Weekly Audit: Congress Caves to Bank Lobby on Foreclosures


by Zach Carter, TMC MediaWire Blogger 

On Thursday, lawmakers bowed to pressure from the bank lobby and killed a crucial piece of anti-foreclosure legislation, poisoning the economy in an effort to keep money flowing to Wall Street. Meanwhile, jobs continue to disappear, retirement accounts are evaporating and families are struggling to cope with economic hardship.  


Last week's turn of events proved that the U.S. Senate remains utterly beholden to the financial predators that created the current mess. You might think that after destroying the economy, bankrupting itself and then going on corporate welfare, the banking industry's clout on Capitol Hill would have diminished. But you'd be wrong.  

The American News Project's Lagan Sebert recorded a lobbying strategy session at the Mortgage Bankers Association annual meeting in Washington, D.C. This is the lobbying team that  torpedoed the anti-foreclosure legislation, which would have given judges the power to revise the terms of unaffordable mortgages in court—a process the bankers refer to as a "cram-down"—and level the playing field for homeowners. As it stands, when borrowers fall behind, banks can use the threat of foreclosure to deny a sustainable long-term loan modification and continue to squeeze them for high monthly payments.  

Snippets from the bank lobby meeting seem like some absurd surrealist parody of the U.S. political system, with lobbyists urging other bankers to give money to politicians and claiming credit for holding the economy hostage. "The cram-down vote may come tomorrow, and wouldn't it be beautiful for it to go down to defeat while we're up on the Hill," says an animated David Kittle, Chairman of the Mortgage Bankers Association.

 Such bad behavior on Wall Street, of course, has lead to the worst economic downturn since the Great Depression. The unemployment rate currently stands at 8.5% and is likely to go much higher when the Department of Labor makes its monthly report on the job market this Friday. As Emily Steinmetz explains for High Country News, high unemployment levels are much more than a statistic: They mean real hardships for ordinary people. In Arizona, food banks and churches have been overwhelmed by those seeking basic necessities like food and diapers. Steinmetz profiles St. Mary's Food Bank, which distributed upwards of 19,000 emergency food boxes across the state in September alone. The boxes contain bare-bones items like canned vegetables, jars of peanut butter and bags of rice for families that cannot afford to eat.  

In the below video, GRITtv's Laura Flanders interviews Heather Boushey, senior economist at the Center for American Progress, about how the unemployment crisis is impacting families based on gender. Typically women are much more likely than men to dropout of the labor force when they lose their jobs, but in the current recession, record numbers of men are being laid off.


 That's creating not just a loss of income, since women still face a significant pay gap, but serious schisms when men find themselves unable to perform the role in the family they're accustomed to playing. It's also sowing seeds for political unrest: when people find themselves out of a job thanks to structural economic forces beyond their control and facing problems at home as a result of being laid off, it generates a lot of anger.

 As University of Texas Economist James Galbraith writes for the Texas Observer, evaluating the economy means examining the links between the lives of ordinary workers and the operation of major institutions like the banking industry and government. When we pretend that there is no public interest in overseeing economically critical firms, when bank regulators hold press conferences in which they literally attack stacks of regulations with a chainsaw, Galbraith says, a resulting calamity for workers and families is predictable.

 If this crisis has taught us anything, it is that what Galbraith refers to as "the ritual confidence of public officials and the dry numerical optimism of business economists" simply cannot be trusted without a deeper analysis of the plight of everyday citizens. Powerful people on both Capitol Hill and Wall Street spent the last decade insisting that everything was just fine, when in fact the entire financial system was falling off a cliff.

 Writing for Mother Jones, James Ridgeway sketches a brief history of the retirement industry, revealing the steady migration from employer-provided pensions to 401(k) plans outsourced to Wall Street professionals. Ridgeway makes it hard to view the 401(k) industry as anything but a decades-long scam that has been shielded from serious scrutiny by the stock market growth from the early 1980s to 2007. Even the name "401(k)" comes from a covert loophole that was originally designed to help big banks avoid paying taxes.  

In 401(k) accounts, workers have their money invested in stocks and bonds picked by a Wall Street fund manager, rather than receive guaranteed benefits from their employer. In return for this precious investment advice, the fund manager takes a bite out of any profits the worker's 401(k) fund reaps, in some cases as much as 50% of the actual gains. This might not be so egregious if the fund manager made amazing stock picks that garnered huge returns for the worker, but most of these funds underperform index funds. Even high-performing funds are subject to the often arbitrary movement of financial markets. So when, say, stocks take a beating thanks to years of excessive risk-taking on Wall Street, worker accounts are devastated.  

This continued influence of the banking establishment in Washington imperils not only our economy but our political legitimacy. When an industry transforms itself into a vehicle for economic destruction, the appropriate response is to crack down on abuse with new rules and regulations. Instead, lawmakers have ignored public cries for accountability and capitulated to the culpable elite, making it increasingly difficult to view Congress as a group of representatives acting for the public good.  

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Tags: 401 k industry, anti-foreclosure legislation, bank lobby, Congress, cram-down, Department of Labor, economic crisis, Economy NewsLadder, foreclosures, Mortgage Bankers Association, Newsladder, retirement industry, Senate, stimulus plan newsladder, unemployment rate, Wall Street (all tags)


1 Comment

You could look at it this way

Anybody who believes the sanctity of contract holds our private economy together could argue against this legislation.  

We need to find our bottom, recognize the mess we are all in and dig in and move on.  Lets walk through this.  

There has never been a more promising time for small business.   Get your self a Facebook page or a blog and start doing what you love.  If you can find a away to use your talent to help others, share it with the world.  People will pay for that.  

The big companies are scared of the people.   Like a thousand biting ants these individuals will tear apart their market share.  Especially in a recession.  The barriers to entry to start you own business have never been smaller.  

Get on craigslist for a day a pick up junk then sell it the next day and deliver.  You will make money.

Anyone that attacks Walmart for taking out the little guy should appreciate how a local coffee shop can beat out the starbucks by marketing localy through facebook and connecting with the community.  These small businesses provide jobs and much more those employers get to sit face to face with the owner, not never see the faceless boards of public corporations.  There is something to that.

Bottom line is we need to collectively decide to take care of our selves, our families, friends and neighbors.  We may not be able to give money, but we all have time.  Taking responsibility for our selves and the nation WE govern is essential to maintain our liberty.    

A note on 401k's: Tell an retired assembly line worker for GM that a diversified 401k portfolio even at 50% value from last year is a horrible thing.  Even companies who promise to take care of their employees for life can fail.  

I agree there is corruption in Wall Street, but much of it comes from the commingling of big business and big government.  A public company is much like the federal government.  They have their presidents and ceo's, but the both answer to  behind-the-scenes bureaucrats in Washington as well as the board room.

by Classical Liberal 2009-05-05 09:02PM | 0 recs


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