The "Giant Sucking Sound" Recession--What Ross Perot Did Not Tell Us

A month ago I gave testimony at a Texas Senate committee concerning bills to close a loophole in Texas lending law.  Last week I had another opportunity to speak before the Texas House of Representatives Committee on Pensions, Investments, and Financial Services.  The loophole has allowed an abuse of the Credit Service Organization (CSO) law, designed to regulate businesses who help people with bad credit "repair" their credit.  To operate, they need to charge fees, and this law sets the terms for their operation.  They are not lenders, but provide a service.

Unscrupulous lenders came along and decided to create a business model which would make use of this law to prey on borrowers who believe they cannot get traditional loans from banks, credit unions, or consumer credit storefronts.  These lenders claim to be CSOs.  Officially, they are not the lenders.  They have a cozy relationship with a lending organization which operates under the restrictions of the usury laws.  Therefore, the borrower gets a loan at a low rate of interest around 1% per month.  THE CATCH is that in order to get this loan, the payday lender or car title lender charges a CSO "fee" of $20 per $100 for a 10-day or 14-day or 30-day loan.

That "fee" is really interest, masquerading as a CSO fee.  The loans cannot be paid in installments.  If they can't repay the whole amount of the short-term loan, the "CSO" can arrange another loan for another "fee."  Let's get this straight.  On a regular schedule, the borrower pays a "fee" in order to keep a loan from going into default.  The principal does not decrease, and a "new loan" replaces the "previous loan."  Again, the borrower is forced to come up with the entire principle within a few days or face another "fee" to get a "new loan."  I'm setting a record for scare quotes here.  That is a bunch of technicalities and paperwork to bury the truth that lenders are charging usurious interest rates on short-term loans designed to be hard to pay off.

If I pay a $20 (20%) fee to use $100 for a month, the annualized rate is 240%.  On this business model, if I am living close to the edge in my finances and the month lasts longer than the money, I could end up paying $240 in a year without paying off any of my $100 debt.  The average short-term payday loan is $300 to $500, so the amounts would be three to five times as much as this case:  $720 to $1200.  But that is for a 30-day term, while most payday loans can recycle two or three times a month, charging "fee" after "fee" after "fee."

Pastors, priests, and church community ministers from around the state delivered testimony about the effects of payday lending on their parishioners and neighborhoods, along with the Better Business Bureau, United Way, and City Government:  Del Rio, San Antonio, Houston, Midland, Dallas, Austin, Fort Worth, Palestine, LaPorte, El Paso, and all around the state.  Thanks go out to Suzii Paynter of Texas Baptists, to Texas IMPACT, and to the Texas Catholic Conference for their leadership in this effort.  Only two lobbyists stood up to oppose the bill.  I guess they could see what was coming and decided to do their work behind the scenes.  We found out that day that $8 million has been spent by the payday lending industry to kill this legislation, so I was not fooled into thinking that they were conceding this fight.  In fact, it seems they are increasing their efforts.

Sadly, the chair of the committee, Rep. Vicki Truitt of Tarrant County, who treated us all with respect on the day of the hearing (even if she did think I was talking too loud), has come out against closing this loophole in the name of "finding a compromise which can keep these lenders in business."  In other words, she is caving in to the industry demand for higher interest rates even though there is no credible evidence that people using these predatory financiers would not be able to get a loan if the loophole is closed.  Maybe some kinds of lending businesses would close, but the lending will go on at rates less likely to create a system of permanent indebtedness.  If fairer lending goes on, then the jobs the lending provides will not go away.  Reps. Ken Legler of Harris County, Rafael Anchia of Dallas County, and Marc Veasey of Tarrant County all seemed very knowledgeable about this issue, but it was not clear where on the committee there was strong support for closing this loophole.

What these businesses do is target communities of very low income working poor.  In Austin, they targeted school teachers when the press was claiming as many as 30% of teachers could be laid off before the coming school year.  They locate in clusters in order to make as many short-term loans as they can to people who are led to believe they have no other options.  They feed off each other's business because people take out a second loan down the street to pay off the fees on the first loan.  In the process, we hear what Ross Perot once called a "giant sucking sound."  That is the sound of low- and middle-income paychecks being sucked out of their communities into the executive bonuses of the payday lending corporations.

This entire recession is about that giant sucking sound.  It started with mortgage-backed securities, and when the demand for those grew, it became a feeding frenzy of sub-prime lending, speculative real estate pricing, and a housing bubble.  Then it matured into a labyrinth of credit default swaps and bonus-incentivized selling of toxic assets, creating an unregulated house of cards which crashed on the backs of the middle class workers.

