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AdLib On October - 20 - 2011

Your first reaction to this proposition might be, “What the hell? I’m not going to be a deadbeat!” but hang in there and I’m pretty sure that by the end of this article, you’ll see this concept in a whole different way.

This admittedly radical proposal came to me after Javaz mentioned in a comment that student loans can’t be cleared through bankruptcy and SueInCa expanded on this by explaining that credit card debt can no longer be cleared through bankruptcy. I went back and re-examined the destructive Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that was passed by George W. Bush and a Republican Congress and caused these situations.

In essence, BAPCPA makes the possibility of escaping the lifelong debt that many Americans are lured into, far more unlikely. Bankruptcy laws no longer offer a one time (hopefully) reset, a chance to not have to live as a financial slave for the rest of one’s life. Once such an established tool and principle is taken out of the reach of many if not most citizens, a social pact is broken.

Paying bills is actually a choice. Wall Street and banks pay bills when they choose to and other times, they claim bankruptcy (corporations have different bankruptcy rules that protect them far more than Americans) or threaten Americans with Armageddon to frighten them into paying their bills for them. We’re “people” just like them, why can’t we make the same choice?

The wealthy, including banks and Wall Street, have been engaged in class warfare for decades, pillaging the 99% of its wealth while burdening them with debt. We have looked to our government to reverse this reverse Robin Hood system but so far, to no avail.

So what if millions of Americans who are drowning in credit card debt decided that they just wouldn’t pay their credit card bills anymore? What if as a massive group, they enforced a TARP deal in the reverse direction, from the banks to the people? In exchange for the banks getting to have their TARP money, tax loopholes and billions from derivatives that they grabbed while destroying the jobs, home ownership and retirement money of Americans, Americans get the banks to take on their debt?

Right now, there is approximately $800 billion in credit card debt in the U.S.. The Emergency Economic Stabilization Act of 2008 (part of this is known as TARP)  gave the banks $411 billion, “buying” their most toxic assets (in other words, we paid their debts for them). The Fannie Mae and Freddie Mac bailout/takeover was another $169 billion of bank debt they didn’t pay but we did for them. That is a total of $580 billion of our tax money that was given to banks with no guarantee it would ever be paid back though thankfully, $278 billion has been paid back so far (http://projects.propublica.org/bailout/main/summary).

As for how much money the banks made through the exploitation and raping of the housing market and the destruction of our economy while racking up all that debt, their profits are estimated to be in the trillions of dollars worldwide. Today, especially thanks to their not having to pay their own bills, banks are back in great shape today and sitting on mountains of money, including billions we gave them which they won’t lend back to our small businesses.

Maybe now it’s the people’s turn to demand the same kind of bailout. And since government won’t make the deal on their behalf, maybe the people should just make the deal themselves.

If necessary, Americans could get hysterical and threaten the banks with an Apoclyptic scenario first (they seem to like that kind of thing). Then, Americans could simply take their own bailout without asking, as the banks did with our money (Congress voted the EESA down, reflecting the voice of the people at the time yet through manipulations, banks got it passed against the people’s will in a highly unusual second vote maneuver).

Americans could then make the same promise to banks that banks made to them, “If we can get back into a position where we can afford to pay you back for the bailout, we will.” And Americans can pledge to follow all of the conditions that were put upon the banks when they received their bailout billions. Namely…none.

Then, with the banks in essence taking over the toxic assets of the American People, Americans will have much more money in their pockets and won’t need to use credit to buy things which would mean hundreds of billions in economic stimulus (without raising taxes, Baggers!) and more people able to keep their homes and pay their mortgages. Americans would have the breathing room to be able to get back up on their feet and once they were back in great shape, they could start paying back the banks as the banks have done with them.

Okay, let’s consider all the negatives with arguments mitigating them provided (I am not a lawyer so nothing below is a recommendation or legal advice, it’s just discussion):

a. It would wreck people’s credit rating for seven years.

True but if one is buried in credit debt right now, one wouldn’t have any credit to use or be approved for anyway. And if the hundreds or more that people pay each month on their credit cards was suddenly extra income, they wouldn’t need credit to pay for things. On top of that, according to the law, after seven years, they would have a clean credit rating once again and be able to apply for credit (but don’t get sucked in this time!). Is keeping a good credit rating for seven years that one could never put to use anyway, worth staying hopelessly mired in debt for the rest of one’s life?

b. It could destabilize the economy and banks and cause a recession or depression.

Just the opposite. Yes, bank stocks and the stock market would fall in the near term but instead of hundreds of billions being paid to banks that they don’t spend but just trade back and forth on Wall Street, hundreds of billions of dollars would be spent in the economy by people and create greater demand for goods and services which would also generate more and more jobs to provide for the increased demand for those goods and services. Again, banks don’t buy things, people buy things and 70% of our economy is  consumer driven. It would boost the economy and though banks and Wall Street would be screaming bloody murder, they too would profit and benefit from a re-strengthened U.S. economy in the end.

c. The banks could sue people and put a lien on their houses.

