PROGRESSIVE ECONOMIC PROGRESS | 2009

An Agenda for Progressive Economic Progress | 2008-2009

 [Note: This working paper was developed to assist civil rights organizations and leadership in responding to the Bush/Obama supported Wall Street/bank bailout and the resulting 2008-09 “emergency” economic plan.]

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LEGISLATIVE LANGUAGE FOR TREASURY AUTHORITY TO PURCHASE MORTGAGE-RELATED ASSETS

From the TARP (Troubled Asset Relief Program) legislation:
“(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them.”

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Introduction

In the past 30 plus years, the US economy has been kept going by debt expansion, not by real income growth. There has been hyped US productivity growth, but that increased productivity has not raised family incomes.

According to Mark Weisbrot of the Center for Economic and Policy Research, real [inflation adjusted] wages have been virtually stagnant for 34 years. Since 1973, as the stock market climbed, “productivity — the amount that workers produce per hour — increased quite substantially…” But, while this “ ‘useable productivity’ — the increased production that we can expect to be reflected in rising wages –” rose 48 percent from 1973 to 2007, paychecks didn’t.”

The middle class has been under assault since George Bush has been in office. Nearly 6 million Americans have slipped into poverty, median family income for working Americans has declined by more than $2,000, more than 7 million Americans have lost their health insurance, over 4 million have lost their pensions, foreclosures are at an all time high, total consumer debt has more than doubled, and we have a national debt of over $9.7 trillion dollars.

While the middle class collapses, the richest people in this country have not had it so good since the 1920s. The top 0.1 percent now earns more money than the bottom 50 percent of Americans, and the top 1 percent owns more wealth than the bottom 90 percent. The wealthiest 400 people in our country saw their wealth increase by $670 billion while Bush has been president. In the midst of all of this, the Bush tax cuts lowered taxes on the very rich so that they are paying lower income tax rates than teachers, police officers, nurses and other workers.

With consumers overloaded with debt and the value of their most important asset–housing–falling, the American consumer will not be leading a recovery and might well be the last to be saved (if ever) by any of the currently proposed plans [Legislative and Executive].

The $700 billion federal mortgage bailout is the largest giveaway since Congress gave land grants to the railroad barons a century and a half ago. It will shape the coming century by giving Wall Street unprecedented power over debtors – homebuyers, industry, state and local government, and the federal government.

As Market Ticker’s Karl Denninger put it: “This is the de facto nationalization of the entire banking, insurance and related financial system.., every bank and other financial institution in the United States has just become a de-facto organ of the United States Government, if Paulson thinks they should be, and he may order them to do virtually anything that he claims is in furtherance of this act…..The bill gives Paulson the ability to nationalize unlimited amount of private debt and force you and your children to pay for it.”

Wall Street of the past three decade has had a business creed: “greed is good; leveraged greed is even better.” Now the government is asking the taxpayers’ to “pull together with the licensed thug who just stole your money with the pledge that he would be doing it again to your kids.”

Nobody has paid for the foreclosed houses, as of right now. They have only paid for the bad debt among the banks. There is not a single homeowner or former homeowner who has had a minute’s respite because of all this. Not one.

At this point, the U.S. government could have simply paid for all the foreclosed houses in 2007 and 2008 and the amount wouldn’t match the loan guarantees of the past few months, if you count the $300 billion guaranteed by FHA recently.

If the U.S. government now owns AIG (American Insurance Group), or 80% of it, isn’t that kinda, sorta, maybe like socialism? More like socialism for the rich and free enterprise for the poor. Bush administration policies – to include huge tax breaks for the rich, unfettered free trade and the wholesale deregulation of commerce – have resulted in a massive redistribution of wealth from the middle class to the very wealthy.

The $700 billion blank check – $2,333 for every man, woman, and child – rewards Wall Street for its reckless speculation and greed. That’s on top of $1.1 trillion in other recent bailouts, including A.I.G., Fannie Mae, Freddie Mac, and Bear Stearns.

When George Bush entered the White House in 2001, Clinton left him a projected 10-year surplus of $5 trillion. But Bush immediately gave $2 trillion in tax cuts to the wealthiest Americans, and then wasted $1-3 trillion invading Iraq. Now he wants Congress to increase the national debt to $11 trillion.

