Push the Reset Button on Housing

That's what Gerald Taylor of North Carolina United Power keeps saying:  "We need to push the reset button on the housing market."  The economy got thoroughly messed up by the speculative, reckless practices of the mortgage industry.  The government responded by bailing them out.  They got their derivative market reset.  They get to borrow money for virtually zero per cent interest.  AIG got to push the reset button.  GM got to push the reset button.

But the banks don't want to give the rest of us a chance.  In a mess they willingly helped to make, they got off the hook.  The winners got to buy up their competitors for cents on the dollar.  They were allowed to voluntarily find ways to help homeowners, unemployed workers, pensioners whose incomes evaporated, and other victims of the economic crisis.  But they don't want to do it.

They string families along with delays and lost paperwork, offering loan modifications while simultaneously working full steam, even fraudulently, to move the foreclosure process forward.  Attorney General Tom Miller of Iowa says that this dual-track process of promising modifications while fast-tracking foreclosure is "insane."  What sense does it make for a family to get a loan modification proposal from the bank on the same day that the bank sold their house?

Give homeowners the same chance.  Reduce mortgage principal across the board to current market values.  That's right--we need across-the-board principal reductions for homeowners underwater, whether they are behind in their payments or not.  Push the reset button.  Make a market correction.  Why?

1.  Unemployed and laid-off workers, retirees depending on pensions, and many homeowners who bought market-rate homes with the assurance that the market was operating in a rational manner (when almost no one--not even the revered Alan Greenspan--recognized the housing bubble) did not come into financial misfortune because of carelessness, greed, or risky behavior.  They were overwhelmed by the economic tsunami from the collapse of the derivative house of cards.  Getting them on their feet and keeping them in their homes will help stabilize the economy.

2.  Foreclosing on one family, then selling the same house for half-price to another family is pure stupidity.  Without all the human trauma and with less paperwork and financial loss, banks could renegotiate reasonable mortgages for the people who are at risk of foreclosure. 

3.  Neighborhoods and communities where many foreclosures have happened become depressed, forcing down the value of other homes.  This puts more homeowners underwater and creates new risks for foreclosures.  Stabilizing neighborhoods by keeping families in their homes and paying modified mortgages is good for all of us.

4.  The so-called moral hazard of adjusting loans in a way that is beneficial to the borrower is a smoke screen.  If banks were being swindled into letting people off the hook who never intended to pay their mortgages, that would be a moral hazard.  But the true moral hazard came when the mortgage industry turned into the anything-goes-mortgage-derivatives orgy.  Even admitting that some homeowners took stupid risks or failed to do due diligence before borrowing, the risks and benefits of mortgage finance have to be shared.  Letting the banks off the hook for their bad debts while holding small borrowers accountable for their debts is an unjust financial system.

So set the reset button for homeowners.

Open Hearts Mean Open Hands, Part 1

During the early summer I was working with a group of scholars to prepare a theological reflection on the economic crisis. I posted the resulting document in several parts. This document was distributed to bank executives, along with a document prepared by a muslim scholar from North Carolina which explains the economic commitments of Islam and its opposition to usury.

Another purpose of the "Theological Reflection on the Economy" was to create conversation in churches and provide encouragement to pastors to preach on economic issues. As part of that purpose, I prepared a sermon on the economic crisis which I have had several opportunities to preach in the past month. The last occasion was a Service of Prayer and Public Witness hosted by my church, Mt. Level Missionary Baptist Church, at the instigation of Rev. Dr. William C. Turner, Jr. A number of other churches and ecumenical groups joined with us on Wednesday, Sept. 23 for the service. A Jewish Rabbi and a Muslim Imam were on the program to read from their scriptures and bring remarks concerning the economy and usury.

What follows here and in the next two posts is the text of the sermon preached that night.

Deuteronomy 15:1-11
Acts 4:31-35

If you take some time to read a newspaper, listen to the news on the radio, or watch the news on the television, you can’t help but hear people talking about hard times. Or maybe I should say, you can’t help but hear people arguing about what we ought to do in these hard times. The latest version of the argument is about health care and health insurance reform. Different interest groups and political camps have different views of how to organize the system of access to health care, and they are calling each other idiots and Nazis. On a recent Saturday outside the Capitol in Raleigh, hundreds gathered to demand health insurance reform now. Across the street, people tried to shout us down, saying, “No ObamaCare.”

Stretching the truth and even flat-out lies are daily fare in this shouting match because billions of dollars and millions of lives are at stake. At the rally I mentioned at the Capitol in Raleigh, Rev. Dr. William Barber, known to many of you both as a preacher and for his work with the North Carolina NAACP, delivered one of the best lines on this matter. He said it in response to the disinformation an fear campaign that is claiming government committees will be deciding which old people can live and which must die. Barber said, “There is not a death panel in the current proposal; there is a death panel in the current system.” Right now, corporate insurance managers make decisions to deny claims, drop coverage, and delay payments that can mean life or death, work or disability, survival or bankrupty in the lives of people like you and me. Some of you may have heard about another great big lie. After a rally in Washington, DC, a few days ago, the rally’s promoters intentionally put out a press release with a photograph of crowds on the Capitol Mall from another event, an event held in 1997, to give the impression that their crowds were 10 times as great as they really were. Everyone who has been on the gravy train in the out-of-control health system wants to keep that train rolling.