What follows is the testimony I offered on March 22.  It is similar to what I said at the Senate committee in February, but reorganized and tweaked at a few points.  You can hear it down below.

My name is Dr. Mike Broadway.  I am a Baptist minister and theological professor living in Salado.  I come representing myself and any citizen offended by predatory lending.

         I have been working for the past two years with pastors, seminary professors, and all sorts of church people to address economic injustices pertaining to predatory lending and usury in its many forms, from high credit card fees, to foreclosure abuse and fraud, to tax refund loans, to predatory payday lending. 

My colleagues and I have met with top executives of Bank of America and Wells Fargo/Wachovia, with AGs Tom Miller of Iowa and Roy Cooper of NC who are leading the national investigation into foreclosure fraud, and with congressional leaders in various states and Washington, DC.  Predatory lending is a national problem, and it is a local problem, that has to be addressed on every front.  I’m here today because you have a chance to make a difference for the citizens of Texas.

         The biblical tradition makes a clear statement concerning usury, or unjust lending practices.  It says that no society can be a just society if it allows lending practices that create and maintain a permanent debtor class.  Laws against usury go back at least four thousand years, more broadly than the Jewish and Christian traditions.  Yet the writing of new laws in Texas and across the US as recently as 1979, 1980, and 1987 has ignored the wisdom of millennia and allowed the protections against usury to be swept away. 

         Lenders claim when they speak to you and to the press that they have to be able to charge usurious rates to stay in business.  They must be terribly inept financiers, because for four thousand years financial institutions have flourished under regulations against usury.  Why do these people need to make so much more in interest?  They don’t.  There are many current business models which flourish serving the communities where payday lenders do their predatory work, but without preying on their customers.

         Payday lending as we know it is a new financial form of sharecropping.  It is debt sharecropping.  Just like the unfair systems which kept sharecroppers always indebted to the landowners whose land they cultivated, payday lending places barrier after barrier in the way of borrowers in order to maintain a subscription to their future income. 

The business plan is perpetual indebtedness for those who are struggling to make ends meet.  Portraying themselves as a friend who is doing a service, they draw people into the trap of usurious borrowing.  Under the guise of being a CSO, these lenders are “the guy who knows a guy who can get you the money right away, but it’ll cost you.”  We all know what to call this kind of lender:  the term is loan shark.

         The current law allows this trap to be set.  The law has a loophole, and predatory lenders squeezed through it and stretched it wide.  One of their favorite deceptions is the doublespeak that calls interest by another name—a fee.  But if I borrow money from you, and you charge me for borrowing the money, then that is interest, no matter what you call it. 

The ancient text of Deuteronomy makes it very clear that usury is usury, whether you collect a fee up front, you charge it along the way, or you claim it at the end of the agreement.  Playing with the words, this smoke and mirrors, uses a loophole in the letter of the law in order to disregard the spirit of the law.  It also ignores what Jesus called the weightier matters of the law, justice and mercy.

         Rampant injustice in CSO lending is why you must close this loophole.  Stand in the heritage of Texas, a heritage of protecting workers and homeowners from usury, protecting us from large national corporations who suck the life out of neighborhoods so that they can pay huge bonuses to executives who have devised these schemes of debt sharecropping.

Response from State Representative after servant church action

I should follow up on the previous entry about servant church.  I wrote a letter to my state representative, Ralph Sheffield from Bell County, asking for specific action to prevent massive cuts to the education budget in Texas.  One of those actions was to support the use of a "rainy day fund" to plug the gaps in education funding.  If this recession isn't a rainy day, I don't know what would be.

I got a call yesterday from one of Rep. Sheffield's staff.  This is pretty unusual, I think.  I've not gotten very many such calls in my lifetime.  He told me that Rep. Sheffield was one of four legislators who had signed on to a bill to use the rainy day fund for education a couple of weeks ago.  As he explained, this was even before the Governor had come out in favor of using money from the rainy day fund.  Apparently, they were paying attention to our letters.

I went on to talk with him about HB 410 and closing the loophole in the law that has allowed payday lenders and car-title lenders to twist the law and charge "fees" that amount to 500% and more for short-term loans.  I'll follow up later to see how he stands on that legislation.

servant church, Austin: Another Coffee-Friendly Congregation

On Sunday, March 13, I attended servant church in Austin.  Everly and I were staying in Austin at Ruth and John's house while they went on vacation.  I was glad for a weekend in Austin so I could go to another church and learn some more about Austin's eccesial communities.

