Tim Geithner; Retention, Rewards, and Krugman Realizations



DN!>Paul Krugman (12) on $1 Trillion Geithner Plan to Buy Toxic Bank Assets

copyright © 2009 Betsy L. Angert.  BeThink.org

Negotiations began in November.  Decisions were reached during the month of December.  By January, a retention bonus was awarded to the individual considered most superlative within the staff.  President Barack Obama presented the gift.  American International Group, Incorporated [AIG] executives did not receive the windfall.  Nor did someone “separate” from the previous President garner the honors.  Gold was not placed at the door of a New Deal Democrat.  No, dollars and command were delivered to a truly Progressive person.    Insider, Timothy Geithner was the recipient of a title that would sustain his service.  Mister Geithner was given a reward that was worth far more than mere millions in greenbacks.  Power and influence are priceless.

President Obama granted these “commodities” to one who worked to ensure banks and other financial institutions would continue to flourish just as they had in the Bush Era.  Now, the man with copious clout, wants more.

Indeed, Tim Geithner has already taken the reigns.  He has worked to set more rules.  Separate from Congressional approval for increased authority, and regardless of what regulatory standards the House and Senate might pass, Secretary Geithner, happily ensconced in President Obama’s favor, has begun to broaden his horizons.  He expresses his expansive preeminence, and all are a twitter.

New-found fame, a brighter, well-funded future befits the man whose face now appears everywhere.  Greater authority is as Tim Geithner was groomed to acquire.  Indeed, Secretary Geithner grew accustomed to attention and awards.

Perhaps, Timothy Geithner’s desire for further recompense, economically or emotionally, began when he was but a boy.  In his youth, the now Secretary of Treasury saw what could be wrought if one was well-connected.  His lineage allowed him to look into a world of affluence and advantages.  

Maternal grandfather, Charles F. Moore, was an adviser to President Dwight D. Eisenhower.  Mister Moore also served as a Vice President of Ford Motor Company.  “Dad,” Peter F. Geithner, was with the Ford Foundation.  Tim Geithner’s father oversaw the project that Ann Dunham, President Obama’s mother gave birth to.  Stanley Ann Soetoro and Tim’s Dad, developed microfinance programs in Indonesia.

This association alone might have helped Mister Geithner realize his path to the White House.  Some theorize, President Obama and Tim Geithner formed an invisible bond, one that ties them together today

Money, power, and privilege were given to Timothy Geithner from birth.  The more the lad “earned,” the more he hoped to receive in return.  A graduate of Dartmouth and John Hopkins, initially Tim Geithner worked for Kissinger Associates, Incorporated.  He then entered government, just as his forebears had.  Geithner first joined the Department of Treasury in 1988 and worked in three administrations for five Secretaries of the Treasury in a variety of positions.  He served as Under Secretary of the Treasury for International Affairs from 1999 to 2001.  He was Director of the Policy Development and Review Department at the International Monetary Fund from 2001 until 2003.  Then, he headed the New York Reserve.  He befriended the acclaimed Economist Professor Paul Krugman.  The two are associates within The Group of Thirty, a Consultative Group on International Economic and Monetary Affairs.  It is no wonder President Obama was impressed and wanted to retain the financial expertise of one so esteemed.

Previously, the Secretary had succeeded, even exceeded expectations.  With each step, the esteemed Economic wizard takes, greater gratitude and gilt are given.  Hence, he moves forward.

Secretary Geithner addressed Congress on March 24, 2009.  He and his cohort, Federal Reserve Chairman Ben S. Bernanke affirmed a need to be endowed with exceptional authority.  The two concurred.  The AIG catastrophe confirmed “a basic and tragic unfairness – that those who were prudent and responsible in their personal and professional judgments are harmed by the actions of those who were less careful and less prudent.”  Many would agree.  

On paper, the proposed request for increased control over financial institutions, other than banks, seems reasonable.  If Congress approves of the strategy, Federal authorities could seize a failed fiscal establishment.  Many believe the measures are long overdue.  However, several hesitate.  When they consider the fact, Secretary Geithner might be the person to decide the fate of these firms countless express concern.  Perchance, he is not the person to have or hold such extensive power.  

Esteemed Economist, and colleague Paul Krugman expressed disappointment after Mister Geithner revealed his bailout plan.  Nobel Prize recipient Krugman wrote in The New York Times, “”In fact it fills me with a sense of despair.”

“The Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt,” the Princeton University Economist explained, as he cited specifics within the proposed strategy.

Might the man Professor Krugman long admired not be competent to oversee the fringe financial institutions? Those who were uncertain Tim Geithner was ever the best, the brightest, or the person to be retained, are now joined by others who originally had confidence in the now Secretary of Treasury.  Since the appointment, and ample intangible appropriations were bestowed upon Secretary Geithner, the choice issue may be a moot point.  Only the battle for a bigger role, increased responsibility to regulate remains a subject of contention.

The Obama Administration, mostly through Tim Geithner, has compared the proposed process to the work of the Federal Deposit Insurance Corporation.  This favored institution protects depositors from bank failures.  Regulators can take control of a troubled depository, place it under the authority of the FDIC, and then, quickly, and competently, restructure the reserve

Perhaps, that is the most significant difference.  With consideration of the current economic crisis, and crucial assessments, the Secretary made prior to this plea for greater rule, Timothy Geithner showed no evidence of being swift or skilled in his ability to seize the moment or reign in American Insurance Group’s excesses.

As the former president of the New York Federal Reserve, Mister Geithner is the one Obama Administration official who is associated with the Bush-era bailouts.  Once AIG was under Federal control, public servants say, compensation arrangements were rarely, if ever, discussed.  In December, long before Tim Geithner received his own abundant reward, an initial $55 million in bonuses was delivered to the Insurance Group executives.  

At the time, the glorious Geithner did not decry the greed.  Indeed, even on this date late in March 2009, as he answered questions before the House Financial Services Committee, Secretary Geithner stated, “It’s a difficult balance.”  He then further explained his belief; the government should not dictate detailed executive compensation limits to bankers.  Timothy Geithner empathized with those who had been given retention bonuses.  Indeed, while he did not give voice to the thought, the Secretary understood, he too was a very recent beneficiary of such graciousness.

Perhaps, opponents of greater government oversight appreciated the more individualist posture Treasury Secretary Geithner presented. However, a few felt a vital veracity must be pondered.  An individual Presidential appointee [Geithner], and an agency [FDIC] with ample autonomy, are not one and the same.

Intentionally, the Federal Deposit Insurance Corporation, unlike the Treasury Department, was designed to be separate from the political process.  The bureau acts in accordance to law.  Should Congress consent to the Geithner request, a person who is profoundly affiliated with a partial, political body, would have the authority to take possession of a business that displeases the White House.  Granted, supporters assure those who challenge the proposal, only corporations in crisis would be seized.  Nevertheless, dissenters declare, corporate collusion with government insiders would remains a concern.  A poorly regulated financial institution potentially would corrupt the government [further?].

Policy-wonks state, the power to take over banks or other alternative financial entities need be part of a broader regulatory structure.  Limits are set on the risks that economic establishments can take.  Therefore, the need for seizures is, and must be, more fully linked to violations.  The Obama Administration has expressed a desire to increase regulations on firms that might be eligible for seizure under the proposed law.  However, specifics have yet to be furnished.  

For now, the focus remains solely on the Treasury Secretary.  Tim Geithner seeks greater power than was given to him in the form of a gift, his title.

Unequivocally, Tim Geithner has received many accolades.  Perchance, he was and is deserving.  Secretary Geithner offered a welcome plan to resolve the mortgage meltdown the day before his most recent plea.  Wall Street applauded the strategy, as evidenced by a record rise in stocks.  The headlines for the long-anticipated program that would remove bank toxic assets and revive the financial system, bedazzled those with money to spend.  Rescue Plan, With Fine Print, Dazzles Wall Street. Urged on by his success, Secretary Geithner had reason to  hope he could garner greater authority.  Those with big bucks see his increased powers as a bonus.

Yet, the apprehension Nobel Prize Economist, Paul Krugman expressed on March 23, 2009, the day before this recent hearing hangs over the head of Treasury Secretary Geithner. Thankfully, rancor for the subprime solution seems to receive less attention, at least amongst the House Financial Services Committee.  Possibly, acrimony over Geithner’s past performances is also forgotten.

For a time it seemed Professor Krugman too had been willing to forgive and forget.  There was a time the Princeton Professor was with those who sanctioned the selection of Tim Geithner to Treasury.  Doctor Krugman had thought as President Obama did; Tim Geithner should be retained.  His mere presence in the Administration would be a worthy bonus.  Only months ago, Krugman approved of Geithner and his work.  In his article, The grown-ups are coming, the stellar observer of economic policy sardonically noted the Tim Geithner was an improvement in contrast to the  Bush Best and the Brightest.  

Paul Krugman spoke highly of his associate from The Group of Thirty, a Consultative Group on International Economic and Monetary Affairs.  That is, until Tim Geithner introduced his solution for toxic assets relief.

Perhaps times have changed.  Certainly, there is reason to think Timothy Geithner has not.  Nonetheless, earlier impressions and associations formed long ago linger in the present.

The New York Times Columnist and Economist publicly offered his “Despair over financial policy.” However, in a recent interview with Democracy Now’s, Amy Goodman, Krugman was reluctant to say the person who ascribes to lemon socialism, Timothy Geithner must go.

Paul Krugman as others may not have yet come to terms with contradictory views of the man who now Heads the Treasury.

Prior to the prize bequeathed on Mister  Geithner, all of his actions appeared above board and in alignment with the ethical standards President Obama set for his Cabinet.  The beneficiary of perks and power was perceived as an individual who had sacrificed much in order to serve his country.  Tim Geithner was subjected grueling to Senate hearings.  His records were scrutinized. To be certain no one would have reason to question the calculations, a highly respectable résumé was submitted.  

Before his selection, Mister Geithner served as President of the New York Federal Reserve Bank.  In his career, he worked closely with former U.S. Federal Reserve Chief Alan Greenspan, Bush Treasury Secretary Henry Paulson, and head of the Federal Reserve Ben Bernanke, and oh yes, venerated Economist Paul Krugman.  

Overdue taxes were paid to ensure that all appeared proper and in order.  That is, at least some of the levees never accounted for were remunerated  Other outstanding tariffs, Tim Geithner was told, need not be paid,  The statute of limitations had lapsed.

Just as had been with much else in his life, Tim would be forgiven for his forgetfulness or failures to do what most think ethical.  No one would think to inquire of the enormous sums the Head of Treasury would garner for his friends, former colleagues, and himself.  People were expected to consider the pittance he “earned” as a civil servant and be reassured, Tim Geithner is committed to the good of the country.  After all, were he still with his previous employer, investment firm Goldman-Sachs,  Secretary Geithner’s salary would have been far greater.  

The power Timothy Geithner garnered throughout his life cannot be counted.  Personal financial gains for friends, former colleagues, and himself are ample.  Influence is near infinite.  Why not, some might say, give Geithner more authority to rule.  He has “earned” it.  Perhaps, one day in a sequel to Professor Krugman’s recent tome, “America the Tarnished”, the established Economist will reject the cry, “Why not indeed.”  He might even pen prose that state more directly  Timothy Geithner, his retention, and the rewards he has already received  are a significant part of “the crisis [that] has cost America much of its credibility, and with it much of its ability to lead.”

References for a Geithner Rule to be realized . . .

Updated Reference . . .

Did Racism Help Cause the Mortgage Crisis? Part One

I am honored to present the work of Ralph Brauer.  For some time I have marveled as I read his research and reflected upon his work.  Today, this author of note shares with readers at BeThink.  I welcome Ralph Brauer.  May I invite you to peruse his prose.  Please ponder; then share your thoughts.

copyright © 2008 Ralph Brauer. The Strange Death of Liberal America

There is an elephant in the room no one wants to mention when you bring up the housing crisis.  It is the same elephant that has occupied the room since the very beginning of this nation.  Yes, it was there that hot Philadelphia summer when they drafted the Constitution.  Maybe that is what Ben Franklin is gazing at as he sits in the center of the famous painting of the signing of the Constitution by Howard Chandler Christy that hangs today in the House of Representatives east stairway.  Certainly the elephant had haunted Franklin much of his life causing him to call it “a constant butchery of the human species” in an anonymous letter written in 1772.  That elephant that haunted Franklin and continues to haunt us today is racism.