People whose livelihoods have been destroyed by the exploding costs and inequities of the current health system have had enough, but these people have trouble getting their voices heard. They are too busy working extra jobs to stay ahead of the bill collectors. Or they have become homeless and are just trying to figure out how to recover from losing their home to foreclosure by the bank. Or they are too sick with an untreated illness to speak up. Some are just too discouraged by the number of hard-hearted, tight-fisted people they have run into.

There is plenty of blame to go around for this health care access mess we are in, starting with insurance companies and pharmaceutical companies, then moving on to various institutions, health professionals, and government officials. And the economic problems of health care are just one part of our economic woes. Bad thinking, bad leadership, bad values, and bad morals have spread like the untreated cancers of the uninsured throughout our economic system. The current recession was directly caused by loose, shady, exploitive practices in credit and finance, and by lots of wishful thinking that it would all work out even if the risks people were taking were far beyond what prudence would allow.

Hard economic times place people and institutions in jeopardy, whether it be from health care costs, credit crises, pay cuts, or layoffs. Not only is there plenty of blame to go around, today there is also plenty of pain to go around. You and I have seen the results up close. People are losing their homes. Banks are closing. Businesses are failing. Workers are losing jobs. Families are uprooted. People are crying out for a solution. This week, some people say the recovery has arrived, but we sure don’t see it in our neighborhoods and workplaces.

What kind of a economic recovery leaves giant banks standing while the average worker’s life gets harder and harder? That is not a solution. It smells like collusion. Whose money bailed out the banks? Every taxpayer’s money. But who is an economy supposed to benefit? (I’ve got a lot of questions, folks. May I ask some questions here?) Who says billions can bail out executive jobs but nothing can bail out the jobs of common laborers and clerical workers? Who says tax dollars can pay off banks’ bad debts, but the average taxpaying citizens are on their own to dig their way out of debt? Debt relief for millionaires and homelessness for working people—that’s not the kind of economy we believe in. That is like saying Jesus came to announce the Jubilee, to proclaim the Year of Remission, to offer the forgiveness of debts, BUT . . . BUT . . . but then qualified the announcement by telling us only bankers and brokers and insurance executives are eligible. All I can say is that this topsy-turvy, smoke-and-mirrors, hocus-pocus economy is messed up.

I want to spend a few minutes recollecting the route we took on the way to this economic train wreck.Is it all right to break things down tonight?

One major part of the problem had to do with a collapse of home prices. Loans had been written with the assumption that housing values would rise steadily and without interruption. Some people borrowed more than they could afford, but there were others who actually could afford their mortgages, only to find that the crashing market in home values left them paying double the value for a house that had originally been overpriced in an inflated market. The accumulating effects of a weak economy led to workers losing jobs, and without jobs they also could no longer meet their mortgage payments. In other cases, because of adjustable rate mortgages or balloon mortgages, many people found their payments increasing at the very time when they were taking pay cuts, losing work hours, and even losing their jobs. Now the total number of mortgages in trouble was relatively small compared to all the ones that were doing fine, but the fear of bad loans and bad debts began to spread like a panic.

People became concerned about many other forms of debt, from the high finance of hedge funds to the average person’s credit card debt. A crash in the stock market followed up the crash in home prices, and many people who had thought they were in good financial shape now saw their pensions and retirement funds, their homes, and their investments lose a third or a half of their value, not to mention the ones who lost everything to swindlers running Ponzi schemes. Add to those the people who have lost health insurance coverage and built up mountains of debt for medical care.

When the economic situation became too severe to ignore, government officials recommended a massive bailout of major financial institutions, with the claim that saving them would save us all. Institutions who had operated in an ethereal world of trading worthless paper for empty promises were treated as the foundation and backbone of the economy. For millions of Americans, however, the recovery of these institutional Leviathans has not had the intended ripple effect. We have not been warmed by the glow of their cash-burning recoveries.

The idea was to stabilize the financial system by providing cash to banks and other financial institutions who were threatened by bad loans. However, the banks and financial institutions took our money and held on to it, or they used our money to prop up only their executive bonuses and stockholder profits. The cash infusion to financial giants did not slow down the pace of foreclosures on home mortgages that keep putting hardworking families out of their homes. Again, I have to quote from Rev. Dr. William Barber, who said, “You can’t break the bank, then rob the bank, then say there ain’t no money in the bank.” In other words, that bailout money was not intended for a small, smug, self-important group of financial genius posers who believe they are entitled to bonuses even when they fail miserably. It should be for the lenders and the borrowers who are in trouble. The bailout did not pump up the economy or reverse the plummeting employment statistics. It did not ease the pressure of indebtedness on the wage-earning public. To the contrary, credit card companies pressured their small borrowers with new and harsh credit terms and fees, and consumer interest rates soared to loan-shark heights.

So I’ve taken a little time to recall how the economic situation got so bad. We are all very capable of making a mess of our lives, and sometimes a few people can bungle things up for the rest of the people. Our collective failures can accumulate to the point that it sometimes seems there is no way out of our trouble. One solution may seem to introduce a whole new set of problems.

Continued in next post . . .