In 1929, bankers and financiers were jumping out of windows when the Stock Market crashed. Now they ride out of Wall Street in limos with multi-million dollar golden parachutes. Now, the Bush administration wants the poor and middle class of this country to spend up to $1 trillion on a bailout while the wealthiest people, who have benefited from Bush tax and finance policies are being asked to give up nothing.

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AN AGENDA FOR  PEOPLE/GRASSROOTS-BASED ECONOMIC REFORM – Housing, Banking and Finance, Consumer Affairs & Development

Goals:

(1) Protect the rights of homeowners and consumers;
(2) Reverse the financial deregulatory wave of the last quarter century and;
(3) Move the United States toward a humane, sane, sustainable and stable national housing plan.

A. CONSUMER, DEBTOR AND HOMEOWNER PROTECTIONS: The interests of the five million homeowners in arrears and facing default, foreclosure (and forbearance) and expropriation should be placed above the interest of predatory creditors. The solution is to reverse predatory finance, not bail it out at the taxpayers’ expense.

“It was NOT homeowners taking out mortgages they could not afford – they were STEERED into sub prime loans by a profit driven industry. The bail out must focus on making whole homeowners, consumers and Main Street, not just rescuing Wall Street.”

1. Recognition of housing as a right according to the United Nations Declaration of Human Rights to which the U.S. is a signatory.

2. Enactment of an immediate 1-2 years (12-24 months) foreclosure moratorium before the next phase of ARM (adjustable rate mortgages) interest rate increases take effect or institute a rent-to-own plan to keep people in homes.

3. Elimination of all ARM mortgages and, their renegotiation into 30- or 40-year loans. Create a new Federal Housing Administration program that will incentivize lenders to buy or refinance existing mortgages and convert them into stable 30- or 40-year fixed mortgages with a federal guarantee provided for the resulting loans.

4. Lenders should write down loan amounts for more conventional borrowers. Lenders should take action to restructure loans as early as possible when borrowers are at risk of financial trouble and/or when housing prices plummet.

5. Re-write the bankruptcy laws to favor debtors once again, not creditors. Close the bankruptcy loophole for mortgage companies. (Reversal of the current bankruptcy code sponsored by lobbies from the credit-card companies). Under current Chapter 13 rules, judges cannot modify the terms of home mortgages, even if the loan was unfair or predatory.

6. Review and reform or repeal of the Bankruptcy Abuse Prevention and Consumer Protection Act enacted in 2005 in which Congress effectively “turned attorneys into a regulated industry by calling them debt relief agencies. “

The act also “prevents attorneys from fulfilling their duty to clients to give them appropriate and beneficial advice not otherwise prohibited by the Bankruptcy Code or other applicable law.”

Many attorneys believe the act is a violation of attorneys’ free-speech rights under the First Amendment.

7. Establishment of new mortgage lending practices.

8. Redefinition of credit and, regulation of the credit industry so that discriminatory practices are eliminated.

9. Examination and reform of credit rating companies.

10. Homeowners should be able to easily understand the terms of their mortgages and in return should provide truthful financial information and be subject to a penalty if they do not.

11. Lenders should be held accountable for the quality and performance of loans.

12. Reduction of the down payment requirement for FHA mortgages. As conditions allow, the down payment requirement may be raised.

13. Create a new mortgage interest tax credit which will assist homeowners who do not itemize their taxes.

14. Adopt a financial consumer protection agenda that cracks down on abusive lending practices – not just with mortgage and home equity loans but a plan that covers credit card and student loan companies that push unsustainable debt on unreasonable terms, “with crushing effect on individuals, and ticking time bomb effects on lenders.”

15. Full funding for initiatives that eliminate racial and ethnic disparities in home ownership.

16. Enforcement of existing Civil Rights and Fair Housing Laws.

17. Establishment of criteria and construction goals for affordable housing.

18. Review of local and state governmental housing/community development plans to ensure they do not favor builders, developers and mortgage lenders at the expense of borrowers, taxpayers and the creation of stable, sustainable communities.

19. Review of the HOPE VI and Community Development Block Grant (CDBG) programs.

20. Support governmental, nonprofit, and community institutions to provide basic financial services. The governmental takeover of Fannie Mae, Freddie Mac and AIG means the U.S. government is going to have a massive, direct stake in the global financial system for some time to come. What needs to be emphasized as policy, is a back-to-basics approach where the government helps families get mortgages on reasonable terms, and it should make sure Fannie and Freddie, and other agencies, serve this function. Government student loan services offer a much better deal than private lender alternatives. Credit unions can deliver the basic banking services that people need, but they need back-up institutional support to spread and flourish.