This is true however, each state has a Homestead Exemption, an amount of equity in one’s house that is yours no matter what, it can’t be taken from you by any lawsuit. You can find your state’s amount here: http://law.findlaw.com/state-laws/homestead/. If you have no equity in your house or are upside-down in it, in addition to the Homestead Exemption protecting you if you were to gain a little equity, a lien would of course be moot and you could still sell your house at any time. Also, depending upon the amount that is owed on a credit card, it just isn’t worth a bank’s time and expense to file a lawsuit against everyone who defaults on their card. There’s no guarantee on this in any specific case but in the end, after attempting collection for a period of time, banks often just write off defaults.

d. Bill collectors will harass people endlessly and a lien could be put on their bank account?s

The Truth in Lending Law contains a provision that says that if you write a letter to any collection agency that is calling or writing you to collect on a debt and inform them that you no longer want them to contact you…they have to stop or THEY can be sued by you for each infraction after receiving your letter. If a bank goes to the expense and trouble of filing a lawsuit and gets a judgment, they can put a lien on your assets including bank accounts. However, if one didn’t have money in their bank account, there would be nothing for them to get. And, if one was taking a bailout from a bank, it of course would be wise not to keep that money in their bank.

e. People have a moral obligation to pay their debts.

I agree though the only absolute I believe in is that there are no absolutes. The concept of bankruptcy has been around for thousands of years as a human right and contains a moral imperative that overrides that of debt, that is, human beings should not be forced into literal or figurative servitude simply because they owe money. And throughout history for thousands of years, in religion and society, there has been a recognition that after a period of time, people should be able to have a chance for a fresh start. Here’s a little history:

The word bankruptcy is formed from the ancient Latin bancus (a bench or table), and ruptus (broken). A “bank” originally referred to a bench, which the first bankers had in the public places, in markets, fairs, etc. on which they tolled their money, wrote their bills of exchange, etc. Hence, when a banker failed, he broke his bank, to advertise to the public that the person to whom the bank belonged was no longer in a condition to continue his business. As this practice was very frequent in Italy, it is said the term bankrupt is derived from the Italian banca rotta, broken bank

In Ancient Greece, bankruptcy did not exist. If a man owed and he could not pay, he and his wife, children or servants were forced into “debt slavery”, until the creditor recouped losses via their physical labour.

In the Torah, or Old Testament, every seventh year is decreed by Mosaic Law as a Sabbatical year wherein the release of all debts that are owed by members of the community is mandated, but not of “foreigners”.

In Islamic teaching, according to the Qur’an, an insolvent person was deemed to be allowed time to be able to pay out his debt. This is recorded in the Qur’an’s second chapter (Sura Al-Baqara), Verse 280, which notes: “And if someone is in hardship, then let there be postponement until a time of ease. But if you give from your right as charity, then it is better for you, if you only knew.”

The Statute of Bankrupts of 1542 was the first statute under English law dealing with bankruptcy or insolvency.[4] Bankruptcy is also documented in East Asia. According to al-Maqrizi, the Yassa of Genghis Khan contained a provision that mandated the death penalty for anyone who became bankrupt three times.

http://en.wikipedia.org/wiki/Bankruptcy

In Colonial America–where moneylending was governed as much by moral codes as by legal ones–defaulting on your debts was considered a moral failing. Accordingly, owing as little as 40 shillings (less than the price of a fine pair of bedsheets) could get you thrown into a Dickensian debtors’ prison. Amid the financial turmoil that followed the Revolutionary War, however, delegates to the Constitutional Convention predicted the nation might need laws that would facilitate going belly-up in an orderly fashion.

http://www.time.com/time/magazine/article/0,9171,1902827,00.html#ixzz1bGo8mHeK

A moral compact is a two way street. At the same time that banks were backing and passing their Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 to lock out people from using bankruptcy, banks were using all kinds of trickery and fraud to severely increase indebtedness such as sub-prime loans, deceptive credit card rates, hiking interest rates on credit cards without notice, charging fees consumers never agreed to, processing checks from largest to smallest to provide for the most overdrawn fees, etc. So the lawlessness and abuse on the part of banks does not make a great argument as to why Americans should play by the rules agreed to with them while they don’t have to. Bad faith is commonly a cause of a breach of contract and banks haven’t been too interested in showing its customers good faith ($5/month ATM card usage fee anyone?).

Add to that, many people don’t even have the money to file for bankruptcy. Engineered into BAPCPA was a presumption of fraud on both the parts of the one filing and their attorney, unless proven otherwise. Bankruptcy attorneys are now liable for steep fines if any information provided by one of their clients is found to be inaccurate. So, some lawyers simply stopped providing bankruptcy services and those that did, raised their fees by as much as double to compensate for added insurance, now costing people as much as $3,000 to $6,000 to file or more…and when you’re in debt and have no money to pay your bills and no credit…how do you pay $6,000 to file for bankruptcy? Not with a credit card, that’s for sure.

Lastly, in addition to the moral conflict between paying one’s debts and not being eternally enslaved by one’s debts, if such a coordinated action by millions of Americans jump-started the economy, created many jobs and put people in a position where they had enough income to pay for their needs, savings and once again pay back on their credit cards as they could afford to do so, wouldn’t there be a moral imperative to help millions of struggling Americans as opposed to allowing them to continue to struggle to get by day in and day out?

Now this proposition isn’t aimed at everyone. If one has a good income and can afford to pay their debts, I think they should. For me, in such a case, there isn’t a moral imperative overriding the responsibility to repay a debt. However, if one is jobless, ill, elderly or poorly paid and can’t afford to pay their credit cards, their rent or mortgage, for food, clothes and utilities it’s another story.