Economic Recovery for All 8: Faith Perspectives, Pt 4

This entry completes the statement on the economy released on July 22, 2009, in Durham, NC. There are eight entries. For the full current list of endorsers as of this posting, see the first entry.

THEOLOGICAL REFLECTION ON THE ECONOMY
A Working Paper for North Carolina United Power
from an Interchange Among Theological Educators
July 2009

III. Faith Perspectives on Responding to the Crisis

B. Biblical, Theological, and Ethical Principles Guiding NCUP Actions and Campaigns in Response to the Economic Crisis

8. Shared economic risks and benefits

All societies become accustomed to doing things a certain way; however, there are many possibilities for organizing a flourishing economy. The predominant systems of investment and borrowing may be familiar, but that does not mean there might not be other, perhaps better, ways to invest, produce, and prosper. Rather than shifting almost all the economic risks toward the borrower, especially toward small borrowers, and the assured benefits primarily to the lender, there should be a way for risks and benefits to be shared more equitably.

Why should a family that has toiled for many years, paying bills and paying down a mortgage, be financially devastated by a change of fortune, when a financial institution prefers to write off their mortgage as a loss rather than work out a means of mutual and equitable benefit? As Paul wrote to the Corinthians, "whoever plows should plow in hope and whoever threshes should thresh in hope of a share in the crop (1 Cor. 9:10). Martin Luther wrote, "If you would have interest in my profits, you must also have an interest in my losses. . . . The owners of income, who will not put up with that, are just as pious as robbers and murderers, and wrest from the poor man his property and his living" ("A Treatise on Usury").

C. Conclusions

Too often, people imagine that the economy is a competition over scarce resources. Yet while creation is finite there is no fixed limit on the prosperity that humanity can share. Unlimited acquisition and idiosyncratic use of possessions fall off of the path to human flourishing. Such hoarding of goods is theft, and it begs for divine judgment.

Rather than hoarding, sharing our blessings sets the tone of biblical economics. We are blessed that we might bless others. All that we have comes by God’s grace, and we must be gracious toward one another.

Without standards against usury, the massive transfer of wealth from the middle class workers to a wealthy elite will continue. As long as a powerful few have freedom to do as they please concerning the consumer credit of the many, the economic system will not serve the common good. No magical hidden hand will correct economic oppression.

To get out of the current mess, we will need an economic reform which acknowledges our mutual dependence and obligations and turns aside from the way of selfish individualism and competition for status and conspicuous wealth.

What kind of an economic recovery leaves giant banks standing while the average worker’s life gets harder and harder? It is not an economic recovery when billions can bail out executive jobs but nothing can bail out the rest of the jobs. There is not justice when everyone’s tax dollars can pay off banks’ bad debts, but the average taxpaying citizens are left on their own to drown in their debts. Debt relief for millionaires and homelessness for working people—that’s not the kind of economy we believe in.

Economic justice is not merely a fantasy or impossible ideal. There are practical ways to put it into practice. Communities of faith have demonstrated these possibilities in the past and present. Justice need not be limited to small economic experiments. Making real steps toward justice is fully compatible with rational and pragmatic economics. It is time for people of faith to speak this truth to power.

Economic Recovery for All 3: A Bailout for the Few that Did Not Trickle Down

I should mention, with thanks, the assistance of Stephen Boyd of Wake Forest University and Winston-Salem CHANGE. Steve carefully examined the earlier drafts of this document and suggested a reorganization of the material to make it more user-friendly for study.

THEOLOGICAL REFLECTION ON THE ECONOMY
A Working Paper for North Carolina United Power
from an Interchange Among Theological Educators
July 2009

II. The Initial Government Solution

A. Top-Down Bailout for Institutions "Too Big to Fail"
When the economic situation became too severe to ignore, government officials recommended a massive bailout of major financial institutions. With only a bare sketch of a plan, the engines of government shifted into high gear to authorize transferring hundreds of billions of dollars directly to banks and other financial institutions to prop up their endangered portfolios of assets. "Too big to fail" became a motto for saving the financial institutions that helped to create the collapse, as a way of assuring average citizens that their own economic future was bound up intimately with the success of these mega-banks.

B. Problems Remaining After the Bailout
The purpose of the bailout plan was to stabilize the financial system so that banks would be willing to lend money. Banks and other financial institutions were unwilling to lend money because they could not get a clear idea of the value of the ubiquitous securities intertwined with delinquent and "troubled" loans ("toxic assets"). By lending money, more people and businesses could buy goods and services and fuel economic recovery. However, the banks and financial institutions took the money and held it or used the money for self-aggrandizing purposes. Consequently, the bailout did not have the intended ripple effect on the economy, and it did not pump up the economy.

1. Foreclosures have increased unabated regardless of claims that programs would help people keep their homes.

2. A crisis in credit markets has led financial institutions to rewrite overnight the terms and conditions of credit cards, to the disadvantage and dismay of their customers.

3. Many have found themselves now holding more debt than they can possibly repay.

4. Bankruptcies have continued to increase resulting from credit card debt, mortgage debt, and debt arising from skyrocketing costs of health care and growing numbers of people without insurance.