21. A foreclosure prevention fund aimed at homeowners (not speculators or vacation home owners).

The fund will:

• Increase pre-foreclosure counseling resources,

• Allow federal government to pair with state governments and local organizations and lenders to ensure fair loan modifications can be made in a timely manner that avoids the need for foreclosure or bankruptcy.

• Help offset the costs of selling a home, and help low-income borrowers get additional time and support to pay back any losses from the sale of their home.

  • Assist state and local governments that are facing revenue shortfalls because of the housing crisis and the slowing economy,• Help ensure that a decline in property values will not force governments to slash critical public services and infrastructure spending. 22. Full funding of a fund designed to cushion the job loss and provide for retraining of those at the bottom of the income scale as the economy transitions.   

Extend unemployment benefits to temporarily cover workers who have exhausted their current eligibility and extend eligibility to more workers including many part-time and non-traditional workers who are not currently included in the system.Highly compensated executives total compensation should be capped or
taxed heavily as a condition for being bailed out
.

B. CORPORATE OVERSIGHT AND GOVERNMENT REFORM: An end to the corporate welfare and corporate crime that has resulted in millions losing pensions, savings and jobs and squandered tax dollars.

Legislation must be passed which undoes the damage caused by excessive de-regulation. That means reinstalling the regulatory firewalls torn down in 1999. That means re-regulating the energy markets – as proposed by Sen. Bernie Sanders, so that we never again see the “rampant speculation in oil that helped drive up prices.” That means “regulating or abolishing various financial instruments that have created the enormous shadow banking system that is at the heart of the collapse of AIG and the financial services meltdown.”

21. Opposition to Sec. 8 of the Treasury plan which bans any Congressional review, giving Treasury Secretary [Henry Paulson] unprecedented power. At present, Sec. 8 states:

“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

22. Reform the financial system of Enron-style accounting and, end predatory mortgage and discriminatory practices. 30 years of deregulation has allowed a parallel financial system to arise in which over $500 trillion dollars in derivatives are traded without any government supervision or accounting. These parallel transactions are interwoven throughout the entire “regulated” system. For example, there are an estimated $62 trillion of Credit Default Swaps (CDS) alone, which are basically insurance policies for defaulting bonds. AIG was as heavily involved in CDS as they were in regulated insurance products.

23. Repeal of the Gramm-Leach-Bliley Act (1999 Financial Services Modernization Act signed into law by Clinton) provisions that removed prohibition on a bank holding company from owning other financial companies. Effectively repealed Glass-Steagall.

24. Restore the Glass-Steagall separation of commercial banks from risk-taking investment banks, mortgage brokers and other financial-sector contrivances. (Glass-Steagall Act, passed in the Great Depression [1933], prohibited a commercial bank from being in the investment and insurance business, also established the Federal Deposit Insurance Corporation [FDIC]).

25. Repeal the Commodity Futures Modernization Act (2000) which okayed deregulation of investment banks, exempting most over the counter derivatives, credit derivatives, credit defaults, and swaps from regulatory scrutiny.

26. The Treasury should only buy junk mortgages at current market price.

Ensure that assets purchased from banks are realistically discounted so companies are not rewarded for their risky behavior and taxpayers can recover the amount they paid for them.

In order for the existing junk mortgages to be “made good,” real estate prices must be raised further above the ability to pay for this year’s five million homeowners in arrears and facing default. Raising access prices for housing even more would force new homebuyers to go further into debt than ever before to gain access to housing.

27. Oppose Paulson directing the Federal Reserve, Fannie Mae, Freddie Mac and the FHA (Federal Housing Authority) to re-inflate the real estate market.

28. Direct the Federal Reserve to intervene to prevent asset bubbles.

29. Borrowers should forfeit all equity stock to the government. The Treasury should prohibit any financial institution that sells or swaps securities to the Fed from paying any dividends to shareholders or stock options and bonuses to managers. It also should give the government priority over other creditors. It should be required that taxpayers receive equity stakes in the bailed-out companies so that the assumption of risk is rewarded when companies’ stock goes up.

30. Opposition to the repeal of Sarbanes-Oxley bill which calls for full and honest accounting. (The Sarbanes-Oxley Act of 2002 also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or Sarbox); Enacted in response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, and WorldCom.