The economic crisis we face today has produced countless essays analyzing its origins and proposing all manner of cures, but almost no one has dared to mention the elephant in the room.  As I researched this topic I found only one person who seemed to be on to it: John Kimble, who wrote an excellent op ed piece in the New Orleans Times Picayune in October that should be required reading for everyone.  One sentence gets to the heart of the matter:

What few today remember is that one of the government’s central goals in undertaking mortgage market reform was to segregate American cities by race.

That such a piece should come from New Orleans does not surprise me; that few have sought to connect what to me seem rather obvious dots is more of a mystery to me.  But that is the power of that elephant in the room.

Perhaps now with an African American President we will finally have more open discussion of the elephant in the room and that discussion should begin by acknowledging that the elephant played a significant role in causing the mortgage crisis which in turn has toppled financial giants as if they were a row of dominoes.  To understand why we need to go back to the years immediately after the Second World War when the housing boom began.

The Creation of the Suburb

The discussion of the role of racism in America should begin by confronting the most important social, cultural and political reality of the past half century: the American suburb is largely a creation of racist loan policies that came from none other than the federal government.  The suburban migration stands as one of the largest freely-undertaken, government-subsidized mass social movements in history.  It accomplished by democratic means what dictators over the ages have tried to accomplish by force: alter the physical, economic, and social environment to create a unique culture.  As Kenneth Jackson writes in Crabgrass Frontier, his history of the American suburb:

Suburbanization was not an historical inevitability created by geography, technology, and culture, but rather the product of government policies.  (p. 293)

Through a variety of government subsidies, the creation of the suburbs allowed people of modest means to attain what real estate ads have christened the American dream.  The immensity of this achievement is only beginning to dawn on us, for it constituted the kind of land and social reform that governments everywhere still try to accomplish.  Kenneth Jackson notes:

Single family housing starts in this country rose from 114,000 in 1944 to 937,000 in 1946, 1,183,000 in 1948, and 1,692,000 in 1950.  (p. 233)

The federal government financed this growth through the Federal Housing Administration, an agency created during the New Deal to help spur the growth of home construction.  During the postwar housing boom Jackson points out:

The main beneficiary of the $119 billion in FHA mortgage insurance issued in the first four decades of FHA operation was suburbia.

Drawing the Color Line

A half century before the creation of suburban America, W.E.B. DuBois had written in the very first sentence of The Souls of Black Folk the immortal and prescient words:

HEREIN lie buried many things which if read with patience may show the strange meaning of being black here at the dawning of the Twentieth Century.  This meaning is not without interest to you, Gentle Reader; for the problem of the Twentieth Century is the problem of the color-line.

Little could DuBois have predicted that the color line would become a red line drawn around the American suburb by none other than the FHA.  The name redlining actually dates back to the 1930s when the FHA first began using color codes to designate areas where they should not invest.  Red areas were off-limits.  Jackson states:

FHA also helped to turn the building industry against the minority and inner-city housing market, and its policies supported the income and racial segregation of suburbia.

Even as the suburbs mushroomed across the American landscape, a few were asking questions.  In 1955 Columbia Professor Charles Abrams charged:

From its inception, the FHA set itself up as protector of the all white neighborhood.  It sent its agents into the field to keep Negroes and other minorities from buying houses in white neighborhoods.  (Jackson, pp. 213-214)

In what has become the classic source on FHA discrimination, The Politics of Exclusion, Michael Danielson quotes an FHA underwriting manual:

If a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes.  A change in social or racial occupancy generally leads to instability and reduction in values.(p. 203)

FHA policies also required appraisers to determine the probability of people of color moving into a neighborhood and even forced homeowners to agree not to sell their property to someone of another race.  According to one commentator,

“[T]he most basic sentiment underlying the FHA’s concern was its fear that property values would decline if a rigid black and white segregation was not maintained.

With the rise of the Civil Rights movement in the 1960s, the FHA began to make some attempt to right these wrongs, but with the election of Richard Nixon in 1968, the so-called “Southern Strategy” soon put a stop these efforts.  Chris Bonastia documented Nixon’s dismantling of FHA’s residential integration efforts in his paper, “Hedging His Bets: Why Nixon Killed HUD’s Desegregation Efforts.” Nixon’s refusal to back HUD’s reform efforts would have an impact on American society that ranks right up there with the decision by President Rutherford B. Hayes to abandon the South to the segregationists, essentially ending Reconstruction.

Yet to see one man and one decision as a historical lynch pin is to take an outmoded view of history, for the truth is that by 1968 the die had already been cast and DuBois’ color line had been drawn like a moat around the suburbs designed to keep people of color from entering. It would have taken considerable political will–and perhaps even federal law enforcement–to desegregate the suburbs by then.  Dr. Martin Luther King, jr.’s infamous march into the Chicago suburb of Cicero, where he was met with bricks and catcalls, showed the depth of that moat. There is a moment in the video of that march when you hear what sounds like a shot and King turns suddenly as if wondering where the shot came from.

This does not excuse Nixon’s actions, which at best were misguided and at worst cowardly and racist. While historians debate how much Richard Nixon personally bought into the Thurmond catechism, his elevation of Thurmond aide Harry Dent to the White House staff after the election sent a clear signal of his alliance with Thurmond. Dent was the one who sat outside the Senate chamber with a pail in case Thurmond needed a quick bathroom break during his record-setting filibuster. Nixon himself put it bluntly:

I am not going to campaign for the black vote at the risk of alienating the suburban vote.

For the federal government to go further than the law, to force integration in the suburbs, I think is unrealistic. I think it will be counter-productive and not in the interest of better race relations. [quoted in Charles M. Lamb, Housing Segregation in Suburban America Since 1960, p. 4, p. 9]

Still, as Lamb would point out in a footnote, two decades later a University of California study found that 44% of white Americans favored encouraging African Americans to move to the suburbs.

The Creation of the Subprime Market

Yet the FHA did not just discriminate against people of color who sought to live in the suburbs, it also made  it more difficult for them to obtain loans, period, by refusing to insure loans in areas with high concentrations of people of color.  The systemic impact of this is still reverberating through America’s inner cities.  Without FHA insurance, no reputable bank would issue a home loan to someone living on the other side of the “color line.” This in turn had a host of social and cultural impacts, from resource-poor schools to lack of jobs because businesses would not build where the FHA would not write loans.

You don’t need to be a systems modeler to see how each of these came to feed on each other. In the last decade scholars have begun to refer to this as “structural racism,” by which they mean a convergence of forces and policies that conspires to sustain the color line. Just imagine one systemic loop: you cannot get a good job because you live in a neighborhood with substandard housing and were educated in a substandard school and so you cannot qualify for a loan for better housing which in turn further reinforces the substandard housing. Structural racism is also not a bad metaphor, either, for it suggests the immense weight of these multiple factors that presses down on people living inside those red lines drawn by the FHA.

Where legitimate businesses and institutions are prevented from entering, illegitimate ones will grow. Since regular banks would not lend to people of color in inner city neighborhoods and FHA policies kept them from lending to the few people of color who could afford suburban housing, there obviously was a need for someone to supply these loans and so we have the growth of the so-called subprime market, only back in those days they were known as loan sharks and other unprintable words and had reputation to rival check cashing operations, greedy landlords and take and bake furniture renters. Anyone who has grown up in the inner city can tell stories not only about price-gouging home loans, but high-priced loans for everything from cars to buying furniture or clothes on credit.

What Is Subprime Lending

Subprime lending is a mixture of old-fashioned altruism and blatant thievery with an American twist. Some entered into the business of making loans to people of color because they genuinely believed people deserved an equal opportunity, others saw a chance to make a quick buck. The reality of the situation was that without FHA insurance even the most well-meaning lenders still had to charge more than they would have for a white suburban home-buyer.

A 2003 study for the Lawyers Committee on Civil Rights Under Law reported:

While red-lining has served to exclude poor and minority residents from the benefits of mainstream mortgage lending, purveyors of predatory lending (or so-called “reverse red-lining”) practices have targeted many of the same poor and minority households that traditional lending institutions have ignored or excluded.

In testimony before the House Committee on Banking and Financial Services in 2000 Bill Brennan of the Atlanta Legal Aid Society outlined how subprime lending works for lenders:

Here is what these companies do, the predators. They overcharge on interest and points, they charge egregiously high annual interest and prepaid finance charges, points, which are not justified by the risk involved, because these loans are collateralized by valuable real estate.

Since they usually only lend at 70 to 80 percent loan-to-value ratios, they have a 20 to 30 percent cushion to protect them if they have to foreclose. They usually always buy at the foreclosure sale and pay off the debt and sell the house for a profit.

As for those taking out the loans, Gary Gensler, Undersecretary for Domestic Finance at the treasury Department, told the same Committee:

Borrowers in these markets often have limited access to mainstream financial services. This leads to two things, as the Senator said earlier. Some borrowers who really would qualify for prime loans-we estimate anywhere between 15 and 35 percent of the subprime market could qualify for prime and cannot get that prime loan. Second, the rate and term competition is limited. Subprime lenders don’t tend to compete as much on price.

Beyond preying on vulnerable populations, beyond the limited access to mainstream financial services, is that abusive practices tend to be coupled with high-pressure sales tactics, whether by a mortgage broker, a home improvement contractor, sometimes a lender themselves in the local community.

Perhaps the most extensive and longest longitudinal study of predatory lending practices has been the Woodstock Institute’s periodic reports on Chicago.  It’s 1999 report “Two Steps Back” was among the earliest to blow the whistle on predatory lending.  They found:

Documented cases of abuse include fees exceeding 10 percent of the loan amount, payments structured so that they do not even cover interest (resulting in increasing principle balances), and flipping a loan numerous times in a couple of years.

At the same time, lending to lower-income and minority communities is often viewed as an isolated line of business, in which the focus is on the short term transaction and associated fees. Lenders active in such communities tend to be mortgage and finance companies subject to much less regulation than banks and thrifts. The increased scale of the subprime industry itself has resulted in a larger number of abuses. Moreover, there has not been a proportionate increase in regulation or regulatory resources devoted to this new industry.

As usual, graphs and tables tell the story in black and white:





The date on the graph may be a little difficult to see. It is 1998. On the first table, the percentage of subprime loans going to African American communities is 53%. Only 9% went to predominantly white communities. The Woodstock study went on to deal with the obvious question: is it race or income that is the strongest determinant of who receives a subprime loan? They found it was the former:

Thus, whether a neighborhood is predominantly African-American explains the greatest amount of variation in subprime lending,

The Final Results

In 1997 Bill Brennan could tell the New York Times:

We have financial apartheid in our country. We have low-income, often minority borrowers,  who are charged unconscionably high interest rates, either directly or indirectly through the cover of added charges.

Three years later Census data would confirm Brennan’s charge. The Lawyers Committee on Civil Rights Under Law found:

The typical white person lives in a neighborhood that is overwhelmingly white, with a few minorities (80.2% white, 6.7% African American, 7.9% Hispanic American, and 3.9% Asian American), the typical African American lives in a neighborhood that is mostly black (51.4% black, 33.0% white, 11.4% Hispanic American, and 3.3% Asian American). By comparison, the typical Hispanic American lives in a neighborhood that is more evenly Hispanic American and white (45.5% Hispanic, 36.5% white, 10.8% black, and 5.9% Asian American); and the typical Asian American lives in a neighborhood that is mostly white (17.9% Asian American, 54% white, 9.2%  black, and 17.4% Hispanic American).