Bailout 17: AIG Strikes Again

Thanks to Bruce Prescott for bringing my attention to this news. AIG executives, as Bruce says, are outdoing the so-called "welfare queens" of the Ronald Reagan era, living off the taxpayers' money. Come on and get the point. Your jobs are not that important to the rest of usq

Bailout 16: Thoughts on Describing the Problem

As mentioned earlier, I am working on the problem of analyzing the current economic situation in light of biblical and theological concepts related to Jubilee, the Sabbatical year, the denunciation of usury, etc. Below are a few short paragraphs in which I have tried to describe the problems of the economy in order to begin this sort of analysis. Obviously, this is a work in progress.

1. Hard economic times place people and institutions in jeopardy. In 2009, there is plenty of pain to go around. People are losing their homes. Banks are closing. Businesses are failing. Workers are losing jobs. Families are uprooted.

2. Some call the economic woes a credit crisis. Some focus on the housing price bubble. Others emphasize the irresponsibility of financial institutions eager to sell “creative” investment products. Still others highlight the complexity of financial instruments divided, bundled, and resold again and again so that no one is sure who owns what. Many recognize that consumption had outpaced income, and too much of the economy depended on overextended debt. Others criticized the deregulation of financial institutions which allowed them to take inordinate risks with other people’s money.

3. A major part of the problem had to do with a collapse of home prices. Loans had been written with the assumption that housing values would rise steadily and without interruption. Some people borrowed more than they could afford, but others who could afford their mortgages found that they were making payments on a mortgage for an amount that was up to twice the new value of their home. They could not afford to keep paying double for a house that had originally been priced in an inflated market. In a weak economy, workers losing jobs also could no longer meet their mortgage payments.

4. All these mortgage problems led to a crisis of confidence in the mortgage-based securities and the financial institutions investing in them. As the seriousness of the mortgage problems became apparent, the more people became concerned about many other forms of debt, including credit card debt which has grown exponentially. A crash in the stock market followed up the crash in home prices, and many people who had thought they were in good financial shape now saw their pensions, their homes, and their investments lose value dramatically. People losing health insurance coverage were building mountains of debt for medical care.

5. When the economic situation became too severe to avoid, former Treasury Secretary Paulson and Federal Reserve Chair Bernanke recommended a massive bailout of major financial institutions. With only a bare sketch of a plan, the engines of government shifted into high gear to authorize transferring hundreds of billions of dollars directly to banks and other financial institutions to prop up their endangered portfolios of assets.

6. Their idea was to stabilized the financial system by providing cash to banks and other financial institutions who owned securities based on delinquent loans. They said that this would set things in order so that banks would be willing to lend money to grease the wheels of commerce. However, the banks and financial institutions took the money and held it. It did not slow down the pace of foreclosures of mortgages. It did not pump up the economy. Homeowners kept losing their homes with no relief. Credit card companies pressured small borrowers with tightened terms and higher interest rates.

7. What kind of a solution leaves giant banks standing while the average worker’s life gets harder and harder? That is not a solution. It smells like collusion. Whose money bailed out the banks? Who is an economy supposed to benefit? Who says billions can bail out executive jobs but nothing can bail out labor jobs? Who says tax dollars can pay off banks’ bad debts, but the average taxpaying citizens are on their own? Debt relief for millionaires and homelessness for working people—that’s not the kind of economy we believe in.

Bailout 15: The Myth of the American Free Market

Dean Baker hit a homerun today when commenting on the constant claims that the U. S. free market is endangered by government intervention. He points out that the market is not free. It is structured in a way that money is transferred regularly from some to others.

American Style Capitalism: Tax Joe the Plumber to Give Handouts to Robert Rubin

The media are busy perpetuating a myth that the United States has been a beacon of "free market" capitalism. This is a lie. The United States never had free market capitalism and certainly the system in place over the last three decades hardly qualifies.

The U.S. put in place policies designed to transfer income from the poor and middle class to the wealthy. This is most evident now with the hundreds of billions of dollars being spent bailing out the banks. For the last three decades, the banks and their top executives, made vast fortunes using a free government insurance policy called "too big to fail," under which bond holders and other creditors could lend money to the banks knowing that the government would honor their debts if they ever got into trouble.

It is an outright lie to call this a "free market." This is a huge government handout. This insurance policy is enormously valuable and the banks did not have to pay a penny for it. The banks are ardent opponents of free market capitalism. None of them have advocated that they be allowed to collapse.

So, the issue over different types of capitalism that is coming up at the G-20 summit is whether the government exists primarily to redistribute money to the wealthy or to serve some other social end.

Bailout 14: Thinking About Jubilee

Last Monday I was in an interesting meeting at Wake Forest Divinity School. The Wake Forest folks and some of their ecclesial friends from Winston-Salem CHANGE showed up in force. I was there as a faculty member of Shaw Divinity and as a leader in Durham CAN. No one from the other invited divinity school was able to attend.

There were two purposes for the meeting. The one I was most aware of was an effort to bring together divinity faculty to discuss ways for community organizing to be taught to their students. The second purpose, which turned out to dominate the meeting, was the idea that North Carolina United Power (NCUP) should consider a campaign relating to the economic situation.

