues and give you a voice in the debate surrounding proposed public policy fixes.” They will also be launching a Bankster site to “to be your go-to site for updates on the financial services re-regulation fight in Congress and for progressive net-roots campaigning against the big boys on Wall Street.” It will be at and will be about accountability. (I’m also working with them on these.)
Finally, see this post from Sunlight Foundation: Top Financial Services Committee Members Rely Heavily On Finance Campaign Contributions,

One year after the biggest economic collapse since the Great Depression, Congress is still debating new financial regulations to protect consumers and prevent risk-taking in the financial sector. The House Committee on Financial Services is currently undertaking the important first step of writing, amending and voting on some of the pieces of the long-proposed financial regulatory reform. While debating these issues top committee members have been the recipients of disproportionate campaign contributions from the very industry that they are tasked with regulating.

Go read — it’s enlightening.