In a study released this year by United for a Fair Economy, the authors note:

According to federal data, people of color are more than three times more likely to have subprime loans: high-cost loans account for 55% of loans to Blacks, but only 17% of loans to Whites.

This is a decade after the Woodstock study identified a similar pattern in Chicago.

Reflections

This history makes you wonder what kind of country we might have become had racism not pervaded the home mortgage market. The United for a Fair Economy study puts it eloquently:

While the housing crisis has affected all sectors of society, it has disproportionately affected communities and individuals of color. For them, the dream that Martin Luther King, Jr. once spoke of has been foreclosed.

Now the injustices white America heaped on black America for half a century have come home to roost. The sobering thought to ponder is that what you have read so far is merely the very tip of a rather large iceberg, for there are literally dozens and dozens of books and countless articles on racism and housing. If you enter “racism” and “housing” in Google you will find over four million entries. Yet despite over half a century of studies, reports and papers about discriminatory lending, little was done about it.

The most damning piece of evidence in this entire story is not that racism fostered predatory loans, but that like organized crime going from petty bootleggers and drug dealers to big time operators, the practice of predatory loan sharking expanded and went mainstream– moving from being the providence of small-time shady operators to mainstream banks. Essentially, loan-sharking cast off its sleazy past and the bigger it became the more people looked the other way.

That is until it suddenly threatens to take down the entire American economy. Now like the figures in that painting of Constitution Hall, fingers are pointing and people are staring.

If racism played a big role in creating the mortgage crisis, the solution to our current problems will prove tougher to deal with than what the so-called experts have been telling us. We could be witnessing the fourth American revolution. The first was the war for independence, the second the Civil War, the third the Great Depression and now the present crisis which combines the themes of the previous two–race and economics.

The next essay in this series focuses on how we got here and why, for only by understanding that journey can we see a way out of the current morass. What is clear so far is that this crisis is not merely the fault of a few misguided CEOs, but rather the culmination of decades of discrimination in which all of us are culpable.

Now the time has come to stop pretending there is no elephant in the room and deal with it.

Resources

For a good bibliography on the subject click here.

Crossposts: The Strange Death of Liberal America, My Left Wing, Progressive Historians, The Wild, Wild Left

Did Racism Help Cause the Mortgage Crisis? The Rise of Sandy Weill and Citigroup



Photo: United for a Fair Economy The State of the Dream

copyright © 2008 Ralph Brauer. The Strange Death of Liberal America

Sandy Weill’s story tells how racially-biased predatory lending lies at the center of the economic crisis.  A third-generation American, Weill grew up on the streets of Brooklyn where for some the road to success was a place whose name came from a structure built to protect the city from Indians, pirates and other invaders and whose die was cast when a small group of men met in secret under a buttonwood tree: Wall Street.

Like the hero of a Horatio Alger tale, Weill began his climb to success not in the proverbial mail room but as a $35 a week clerk, eventually clawing his way to become second-in-command at American Express. But Weill had an itch for more so he cashed in his chips and set about looking for his own business. In 1986 he settled on a Baltimore loan company named Commercial Credit that specialized in predatory lending.

The tale of how Weill would use Commercial to build the financial empire that became Citigroup is the story of the financial crisis and at the heart of that story is racial discrimination and predatory lending. In short, predatory lending made Citi into one of the nation’s largest financial institutions and now is responsible for its downfall.

The Beginnings of Citi

If Weill did any due diligence at all, he knew quite well he was buying a company whose entire existence was predicated on ripping off people of color. Commercial already had a shady reputation when Weill moved in on it. In 1973 the FTC had issued an order demanding Commercial cease using deceptive and hardball tactics to entrap those in search of a loan. In his article “Banking on Misery Citigroup, Wall Street, and the Fleecing of the South,” Michael Hudson  relates that Weill’s assistant, Alison Falls, was appalled at the idea of buying Commercial:

Hey guys, this is the loan-sharking business. “Consumer finance” is just a nice way to describe it.

After Weill bought the company did he seek to curb these practices? Quite the contrary, Commercial became even more aggressive. After all, Weill’s whole business plan was predicated on using Commercial to launch a larger company and in order to do that he had to get as much as he could out of Commercial, which meant squeezing clients even more.

Some of Weill’s former employees tell stories of being pressured into steering clients into dubious deals. Hudson quotes Sherry Roller vanden Aardweg, who worked for Commercial in Louisiana from 1988 to 1995. She agrees there was “a tremendous amount of pressure” to sell insurance: That insurance was issued by another Weill acquisition American Health & Life.

We kept adding insurance that we could offer. It just kept growing. It was beginning to get a little bit ridiculous.

Frank Smith, who worked for Weill in Mississippi, put a perspective on ripoffs such as “closed folder closings” in which documents adding to the cost of the mortgage were kept from the client:

They need the money or by God they wouldn’t be at the finance company. They’d be at a bank.

Weill used the money milked from Commercial’s clients to acquire insurance and finance company Primerica. In 1990 he acquired Barclay’s Bank. Meanwhile the stories told by African Americans victimized by Weill certainly sound like loan sharking. Two Mississippi clients of Commercial signed on for Annual Percentage Rates (APR) of 40.92 and 44.14. Another client paid $1,439 for insurance on a $4,500 loan.

Ripoffs like this attracted the attention of attorneys and law enforcement officials, especially in the South, where Commercial had a large presence. Hudson reports:

In 1999, the company agreed to pay as much as $2 million to settle a lawsuit accusing Commercial and American Health Life of overcharging tens of thousands of Alabamans on insurance.

Jackson, Miss., attorney Chris Coffer says he obtained confidential settlements for about 800 clients with claims against Commercial Credit or its successor, CitiFinancial.

How much money African Americans probably overpaid Commercial can be glimpsed from one study by the Community Reinvestment Association of North Carolina. Testifying before a 2006 hearing of the Federal Reserve in Atlanta, CRA-NC Community Organizer Richard Brown cited the findings of the study, Paying More and Getting Less: An Analysis of 2004 Mortgage Lending in North Carolina:

Our key finding is that disproportionately, by a ratio of more than 4 to 1, African Americans pay more interest on home loans than whites do in North Carolina.

Cultural Impacts

Like some modern plantation, subprime lending was built on the enslavement of African Americans, only instead of being field hands or sharecroppers their lives were indentured to loan sharks. Like the infamous overseers who ruled plantation life with the crack of a whip, the loan sharks ruled the lives of African Americans with whips woven together with words the way real whips are woven from strips of leather. While these words might not have inflicted the physical wounds overseers specialized in, the mental scars inflicted by the words woven into loan sharking mortgages were socially and psychologically devastating.

Like slavery, loan sharking helped to turn the African American family into a hot-button issue whose implications are still the subject of volatile debates within and outside the community. Yet while the particular sociological and cultural impacts of loan sharking may be the subject of some debate, there is agreement about the big picture: the impact rippled through families and communities like a rogue wave bringing misery and destruction. In the inner city and some rural communities, especially in the South, African American families faced two equally devastating choices when it came to housing: deal with the loan sharks or deal with the slum lords.

Loan sharking also rippled through American culture. Call it apartheid or something else, whatever label you assign to it the forced separation of whites and people of color is the number one issue of post World War II America. As surely as South Africa carved out “homelands” for its black citizens, so FHA and others carved out the equivalent through redlining.

In the South African Americans and whites lived together but interacted through the elaborate codes and rituals of Jim Crow, but in the North the races were physically separated so a white suburbanite could grow up without having much association with people of color. As a result, while white Southerners saw African Americans as inferior, white Northerners saw them as abstractions.

The 90s Boom in Subprime Loans

Meanwhile Sandy Weill continued building Citi through mergers and acquisitions. In 1993 came the controversial merger with Travelers followed four years later by Citi’s acquisition of Salomon Brothers. At the same Weill was building Citi, the mortgage market was undergoing some dramatic changes. Researchers began identifying a huge spike in the number of subprime loans. Loan sharking had come from back streets and low budget store fronts to the center of America’s financial empire: Wall Street.

A graph from the Woodstock Institute tells the Story:

This graph raises two obvious questions: what was fueling the growth and who was providing those new subprime mortgages? The first is still the subject of some debate among economists and others.  For example, some have tied it to an increase in interest rates. In its explanation accompanying the graph Woodstock states:

Despite increasing rates in 1994, 1995, and 1997, however, subprime lenders continued to increase their refinance volumes. This suggests that subprime refinancings are not driven by homeowners refinancing to save money during times of declining rates and that subprime lenders are aggressively marketing loans regardless of the rate environment.

In part, the growth of predatory activity stems directly from the development of an increasingly specialized and segmented mortgage market, especially for refinance and home equity loans.

What was in it for others is the same thing that was in it for Sandy Weill–profits. Forbes reported that in the boom of the 90s, subprime companies enjoyed returns up to  six times greater than those of the best-run banks.

United for a Fair Economy put it more bluntly:

The subprime lending crisis has occurred because a financial product intended for limited use by a limited number of people has been parlayed into another ill-fated bubble by some mortgage lenders lacking in integrity, foresight, and any vestige of civic concern.

What made this possible was the packaging and trading of loans, which goes under the fancy name of securitization.  A Federal Deposit Insurance Company report describes how this process works:

Thirty years ago, if you got a mortgage from a bank, it was very likely that the bank would keep the loan on its balance sheet until the loan was repaid. That is no longer true. Today, the party that you deal with in order to get the loan (the originator) is highly likely to sell the loan to a third party. The third party can be Ginnie Mae, a government agency; Fannie Mae or Freddie Mac, which are government sponsored entities (GSEs); or a private sector financial institution. The third party often then packages your mortgage with others and sells the payment rights to investors. This may not be the final stop for your mortgage. Some of the investors may use their payment rights to your mortgage to back other securities they issue. This can continue for additional steps.

As usual a graph tells the story of the growth of these new investment vehicles.

The FDIC goes on to explain how various pooling tactics package subprime loans, taking you into a thicket of acronyms like (MBSs), collateralized debt obligations (CDOs), and structured investment vehicles (SIVs)–all essentially are ways of spreading the risk of pooled mortgages. Notice that the initial upswing in MBS begins in the late 1980s. That was due to the tax reform act of 1986.

Ginnie Mae (Government National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) had been involved with MBS before the 1986 bill, but the Reagan Administration’s gift to the home mortgage industry introduced another acronym into the mix: REMIC–Real Estate Mortgage Investment Conduit, which is yet another tool for pooling and packaging mortgages. None other than Freddie Mac described the importance of the 1986 bill:

The REMIC law was passed as part of the Tax Reform Act of 1986 and marked the beginning of the growth of the CMO [Collateralized Mortgage Obligation] market.

Once financial institutions began to catch on to this and entered the thicket of securitization in a big way, there was no turning back. The American economy would never be the same.  Put the two graphs above together and you have the story: the initial growth of the subprime market was enabled by the growth in MBS. There remained only one regulatory hurdle in place, one that had been there since the Great Depression.

The Repeal of Glass-Steagall

Had Carter Glass been alive in the 1990s it is doubtful any of this would have happened, but by the time he put his name on the Glass-Steagall Act during the Depression, Carter Glass was an old man. He had actually been a delegate to the 1896 Democratic National Convention when William Jennings Bryan gave his “Cross of Gold” speech and most of his political life he had a Bryan streak in him that included a distaste for banks. When he left Woodrow Wilson’s cabinet at the end of Wilson’s term he was already warning of the dangers of uncontrolled banking, particularly banks getting involved in the stock market and other financial dealings.

Carter Glass would not have liked Citi or Sandy Weill. Weill, in turn, had little use for what Glass had created, seeing it as an obstacle that stood in the way of his fulfilling his vision of the kind of “full-service” banking Carter Glass had feared.

The Glass-Steagall Act was designed to keep banks out of the securities business because Carter Glass and New Deal officials including President Franklin Roosevelt believed that one of the causes of the Depression was that banks had strayed too far from their original functions during the 1920s.  According to a paper by Jill M. Hendrickson:

in 1932, 36 percent of national bank profits came from their investment affiliates (Wall Street Journal 1933, p. 1).