If our system allows fresh starts for banks and Wall Street after criminally destroying our economy, if they are allowed not only to stop paying on their debts but to have them paid off by the American people, then shouldn’t the American people be permitted the same in return, to stop paying on its debt to banks in order to have sufficient money to pay for  necessities and have a chance to get their lives and their futures back on track?

It may be a radical proposal but it is one way the people can help to solve our economic crisis and injustice through their own direct action. As Senator Dick Durbin said in the midst of the financial crisis, “And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.”

And that was before Citizens United which only made that situation worse.

Occupy Wall Street instructs us that the only way things can really change is if the American People do something, not their politicians, the American People themselves.

And what this proposition is saying is that we know there won’t be laws passed by this Congress to truly help us and our economy, the banks and Wall Street will see to it. So it’s up to the American People to do something and they can actually do something by not doing something, they can give themselves more money in their pocket and stimulate the economy simply by taking the same kind of bailout from the banks that we gave them.

And just as they are doing with us, we’ll happily pay them back when we can, once we too are making a profit again.

Written by AdLib

My motto is, "It is better to have blogged and lost hours of your day, than never to have blogged at all."

76 Responses so far.

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  1. Nirek says:

    I think this is a bad idea. There are ways to hurt the banks that do not hurt us. I paid off all my credit card debt years ago and pay the balance every month so they do not get any interest off me.
    Another thing is to go with a small local bank or credit union. Don’t use or trust the BIG banks.

  2. Chernynkaya says:

    “Why Credit Unions are a Better Financial Choice for Us All”
    http://www.dailyfinance.com/2011/10/22/why-credit-unions-are-a-better-financial-choice-for-us-than-big/

    Great article.

    • bito says:

      Cher, I wish I could be smug about Credit Unions, but I just happen to pick the right parents. My father joined one at his job when he was only 18 and my parents remained members until their last days and instilled into me the benefits of being a member. I remember helping my dad doing the janitorial services on Saturdays at his/the office as a child. At times when I was either unable or foolish to use a “Full Service Bank (Full of Fees Bank)” at times, it made me realize a appreciate being a member of a Credit Union.

      Yes, it is a good article, thanks.

      • Chernynkaya says:

        Bito, you had smart parents! When I was a kid, I think only people in certain jobs could join credit unions. I’m glad that’s changed. But because they have only been open to the general public for a relatively short time (compared to banks) it will take a while for people to get the idea. And thanks to the banksters, banks are pushing more people to do just that! Another reason more people don’t join is that there are only about 7,000 Credit Union branches vs about 96,000 bank branches. (I posted a link to that somewhere on this thread--if I understood the data correctly.)

        • bito says:

          Cher, at that time my father, his father and his grandfather were all Trade Union members and many credit unions were and still are associated with employees and or Unions. One bonus that they instilled in me was that their paychecks had an automatic withdrawal that payed on their loans and ALWAYS some into savings. Some banks have picked up that service and charge a fee for it, while credit unions pay interest on both savings and checking.
          Them pushing the “save something every paycheck” has saved my bum more than once.

  3. MurphTheSurf3 says:

    Why I “bank” at a credit union.

    FREE Online Bill Pay
    FREE eStatements
    FREE 24/7 Internet account access
    UNLIMITED Check writing privileges
    DISCOUNT of .25% APR on consumer loans*
    DISCOUNT of $350 on mortgage closing costs*
    FREE Express Checkcard
    VERY LOW COST Overdraft Options

    1.75 billion in assets
    Serves 9 counties
    168,000 members
    22 branches
    Open Board Meetings on Policy
    E mails to board members
    Transparent holdings records
    Committed to small business loans, home loans

    Smallest foreclosure rate in the midwest because they planned ahead. The board decided not to get into the MacMansion business 10 years ago and emphasizes small family homes in traditional neighborhood settings.

    It created a “projected means” policy to govern home loans and never used the easy money scales promoted by Fannie and Freddie.

    Less than .5 Percent of their personal and commercial properties are “under water.” Amazing really.

    Friends tried to get a college loan from the Credit Union but they were refused because the loan required require projected payments which family income and likely employment for the young woman in question were too low. What impressed me is that the bank offered a advisory conference where they laid out alternative colleges which fit the family’s profile. That was two years ago and its working out fine.

    My point: when they want to, they can do it right and make money.

  4. MurphTheSurf3 says:

    Re. the moral obligation.

    The Federal Trade Commission receives more complaints about debt collectors than any other industry. In 2010, the Federal Trade Commission received 140,036 complaints about in-house or third-party debt collectors, 27% of all complaints the agency received, according to its most recent annual report on the Fair Debt Collection Practices Act, which regulates the business. That’s up from 119,609 complaints, or 22.8% of all complaints, in 2009. Of those complaints, 49% alleged harassment, 16% complained about abusive language and 4% claimed the collectors threatened violence.

  5. Chernynkaya says:

    Not just credit cards either:
    ‘Gotcha’ Fees Force Customers to Quit Banks
    http://moneyland.time.com/2011/10/21/gotcha-fees-force-customers-to-quit-banks/

    EDIT: I don’t mean this to use your post to deposit all stories related to it, but some of these just bolster your excellent points so perfectly. (This is my last one.)