Gerald Taylor, who called the meeting, is the regional organizer for IAF, the oldest of the national institutions which promote Alinsky-rooted community organizing. Gerald discussed the current economic situation and what he sees as the wrong-headed direction of the governmental responses. In that context, he brought up the biblical concept of Jubilee.

The most significant thing said at that meeting was that biblical Jubilee is not merely about solving the economic problems of the wealthy. Forgiving debts of the poor and setting the oppressed free are its central concepts. Thus, a bailout which attempts to benefit everyone by clearing out the debts of the banks and financial instututions contradicts the wisdom of the Jubilee tradition.

Taylor argued that the way to help the economy, including the banks and other financial institutions, would be to help the average person who is deep in debt. Provide debt relief to everyday people, and they will pay off credit cards, pay and restructure mortgages, pay for higher education, and purchase goods. For those persons who are not in debt, the same financial stimulus would provide economic opportunities that would strengthen economic activity, bolster retirement funds, and stabilize families and businesses.

Taylor also went on to discuss the ways that credit card companies and other lenders are sticking it to common people at the same time that they are able to borrow at the lowest rates in history. This is what the Bible condemns as usury, and the state of usury laws in the U. S. is such that the credit companies can locate in one or two of the fifty states which give them the greatest freedom to charge whatever they want in interest. The situation calls for a national policy.

What kind of bailout would a jubilee call for? It is about fifty years since the Civil Rights Movement. It is about fifty years since the Nixon government began to institutionalize the backlash against progressive reforms. It may be time to proclaim a Jubilee.

Bailout 13: Breaking Up the Oligarchy

An excellent analysis of the current state of the banking industry was mentioned on truthout. It comes through several layers. The interview I read was from Bill Moyers, and he was talking to an analyst whose piece he had read, MIT's Simon Johnson. Johnson participates in a blog called The Baseline Scenario. It is a pretty interesting site, and readable.

The conversation starts around Johnson's experience while working for the International Monetary Fund. He points out similarities in the current US economy to the oligarchic systems which can be found in places like Russia, Indonesia, Thailand, or Korea.

In the US, folks tend to be lulled into believing that vigorous democracy is alive and well, even though such enormous amounts of money sway elections, and the people appointed to regulate industries are mostly industry insiders. Over a decade ago, John Howard Yoder, writing about the church in relation to the modern nation-state, proposed that the US was better described as a plutocracy than a democracy. Now, with a few executives of huge corporations seemingly able to do whatever they want with huge amounts of taxpayer money, maybe Johnson is right to see an oligarchy in place. It is an excellent interview for reading or watching.

Bailout 11: Market Morality Won't Just Vanish

The assumption of much public policy making is that getting the money in the right place or setting up the right program will solve problems. Of course, these things can and do make a difference. However, as Cornel West argued long ago, changing the conditions of extreme poverty will not go away just by setting up programs. Nor will they go away by telling the people caught up in poverty to change their behavior. Culture and social structures are interlinked. That is why he wrote about "market morality." When social thinking becomes colonized and dominated by doctrinaire market theories, then other forms of moral vision and community begin to be eclipsed by individual self-interest. That is why West called for a "politics of conversion:" the change has to be deep and it has to be systemic.

Henry A. Giroux and Susan Searls Giroux have picked up this argument in relation to the current bailout of the economy. They recognize that new views of the economy are gaining a hearing, but they also point out that the general population has been schooled in free market thinking and its market morality. A change that renews the commitment to the common good, a belief in government's role to do good for citizens, and moral limits on individual freedom will require a process of education.

Politics is not simply about the production and protection of economic formations; it is also about the production of individuals, desires, identifications, values and modes of understanding for inhabiting the ideological and institutional forms that make up a social order. At the very least, any attempt to both understand the current crisis and what it would mean to produce a new kind of subject willing to invest in and struggle for a democratic society needs to raise another set of questions in addition to those currently posed.

Moral formation of another sort is required. Are there any communities of alternative formation that can point the direction toward a more humane vision of economic life? Churches too often have allowed the economics of the world to negate the economic vision of the Bible. We need churches to stand for an economic life in which "there are no needy among you" (Deuteronomy 15:4; Acts 4:34).

Bailout 10: Make Banks Accountable

Today's news reports that the Governor of Illinois has threatened to suspend state business with Bank of America. B of A is the bank which cut off credit to a window and door factory that has announced it will close, leading workers to sit in at the factory to demand the company pay them for accrued time.

Now the Governor of Illinois may in part be trying to distract attention from his other problems, such as being arrested on corruption charges today. However, it is about time leaders make this kind of decision to stand up to the banks which have become beneficiaries of one of the greatest wealth redistributions ever known. Public servants need to serve the public interest. Tax dollars are for the public interest. When tax dollars are provided to a private corporation in order to further the public interest in stabilizing the economy, then those private corporations must be held accountable.

That is why I wrote to my Representative, David Price, today to ask for increased oversight over banks and financial institutions who received "bailout" funds from the Department of the Treasury. The accountability was left too vague, and executives are retaining their expense accounts and euphemistically renamed "bonuses" while autoworkers are being demonized as overpaid for getting middle-class salaries, health care benefits, and retirement. I asked him to demand repayment from banks that refuse to make these funds available to support industry and jobs in the economy. If dramatic change can be demanded of GM, and I am all for that, then it can be demanded of Wells Fargo, Bank of America, Goldmon Sachs, J. P. Morgan Chase, Citigroup, and others.