Glass-Steagall built a wall between banking and other financial services and the ink on the paper was barely dry when the bankers and their allies in the Republican Party began howling.  Over the next half century there were numerous attempts to weaken or scuttle Glass-Steagall, but in the midst of the securitization boom the cries to tear down the wall of Glass-Steagall grew louder.  In 1990, the Fed, under former J.P. Morgan director Alan Greenspan, permitted guess who–J.P. Morgan–to become the first bank allowed to underwrite securities.

It would be none other than Sandy Weill who would put in motion the forces that ended Glass-Steagall when he essentially gave the federal government the equivalent of an upraised finger by proposing the most audacious financial merger in American history: he would merge one of the largest insurance companies (Travelers), one of the largest investment banks (Salomon Smith Barney), and the largest commercial banks (Citibank) in America. The problem was the merger was illegal in terms of Glass-Steagall.

Weill convinced Greenspan, Robert Rubin, and President Bill Clinton to sign off on a merger that was illegal at the time, with the expectation that Congress would repeal Glass-Steagall. That would happen with a big push from Sandy Weill. First, he spent over $200 million in lobbying fees to convince Congress to go along with his merger. It still ranks as the largest single amount spent by one firm on one bill over the shortest period of time in American history.

When the conference committee charged with reconciling the House and Senate versions of the repeal bill seemed stalemated, it was Sandy Weill who applied the final push needed to get the bill passed. Here is the now oft-quoted Frontline report of what happened:

On Oct. 21, with the House-Senate conference committee deadlocked after marathon negotiations, the main sticking point is partisan bickering over the bill’s effect on the Community Reinvestment Act, which sets rules for lending to poor communities. Sandy Weill calls President Clinton in the evening to try to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to get White House moving on the bill or he would shut down the House-Senate conference. Serious negotiations resume, and a deal is announced at 2:45 a.m. on Oct. 22. Whether Weill made any difference in precipitating a deal is unclear.

The Aftermath

With Glass-Steagall out of the way, Sandy Weill had his merger and the American financial industry now had a green light to enlarge on subprime lending. Some followed Weill’s model of consolidating loan and insurance companies as he had done with American Health & Life and Travelers, taking loan sharking to a level those who had engaged in it back when it was done in storefronts with peeling paint could have never imagined.

More money than any organized crime syndicate could have dreamed of flowed into the coffers of the subprime lenders. What had been an activity aimed mainly at people of color now became linked to complex financial instruments such as tranches and derivatives, that to an uninitiated mind resembled nothing so much as the old shell game. Where’s the mortgage? Under this fund? No. guess again. Inner city and suburb which had been separated by redlining became linked by acronyms–MBS, CDOs, CMOs. But as we shall see in the next essay, ripping off people of color would continue.

Postscript: The Revelations of Language

Some reading this essay might object to my linking loan sharking and subprime mortgages, but Sandy Weill from the streets of Brooklyn would get it. Subprime is perhaps one of the most misleading euphemisms ever devised, because it means exactly the opposite of what the term implies. The Investopedia offers a succinct definition:

A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans.

As for loan sharking, a definitive definition is a little more difficult to come by. Investopedia says it is anyone who charges above the legal interest rate (which is set by some states). Several others add that it also involves an implied or real threat to injure the person who doesn’t pay off.  As if to throw a ringer into that definition there are dozens of references to “legal loan sharking.” Perhaps the broadest definition is at Wiktionary:

Someone who lends money at exorbitant rates of interest.

These definitional niceties represent not merely semantic nit-picking, but in fact provide a vital piece to understanding the cultural shifts that have accompanied the economic crisis. One of the unspoken theses in this series of essays is that by clothing loan sharking in the more respectable term of subprime, it suddenly made it not seem so bad to lend money to people–especially people of color–at higher rates. It is reminiscent of the semantic games segregationists used to play with strategies like the “literacy law.” CNN even named “subprime” the word of the year. Can you see them doing that for loan sharking?

In a fascinating article, Ben Zimmer explains how subprime came to have its present meaning, noting that the earliest use of the term was in industry to describe something below grade while in the 1970s banks used it to refer to loans below the market rate.

Something happened to the word in the 1990s, however. Now it was the borrowers themselves who were being classified as “less than prime” based on their shaky credit histories. [My underline]

Zimmer is on to something when he says the term was applied to people, because as we have seen, a high percentage of subprime loans were aimed at people of color.  So the phrase about borrowers being “less than prime” has more meaning than Zimmer perhaps realized when he wrote that sentence.

At the same time that subprime underwent a shift in meaning it is quite clear that so, too, did loan sharking. The earlier references clearly have a criminal tinge to them. In old crime movies “loan sharking” was always thrown in with other nasty activities gangsters perpetrated on the innocent and not so innocent. Yet the recent references seem to take the gangster and the “enforcer” out of the term, so loan sharks just charge higher rates without threatening to break your legs or worse.

This linguistic convergence of loan sharking and subprime reflects an economic and social convergence, for it seems to date from about the time Sandy Weill first bought Commercial. So as Weill took what his own assistant termed a loan sharking operation to the pinnacle of corporate success, the financial industry adopted the euphemism of subprime just as it was getting into this type of lending.

In truth it is the financial industry itself which has helped to blur the distinction between conventional lending at a higher rate and the hardball, card-sharp techniques of the loan shark. That in turn has given rise to a new term “predatory lending” which has largely replaced loan sharking in our vocabulary, creating a living for economists and others who write papers dissecting the differences between the two as if they mattered to those who have to pay exorbitant rates.

As we plunge deeper into the financial crisis, two things are clear: it takes a pretty good lawyer to decipher the standard mortgage agreement and an even better wordsmith to explain if an agreement charging more than the standard interest rate is an innocent subprime mortgage or predatory lending. For me I will continue to use loan sharking with its connotations of shady activity until the financial industry cleans up its act.

Zimmer ends his article by observing:

Here’s hoping that in the not-too-distant future we can look back on the current usage of subprime as a quaint artifact of the late 20th and early 21st centuries.

Twenty years ago the mainstream financial industry would have nothing to do with subprime lending.  Now they are using language much like the defenses of the original loan sharks to defend it, talking about how they are performing a service for people who cannot get loans any other way.

In the next essay we will look at the consequences of the Glass-Steagall repeal, the fall of Sandy Weill and Citigroup, and the growth of so-called subprime lending. Then you can make up your own mind about whether to call it loan sharking or continue to use that other euphemism.

Crossposts:  The Strange Death of Liberal America, My Left Wing, Progressive Historians, The Wild, Wild Left

Did Racism Help Cause the Mortgage Crisis? Part One

I am honored to present the work of Ralph Brauer.  For some time I have marveled as I read his research and reflected upon his work.  Today, this author of note shares with readers at BeThink.  I welcome Ralph Brauer.  May I invite you to peruse his prose.  Please ponder; then share your thoughts.

copyright © 2008 Ralph Brauer. The Strange Death of Liberal America

There is an elephant in the room no one wants to mention when you bring up the housing crisis.  It is the same elephant that has occupied the room since the very beginning of this nation.  Yes, it was there that hot Philadelphia summer when they drafted the Constitution.  Maybe that is what Ben Franklin is gazing at as he sits in the center of the famous painting of the signing of the Constitution by Howard Chandler Christy that hangs today in the House of Representatives east stairway.  Certainly the elephant had haunted Franklin much of his life causing him to call it “a constant butchery of the human species” in an anonymous letter written in 1772.  That elephant that haunted Franklin and continues to haunt us today is racism.

The economic crisis we face today has produced countless essays analyzing its origins and proposing all manner of cures, but almost no one has dared to mention the elephant in the room.  As I researched this topic I found only one person who seemed to be on to it: John Kimble, who wrote an excellent op ed piece in the New Orleans Times Picayune in October that should be required reading for everyone.  One sentence gets to the heart of the matter:

What few today remember is that one of the government’s central goals in undertaking mortgage market reform was to segregate American cities by race.

That such a piece should come from New Orleans does not surprise me; that few have sought to connect what to me seem rather obvious dots is more of a mystery to me.  But that is the power of that elephant in the room.

Perhaps now with an African American President we will finally have more open discussion of the elephant in the room and that discussion should begin by acknowledging that the elephant played a significant role in causing the mortgage crisis which in turn has toppled financial giants as if they were a row of dominoes.  To understand why we need to go back to the years immediately after the Second World War when the housing boom began.

The Creation of the Suburb

The discussion of the role of racism in America should begin by confronting the most important social, cultural and political reality of the past half century: the American suburb is largely a creation of racist loan policies that came from none other than the federal government.  The suburban migration stands as one of the largest freely-undertaken, government-subsidized mass social movements in history.  It accomplished by democratic means what dictators over the ages have tried to accomplish by force: alter the physical, economic, and social environment to create a unique culture.  As Kenneth Jackson writes in Crabgrass Frontier, his history of the American suburb:

Suburbanization was not an historical inevitability created by geography, technology, and culture, but rather the product of government policies.  (p. 293)

Through a variety of government subsidies, the creation of the suburbs allowed people of modest means to attain what real estate ads have christened the American dream.  The immensity of this achievement is only beginning to dawn on us, for it constituted the kind of land and social reform that governments everywhere still try to accomplish.  Kenneth Jackson notes:

Single family housing starts in this country rose from 114,000 in 1944 to 937,000 in 1946, 1,183,000 in 1948, and 1,692,000 in 1950.  (p. 233)

The federal government financed this growth through the Federal Housing Administration, an agency created during the New Deal to help spur the growth of home construction.  During the postwar housing boom Jackson points out:

The main beneficiary of the $119 billion in FHA mortgage insurance issued in the first four decades of FHA operation was suburbia.

Drawing the Color Line

A half century before the creation of suburban America, W.E.B. DuBois had written in the very first sentence of The Souls of Black Folk the immortal and prescient words:

HEREIN lie buried many things which if read with patience may show the strange meaning of being black here at the dawning of the Twentieth Century.  This meaning is not without interest to you, Gentle Reader; for the problem of the Twentieth Century is the problem of the color-line.

Little could DuBois have predicted that the color line would become a red line drawn around the American suburb by none other than the FHA.  The name redlining actually dates back to the 1930s when the FHA first began using color codes to designate areas where they should not invest.  Red areas were off-limits.  Jackson states:

FHA also helped to turn the building industry against the minority and inner-city housing market, and its policies supported the income and racial segregation of suburbia.

Even as the suburbs mushroomed across the American landscape, a few were asking questions.  In 1955 Columbia Professor Charles Abrams charged:

From its inception, the FHA set itself up as protector of the all white neighborhood.  It sent its agents into the field to keep Negroes and other minorities from buying houses in white neighborhoods.  (Jackson, pp. 213-214)

In what has become the classic source on FHA discrimination, The Politics of Exclusion, Michael Danielson quotes an FHA underwriting manual:

If a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes.  A change in social or racial occupancy generally leads to instability and reduction in values.(p. 203)

FHA policies also required appraisers to determine the probability of people of color moving into a neighborhood and even forced homeowners to agree not to sell their property to someone of another race.  According to one commentator,

“[T]he most basic sentiment underlying the FHA’s concern was its fear that property values would decline if a rigid black and white segregation was not maintained.

With the rise of the Civil Rights movement in the 1960s, the FHA began to make some attempt to right these wrongs, but with the election of Richard Nixon in 1968, the so-called “Southern Strategy” soon put a stop these efforts.  Chris Bonastia documented Nixon’s dismantling of FHA’s residential integration efforts in his paper, “Hedging His Bets: Why Nixon Killed HUD’s Desegregation Efforts.” Nixon’s refusal to back HUD’s reform efforts would have an impact on American society that ranks right up there with the decision by President Rutherford B. Hayes to abandon the South to the segregationists, essentially ending Reconstruction.