    Did Citi Get a Sweet Deal? Bank Claims SEC Settlement on One CDO Clears It on All Others
    http://www.propublica.org/article/did-citi-get-a-sweet-deal-banks-says-sec-settlement-on-one-cdo-clears-it-on

    • AdLib says:

      Cher, just the opposite, I’m very pleased that you’re adding to this thread with stories and background, it deepens the discussion and concentrates the info in one place. I always try to post comments and quotes in a post with that topic so please, keep it up.

      As to the piece, it isn’t even part of their concern or calculus that they are losing the poorer folks, they can easily make up for it by raising their monthly account fees or other fees.

      What they don’t recognize is that there is a breaking point for everyone and once they go too far, people will be bailing in droves. Personally, I don’t see why anyone needs to be at a major bank any more. Many community and credit union banks have a good network of ATMs now.

      • SueInCa says:

        Adlib

        I know with my husband it is a matter of “brand awareness”. He knows BofA but not how the credit union interbranch system would work. We still maintain an account with his credit union but only in the event that we decide to change. It is easy to remember a BofA atm but not so easy to remember all the different banks you can use in conjunction with the credit union account. I know them but he does not and I think that is probably something alot of people take into consideration. I used to be the Account Manger for Ralphs Grocery at Wells Fargo. Ralphs Grocery chain was one of the first major chains to accept debit and credit cards so you can kind of call them pioneers in the business, right? Well their VP that I worked with decided to use his ATM card one day in an emergency. The ATM ate his card because he tried his pin too many times. This from a person who was in charge of the entire debit/credit program for Ralphs Grocery and he had never used his own atm card, so you just never know.

        Even so, being back in the bay area we may still make the change. We are way more familiar with this entire area than we were of the Sacramento area. We spent all but 8 years living here.

      • Chernynkaya says:

        I feel better, AdLib! I thought about that question too--why not join a Credit Union? I think this has a lot to do with it: There are 97,952 bank offices in the US and only 7,349 credit unions (if I’m reading this right: http://www.census.gov/compendia/statab/2012/tables/12s1183.pdf)But I think it’s a matter of lack of awareness most of all. That’ll change.

  6. SueInCa says:

    Adlib
    I have seen people here and there on blogs supporting this idea and as a former “repsonsible” banker, I agree with it. Let me explain why. I was in banking from 1982 through 1998. During that time, I never once experienced anything on the bank’s behalf that would jeopardize their Fed Audit. That Fed audit was the most critical review for the bank during those years. And because of those audits, the banks were fairly clean. Of course I am talking national banks, not savings and loans who were under different rules and scrutiny. I would never have heard in all my years with Wells Fargo a bank officer telling a customer, just take the loan now, you can refinance in a couple of years or…..just walk away. There were some banks who had different card types depending on your financial status and I worked for a bank who issued one of those cards. This was back in the 80’s and the interest rate on that card was 19% apr. The people who qualified for those cards were the exact people who could least afford credit. Once an account went into delinquency, it was pretty much the end of the line for that customer. Overlimit and Late fees, plus interest would eat up any minimum payment they made. I was on a committee between the fraud and collection departments and we finally convinced Marketing to either get rid of the portfolio or substantially change it, which they did, they modified the cardholder agreements so customers would have a chance. What did that do? It reduced the claims of fraud(to get out of paying) and collections went way down.

    Instead of doing this now, the banks keep ramping up the cost to the customer. I know that when a bank sends you a new agreement what constitutes agreement to the new rules, a purchase on that card. Most people do not know that and get stuck under the new rules.

    As a former banker it goes against everything I was taught about credit however the banks are also not the same banks that I worked for all those years either. When Glass Steagal was repealed, the banks went wild and acted totally irresponsibly. And the Fed used it as an excuse to relax their audit requirements if not stop them entirely. Then as you explained, the banks kept getting more and more breaks from Congress while the people got nothing.

    Where am I going with this? I can totally see this happening and the banks throwing in the towel. They would be so shocked they would more than likely not know how to respond at first. Their collections departments are no where near staffed to handle a flood of 5, 30, 60 days delinquent accounts and it would probably blow up their systems. When they got over the shock of that flood, then they would have to regroup and decide what to do. Like you said with so many people going delinquent, they would be in a tight spot. I can also see why people would want to do this, I have even mentioned it to my husband a time or two. Hell we are getting into our sixties, we have savings and 401k’s that would sustain any purchase of big ticket items we need and like you said, after 7 years we would be clean again, plus we would be able to decrease the amount we take from his 401k right away and still save money. Of course having the nerve to actually do so is another story. We have it ingrained into our psych that you need to be responsible and no matter how dishonorable the banks and wall street have behaved, the American people are better than that.

    • AdLib says:

      Sue, knowing your background in banking, I was very much looking forward to your take on this and am very pleased by it!

      I remember when banks operated just as you described, credit wasn’t easy to get, you had to prove your creditworthiness over time and credit lines were very limited to levels that banks felt were repayable by people.

      Then, as you describe, greed unraveled the basic principles of banking and the game of being able to make big profits by selling off debt, whether it could or couldn’t be repaid, took over.

      Your description of what could potentially happen if millions of people just said, “We’re taking our bailout from you banks right now,” is fascinating. It is the kind of situation I was hoping would result, burying the banks in the kind of trouble they’ve been burying the American people with, to the point of overwhelming.

      When we’ve discussed the valid concern below about lawsuits and liens, one would have to consider the enormous backup there would be in the courts to get to such suits if millions simply just said “no” at the same time.

      It wouldn’t seem practical for banks to spend many thousands and a long delay in pursuing a debt of $3,000, for example.