Get rid of the $10 million Wells Fargo (see Bailout 9 post) severance package for one Wachovia executive and you can pay annual salary and benefits for over 100 of the better paid GM autoworkers who have mortgages to pay and families to support. Okay, let the Wachovia guy have the same amount as an autoworker. Bank of America's bailout money would be much better used if provided directly to struggling industrial producers.

Bailout 9: Will Obama's Advisers Learn from Their Own Mistakes?

The New York Times printed a good editorial expressing the reservations I share with many people about the President-Elect's chosen economic advisers. Larry Summers helped to craft the deregulation of derivatives. Timothy Geithner played a role in scheming the strange and problematic bailouts of financial institutions in the past couple of months. Neither one of them gave early warning of the housing bubble that has caused our current crisis. Will they do better next time? We must make sure our representatives know we are concerned, and let Mr. Obama know that he needs to be listening to more than the same people who were architects of a building in ruins.

Obama's critics jumped all over a phrase he used in a conversation with a plumber's assistant in Ohio. He remarked that everyone in financial difficulty, from top to bottom, would benefit together if we "spread the wealth around." Dean Baker points out that Secretary Paulson, Chairman Bernanke, and the Bailout planners are busy with their own plans to "spread the wealth around." Who is using government to transfer wealth from some citizens to others? Wells Fargo, a beneficiary of the bailout (announced that ten top executives of Wachovia) the bank they were able to buy because of the bailout, would be eligible to receive an average of $10 million each for severance. That money is coming from somewhere. I thought the banks were out of funds. Oh, yeah--taxpayers have to pay it. Talk to your representatives.

What November 4 Means: Poverty Isn't Just Going to Disappear

The language of the President-Elect's campaign made note of our mutual responsibilities toward one another. He called for changing how we think and feel about the poor, along with changes that can come through legislation and budgets. Neither of those kinds of changes happens overnight. It does not happen easily. It does not sweep across entire populations without time and effort.

Even if most of Barack Obama's supporters in the election agree with his statements about the poor, at most that is just a portion of 52% of the voting population. That is not to say that many who voted against him may not also share his views about communal responsibility for the poor. Rev. Alan Clapsaddle points out how far the people of Orlando have to go in caring for their most impoverished saints.

Moreover, we must hope and work to see that issues of poverty, homelessness, access to health care, and jobs do not get pushed aside by the crises of banks and wars and stock markets. They are clearly related, but it would be possible to solve the banks' problems, stop a war, and get the stock market stabilized without ever getting around to the least of these. Sojourners announced today an event scheduled for April: The Mobilization to End Poverty. This could be an important organizing opportunity to start change. It will not solve everything. I saw a quotation from Marian Wright Edelman today that is a good reminder:

Justice is not cheap. Justice is not quick. It is not ever finally achieved.

Bailout 6: Don't Stop Paying Attention

In the past week, a couple of reminders have come around that caught my attention. We have to recall that the deep causes of this financial downturn lie in unregulated and deregulated management of capital and in the "bubbles" created by wishful thinking about dot-com businesses and inflated housing prices. Risk trading, debt swapping, and all that mess played with other people's money, and the banks and large money companies thought they could keep bleeding the low- and middle-income people for greater and greater profits. One of the better places to read and hear about the economy is a blog called Planet Money. I also get plenty of good insight from Truthout, as the comments below will illustrate.

The first reminder came from Dean Baker, and I heard it elsewhere, asking whether any executives have had their pay cut. Are CEOs and executives whose companies have been bailed out by our taxes had to feel any of the pain? We are not getting any such reports.

Second came the reminder in an article posted on Truthout that banks getting an influx of taxpayer money seem to be planning to keep on paying out dividends as if nothing has happened. Dividends come from profits, and profits come from a good economy. If the dividends come from taxpayer bailouts, then what's up with that? I don't pay taxes so stockholders can make dividend income. If I have to pay to keep banks from failing, that is one thing. But dividend income is another.

Is the Treasury Department looking out for the public interest here? We have to keep watching and calling for accountability.

Bailout 5: How the House of Cards Began to Tumble

According to some new information, Wells Fargo analysts and others have come to conclude that Wachovia's mortgage-based securities are probably worth 85¢ on the dollar, with a few of the worst ones worth 74¢ on the dollar. That is lower than earlier estimates that I had read, but not so low as the market was pricing them. No wonder Wells Fargo was willing to pay much more than Citigroup had offered to buy out Wachovia. I reiterate that the mortgage losses in real dollars are not nearly so bad as what the market would make it seem. Citigroup was very angry that someone called them on their extreme low-ball offer and sued Wells Fargo. Now they are fighting it out over who buys Wachovia. If the market stabilizes, who knows if someone else will even offer a better price.