Yet to see one man and one decision as a historical lynch pin is to take an outmoded view of history, for the truth is that by 1968 the die had already been cast and DuBois’ color line had been drawn like a moat around the suburbs designed to keep people of color from entering. It would have taken considerable political will–and perhaps even federal law enforcement–to desegregate the suburbs by then.  Dr. Martin Luther King, jr.’s infamous march into the Chicago suburb of Cicero, where he was met with bricks and catcalls, showed the depth of that moat. There is a moment in the video of that march when you hear what sounds like a shot and King turns suddenly as if wondering where the shot came from.

This does not excuse Nixon’s actions, which at best were misguided and at worst cowardly and racist. While historians debate how much Richard Nixon personally bought into the Thurmond catechism, his elevation of Thurmond aide Harry Dent to the White House staff after the election sent a clear signal of his alliance with Thurmond. Dent was the one who sat outside the Senate chamber with a pail in case Thurmond needed a quick bathroom break during his record-setting filibuster. Nixon himself put it bluntly:

I am not going to campaign for the black vote at the risk of alienating the suburban vote.

For the federal government to go further than the law, to force integration in the suburbs, I think is unrealistic. I think it will be counter-productive and not in the interest of better race relations. [quoted in Charles M. Lamb, Housing Segregation in Suburban America Since 1960, p. 4, p. 9]

Still, as Lamb would point out in a footnote, two decades later a University of California study found that 44% of white Americans favored encouraging African Americans to move to the suburbs.

The Creation of the Subprime Market

Yet the FHA did not just discriminate against people of color who sought to live in the suburbs, it also made  it more difficult for them to obtain loans, period, by refusing to insure loans in areas with high concentrations of people of color.  The systemic impact of this is still reverberating through America’s inner cities.  Without FHA insurance, no reputable bank would issue a home loan to someone living on the other side of the “color line.” This in turn had a host of social and cultural impacts, from resource-poor schools to lack of jobs because businesses would not build where the FHA would not write loans.

You don’t need to be a systems modeler to see how each of these came to feed on each other. In the last decade scholars have begun to refer to this as “structural racism,” by which they mean a convergence of forces and policies that conspires to sustain the color line. Just imagine one systemic loop: you cannot get a good job because you live in a neighborhood with substandard housing and were educated in a substandard school and so you cannot qualify for a loan for better housing which in turn further reinforces the substandard housing. Structural racism is also not a bad metaphor, either, for it suggests the immense weight of these multiple factors that presses down on people living inside those red lines drawn by the FHA.

Where legitimate businesses and institutions are prevented from entering, illegitimate ones will grow. Since regular banks would not lend to people of color in inner city neighborhoods and FHA policies kept them from lending to the few people of color who could afford suburban housing, there obviously was a need for someone to supply these loans and so we have the growth of the so-called subprime market, only back in those days they were known as loan sharks and other unprintable words and had reputation to rival check cashing operations, greedy landlords and take and bake furniture renters. Anyone who has grown up in the inner city can tell stories not only about price-gouging home loans, but high-priced loans for everything from cars to buying furniture or clothes on credit.

What Is Subprime Lending

Subprime lending is a mixture of old-fashioned altruism and blatant thievery with an American twist. Some entered into the business of making loans to people of color because they genuinely believed people deserved an equal opportunity, others saw a chance to make a quick buck. The reality of the situation was that without FHA insurance even the most well-meaning lenders still had to charge more than they would have for a white suburban home-buyer.

A 2003 study for the Lawyers Committee on Civil Rights Under Law reported:

While red-lining has served to exclude poor and minority residents from the benefits of mainstream mortgage lending, purveyors of predatory lending (or so-called “reverse red-lining”) practices have targeted many of the same poor and minority households that traditional lending institutions have ignored or excluded.

In testimony before the House Committee on Banking and Financial Services in 2000 Bill Brennan of the Atlanta Legal Aid Society outlined how subprime lending works for lenders:

Here is what these companies do, the predators. They overcharge on interest and points, they charge egregiously high annual interest and prepaid finance charges, points, which are not justified by the risk involved, because these loans are collateralized by valuable real estate.

Since they usually only lend at 70 to 80 percent loan-to-value ratios, they have a 20 to 30 percent cushion to protect them if they have to foreclose. They usually always buy at the foreclosure sale and pay off the debt and sell the house for a profit.

As for those taking out the loans, Gary Gensler, Undersecretary for Domestic Finance at the treasury Department, told the same Committee:

Borrowers in these markets often have limited access to mainstream financial services. This leads to two things, as the Senator said earlier. Some borrowers who really would qualify for prime loans-we estimate anywhere between 15 and 35 percent of the subprime market could qualify for prime and cannot get that prime loan. Second, the rate and term competition is limited. Subprime lenders don’t tend to compete as much on price.

Beyond preying on vulnerable populations, beyond the limited access to mainstream financial services, is that abusive practices tend to be coupled with high-pressure sales tactics, whether by a mortgage broker, a home improvement contractor, sometimes a lender themselves in the local community.

Perhaps the most extensive and longest longitudinal study of predatory lending practices has been the Woodstock Institute’s periodic reports on Chicago.  It’s 1999 report “Two Steps Back” was among the earliest to blow the whistle on predatory lending.  They found:

Documented cases of abuse include fees exceeding 10 percent of the loan amount, payments structured so that they do not even cover interest (resulting in increasing principle balances), and flipping a loan numerous times in a couple of years.

At the same time, lending to lower-income and minority communities is often viewed as an isolated line of business, in which the focus is on the short term transaction and associated fees. Lenders active in such communities tend to be mortgage and finance companies subject to much less regulation than banks and thrifts. The increased scale of the subprime industry itself has resulted in a larger number of abuses. Moreover, there has not been a proportionate increase in regulation or regulatory resources devoted to this new industry.

As usual, graphs and tables tell the story in black and white:





The date on the graph may be a little difficult to see. It is 1998. On the first table, the percentage of subprime loans going to African American communities is 53%. Only 9% went to predominantly white communities. The Woodstock study went on to deal with the obvious question: is it race or income that is the strongest determinant of who receives a subprime loan? They found it was the former:

Thus, whether a neighborhood is predominantly African-American explains the greatest amount of variation in subprime lending,

The Final Results

In 1997 Bill Brennan could tell the New York Times:

We have financial apartheid in our country. We have low-income, often minority borrowers,  who are charged unconscionably high interest rates, either directly or indirectly through the cover of added charges.

Three years later Census data would confirm Brennan’s charge. The Lawyers Committee on Civil Rights Under Law found:

The typical white person lives in a neighborhood that is overwhelmingly white, with a few minorities (80.2% white, 6.7% African American, 7.9% Hispanic American, and 3.9% Asian American), the typical African American lives in a neighborhood that is mostly black (51.4% black, 33.0% white, 11.4% Hispanic American, and 3.3% Asian American). By comparison, the typical Hispanic American lives in a neighborhood that is more evenly Hispanic American and white (45.5% Hispanic, 36.5% white, 10.8% black, and 5.9% Asian American); and the typical Asian American lives in a neighborhood that is mostly white (17.9% Asian American, 54% white, 9.2%  black, and 17.4% Hispanic American).

In a study released this year by United for a Fair Economy, the authors note:

According to federal data, people of color are more than three times more likely to have subprime loans: high-cost loans account for 55% of loans to Blacks, but only 17% of loans to Whites.

This is a decade after the Woodstock study identified a similar pattern in Chicago.

Reflections

This history makes you wonder what kind of country we might have become had racism not pervaded the home mortgage market. The United for a Fair Economy study puts it eloquently:

While the housing crisis has affected all sectors of society, it has disproportionately affected communities and individuals of color. For them, the dream that Martin Luther King, Jr. once spoke of has been foreclosed.

Now the injustices white America heaped on black America for half a century have come home to roost. The sobering thought to ponder is that what you have read so far is merely the very tip of a rather large iceberg, for there are literally dozens and dozens of books and countless articles on racism and housing. If you enter “racism” and “housing” in Google you will find over four million entries. Yet despite over half a century of studies, reports and papers about discriminatory lending, little was done about it.

The most damning piece of evidence in this entire story is not that racism fostered predatory loans, but that like organized crime going from petty bootleggers and drug dealers to big time operators, the practice of predatory loan sharking expanded and went mainstream– moving from being the providence of small-time shady operators to mainstream banks. Essentially, loan-sharking cast off its sleazy past and the bigger it became the more people looked the other way.

That is until it suddenly threatens to take down the entire American economy. Now like the figures in that painting of Constitution Hall, fingers are pointing and people are staring.

If racism played a big role in creating the mortgage crisis, the solution to our current problems will prove tougher to deal with than what the so-called experts have been telling us. We could be witnessing the fourth American revolution. The first was the war for independence, the second the Civil War, the third the Great Depression and now the present crisis which combines the themes of the previous two–race and economics.

The next essay in this series focuses on how we got here and why, for only by understanding that journey can we see a way out of the current morass. What is clear so far is that this crisis is not merely the fault of a few misguided CEOs, but rather the culmination of decades of discrimination in which all of us are culpable.

Now the time has come to stop pretending there is no elephant in the room and deal with it.

Resources

For a good bibliography on the subject click here.

Crossposts: The Strange Death of Liberal America, My Left Wing, Progressive Historians, The Wild, Wild Left

The Reality of Recession, Depression, Dollars, and No Sense

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copyright © 2008 Betsy L. Angert

He is ninety years young.  Born in 1918, Alexander recalls the Great Depression.  He understands why some thought the Bush Forty-One years were worse than the days after the crash in 1929, although no one ever admitted to that.  Now, near two decades later, denial of economic despair remains intact.  Alex wonders if only history paints a truer picture.  Possibly, when he was but a boy, people did not accept that the crash was the big one.  In retrospect do we realize . . . Alex wonders aloud; for in recent months, each evening he dreams of realities that were during what was defined as the most dramatic, worldwide economic downturn.

As an adult, perchance, life looks different.  Alex remembers back in the day of George Herbert Walker Bush the economy crawled.  Records showed an annual growth rate of a mere one percent (1%).  Unemployment steadily rose.  Homelessness was prevalent.  While Americans experienced an economic crisis, former President Bush remained resolute.  He promised to be fiscally prudent   Miser Bush’s commitment  to caution served colossal corporations and affluent stockholders well  Alexander, was among the latter.  He appreciated the cautious demeanor of a President dedicated to business.  For Alex and others invested in the market economy under Bush 41, life was good.  

Today, however, with Bush 43 in the White House, Alex worries.  He reads the newspaper, and realizes how unsettled he feels.  The current President declares the State of the Union is strong,  The stimulus package  has helped to fuel fiscal stability.  Americans need not fret.  Yet, Alexander does.  Words printed on a page in a noted periodical do not reassure this long time investor.  As a citizen, Alexander is not confident that all is well.  He believes a crisis is imminent.  In truth, Alex thinks America, is already immersed in a financial free fall.

This life-long investor sees the price of stocks plummet,  The Dow Jones Industrial Average slips daily.  Alex muses of how the current President tells him the economy is strong.  Alexander is no longer elated by a bump in returns.  Nor is he reassured when the President or his people tell the nation there is no inflation.  A quick glance at the front page of any day’s newspapers tells Alex we are already in a recession, or worse.

Woes Afflicting Mortgage Giants Raise Loan Rates, Losses Mount, and Airlines Plan Steeper Spending Cuts.  Mortgage Crisis Reverses Tide of Urban Renewal.  Yet, none disturbed  Alex, or perhaps made more sense to him than the article that appeared on July 23, 2008, Bank Investors Redefine Bad News.

Can the bad news for banks get any worse?

After the last week brought another round of woeful quarterly results from the industry, capped by news on Tuesday of multibillion-dollar losses at the Wachovia Corporation and Washington Mutual, that question is nagging banking executives and their investors.

Kenneth D. Lewis, the chief executive of Bank of America, insisted this week that the industry was turning the corner, after his company reported a mere 41 percent drop in profit.  Many investors seem to see signs of hope in red ink that once would have shocked them.