The legislation establishes new or enhanced standards for all U.S. public company boards, management, and public accounting firms. It does not apply to privately held companies. The Act contains 11 titles, or sections, ranging from additional Corporate Board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law. Debate continues over the perceived benefits and costs of SOX.

Establishes a quasi-public agency, the Public Company Accounting Oversight Board, or PCAOB, which is charged with overseeing, regulating, inspecting, and disciplining accounting firms in their roles as auditors of public companies. The Act also covers issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure.

31. Banks should be re-organized along the lines of savings banks, with 100% reserves. This is the Chicago Plan from the 1930s (currently revived by the American Monetary Institute).

32. Regulate hedge funds and private equity funds in a way comparable to banks.

33. Extend reserve requirements to new security categories.

34. We must end the danger posed by companies that are “too big too fail,” that is, companies whose failure would cause systemic harm to the U.S. economy. “If a company is too big to fail, it is too big to exist.” We need to determine which companies fall in this category and then break them up. For example, the Bank of America, the nation’s largest depository institution, has absorbed Countrywide, the nation’s largest mortgage lender, and Merrill Lynch, the nation’s largest brokerage house. We should not try to solve the current financial crisis by creating even larger, more powerful institutions. Their failure could cause even more harm to the entire economy.

35. Close all tax loopholes and repeal of the Bush tax cuts for the top 1% of income earners. More money in tax cuts went to the top 1% than the bottom 80% combined. According to the Congressional Budget Office, the wealthiest 1% now own 57% of the nation’s returns to wealth (interest, dividends and capital gains) and the richest 10% own no less than 77%).

The government could impose a five-year, 10 percent surtax on income over $1 million a year for couples and over $500,000 for single taxpayers. The Bernie Sanders proposal would raise more than $300 billion in revenue.

36. Crack down on market manipulation.

37. Tax hedge fund managers’ income.

38. Accountability – fire executives of failed companies as done in the UK, and abrogate their severance packages.

39. Legislation that will clarify the ability of servicers to act on behalf of the loans investors/owners.

40. Regulate the packaging of loans so they can be evaluated, rated, and
priced rationally.

41. Creation of a financial market oversight commission which would report regularly to the legislative and executive branches of government as well as an independent (and diverse) citizens’ group.

42. State legislatures should repeal anti-usury laws that allow interest rates at 20 percent and above with multiple types of penalties.

C. OTHER TAX AND TRADE POLICIES: Rejection of both corporate and imperial models of globalization:

43. The government should fairly tax corporations, denying federal subsidies to those who relocate jobs overseas.

44. The alternative to NAFTA is no NAFTA. We call for the repeal of NAFTA. CAFTA, the Caribbean FTA, and the U.S.-Peru FTA.

45. A moratorium on harmful “free trade” deals and on further expansion of the WTO, especially into areas beyond the traditional realm of trade.

D. FOREIGN POLICY:

46. End the Iraq war. The invasion of Iraq has cost thousands of American lives, taken the lives of hundreds of thousands of Iraqi civilians, produced some two million refugees, and is set to squander over a trillion dollars of public funds. We call for a moratorium on such military actions, official and covert, as a first step in stemming the damage of imperial globalization.

47. The withdrawal of U.S. troops from the more than 100 countries around the world where they are stationed.

48. Enactment of the Tobin Tax [tax on all transactions in Finance, Insurance and Real Estate] including currency transactions – proposed by Nobel Prize-winning economist James Tobin in the 1970s. The initiative would impose a low percentage tax on the hundreds of billions of dollars worth of international financial transactions that take place each day.

This would provide a disincentive for short-term gambling on currencies, and it would encourage longer-term and more productive investment. Moreover, even a miniscule levy could create an annual fund of upwards of $100 billion that could be used to alleviate poverty and homelessness.

Conclusion

The $700 billion dollars bail out could have funded the next forty or fifty years of Social Security. It could have funded health care for all Americans. It could have made a big step toward rebuilding the nation’s crumbling infrastructure.

It is bad enough for the government to buy $700 billion of bad bank investments at prices that no private-sector investor has been willing to provide. But helping them pay back this gift with the aid of favorable tax and deregulatory policies will simply shift the cost off their shoulders onto those of bank depositors, credit-card users, mortgage borrowers and pension-fund contributors. It will also sharply add to the price of doing business in the United States, and specifically to the economy’s debt overhead by the banks making even more predatory loans.