On the other hand, the market in loans between banks and in commercial paper (short-term loans to large businesses to keep their cash flowing day to day) got into a serious crisis over the past months and weeks. I got a tip to listen to an outstanding description of just why this crisis came to be seen as so serious. I was surprised to find out that it was on the public radio program This American Life, usually known more for its quirkiness than for hard-hitting financial reporting. I don't mean they never tackle hard topics--their work on school reform is also some of the best I have ever heard. So if you have about an hour to listen and learn, you won't be disappointed by listening to Another Frightening Show About the Economy. If you want to dig a little deeper, another hour will allow you to hear about the housing bubble and unorthodox mortgage practices which laid the groundwork for this recent crisis in the show called The Giant Pool of Money.

Finally, the point that the people of the U. S. who are being asked to bail out these businesses need to get a share of the profit from their recovery. Another Frightening Show will explain the idea of making sure the government takes an ownership share through preferred stock in whatever companies it bails out. A growing swell of voices are asking for this. It is written as an option into the bill that Congress finally passed, but not because Paulson or Bush were advocating it. So if you want to know what to say to your representatives and senators, then ask them to support this way of dealing with the money our taxes will make available. Here is how one economist describes it.

Bailout 4: How to Use $700 Billion

$700 billion dollars for what? All of a sudden, George Bush thinks there is another $700 billion dollars available to spend. This is the guy whose advisers told him the Iraq war would finance itself, or at most cost about $50 billion. The bill for that debacle is fast approaching $600 billion after five years. What's another $700 billion going down into an abyss?

Of course, these same people say there is no money to fully fund No Child Left Behind, closer to $20 billion per year. There is no money to provide health care for the uninsured (not even for uninsured children through SCHIP), which $700 billion would cover for six or seven years. There is no money to support the Millenium Development Goals which the World Bank says could be funded with $40 to $60 billion per year spread among all the contributors. For Christians familiar with the Micah Challenge, this last example is a part of the shared agenda of churches in many nations.

A few comments from this week's discussions at the United Nations General Assembly seem appropriate here ("No Bailout for the World's Poorest").

Father Miguel d'Escoto Brockman of Nicaragua, the newly-elected president of the General Assembly, warned that the current financial crisis will have "very serious consequences" that will impede the significant progress, "if indeed any progress is made", towards the targets established by the MDGs, "which are themselves insufficient".

"It is always the poor who pay the price for the unbridled greed and irresponsibility of the powerful," he said, taking a passing shot at the staggering 700-billion-dollar bailout proposed by the administration of President George W. Bush to save the high-stakes investment banks of New York from bankruptcy and collapse.

Norwegian Prime Minister Jens Stoltenberg told delegates that "money doesn't seem to be a problem, when the problem is money".

"Let us look for a moment at what is happening on Wall Street and in financial markets around the world. There, unsound investment threatens the homes and jobs of the middle class," he added.

There is something fundamentally wrong, he argued, "when money seems to be abundant, but funds for investment in people seem so short in supply".

Jamaican Prime Minister Bruce Golding told the General Assembly that the crisis currently rocking the world's financial markets reflects the inadequacy of the regulatory structures that are essential to the effective functioning of any market.

But it is more than that. It represents the failure on the part of the international financial system to facilitate the flow of resources into areas where they can produce real wealth -- not paper wealth, he added.

Bailout 3: The Cranky Economist Speaks

Another comment on the "bailout" from cranky economist Dean Baker:

Congressional support for the bailout was a big victory for those who want to redistribute income upward. The bailout is about taking money from the schoolteachers and cab drivers and giving it to incredibly rich Wall Street bankers, who are so incompetent that they drove their banks into the ground.

This upward redistribution was done under the cover of crisis, just like the war in Iraq. But there is no serious crisis story. Yes, the economy is in a recession that is getting worse, but the bailout will not get us out of the recession, or even be much help in alleviating it.

Baker goes on to make a case that the reason for the bailout is a false claim of imminent freezing of the financial system. Instead, it is an empty threat by the banks to avoid being taken over by the Federal Reserve. Baker says the Federal Reserve would not allow the financial system to freeze, but would keep it going by seizing control of the banking system. Wall Street hates that idea. But you and I would still have access to ATMs, and small businesses would still have access to loans to keep themselves liquid. The ones to lose would be the executives and large financial stakeholders.

We're being scammed again by mythical weapons of mass destruction.

Bailout 2: Bailout or Feeding Frenzy?

Bailout or feeding frenzy?

The failure to pass today's bill promising a solution to the credit crisis should not be a big surprise. Numerous members of Congress were reporting contacts from constituents opposing the Bush/Paulson plan at ratios between 100/1 and 1000/1. This weekend's Citigroup acquisition of Wachovia Bank should give us a clue into the anger and opposition of the populace. Citigroup swooped in and acquired an enormous range of financial resources at fire sale prices. This is exactly the kind of profiteering, even racketeering, that the average person suspects is going to happen.

Citigroup, it is said, has tried without success to build a consumer banking business for many years. Raking in money in other ways, they were among the financial institutions not overwhelmed by the mortgage crisis. (What happens when this morphs into a consumer credit card debt crisis, is yet to be seen.) Bad decisions by First Union, which renamed itself Wachovia when it acquired the previously well-managed bank, included buying the mortgage company which specialized in one of the now-despised mortage innovations, option adjustible-rate mortgages. These are the ones that let the borrower take the option of not making a payment now and then (and adding it on the end of the loan period). Now they own too many bad mortgages.