Alexander sighed.  He thought of how, terms are given new meaning,  Money lost can be considered a gain.  Alex marveled.  As a shareholder, the frequent depositor is well aware of how psychology moves a market.  He also comprehends the role of reverse psychology.  Nonetheless, when a deficit, huge, and unprecedented becomes a expansion, the way financial institutions use words seems ridiculous.

But it has now been a year since the credit crisis erupted, and, so far, the optimists have been proven wrong time and again.  Skeptics say it could take years for banks to recover from the worst financial crisis since the Depression.  And even when things do improve, the pessimists maintain, banks’ profits will be a fraction of what they were before.

There are many reasons for caution.  Home prices continue to decline, and defaults are accelerating on a wide range of loans.  As lenders struggle, loans are becoming even more scarce for hard-pressed consumers and companies.  That, in turn, could slow any recovery in the broader economy.

For now, at least, some investors seem to have become so inured to the bad news that results that would have once been viewed as disastrous are now seen as good, or even great.  The sober phrase often used on Wall Street to describe solid corporate results – “better than expected” – has been replaced by “not as bad as feared.”

Not as bad or indeed worse.  As Alex pondered the news in the paper, as he assessed his own portfolio, the reveries flowed as a quickly as water in a river might.  Thoughts of his youth flash through his mind.  Alexander could not forget the bank crashes, the limited amounts of cash on hand, the confusion, and all the troubles a lack of currency caused.  One phrase from today’s paper rolled around in his head.

“We are resetting expectations for bank profitability, and we are re-exploring what our expectations should be going forward,” said Christopher Whalen, managing partner of Institutional Risk Analytics.  “We are redefining bad.”

Still and reflective, Alexander contemplated what he thought awful as a child.  Once prominent professionals, are now beggars on the street.  Factory doors bolted shut.  Suicides, or talk of hopelessness, and helplessness, in a society once gleeful have become normal.  Alex reflected on the realization he had in his youth.  He understood the more things change the more they stay the same.  

When Alex was a young man, people believed, in America, the avenues were paved in gold.  They were not.  Filth filled each boulevard.  Today, in the land of milk, honey, and opportunity, the same is true.  Roads are riddled with words that paint a picture of prosperity.  Yet, on Wall Street and Main Street, in 2008, people suffer.  The public is economically and perhaps emotionally down in the dumps and dejected.  Financially people are low on funds; feelings are lower.  Citizens in this “affluent” country have few real resources.  Indeed, recent reports state, Most Americans will outlive savings. Alexander knows this to be true.  He has watched as many of his friends turned from prosperous to paupers.  This ninety-year young man, with his pulse on the market muses.  The people are as the economy and still no one is willing to say we are beyond a Recession; we are in a Depression.

Sources for Documentation on Dollars and No Sense . . .

Issue Number One; Economic Insecurity Breeds Bigotry, Bias and Bitterness



Fear Itself

copyright © 2008 Betsy L. Angert

He was a beautiful bouncing baby boy.  He was born to two parents that love him dearly.  Even before his birth, indeed, prior to conception, this little fellow was the apple of his parent’s eyes.  His biological beginning was carefully calculated.  As the seeds of life developed into a bright-eyed baby, the people he now knows as Mom and Dad thought of little else but Maxwell.  The soon to be proud Papa and Momma anxiously anticipated the day they could hold this bundle of joy.  Each of his parents was eager to meet and greet the small, sweet face of the guy that they would call Max.  Maximum value, supreme significance, marvelously magnificent, all this was and would be their son.  After Max was delivered and during any political season, such as this, Mom and Dad feel certain Max is issue number one.

The guardians look over their angel.  They plan for his future, and they are apprehensive, just as their parents and grandparents were before them.  For generations the realities of daily life have shaped parental priorities.  First and foremost, families want to survive, to feel safe and secure.  Yet, much that accounts for stability is beyond the control of a parent or any single person.  Moms and Dads agonize, as do all individuals.  Economic, educational, environmental concerns have an effect on caregivers and all citizens.  Military engagements also affect households, even if only one lives within the domicile.  Mothers, fathers, and babies, boys or girls learn to fear.

Ultimately, in the course of a life, each individual will ask, how does any matter affect me, my family, and friends of mine?  Countless citizens sense we have loss the sense that within a society, each individual works for the commonweal.  The words of Thomas Paine On the Origin and Design of Government in General are principles from the past.  In America today, the common folk feel they can no longer trust the government.  In recent years, people profess too many promises were broken; lies were told.  Intelligence was not wise.  Still, Americans sense there is an enemy.

In the minds of most Americans, the foe exists outside self.  Few have fully internalized the truth of the words uttered by Franklin Delano Roosevelt, “The only thing we have to fear is fear itself.”  As people do, citizens in this country trust themselves.  People know their faith will guide them.  The Almighty will not disappoint them.  Proud of their personal strength and all they survived throughout the course of their lives, the American public, no matter their economic station believes their family will be fine.  All Americans trust in their ability to fight the opposition.  Residents in the United States are not afraid to take up arms if they need to protect themselves from evil forces.

Nevertheless, Americans are “bitter.”  People in the cities, the suburbs, and in the countryside, resent the precarious position their leaders have placed them in.  In the “Land of the free and home of the brave” the public is “looking for strong leadership from Washington.”  Individuals and communities recognize they cannot go it alone.  Sadly, those previously entrusted with Executive privileges have not served the common folk within the United States well.  Citizens have expressed their ample concern for quite a while and no one seems to hear the cries.  While some of the Presidential aspirants wish to believe Americans are not indignant . . .

Poll: 80% of Americans Dissatisfied

By Associate Press.

Time Magazine

April 4, 2008

(New York) – More than 80 percent of Americans believe the country is headed in the wrong direction, the highest such number since the early 1990s, according to a new survey.

The CBS News-New York Times poll released Thursday showed 81 percent of respondents said they believed “things have pretty seriously gotten off on the wrong track.”  That was up from 69 percent a year ago, and 35 percent in early 2002.

The survey comes as housing turmoil has rocked Wall Street amid an economic downturn.  The economy has surpassed the war in Iraq as the dominating issue of the U.S. presidential race, and there is now nearly a national consensus that the United States faces significant problems, the poll found.

A majority of Democrats and Republicans, men and women, residents of cities and rural areas, college graduates and those who finished only high school say the United States is headed in the wrong direction, according to the survey, which was published on The New York Times’ Web site.

Seventy-eight percent of respondents said the country was worse off than five years ago; just 4 percent said it was doing better . . .

The poll also found that Americans blame government officials for the housing crisis more than banks or homebuyers and other borrowers. Forty percent of respondents said regulators were mostly to blame, while 28 percent named lenders and 14 percent named borrowers.

Americans favored help for people but not for financial institutions in assessing possible responses to the mortgage crisis.  A clear majority said they did not want the government to lend a hand to banks, even if the measures would help limit the depth of a recession.

Intellectually astute, each individual understands to his or her core, a country must work well as a whole.  If we act independently of others, with little regard for those who reside in our nation, we all will realize a reason to feel insecure.  No family can survive alone. Maxwell’s parents can plan and work to provide, but if the country suffers from a crisis, be it fiscal, a protracted feud, the cost of food, or fuel, the family will also find themselves in situation critical.

In a society, we are our neighbors’ keeper, for what affects those in adjacent abodes will influence us.  If one person is poor, so too is his brother.

The tenet is true in the abstract; it is also viable concretely.  We need only consider what occurs when one domicile on the block is in disrepair or foreclosure flourishes in an enclave.  Property values for all homes in the area plummet.  A family functions best as a unit.  A nation fares well when we are one.

Our most conservative estimates indicate that each conventional foreclosure within an eighth of a mile (essentially a city block) of a single-family home results in a 0.9 percent decline in value.  Cumulatively, this means that, for the entire city of Chicago, the 3,750 foreclosures in 1997 and 1998 are estimated to reduce nearby property values by more than $598 million, for an average cumulative single-family property value effect of $159,000 per foreclosure. This does not include effects on the values of condominiums, larger multifamily rental properties, and commercial buildings.

Less conservative estimates suggest that each conventional foreclosure within an eighth of a mile of a property results in a 1.136 percent decline in that property’s value and that each foreclosure from one-eighth to one-quarter mile away results in a 0.325 percent decline in value.  This less conservative finding corresponds to a city-wide loss in single-family property values of just over $1.39 billion. This corresponds to an average cumulative property value effect of more than $371,000 per foreclosure

In 2008, this consideration consumes millions of persons who thought they were safe and secure.  As the subprime debacle ripples through every community, people realize their very survival is at risk.  Everyone, even some of the elite now experience a profound sense of insecurity.  Again, people ask who or what might they trust.  The average American has faith only in what is familiar.  Max, Mom, and Dad, families turn to what is tried and true.  Whatever has protected them in the past, they hope, will save them from what is an uncertain future.

Certainly, people have no confidence in government.  Many are frustrated.  They resent those who placed them in such a precarious situation.  Mothers, fathers, sons such as Max, and daughters are reminded, without regulations only the few profit.  Dreams die.  Witness the subprime debacle.

Mortgage companies and banks, such as Wells Fargo, have twisted the average prime mortgage loan into something much more incapable of paying by the recipient, but profitable to the company. Subprime loans, as “adjustable rate mortgages,” are packed with deceiving modifications that have low “teaser” rates that expand in interest exponentially after an initial low pay period.  Families that have received Subprime loans have bit into a bitter center of the sugar-coated American dream.

Citizens in this once prosperous country wonder whether they will ever again be able to trust that they can aspire to greater heights.  Homes are no longer worth what they were at the time of purchase.  Payments on adjusted rate mortgages [ARM] are exorbitant and balloon expenditures are now due.  Americans feel pinched.  Businesses are also affected by a slowed economy and bad investments.  Bankruptcy is an option, although brutal.  As the cost of fuel and food rises, financial fears become more real.  Existence takes a toll.  As Americans assess the circumstances within their home region, they realize there is reason to hold on tightly to what they know and love.  

Perchance G-d and country are all citizens can believe in, and maybe there is no longer reason to believe either of these will save them.  Certainly, Administrations in the recent past and present have not protected us well.  After all, our Presidents, Congress, and the Federal Reserve were responsible for the Demise of Glass-Steagall Act.  This law once regulated banks and limited the conflicts of interest created when commercial depositories were permitted to underwrite stocks or bonds.  Without such oversight, Americans lost their security.  Survival no longer seems possible.  The American Dream is a nightmare.

The Next Slum?

By Christopher B. Leinberger

Atlantic Monthly

March 2008

Strange days are upon the residents of many a suburban cul-de-sac. Once-tidy yards have become overgrown, as the houses, they front have gone vacant. Signs of physical and social disorder are spreading.

At Windy Ridge, a recently built starter-home development seven miles northwest of Charlotte, North Carolina, 81 of the community’s 132 small, vinyl-sided houses were in foreclosure as of late last year. Vandals have kicked in doors and stripped the copper wire from vacant houses; drug users and homeless people have furtively moved in.  In December, after a stray bullet blasted through her son’s bedroom and into her own, Laurie Talbot, who’d moved to Windy Ridge from New York in 2005, told The Charlotte Observer, “I thought I’d bought a home in Pleasantville.  I never imagined in my wildest dreams that stuff like this would happen.”

In the Franklin Reserve neighborhood of Elk Grove, California, south of Sacramento, the houses are nicer than those at Windy Ridge-many once sold for well over $500,000-but the phenomenon is the same.  At the height of the boom, 10,000 new homes were built there in just four years. Now many are empty; renters of dubious character occupy others.  Graffiti, broken windows, and other markers of decay have multiplied.  Susan McDonald, president of the local residents’ association and an executive at a local bank, told the Associated Press, “There’s been gang activity.  Things have really been changing, the last few years.”