      And they would also be too busy trying to cope with the fallout from hundreds of billions in credit card debt being taken off of their books (at least in the short term, I’m not saying that people couldn’t pay them again once they’re on a solid financial footing).

      Imagine this scenario, millions come together to say “Bailout time for us, banks!”, banks are overwhelmed and looking at the impact of this…come out with a proposition to write down some of that debt in exchange for people to keep paying.

      The banks sure won’t do this voluntarily though in bankruptcies they do this all the time.

      The key thing is that if people did this, they would be taking back power from the banks and the banks would see Americans as a party that has to be dealt with. So, negotiations could indeed be possible that falls short from withholding all payments but only if Americans are in a position of power…and the only way to get there is to be bold and take it.

      • SueInCa says:

        Adlib
        You are right. I would love to see that happen, in fact I have a screenplay idea kind of in the Ann Rule genre where someone goes around offing all the big bankers and they are sitting up in those ivory towers wondering who is next. Of course it will never happen but a movie would sure give them something to think about, wouldn’t it? Can you imagine Blankfein worrying if a serial killer is going to strike him next?

        In your scenario, the banks would hit a spin that could take them out of control. There is no way they could make a change in operations that fast to keep up with the delinquency increases. And suing anyone? Forget about it, too many people to sue.

        • AdLib says:

          Sue, can’t tell you how pleased I am to hear your views and insights on this!

          Though this has been more of a theoretical exploration for me, I had hoped that if it were to happen, it would have that kind of overwhelming effect on banks and bring them to their knees so they might have to accept dealing with the public they have preyed on for so long.

          As for your story idea, I think it would sell a lot of tickets!

  7. Chernynkaya says:

    It’s possible that Suze Orman agrees with you too. (Who knows? It’s perhaps only one step away from thanking Occupy Wall Street.)

    Suze Orman: “I want to say thank you to the Occupy Wall Street movement”
    Suze Orman — public face of the mainstream/PBS “be smart with your money” crowd, former VP of Prudential Bache Securities.

    You can read her full statement here:
    http://www.americablog.com/2011/10/suze-orman-i-want-to-say-thank-you-to.html

  8. javaz says:

    I’m sorry if this is OT, AdLib, but I’ve got a question that maybe you or Sue or anyone can help me with.

    Years ago, in the mid-70’s, I wanted to buy a used mobile home.
    I needed an $8,000 loan and went to my bank and applied for a loan.

    When applying for the $8,000 loan, I happened to have a meager charge on a credit card of ten dollars that I planned on paying off when I received the bill.

    The loan officer at the bank informed me that I did not qualify for the $8,000 loan because I had over-reached my credit by $10.00!

    Due to time restraints for the purchase of the mobile home, my father co-signed and then it was no problem.

    So, my question is --
    When did banks and mortgage institutions begin handing out mortgages and loans to people who could not afford to pay them?

    Wasn’t there a time whereby a person needed collateral to obtain a loan or a co-signer that guaranteed that the bank or lender would be able to collect?

    How can lenders of student loans hand out loans to young kids who aren’t employed and have no means to repay the loans?

    Same with mortgages -- I remember reading that all people had to do was show a library card and they were given a mortgage!

    When did this change?
    And doesn’t this make the lending institutions culpable for giving out loans and mortgages to people who they know can’t afford them?

    It seems to me that good business sense would require lenders to make sure that those they are lending to can repay their loans.

    What am I missing?

    • choicelady says:

      javaz -- the same thing was done30 years later but with lying to generate more money, NOT to be fiscally responsible. You can track a lot of this to the Chrysler bail out and its ilk when good money was dumped into an irresponsible company -- and that became the norm. Credit eases when capital wants more people under its thumb and that means loose and easy credit.

      So in 2000 when I went to buy a car, I had a $20 charge that had been paid but that had not yet cleared. The people at the dealership told me that it meant I had lousy credit and would have to pay $400 per month for the car. I’m no fool -- I walked out saying I’d be back when the payment cleared. Well I got a VERY urgent call from the Finance Manager saying there was a ‘misunderstanding’. Yeah -- they thought I was a sucker. Boy did they misunderstand! I stood my ground and halved the payment down to what was being paid by others.

      It was all the lying cheating methodology of the subprime racket -- “this is the best deal you’re gonna get. Better take it and run ’cause it won’t come to you again!” Harvard International Review found 55% of those in subprime mortgages actually qualified for conventional, and still others had their standards falsified by mortgage brokers without the borrower’s knowledge. The issue was not repayment but the right to buy and sell the PROMISES rather than the actual mortgage.

      We tend to blame ourselves, and in fact personal wants and a sense of entitlement contribute to this problem, but the drive for more and more things to buy and sell on the finance market drove a lot of this and was the REASON for the 1999 ending of Glass-Steagall that kept banking and finance capital separate. Greed is NOT good. But greed won the day.

      So you got hoist on the petard of fiscal accountability and I almost got hoist on the petard of financial greed. That’s how different thirty or so years made things. And that’s what the GOP is fighting to retain -- a world of unlimited and unfettered accumulation where everything goes and there is no accountability.

    • AdLib says:

      Glad that Cher referenced her article, very pertinent and enlightening. I would only add that the system for getting good credit includes having used credit a lot and even being in debt.