The last time the government let banks “earn their way out” of negative equity was in 1980. Interest rates to bank customers topped 20 percent, driving down prices for real estate, stocks and bonds so low that the leading U.S. banks saw their net worth wiped out. Their debts to depositors and bondholders exceeded the collateral they held in their reserves to back these deposit obligations. But as soon as Ronald Reagan led the Republicans back into office, the Federal Reserve began to flood the economy with free credit, driving down the interest rates that banks had to pay. They were allowed to act as a monopoly and keep credit-card interest rates high, at 20 percent, and above 30 percent with penalties.

The banks “earned their way out of debt” at the consumers’ expense. If an individual really did pay an income tax, they probably did not own commercial real estate or significant financial assets. The Internal Revenue Service (IRS) made commercial real estate and a large swath of finance (at least for the wealthiest investors) income-tax free by generating tax credits that could be applied against income across the board. The capital-gains tax was lowered to a fraction of the income tax, leading investors to pay out whatever income their investments generated as interest on loans to buy property they expected to sell at a markup. And with Alan Greenspan appointed the head the Federal Reserve Board in 1987, the age of asset-price inflation had arrived.

[Note: asset -price inflation - Americans believed they were getting richer because their assets rose in value. But years ago economists noted that stocks were no higher then as they were 6 years previous in the late 90s. And, house prices rose…but this “was a curse, not a blessing.” It only encouraged homeowners to go further into debt, by tapping the 'equity' in their houses as collateral.]

In the past three decades there has been a drive towards the privatization of public industry and the division of the commons into private property. Little has been offered as an alternative is to keep these things in the hands of the public, defending the provision of public goods as a way of ensuring economic human rights — including guaranteed public access to water, electricity, and health care.

If the proposed Wall Street bailout and continued funding for the Iraq War, as well as an increase in defense spending to include an increase in the number of recruits into the military services, is met with calls for cuts in social services, the alternative is to reject the cuts, maintain or bolster these services and push for a redistributive tax system that 1) makes the wealthy pay their fair share and, 2) shifts expenditures from global military adventurism to:

• A livable wage – equal pay for equal work,

• A universal access, single-payer, Medicare-for-all type health care system,

• Funding a massive infrastructure improvement program that is also a jobs program that greens our economy and puts people to work, and especially in New Orleans and the Gulf Coast, Hurricane survivors, [The right of return for Katrina survivors] treated as internally displaced persons whose right to vote and right of return are protected, play a meaningful role in the rebuilding of their communities recognizing affordable housing as a fundamental human right, and putting a halt to the senseless destruction of public housing in New Orleans.

“There must be a major economic recovery and restructuring plan that puts Americans to work at decent wages. Among many other areas, we can create millions of jobs rebuilding our crumbling infrastructure and moving our country from fossil fuels to energy efficiency and sustainable energy.

We must protect working families from the difficult times they’re experiencing. We must ensure that every child has health insurance and that every American has access to quality health and dental care that families can send their children to college, that seniors are not allowed to go without heat in the winter, and that no American goes to bed hungry.

What caused the crisis: Big financial institutions wanted privatization, deregulation and a hands-off government when it meant super profits. They had deregulation; no oversight with overseers (Federal Reserve, Treasury Dept, and Bush Administration) in bed with the industry re: corporate contributions, overlapping membership.

Now they want nationalization and government intervention after they lost billions – and want the government taxpayers, consumers, and homeowners to bail them out. We cannot support a $700 billion bail out, written on three pages, with no details.

We must end the conservatives’ reckless economic policies of the past four decades since Johnson’s War on Poverty.

THE PEOPLE NEED:

A return to government intervention, regulation and transparent oversight;A plan that includes language asserting a moratorium/freeze on foreclosures; AND REQUIRE financial institutions to RESTRUCTURE AND MODIFY HOME LOANS AT RATES HOMEOWNERS CAN AFFORD, AS IS BEING DONE BY SHEILA BAIR AND FDIC RE: THEIR TAKEOVER INDY BANK AND ITS MORTGAGE PORTFOLIO;

• Campaign finance reform to build a wall between the “regulators” and the “regulated”;

• A plan that include a real economic stimulus for the poor and working families: extension of unemployment benefits; job creation; diverse and fair investment in urban areas as opposed to upper-income and racial gentrification and sub-prime banishment of the working class to suburban America. ”

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