In the first half of last year, residential burglaries rose by 35 percent and robberies by 58 percent in suburban Lee County, Florida, where one in four houses stands empty. Charlotte’s crime rates have stayed flat overall in recent years-but from 2003 to 2006, in the 10 suburbs of the city that have experienced the highest foreclosure rates, crime rose 33 percent. Civic organizations in some suburbs have begun to mow the lawns around empty houses to keep up the appearance of stability. Police departments are mapping foreclosures in an effort to identify emerging criminal hot spots.

The decline of places like Windy Ridge and Franklin Reserve is usually attributed to the subprime-mortgage crisis, with its wave of foreclosures.  And the crisis has indeed catalyzed or intensified social problems in many communities. But the story of vacant suburban homes and declining suburban neighborhoods did not begin with the crisis, and will not end with it. A structural change is under way in the housing market-a major shift in the way many Americans want to live and work.  It has shaped the current downturn, steering some of the worst problems away from the cities and toward the suburban fringes.  And its effects will be felt more strongly, and more broadly, as the years pass. Its ultimate impact on the suburbs, and the cities, will be profound.

Perchance, more weighty than the influence of a social degradation on a community is the impression such dire circumstances leave on a little lad such as Maxwell. Young Max will learn, just as his parents had.  Likely, he too will come to believe that he can only depend on himself.  An older and wiser Max will not fully grasp how extraordinary he is, or perhaps he will know all to well that no matter how glorious he is, someone might jeopardize his stability.  No matter how well he lives his life, another force, power, person, or authority might cause his dreams to go awry.  

Maxwell sees how hard life is for his parents.  He comes to understand that he too will always and forever, need to prove his worth.  How else might he hold onto his job, his home, his money, or his sense of self?  For Maxwell, as for us, anyone, innocent as they may be, might seem a threat.  His Mom and Dad, fearful that they might lose their livelihood, health care benefits, the family home, and their ability to provide, let alone survive, teach their young son trepidation.

Mom and Dad look around the neighborhood and they see society is shifting.  People of other races, colors, and creeds are destined to overtake the white majority.  This can be nothing but trouble, or so they think.  Maxwell trusts this sentiment to be true.  The parents wonder; might immigration and  Free Trade deprive them of their life style?  In the United States, Anglo Americans react more to what they muse might be so.  However, ample evidence affirms the contrary.  A 2006 study, by the Pew Hispanic Center avows, the sudden rise in the foreign-born population does not negatively effect the employment of native-born workers.

Growth in the Foreign-Born Workforce and Employment of the Native Born

By Rakesh Kochhar, Associate Director for Research

Pew Hispanic Center

August 10, 2006

Rapid increases in the foreign-born population at the state level are not associated with negative effects on the employment of native-born workers, according to a study by the Pew Hispanic Center that examines data during the boom years of the 1990s and the downturn and recovery since 2000.

An analysis of the relationship between growth in the foreign-born population and the employment outcomes of native-born workers revealed wide variations across the 50 states and the District of Columbia. No consistent pattern emerges to show that native-born workers suffered or benefited from increased numbers of foreign-born workers . . .

The size of the foreign-born workforce is also unrelated to the employment prospects for native-born workers.  The relative youth and low levels of education among foreign workers also appear to have no bearing on the employment outcomes of native-born workers of similar schooling and age.

Nevertheless, people continue to fear what is less than familiar.  Maxwell’s mother and father often speak of the immigrants.  The words voiced are unkind.  Assessments often are unrealistic.  In this country, on this globe, our apprehensions, our insecurity, the fear that we might not survive divides us.  Self-surety is issue number one.  

When individuals do not feel as though all is fine, when distressed, emotional reactions may be exaggerated. Many persons prefer to deny that they feel distraught.  The press, the powerful, and persons who wish to be more prominent understand this.  Each is expert in the art of persuasion.  Tell us that we are doing well, that we are strong, that they will help bring certainty, security, and safety to our lives, and to our country, and we will croon along with them.

Anxious Americans, at home and abroad, such as the parents of young Maxwell attack.  Anyone can be considered the enemy.  Bankers, big business, bureaucrats, billionaire oil magnates, migrants, and of course, mutineers of Middle Eastern descent.  Our fellow citizens are easily terrorized, if not by the persons who they think might destroy the neighborhood, or take their job, the people who crashed a plane into the Twin Towers must be a target.  Since September 11, 2001, Maxwell parents have thought it wise to protect United States shores.

Some Americans say we must stay the course in Iraq and Afghanistan.  These persons may fear terrorists from the Persian Gulf.  There is great consternation when people do not think they are physically safe.  

Citizens feel a greater concern when they discover the reasons we went to war are invalid.  Again, the people in this country recognize the adversary is the American Administration.  Lie by lie, the Iraq War Timeline reveals greater reason for antipathy.

Those who cite security and survival as the primary concern proclaim, “It is the economy.”  They say, this is the number one issue Americans must address.  Too many persons, today, cannot even live paycheck to paycheck.  Disposable income, discretionary spending, savings to fall back on are luxuries of the past.  People dream of the cushion they hope to create.  Yet, in the back of their minds, they fear.  Again,  foreclosures are in the forefront in people’s minds.  Many are mired in debt.  In February 2008, another sixty percent (60%) of Americans concluded they could no longer pay the mortgage.  Mortgage Woes Boost Credit Card Debt. Balances on charge cards cannot be reconciled.

Plastic Card Tricks

The New York Times

March 29, 2008

Americans are struggling with a very rocky economy while they are also holding almost $1 trillion in credit card debt. In most cases, those cards provide a little flexibility with the monthly bills. But an increasing number of people are defaulting because of the “tricks and traps” – soaring interest rates and hidden fees – in the credit card business.

Before more Americans get in so deep that they cannot dig out, Washington needs to change the way these companies do business to ensure that consumers are treated fairly.

The stories about deceptive practices are harrowing. At a recent news briefing in Washington, a Chicago man told about what happened when he charged a $12,000 home repair bill in 2000 on a card with an introductory interest rate of 4.25 percent. Despite his steady, on-time payments, the rate is now nearly 25 percent. And despite paying at least $15,360, he said that he had only paid off about $800 of his original debt.

Once more Americans are confronted with what causes great bitterness.  No one, not Congress, the companies that lend citizens cash, the corporate tycoons, or candidates can imagine why Americans might be bitter. None of these entities care enough to help the average Joe, Jane, Maxwell, or his parents.

Why might inhabitants in this Northern continent be cynical, or feel a need to cling to religion, weapons, or hostility.  Perhaps, these sanctuaries feel  more tangible.  Faith, as an arsenal, and anger too, are at least more affordable than other options.

Petroleum prices are also an issue of import.  Citizens cry, I now work for fuel.  Only four short month ago, oil hit $100 a barrel for the first time ever.  The rate charged for petroleum continues to climb.  Now the expense exceeds what was once unimaginable. The cost of crude is the cause.  The effect is, Mommy and Daddy do not drive much anymore.  Each trip is evaluated.  Carpools are common considerations.  Vacations are not thought vital.  Parents who had hoped to show Max the seashore this summer cannot keep the promise they made to themselves and their progeny.  Plans did not prove to be predictions.

In 2008, the inconceivable is classified as inevitable.  Scientists share a stingy assessment.  The environment is no longer stable.  Nor are our lives on the planet Earth.  We, worldwide, have passed the point of no return.  Globally, groups and individuals pooh-pooh this determination.  For them, immediate concerns take precedence over the future.  

The question we all inevitably ask, even if not expressed aloud, is, “Will I continue to exist?”  If so, “Will my family and I be comfortable?”  The answers shade our sense of what is right or wrong.  Maxwell hears his Mom and Dad speak of free trade.  This is another hazard that haunts them.

The link between economic integration and worker insecurity is also an essential element of explanations for patterns of public opposition to policies aimed at further liberalization of international trade, immigration, and foreign direct investment (FDI) in advanced economies. Economic insecurity may contribute to the backlash against globalization in at least two ways.  First is a direct effect in which individuals that perceive globalization to be contributing to their own economic insecurity are much more likely to develop policy attitudes against economic integration.

Second, if globalization limits the capacities of governments to provide social insurance, or is perceived to do so, then individuals may worry further about globalization and this effect is likely to be magnified if labor-market risks are heightened by global integration.

It seems every issue intimidates us.  Each challenges the security we crave.  All beckon us and cause us to question whether we, Maxwell, or his parents will survive.  Our serious fears force us to believe we must separate ourselves from others, from our brothers and sisters.  In an earlier speech, echoing the words of Franklin Roosevelt, the eloquent Barack Obama spoke of this situation and how our own anxiety harms us.[ The Presidential hopeful offered solutions.

[W]e need to come together to solve a set of monumental problems – two wars, a terrorist threat, a falling economy, a chronic health care crisis and potentially devastating climate change; problems that are neither black or white or Latino or Asian, but rather problems that confront us all . . .

Understanding this reality requires a reminder of how we arrived at this point. As William Faulkner once wrote, “The past isn’t dead and buried. In fact, it isn’t even past.”  We do not need to recite here the history of racial [or economic] injustice in this country. But we do need to remind ourselves that so many of the disparities that exist in the [any] community today can be directly traced to inequalities passed on from an earlier generation that suffered  . . .

Legalized discrimination . . . That history helps explain the wealth and income gap  . . . and the concentrated pockets of poverty that persists in so many of today’s urban and rural communities.

A lack of economic opportunity  . . . and the shame and frustration that came from not being able to provide for one’s family, contributed to the erosion of [all] families – a problem that welfare policies for many years may have worsened. And the lack of basic services in so many urban [and now with “no new taxes” suburban] neighborhoods – parks for kids to play in, police walking the beat, regular garbage pick-up and building code enforcement – all helped create a cycle of violence, blight and neglect that continue to haunt us.

Potential President Obama understands and hopes to help all American realize that we are one.  While this vocalization was meant to focus on the more obvious rift between the races, the Senator from Illinois, the community organizer, attempted to advance awareness for what troubles Americans as a whole.

In fact, a similar anger exists within [all] segments of the  . . . community. Most working- and middle-class white Americans don’t feel that they have been particularly privileged by their race. Their experience is the immigrant experience – as far as they’re concerned, no one’s handed them anything, they’ve built it from scratch.  They’ve worked hard all their lives, many times only to see their jobs shipped overseas or their pension dumped after a lifetime of labor.  They are anxious about their futures, and feel their dreams slipping away; in an era of stagnant wages and global competition, opportunity comes to be seen as a zero sum game, in which your dreams come at my expense . . ..

Americans, no matter the color or circumstances might contemplate that anger is “often proved counterproductive” as are resentments.  These attitudes distract attention and widen any divide.  If Americans are to find a path to understanding, we must accept that our insecurity, our fears need not distract us.  We will survive if we work as one.

This time we want to talk about the crumbling schools that are stealing the future of [any child] black children and white children and Asian children and Hispanic children and Native American children. This time we want to reject the cynicism that tells us that these kids can’t learn; that those kids who don’t look like us are somebody else’s problem.  The children of America are not those kids, they are our kids, and we will not let them fall behind in a 21st century economy . . ..

This time we want to talk about how the lines in the Emergency Room are filled with whites and blacks and Hispanics [poor and those the government classifies as affluent] who do not have health care; who don’t have the power on their own to overcome the special interests in Washington, but who can take them on if we do it together.

This time we want to talk about the shuttered mills that once provided a decent life for men and women of every race, and the homes for sale that once belonged to Americans from every religion, every region, every walk of life.  This time we want to talk about the fact that the real problem is not that someone who doesn’t look like you might take your job; it’s that the corporation you work for will ship it overseas for nothing more than a profit.

This time we want to talk about the men and women of every color and creed who serve together, and fight together, and bleed together under the same proud flag.  We want to talk about how to bring them home from a war that never should’ve been authorized and never should’ve been waged, and we want to talk about how we’ll show our patriotism by caring for them, and their families, and giving them the benefits they have earned.

Today, we must be honest with ourselves.  We can admit that we are incensed, irritated, infuriated, and irate.  These feelings do not immobilize us.  Nor do we necessarily need to fight, and be combative.  It is time we teach Maxwell and also Maxine, distress can inspire us to dream the of impossible and make it our truth.  We, Americans can rise above our bitterness and build bridges to a fine future if we unite.