I chose servant church because a friend of mine is the pastor.  Eric Vogt is a fellow traveler of mine.  We first met when I was passing through Jackson, MS, one summer Sunday, and he was the guest preacher at Voice of Calvary Church.  Eric had been in a summer internship with the CCD ministries in Jackson, working with John Perkins and others who had forged a new model of faithful church life among the poor of Mississippi.  It turned out Eric was a student at Duke Divinity School in Durham, where I also lived at the time.  Before going to Duke, he had participated in another creative experiment in church life in Austin, TX.  A small start-up congregation had at that time been meeting in the building of First Baptist Church, where another friend of mine is pastor, Roger Paynter.

As our life stories had already intersected in many ways, eventually Eric enrolled in a class I was teaching at Duke Divinity, called "Church and State:  Modernity, Liberalism and the Nature of Political Engagement."  My friend Willie Jennings thought up the title to make it grab the attention of Duke Divinity students.  But I digress.

Church growth technocrats would be happy about at least one feature of servant church:  it is not hard to find.  A few blocks into residential neighborhoods on a street that has an exit from the interstate, I found my way straight to the location.  Signs outside assured me that I was at the right location, a Methodist church site where two congregations are meeting.  Without difficulty, I parked and made my way to the location.  I stumbled into a prayer meeting already in progress, but was greeted warmly and located the coffee without difficulty.  Yes, it was another coffee-drinking-allowed-and-encouraged congregation.

Wearing my standard uniform (guayabera and jeans), I was a little overdressed for this crowd.  Besides a couple of women in what my gramma would have called "everday dresses," jeans and t-shirts were the rule.  Oh, yeah--one guy had khaki pants on.  At 53 I would have to say that I was the senior adult of that Sunday's gathering.  As my daughter Naomi loves to remind me, I was probably at the distant end of the "cool" continuum as well.  Not being clued in to much of the Austin culture, I learned during conversations that the insider's way to refer to the big music festival is the shorthand "South By."  I was proud to know that later in the week when a NC public radio broadcaster, in a halting voice, called it "Ess Ex Ess Double-you" (SXSW--South By SouthWest).  Again, I digress.

I was blessed to sit next to a young woman who grew up in Austin and had recently married in servant church, with Eric officiating at the ceremony.  She was warm and sincere, and worshiping alongside her and her husband made me right at home.  I could tell I was in a university town by the sound of the congregational singing.  My experience in Waco, Austin, Durham, and other university towns is that there are an abundance of people who have vocal training, and with the Austin music industry that gets magnified.  Lots of folks were willing to cut loose and experiment with harmonies, exactly how I like to sing.  The guest worship musicians for the day were two young women.  The lead played acoustic guitar and the other played soft percussion.  There was a kind of Emily Saliers feel to the singing.

The music impressed me, as it had at Ecclesia Church in Houston.  Many familiar hymns formed the core of the singing, along with some contemporary worship songs (but not the mindless repetition of emotive states).  The lyrics were posted to help the uninitiated.  The rest of the liturgy may have relied a bit too much on a single projection screen, and sometimes there were too many words on the screen at once, meaning the font may have at times been too small.  That sort of minor issue goes with the territory of being a very new congregation, still charting its ways. 

Eric's sermon addressed the lectionary text from the Gospel of Matthew, the narrative of Jesus' temptation.  The central theme of the sermon was that Jesus did not choose the easy way, but was willing to suffer for doing right.  It was a respectable interpretation and reflection, so his Duke teachers should be satisfied.  The call for a response to the Word included coming to the Lord's Table, bringing prayer needs to the altar, writing letters to leaders about the state or national budget as a moral document, using art supplies to explore one's faith response, or looking for ways to become more part of the life of servant church.  Tables with appropriate materials were strategically located around the room, with paper and "talking points" for letter writing, a place to write out and place prayer requests or to light a candle in prayer, announcement boards and sign-up sheets, and art supplies.

This congregation is definitely on the youthful side, as congregations go.  Young adults, married and unmarried, with and without children, and a children's area for smooth movement in and out of the formal worship made this a comfortable setting for those who find certain patterns of traditional worship unnecessary or out-of-date.  Yet it was not a rush to contemporaneity for its own sake.  The traditional liturgy remained the backbone of the service.  Biblical and theological texts shaped the sermon and reflective conversations.  Ancient symbols of the faith remained prominent.

I was proud to see what this congregation had done and what my friend Eric was helping to lead.  If you are in Austin on Sunday, don't be timid about "hanging out" at servant church.

Prayer of the Military-Industrial Complex

(With apologies to St. Francis for the adaptation of his blessed prayer of peace)

This morning I read the news of the launch of 110 Tomahawk missiles to destroy key anti-aircraft defenses in Libya.  Not mentioned were the people living, working, and playing in the vicinity of those targets, nor the people whose misfortune was to be near missile strikes that hit something besides a military target.  Nor was their mention of the cost to taxpayers of 110 Tomahawk missiles, which themselves were only a downpayment on further escalating military spending.