      Banking was different back when you were trying to get that loan but part of the principle is, if you hadn’t already shown that you could take on debt and pay it on time, you weren’t considered as creditworthy.

      So, it was actually to your deficit, in the eyes of the bank, that you weren’t already in debt. This system basically says, “If you want more credit, you have to have more debt.”

      For example, people who carry a home loan have a higher credit rating for doing so than those who don’t. Seems odd, the one who may owe six figures is better to lend to than the one who has no monthly payments coming out of their pay to debts.

      However, it’s bank logic. And that logic later became corrupted as Cher and Sue describe, into a perverse thing.

      As for student loans, the government makes these available to students of all incomes because the idea is to help them get an education then once they have and are gainfully employed, they can pay their debt back.

      This is a positive thing to do but the corruption of it came from two directions. First, the cost of education skyrocketing for a variety of reasons, some legit and some greed-based and banks being able to get into the student loan business.

      As with other credit, loans were generously made and students weren’t limited on what they spent their student loans on so they could burn through their money however they chose and even end up without enough left to pay for all their school expenses.

      I think it’s a good thing that kids who come from poorer families have an opportunity through Pell grants and loans to afford college but if we do end up taxing the wealthy and corporations more, I would like to see some of the crushing debt that students leave college with, reduced voluntarily by government.

      • Chernynkaya says:

        Banks call people who pay off their credit cards each month “deadbeats.” For real. They are in the business of collecting interest, not lending.

      • SueInCa says:

        CL
        I think Chrysler was the first in line but one thing did happen, Lee Iacocca did go in and re-organize the company and brought it back to a healthy status. The thing this bailout did was to open the door. There was also the bailout of what is now Amtrack at the same time or just before Chrysler. Then the S&L in the late 80’s. It just went high speed in 2008.

        I have a better story than you though. We went to buy a new Thunderbird in 92. We found a real nice turbo that was a bit used but decided we liked it so started negotiations. The guy’s first offer was 1200 a month….mind you we had a 17,000 dollar down payment and the car was just under 29k. I told him he must be smoking so he went back and still came back with 800, when he left to negotiate again, I grabbed the paper he was working on(it had our SS#’s and told Tony let’s get the heck out of here. The guy followed us to our car and was trying to make a deal through my sunroof. We went to another ford dealer and I told my husband if they asked, we are just looking. He had to use the restroom and did not come back for awhile so I went looking for him. He was sitting in a T-Bird Limited Edition on the showroom floor. The guy saw me coming and he said, “Mrs. D—--, your husband told us what happened, believe me when you leave here today you will have the car you want, with reasonable payments”. We bought the car and had payments of 256 for 18 months.

    • Chernynkaya says:

      Javaz and Sue, (Shameless self promotion!) in case you missed this:
      http://planetpov.com/2011/01/22/what-is-money-part-2-it%E2%80%99s-human/

    • SueInCa says:

      Javaz it all changed when wall street and the banks realized they could sell a loan, wall street would bundle it up with other securities and sell them off to unsuspecting buyers. In fact they could not produce enough loans for the demand, consequently the door was opened for liar loans and loans to be approved with less than stellar credit. When the banks realized they would only be responsible for the amount of time it took to get the loan to wall street, they took advantage of the system. It also used to be that trade lines on a credit report were better paid off but open. As of 2007, the banks wanted 3 trade lines with balances in order to process a loan. That is how messed up the credit field got. In 2003, I sold a home for 525k that I bought just the year before for 425k. We were buying another home that we were putting 130k down on and we got an unconditional approval from National City Mortgage with no jobs and we were honest about only having a retirement income coming in. We both went to work when we moved to that state but for all they knew we did not have jobs but it was approved anyway.

  9. AdLib says:

    More ammunition for my argument in WAPO today:

    Lawsuit says 3 major banks, Visa, Mastercard collude to fix ATM fees consumers pay

    NEW YORK — A third lawsuit over ATM fees accuses three major banks and two payment processors of conspiring to fix fees at the expense of consumers.

    The latest lawsuit, filed by a New Jersey man, seeks class-action status and alleges that Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. took part with Visa Inc. and MasterCard Inc. in a “conspiracy to fix the prices” consumers pay when they use an ATM that’s not in their bank’s network.

    http://www.washingtonpost.com/business/industries/new-jersey-lawsuit-alleges-3-banks-colluded-to-fix-atm-fees/2011/10/19/gIQAbrEIyL_story.html

    If you owe money to a crook that has been robbing you, do you still have a duty to pay him on top of what he’s stolen from you?

    • Chernynkaya says:

      AdLib, this is in part a reply to your replies to me down on the thread, but mostly I just want to say that somehow your post about the banks and credit cards set something off in me (I posted a rant on your OWS-LA post yesterday that was a direct result of this.) What you are suggesting is the kind of direct action that I believe is part and parcel to other kinds of activism--every bit, if not more, effective than street protests and even voting. It’s really like a general strike in its potential effect.

      I am glad you even included all the references to the religious teachings about usury, because those are very conveniently pushed under the rug when discussions of economics and morality are discussed. More than that, there is a dark side to religious teaching that allow banks to get away with this. That dark side was pointed out by Karl Marx when he wrote about the opiate of the masses. I have no problem with the opiate part--I am a believer and further think that we all need a little opiate in this world.