The strange thing about this crisis of "securitized" mortgages is that they are really worth much more than the market is saying. Around 2.5% of mortgages are in foreclosure. Many of those have been processed into interest-bearing securities, or bonds. So on average, it might be that the value of such a bond, in real terms of how much it would pay out, may have dropped to around 97.5 cents on a dollar. But let's estimate that the mortgage bonds are worse off than that because they are encumbered by additional mortgages which are not yet in foreclosure, but in danger. And let's say that these securitized mortgages have a larger share of the bad mortgages from the recent frenzy of bad financing than the 2.5% rate would indicate. So maybe these interest-bearing bonds may pay out 90 to 95% of their face value. Maybe a few would be even lower, or much lower. But that would not cause such a crash. What causes the crash is that since no one wants to buy these securities, their price drops way below their adjusted value. Then the holders may find themselves with a cash-flow problem. They need to sell some securities, but they can't get a buyer at a fair price. When this infects the whole market, the financial institutions start to treat these securities as if they are worth almost nothing. As a side effect, a powerful and wealthy institution like Wachovia finds its stock dropping to pennies. But buying them at a low price is a great idea if you don't have to worry about cash flow. The government has time to see them pay off, and maybe at a good profit.

In walks Citigroup, with the help of the FDIC, to pay a measly $1 per share to buy one of the largest banks in the world with assets galore. Buying at a fire sale lets them reap a huge reward. Just like Bank of America bought Countrywide and Merrill Lynch. Just like J. P. Morgan Chase bought Washington Mutual. After all this hoop and holler about a financial crisis, the US is left with three financial giants who have an even greater ability to dominate the financial business and exercise a joint monopoly over setting interest rates and fees.

This so-called bailout had nothing to say about the concentrated power of wealth in the hands of the few. And its fatal flaw was that it did nothing to help the other people caught in the mess of bad mortgages. The bailout plan had no provisions to help refinance mortgages for common people, homeowners who are facing foreclosure in a weak economy. It was suggested that by buying these mortgage-based securities, the government would be able to refinance mortgages for homeowners. But owning the security is not the same as owning the actual mortgage. These remain in the hands of banks, savings and loans, and other mortgage institutions all over the place. This plan does not offer any relief to them. It offers relief to large financial instutitions who have questionable securities.

So an additional provision to assist homeowners might have been enough to win a few more votes. The provision to deny "golden parachutes" are a gesture toward the common borrower, but not much more than that. Real help to homeowners is what was needed. The long and heated meetings about bailing out the economy could not muster the compassion and courage to do what was right. The proposal allows the same feeding frenzy to go on. As one commentator said today (I can't remember who), the homeowners who endure foreclosure faces the greatest crisis. They can't go back to their neighborhoods. They lose the bedrooms and kitchens where they lived. They no longer live where their ball teams or other social connections had been built up.

The Neighborhood Assistance Corporation of America released the following comments:

There is one reason for the financial crisis – Foreclosures.
There is only one solution – Restructure mortgages to make them affordable.
Who would benefit – Everyone.

This seems to me to sum up the shortcomings of the proposed bailout.

Thanks to reports on NPR's Morning Addition, AP news reporting by Sara Lepro, and the insights of my friend Steve Bumgardner for helping me think abou this issue. Any erroneous reporting and reasoning is mine.

Bailout 1: Mary Nelson and Job Losses

Mary Nelson, a leader I admire greatly, wrote the following about the current Wall Street mess on the Sojourners God's Politics blog.

In Money We Trust
by Mary Nelson 09-23-2008

The Wall Street debacle reminds me of the fall of Babylon … of the excesses of greed over the common good and the little folks (like the ones in my low-income community) getting the short stick both before, during, and after. A recent article talked about how, in the last few years, the fear of the risks of getting discovered and regulated were overcome by sheer greed. Greed over fear. Clearly, this is a time for sackcloth and ashes for some. It strikes me as sheer nonsense that our money has “In God We Trust” clearly printed on it. It is more appropriate to say, “In Money We Trust.” Our misplaced spending priorities mean $12 billion a month on war in Iraq and Afghanistan, propping up big corporations without capping their personal profits, but neglecting poor people without homes, health insurance, and quality public education.

But we all have gone haywire in this atmosphere of excessive greed, thinking we could get rich or richer, making risky choices and spending far more than we need to get what we want. Buying and spending was promoted after 9/11 to help get the country going again: “Go out and buy,” the president said. In our community financial education classes, we help people understand the difference between needs and wants. Our officials and a lot more of us need to understand and act on the difference between needs and wants as well.

Mary Nelson is president emeritus of Bethel New Life, a faith-based community development corporation on the west side of Chicago. She is also a board member of Sojourners.

What were the risks people took? Analysts on the radio today said that if something does not ease the financial crisis, lines of credit will dry up, meaning many small and medium sized businesses, and some large ones, will not be able to make payroll. Average folks will start losing their jobs. Large corporations will not be able to get quick loans to keep their operations going, and plants could shut down. We already know that the big companies are almost through raiding the pension funds and health care promises they made to workers. The ones who are hurt the most are not the ones playing games with the millions and billions. A person who loses ten out of twenty million is not nearly so bad off as someone who loses her only livelihood in a bi-weekly or monthly paycheck.