A Tomahawk missile costs $756,000, a bargain by aircraft standards.  Of course, it is a single-use item.  Those 110 missiles cost a total of $83,160,000.  The first thought I had was that blowing up cruise missiles was another stimulus package targeted at the weapons industry.  The executives are counting their bonuses now and giving thanks to the god of war.

Then by a perverse turn of imagination, the words of St. Francis of Assisi came to my mind, and the play of parodied lyrics got underway.  It's not elegant, but here is what I wrote down.

Lord Mars, let me make instruments of destruction;
Where there is hatred, let me sow weapons;
Where there is injury, carnage;
Where there is error, annihilation;
Where there is doubt, true believers;
Where there is despair, electronics and explosives for suicide bombers;
Where there is darkness, fire and smoke;
And where there is sadness, weeping for Rachel's and Hagar's children.

O divine Mammon,
Grant that I may not so much seek
To have convictions, as to be convincing;
To be understood, as to incite fear;
To be loved, as to love money.

For it is selling that we receive;
It is in pardoning that we lay off workers;
And it is in their dying that we are borne to eternal profit.
Amen.

Finally, let me tip my hat to Bruce Cockburn's "Call It Democracy," where he showed he saw the big picture:

Padded with power here they come--
International loan sharks backed by the guns
Of market hungry military profiteers,
Whose word is a swamp and whose brow is smeared
With the blood of the poor,

Who rob life of its quality,
Who render rage a necessity
By turning countries into labour camps--
Modern slavers in drag as champions of freedom.

Sins of Economics: Ash Wednesday Liturgy

Today my dad, W. D., and I went to the Episcopalian Ash Wednesday Service at noon in St. Joseph's Chapel in Salado.  Each of us had found our way into such unheard-of settings in the years since I left home, but this is the first time we ever shared an Ash Wednesday service.  It was obvious to me that we were in Texas when the celebrant reached a point in the liturgy when he repeated three times, "LammaGod, who takes away the sins of the world."  Of course, that is what the shift to vernacular languages is all about.

The Litany of Penitence pressed our hearing ears toward the personal and corporate sinfulness that brought down the economy.

Our self-indulgent appetites and ways and our exploitation of other people, we confess to you, Lord.
Our anger at our own frustration, and our envy of those more fortunate than ourselves, we confess to you, Lord.
Our intemperate love of worldly goods and comforts, and our dishonesty in daily life and work, we confess to you, Lord.

I was forced to remember that an entire culture and milieu fed the speculative, overreaching consumption of the past few decades.  I have been guilty of spending what I did not have, willing to buy underpriced goods and commodities while turning a blind eye toward the exploitative global systems of low wages, workplace dangers, and child labor.  I have to admit the temptation to muse about how much better I would do with millions of dollars than the greedy Wall Street bandits have been--no doubt a dangerous self-deception.  There is plenty of blame to go around.

For the wrongs we have done: for our blindness to human need and suffering, and our indifference to injustice and cruelty, accept our repentance, Lord.
For all false judgments, for uncharitable thoughts toward our neighbors, and for our prejudice and contempt toward those who differ from us, accept our repentance, Lord.
For our waste and pollution of your creation, and our lack of concern for those who come after us, accept our repentance Lord.

Even so, with plenty of blame to go around, this week's interactions in Washington, DC, between the Showdown in America movement, the state attorneys general, federal regulators, and bankers, bring our attention to the abuse of structures by robber barons.  One of the most troubling absences of moral conscience is the attitude of brokers and financiers who operated on the assumption that they would "get theirs" before the house of cards began to collapse.  Too many were willing to stretch the system to its breaking point with little concern that children and families would lose their homes, that elderly people would lose their pensions, that workers would be laid off, and that many banks would fail. 

One of the most haunting interviews I heard was on This American Life, in a program called "Crybabies." The relevant part of the show is Act One, "Wall Street:  Money Never Weeps."  It took place in a bar filled with financial executives who a year after the economy crashed were angry with government for proposing regulations on their freedom to do whatever the hell they want to do to make a dollar.  None of the Wall Street executives and managers interviewed would accept any of the fault for the economic collapse and its effects on millions of people.  None of them felt that there might be an injustice in the fact that their bonuses got bailed out while millions more who had nothing to do with killing the economy lost homes and jobs.  Instead, one man had the gall to claim that it was right to bail out his job because he is smarter than everyone else and deserves to continue to be in charge of the economic fortunes of the rest of us.

We have been deaf to your call to serve, as Christ served us.
We have not been true to the mind of Christ.
We have grieved your Holy Spirit.
Have mercy on us, Lord.