      But it is undeniable that religion--or at least the institutions--have served the powerful to keep the masses in line from time immemorial. In the US, it is our Calvinist beginnings which serve to keep us from protesting the banksters and instead blaming ourselves. The sense of guilt we feel, the humiliation at not being “an upright citizen” overwhelm our ability to see how we are being screwed.

      ChoiceLady’s comment touched on the role of religion too, where she mentions banks which lend according to Sharia. The Right’s hysteria about Sharia suddenly became clear--it’s NOT about Islam--it’s about the prohibition of usury, disguised as nationalism and bigotry. CAn you imagine what would happen if there was an actual national discussion of Sharia and the prohibition on usury? It would automatically show that Christians have that same prohibition, as do Jews--and then, UH OH! What would the religious Right do then? Out entire banking system would be seen as blasphemous. [As an aside, I can’t help but add this about the role of Jews in banking: We too have a prohibition against usury. But in the diaspora and especially in the Middle Ages, Chistiandom also prohibited usury--defined as ANY interest collected from lending. The Kings and royalty of those times however HAD to borrow and they forced all the Jews in their realms to serve as the lenders, even providing them with the initial capital. That’s how the Rothchilds got started, along with that “international cabal of Jewish bankers.” Jews, who cannot charge interest on other Jews were forced to become the worlds’ bankers for a time. http://www.jewishhistory.org/the-rothschilds/ End of history lesson! :-) ]

      • AdLib says:

        Cher, very much enjoyed the history lesson. I would bet you that 99% of people have no idea that bankruptcy laws have a religious origin.

        We often see how religion is merely a vehicle for other agendas and when one part of their religion interferes with that agenda, it is ignored or rationalized away. This is especially ridiculous among RW Fundamentalists who state that every word of The Bible should be taken literally…except for all of the portions that conflict with their agenda.

        Great point, looking back to those Calvinist beginnings makes a lot of sense. The “work ethic”, “pulling oneself up by the bootstraps”, “rugged individualism:, etc., many traits of Americanism that are presented as points of pride are at the same time reflective of an anti-community mindset.

        One can draw a line from that to the GOP/Baggers/Ron-Paul-Libertarians today, where there is a pride and cheers at debates for letting one’s neighbor’s house burn to the ground with their family inside because it isn’t their house.

        The American traits I listed above are not bad or negative but like capitalism, taken to an extreme, they can be a bit sociopathic.

        And that is who we are dealing with when it comes to corporations and banks. They hide behind Americanism and capitalism to cloak their sociopathy.

        And my proposition here is based on the concept that it is no moral failing to stop a blind adherence to a pact with a sociopath that has attacked you and continues to do so.

        Whatever is inside us that makes us feel guilty if we took a bailout from the banks but okay about the banks taking a bailout from us, puts us at a great disadvantage in our corporate-dominated society.

        I keep tossing out allegories because I do understand the challenge that this concept represents but here’s one more.

        In the old days, when there was a gang fight, gangs would first have a meet and there could be an understanding about the upcoming fight, “No knives or guns.”

        The way things are now, it’s like Americans and the banks made such an agreement but the banks came to the fight bringing guns, knives, napalm, bazookas, land mines, etc. and the American people say, “Well, I’m going to keep my word!” Wonder who’s going to win that fight?

        Once someone breaches good faith in a deal, there is no onus on the other party to keep their end of a broken deal.

        This is one case where I would hope people would feel more guided by their religion in feeling comfortable about freeing themselves from lifelong indebtedness.

  10. escribacat says:

    I have a couple issues with this idea! First of all, c) the lien on the house. I bought a house last year that — sudden unpleasant surprise — had three liens on it to the tune of $40,000. $30K of that was IRS and the other $10K was two credit cards. These liens were uncovered by the title company; were not disclosed by the seller. The young man’s young wife knew nothing of these debts apparently and his parents (the co-signers) claimed they knew nothing about it. I did not think highly of these people because of the way all this came about (though I felt sorry for the young wife.)

    The sellers’ unscrupulous realtor suggested I go ahead and close with these liens against the title. My response was “Are you out of your fucking mind?” Eventually, the IRS lien was detached from the title because they were upside down in their mortgage and it was deemed “worthless” to the IRS. However, the credit card debt had to be paid and they scrambled around and borrowed it from somewhere apparently. If they hadn’t found someone to borrow that money from, they would not have been able to sell the house.

    Which brings me to e). I never carry credit card debt because I think the interest rates are usury. I’ve been lucky that I haven’t had to use credit cards to survive. Some people get into debt because they lose their job or insurance or just get hit with too many medical bills. All kinds of nasty stuff can happen. But some people do live beyond their means and buy a lot of cars and giant TVs etc that they can’t afford. The idea of this latter group just walking away from their bills really galls me. I guess I have too many of these in my extended family. My sister in law’s mother was a real operator and she had a son who has been in prison several times for embezzlement (he’s there now!) Before this woman died, she somehow managed to get hold of a fist full of credit cards which she used liberally. She sent a couple of them to the embezzler son as well and he maxed them out. Well, she died and left all this debt. So the credit card companies embarked on a campaign of harassment against my sister in law, who was entirely ignorant and innocent of the whole thing. There was very little to admire in the actions of that mother and her embezzler son, in my opinion.

    • AdLib says:

      Your issues are well taken though I do agree with Cher that there is a minority of the people suffering who are as unethical as you describe.

      My question would be, should any plan or program be rejected because some unscrupulous people will benefit by it?