It is not elitist to speak truth.  It is ignorance and obfuscation to deny how we feel and what we fear.  We cannot change what we do not acknowledge.  Elusion will not bring bliss.  We may be insecure; we may question whether we can survive.  Indeed, if we act as we have in the past, if we focus on our faith and antipathy, there will be no reason to hope.  Americans, divisions have distracted us for too long.  To negate our natural response is to restrict our growth.  This time citizens of the United States, let us come together.  Bitterness can become sweet.

Sources of insecurity.  Resources for survival . . .

Once Upon A Time In Old America

copyright © 2007 Judith Moriarty

We are living in a state of selective amnesia or fearful denial? 

“The easy credit which created the subprime  crisis in mortgage lending has now spread to the hedge fund industry.  The troubles at Bear Stearns prove that Secretary of the Treasury Henry Paulson’s assurance that the problem is ‘contained’ is pure baloney.  The contagion is swiftly moving through the entire system taking down homeowners, mortgage lenders, banks, rating agencies, and hedge funds.  We are just at the beginning of a system-wide breakdown.” . . .

“To a large extent, the housing bubble has concealed the systematic destruction of America’s industrial and manufacturing base.  Low interest rates have lulled the public to sleep while the rise in housing prices has created the millions of high paying jobs have been outsourced.  The rise in housing prices has created the illusion of prosperity but, in truth, we are only selling houses to each other and are not making anything that the rest of the world wants.  The $11 trillion dollars that was pumped into the real estate market is probably the greatest waste of capital investment in the nations history.  It hasn’t produced a single asset that will add to our collective wealth or industrial competitiveness.” . . .

“The Federal Reserve produces all the fact and figure related to the housing industry.  They knew that trillions of dollars were being diverted into a speculative bubble, but they did NOTHING to stop it.  Now the effects of their ‘cheap money’ policies have spread to the hedge fund industry where hundreds of billions of dollars in pensions and savings are in jeopardy.”

It is advised that citizens (those involved in loans – investments – etc, in local communities), come into the 21st century and get a grasp of the serious implications: 

  • Another Great Depression? The Fed’s Role in the Bear Stearns Hedge Funds Meltdown. By Mike Whitney.  Global research.org. July 1, 2007

    While we are kept dutifully distracted with the drunken antics of Hollywood airheads, breaking news of OJ, and his merry band of thieves, hours of TV media coverage of sexual predators, or Lockup shows of our ‘prison industry’ – millions across the nation are losing their jobs and their homes.

    In case some of the opinion that government will ride to the rescue and retrain former auto workers, textile employees, paper mill/ steel/manufacturing workers, etc, for those high end technological or positions in the health field – get a grip!

    Thousands upon thousands are graduating from college unable to find jobs!  No 50-60 old worker who has worked for decades in a paper mill, or steel plant, is going to compete with those educated in the best of colleges in their early twenties!  Let’s get real.  Besides, we now have hundreds of thousands of professional guest workers (Democrats and Republicans support), being imported to replace Americans, at a third of the salary, no benefits, no pensions, and no job security.  Prison labor is being used by other corporate interests!  Besides, President Bush, who never held a real job in his life (before the Presidency or government position), has cut funds for job retraining: 

  • The Bush Budget:  The Bush Administration’s FY 2007 Budget.  AFL-CIO, American Federation of Labor – Congress of Industrial Organizations.

    President Bush, and career politicians, don’t have to care or relate to their employers (US Taxpayer).  They get lucrative salaries, yearly cost of living raises, and full health coverage (we pay 72% of their premiums).  Their pensions also see yearly cost of living raises!  No severance packages here, of a few weeks pay, no matter how miserable their job performance, or felony convictions.

    Note, when a politician comes down with some health issue, they receive immediate care at the best of hospitals.  No drone in a far away cubicle informs their physician that such and such a procedure is not covered.  They are not advised to become destitute, having no assets, before they can receive medical care!  They don’t die ignored, on the floor of an emergency room (Los Angeles), of a ruptured bowel, with medical staff fully aware!

    Coming home from war, they are not one of the 192,000 veterans left homeless, having to prove their disability.  Note how convenient the troops are for photo ops (in spiffy uniforms amidst flags) going off to war.  You’ll not see politicians posing with brain damaged/blind/faceless/ veterans, advising, “Be all you can be etc.”  You’ll not see presidential candidates shaking hands; with those living under bridges, in abandoned cars, or crowded shelters!  You haven’t seen politicians (whatever the party) addressing the bureaucratic nightmare of today’s medical debacle; written, by the pharmaceuticals, insurance, and HMO interests.  Both parties continue to vote malignant trade agreements, for the benefit of corporate hucksters, in their global plundering of our planet.  Millions upon millions, left dispossessed in their own lands, (due to trade agreements), are exiting their countries seeking employment in the U.S.

    Corporate interests rally the naive, unskilled, and uneducated immigrants, in various protests, against the unemployed, and over burdened U.S. taxpayers being billed for these failed trade agreements!  Victims against victims.  Pretty clever maneuvering.  The top few % responsible for this global plunder are out of sight.  This can’t be identified for what it really is – class warfare.  The few are benefiting obscenely at the expense of the multitudes.  The media (corporate owned) blames this discontent on those not willing to do the work of immigrants or on unions.  Hey, the bigger the lie, the more believable.

    Immigrants are not only (as the media presents) out in the field picking lettuce or beans.  They are standing on street corners all over the nation; being hired on by unscrupulous contractors; for roofing, brick laying, concrete work, construction, etc.  At the end of the day (week) many hired on in this manner, find themselves without pay, or working for slave wages.  If they are injured on the job, that’s their tough luck.  Non-union jobs result in coal miners left underground (Utah), and are not about environmental or safety issues.  This is the face of your new global plantation.  An indentured slave work force.

    Once upon a time, in Old America, there was pride in the workmanship of American Made.  Small town America flourished with manufacturing, tool and die shops, sheet metal, appliance companies, paper mills, steel mills, mining machinery plants etc.  The police did not carry electrocution devices (tasers) nor did we have Ninja troops, breaking down doors, killing innocent citizens, in some ill-founded drug bust.  Meantime, our southern border has tons of drugs entering in unhindered!  The poppy fields of Afghanistan are booming.  What drug war?

    Once upon a time in Old America, the doctor would come to your house.  The President didn’t advise those in need of health care to sit in an emergency room for hours.  A hospital bill didn’t bankrupt a family.  Medicines were affordable.  Children didn’t die of an abscessed tooth because a dentist demanded cash.

    Small town America had downtown streets bustling with hometown businesses.  Wal-Mart with its poison junk from China was not the largest employer in the nation.  The elderly didn’t need to apply for jobs, bagging groceries or as Home Depot Associates to make ends meet.  Schools were not centers of social engineering, teaching alternative life styles, or the intricacies of putting a condom on a banana!  Children were permitted the joy of being a child and not arrested for zero tolerance schemes, thought up by some mindless educators in Washington.  A compliant, obedient, passive workforce needs early intervention and training in obedience.  Group Think is in – individual genius, exuberance and creativity needs drugged.  It takes a village to raise an mindless idiot.

    Once upon a time in Old America a man working in a mill, or auto plant etc, could see his son becoming an engineer, a doctor, or scientist.  Today’s child has his/her career being mapped out in school by social engineers.  College costs are out of sight, with various grants and loans being eliminated.  Youngsters no longer works at paper routes, or at odd jobs.  These are being done by unemployed parents or immigrants.  Those being prepared for a world of Forever War – or placement in the local Wigget factory; don’t need math skills, spelling, or reading abilities.  Thus many graduating today, can’t do simple math (watch what happens when the computers go down in a store), read a newspaper, or discuss a work of literature.  Many have no idea of our history, and think the civil war was the Watts Riots.  Try asking your fourth grader to look up a word in the dictionary or write a short story. 

    The fault of this rests with parents/citizens – who have allowed this madness of indoctrinating their children into stupidity.  Teachers (change agents) are only interested in a paycheck or retirement benefits.  They are not about to rock the boat.  Citizens on the other hand, without a murmur, have their children prescribed mind-altering drugs, without the least bit of research!  Because some bovine drone threatens them – they bleat and obey.  Would that we had some ‘zero tolerance’ addressing the corruption in Foggy Bottom – or in the robbery of war, with billions gone missing.  Meantime, the offspring of the moneyed/well connected, receive the best of private school educations – to prepare them for their secure positions of future hucksters – industry hacks etc.

    Once upon a time in Old America, there was no danger stranger, Amber Alerts, or daily fear advertisements.  True we had Duck and Cover, a silly ass routine of Bert the Turtle, advising us to duck under a desk, to avoid the aftermath of an Atomic Bomb.  At age six, I had enough sense to see the lunacy in this, and received a monthly ‘unsatisfactory’ in deportment, because I wouldn’t participate in acting the fool.  Today I imagine I’d be arrested.

    Once upon a time in Old America, the streets and parks were alive with the laughter of children at play.  Small town America had its fireworks, parades, carnivals, swimming hole, family picnics, concerts in the park, fishing, building forts etc.  Today the streets are silent and echoing on a summer’s eve.  Video games and mindless TV programming have created a generation of lumpkins.  Except in a rare instance, I don’t recall a classroom filled with doughy – dullard overweight children.  But then we had no fast food restaurants, or additive saturated foods, when I was growing up.  To this day, I have never eaten (WHY?) at a McSlop fast food joint.

    Citizens today have been propagandized and programmed to enslaved consumerism.  I can’t imagine that my parents would have paid hundreds of dollars for sneakers, or designer clothing, so that I could fit in with the other kids at school.  ‘TV was my teacher far into the night – it taught me to buy everything within sight’ – this is today’s mantra.  Imagine robbing your children, by sitting them down in front of something called Sponge Bob (or whatever) or violent video games?

    We are for the most part kept ill informed as to the true state of our nation.  Millions are losing their jobs and homes.  One state or region has no idea of what is occurring elsewhere.  Detroit looks like Beirut – with its downtown echoing with abandoned hotels, train stations, and rusted auto plants.  The steel mills and textile plants of Middle America – the South  (never modernized), were allowed to rust into oblivion – with few realizing the implications.  In times of crisis, we could never prepare for war. 

  • Rust Belt in Ohio.  Appalachian Coalfields.

    Once upon a time in Old America, there were real grandmas with aprons and flowered dresses.  Women didn’t feel the need to resort (TV conditioning) to liposuction, face-lifts, breast implants etc.  Our votes weren’t hijacked by computers with no paper trail.  True, there have always been the robber barons exploiting the workers, shooting down strikers (looking for a decent wage), and crooked politicians, only too willing to  sell out their constituents.  The difference today is that these robber barons and corporate hucksters; hold the most strategic positions in government (from the Defense Dept to the regulatory agencies).  Lobbyists for industry now determine legislation.  Government  (politicians) for the most part, are nothing more than props.  No matter the party in power, one can observe, that they are about feathering their own nests, serving their corporate owners, or holding tedious hearings, that result in nothing but filling time.  Anything done for the citizen is by pure accident.

    And now in the New America we can see that our infrastructure, utilities, water, and vast holdings of real estate are being sold out to foreign interests.  Rest assured, that all these supposed protected areas (parks – timber – minerals – grasslands – etc) are mere collateral for our massive debt.  I suspect, that under the guise of paperless ID, we will next be ordered to be chipped (much like pets).  In the days of slavery, this was called branding – the chip is merely updated branding.  One must keep track of one’s human resources on a plantation.

    “Ship is sinking
    The ship is sinking
    The ship is sinking

    Digging up the dead, with a shovel and pick
    It’s a job; it’s a job
    Bloody moon rising with a plague and a flood
    Join the mob; join the mob
    It’s all over; it’s all over

    God’s away, God’s away
    God’s away on business, business”

    God’s Away On Business -Tom Waits