      There is fraud in virtually every program. Medicare fraud, welfare fraud, defense contractor fraud, even in education (there was that recent story about test frauds perpetrated by teachers in GA to get Fed money.

      But simply because some may unjustly take advantage of a situation, we don’t terminate the program so as to not throw out the baby with the bathwater.

      If millions of people such as the woman Kes described could have their lives salvaged and part of the price for that is that some jerks will get off the hook for being irresponsible, that’s a deal I would be willing to accept.

      And vice versa, if millions of people had to stay mired in economic oppression and servitude just so unethical people aren’t helped, I think that would not be the lesser of two evils.

    • Chernynkaya says:

      E’Cat people like your in-laws gall me too! Same thing when I see people at the grocery store, dressed to the nines and with big diamonds using food stamps. But I ask myself if the millions of people who need food stamps should be denied because some game the system. It was the same attitude (Welfare Queens!) that diminished Welfare to its present form, when at this time people desperately need it.

      Some people definitely live beyond their means but for me it boils down to this: Do I believe that there are more irresponsible people, or more folks who have been extorted and cheated by the banks? If it’s the former, then one should encourage that consumers play by the rules, even if those rules are made by the banks; if the later, I say fight fire with fire. My personal conclusion is that the deck is stacked totally against the responsible consumer.

  11. javaz says:

    What about employers using credit ratings against applicants?

    Wouldn’t that be a problem?

    • AdLib says:

      The reality we’re living in today is that many of those I’m talking about already have missed payments on credit cards and mortgages, their credit rating is already damaged. So, it wouldn’t make a difference to them.

      For those who don’t already have poor credit ratings, employers who use credit reports (which I think is a violation of privacy, people have no way to defend themselves, they may just not be hired) may be just as prejudiced by seeing that they are buried in credit card debt and similarly assume they’re irresponsible (as if having one’s job shipped to China was their fault?).

      Not all employers use that intrusive practice though so this would not be an issue universally. And if the spending of hundreds of millions of dollars in our economy spurs the need for more and more workers, it could create a more favorable market for employees, whatever their credit rating.

      Also, in the meantime, at least such people would have a better chance to be able to live on the money they are bringing in and be able to pay for critical things they might not have been able to afford, such as medical treatments and school for their kids.

      To me, there’s a bit of denial in clinging to the status quo and fearing making a sacrifice for change, as if things will get better and go back to how they used to be.

      I wrote an article a little while back explaining how, even with an improved economy, this is pretty much the new normal for corporations. Lower employment, stagnant wages and high competition from a desperate workforce for both.

      So, I’m suggesting that some people in the most desperate financial circumstances embrace reality, that things are never going back to how they were and there is no cavalry coming over the hill. They need to find ways to survive in the short term and find a path to a stronger economic situation in the long term.

    • Chernynkaya says:

      Javaz, I mentioned that concern below too. But it really steams me! That has only recently become a regular practice and I find it another outrage. Since when is it acceptable for a potential employer to look into our private lives like that? What’s next? Will they be able to not only check our credit ratings, but see what we spend? What if an employer decides they don’t want to hire anyone who makes credit card charges at a bar, or towards a political party? I think that for younger people who are trying to establish credit, what AdLib is recommending is problematic. But the bigger issue for me is that they even have the right to use our credit against us!

  12. Emerald1943 says:

    Adlib, very, very well done!

    But don’t they call this “sedition”?? :-)

  13. Weirdwriter says:

    Well written, AdLib.

    I use a debit card when I can’t use cash or a check. And if my bank ever starts charging for it, I’ll be switching financial institutions.

    • WW, I too only use a debit card and cash. I only use the debit card twice per month. On rent day and then the following day I take out living expenses for the month. I also have a pre-paid Visa card to purchase goods on the net. But, if I don’t have any money in that account, I simply can’t make a purchase. Still, it’s pay as you go.

    • AdLib says:

      WW, you are a WiseWriter as well. I think it’s fine to use credit cards within reason and with reasonable interest rates but your approach is the most sensible approach to truly maintaining one’s freedom in America.

  14. Chernynkaya says:

    Just found this NYT article coincidentally:

    Households underreport the magnitude of their credit card debts by at least one-third, according to a new study from the Federal Reserve Bank of New York. The difference for the average household is more than $2,000.

    Only 50 percent of households reported any credit card debt, while credit card companies reported that 76 percent of households owed them money.
    The paper has the discomfiting consequence of raising questions about the accuracy of the Fed’s Survey of Consumer Finances, widely treated as an authoritative source. […]

    Even with those changes, however, the average household reports credit card debts of $4,700, while lenders report an average balance per household of $7,134.

    • AdLib says:

      Very interesting, Cher! I think the sense of humiliation and embarassment that people feel about being deeply in debt is greatly exploited by the banks. They’ve done enough studies to know this is part of the human psyche so this cycle of luring people into more debt than they can handle has a natural camouflage over it, created by the ones who are the victims.

      The sub-prime loans were a much more obvious example of how they operate but it’s the same game with credit cards. Extend more credit to people than they can pay back swiftly, get them walking into the quicksand on their own then when they’re stuck, they’re too embarrassed to call for help.

      That’s why I wanted to challenge what is an embedded mindset in us. It may be archaic and not apply now because the game has become so twisted and corrupt, the house always wins because they cheat and those who lose pay up so as not to be seen as deadbeats.

      There’s something wrong with this dynamic.


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