Making Bankruptcy Harder Comes Back To Bite Banks In the Butt

[Demeter]

http://agonist.org/ian_welsh/20071108/never_let_it_be_said_theres_nothing_to_be_cheerful_about_in_the_housing_meltdown


Life's rich tapestry of irony adds another thread:

Washington Mutual Inc. got what it wanted in 2005: A revised bankruptcy code that no longer lets people walk away from credit card bills.

The largest U.S. savings and loan didn't count on a housing recession. The new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages and struggle to pay credit card debts that might have been wiped out under the old code, said Jay Westbrook, a professor of business law at the University of Texas Law School in Austin and a former adviser to the International Monetary Fund and the World Bank.

"Be careful what you wish for," Westbrook said. "They wanted to make sure that people kept paying their credit cards, and what they're getting is more foreclosures."

Washington Mutual, Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. spent $25 million in 2004 and 2005 lobbying for a legislative agenda that included changes in bankruptcy laws to protect credit card profits, according to the Center for Responsive Politics, a non-partisan Washington group that tracks political donations.

The banks are still paying for that decision. The surge in foreclosures has cut the value of securities backed by mortgages and led to more than $40 billion of writedowns for U.S. financial institutions.

And it's going to cost much more than that. Not to mention that, as the article goes on to note, Prince, the head of Citigroup, lost his job over this. Of course, he's still worth hundreds of millions, I'm sure, so you needn't cry any tears for him. This isn't Japan, where executives who screw up that badly commit suicide to expunge the shame and dishonour.

Say what you will about seppuku, but it would be nice to see someone not just "take responsibility" but actually pay a price for all this. Let alone feel something like "shame". I'm sure Prince is familiar with the word, but I doubt he's ever experienced the emotion.

While Prince won't pay any price worth mentioning, the families who are losing their houses because of the banks' greedy decision to revise the bankruptcy act certainly will. I can guarantee that there will be plenty of suicides that can be traced back to the inability to declare bankruptcy but keep their home.

Those deaths stain the hands of every politician who voted for the bankruptcy bill. Everyone knew that bill would cause unbelievable hardship. And they voted for it anyway.

Likewise everyone involved in the financial bubbles that are now popping bears responsibility. Everyone knew the mortgages being sold were crap. Loans with no credit checks; jumper loans where you started with a low teaser rate and then jumped to much higher rates; and no money down loans as if you were buying a sofa. They knew they were selling loans to people who couldn't afford them, and who would default, and they approved their loans anyway. Why?--Because men like Prince knew there'd be no real price for them, that they'd still be rich beyond your wildest dreams. And banks like Citigroup?--They're "too big to fail", which is code for "the executives got the bonuses and now ordinary taxpayers are going to get stuck with the bill." You, personally, are still paying for the S&L fiasco. This is much, much larger when you take it all into account. Your grandkids will be paying for this.

Prince's grandkids, on the other hand, will be going to elite private schools, having holidays at exclusive resorts, will go to the best universities and will get very well paying jobs when they graduate -- if they bother to work at all. They won't need to if they don't want to, odds are.

And that's why this happened, that's why Iraq happened, that's why torture is America's policy, and why the Telecoms broke the FISA law and the 4th Amendment. Because they all expect to get away with it; heck, not just to get away with it, but to get rich and to stick ordinary Americans with the bill. Not just the bill in devalued dollars, but the butchers bill of death, of wasted lives, of suicides, of beaten wives and children, of alcoholism and and of despair. That is their legacy.

White collar fraud isn't even close to victimless. Men like Prince have more victims than even the worst serial killers.

But I'm sure he doesn't lose any sleep over it. Because he's rich, and it's regular Americans who are about to get the bill for all the bonuses he gave himself over the years.

[AdHocSolver]

1. This is a prime example of how corporate executives leverage other people's money to get rich.

Forget all the double talk of how investor's own the companies whose stock they buy. The top corporate executives control everything, and their only concern is maximizing their own profit. They don't care one wit about what happens to the corporations they control once they have made their millions.

The corporate model is not Henry Ford, but Ken Lay of Enron fame. Cook the books to make a corporation that has "issues" look like it is making huge profits. Then collect your bonuses for doing such a great job, sell all your stock options, and retire a multimillionaire. If you are really good, you will find another corporate board of directors who will give you a chance to loot their company as well.

The wealthy get rich by manipulating the stock market. The price of a stock is unrelated to the actual profitability of a company, but the apparent profitability of a company. All that the insiders need to do is make the company look profitable, ala Enron, so that investors (suckers) will throw a lot of money at the stock and bid up the price (i.e., lots of dollars chasing a limited supply of stock shares). The "market" for any one given company only involves the transactions for that particular company's stock.

A lot of people buying company XYZ's stock will drive up the price no matter what other stocks are doing. A lot of people selling XYZ's stock will drive down that stock's price no matter what other stocks are doing. The only competition is for dollars. So the way to make money fast, is to inflate the price of stock that you own to get people to buy it, and the easiest way for insiders to make their profit is to make the company look like it is making lots of profit, even when it is losing money.

The key mechanism that drives this looting of companies is giving stock options to executives. If you want to stop it, the simplest solution is make stock options an onerous practice. The best course would be to make stock options illegal. However, since that would be difficult, then the next best thing would be to heavily tax gains off the sale of stock that involves insider trading. This type of tax might even appeal to "outside" investors, as it would make it less profitable for insiders to rip them off.

[Usrename]

2. I like that idea.

Call it the Cheney tax. Craft it in such a fashion that guys who pull the crap he is pulling will get taxed into oblivion. I love the idea.

[Baby Snooks]

14. The Wall Street Game

You have it down pat. And with a million or two, you, too, could become very wealthy as opposed to just rich. If you are that sleazy. Which quite a few are. You can play for much less. I believe the minimum in an account in order for the SEC to allow you to play the game of daily trading is $25,000. But a million or two is much better. Allows you to hedge your bets better. And now you know why they're called hedge funds. They are betting. Not investing.

The average investor however doesn't do well with the "ups and downs" because they are investing and quite a few lose quite a bit. Sometimes with these same options which often are suggested by their brokers since they have all that borrowing power now in their margin account. Ooops. Oh, well, easy come, easy go. The CEOS put and call and the average investor is usually shoved. Out on the street when they lose it all.

Wall Street isn't much different from Las Vegas. Except on Wall Street, they are allowed to rig the game. And do.

The rich get richer. The poor get poorer. And now, the poor have to pay it all back. All eyes turn to the Democrats who voted for it.

[donheld]

3. Those were your family values at work?

:shrug:

[Vidar]

4. It's the Oklahoma Dust Bowl all over again, except this time, California is broke too.

[Demeter]

5. And to Think, This All Could Have Been Avoided By Universal Health Care

and refusal to go to war.

[AwakeAtLast]

6. And this will all be blamed on Democrats because we happen to be in the (slim) majority right now.

:(

They never miss an opportunity to blame us, so this will be no different.

[Demeter]

7. The Democrats Passed That Bankruptcy Buster

Without their votes, it wouldn't have happened.

[liberal hypnotist]

8. Sen. Nelson of Florida voted to help working class people.

I asked Sen Bill Nelson (D) Fla. why he voted for the bankruptcy bill. He sent a letter telling me it was to help folks making $35,000 or less. I also asked how much he received in donations from the credit card companies. He neglected to answer.

Florida Dems. remember how Bill helped you at the next election.

This is a law that must be revamped to help the people it was meant to help-"we the people."

:shrug:

[soothsayer]

9. sadly, our whole country has been pumped and dumped, just like stock.

our aging populace is leading to decreased productivity, and TPTB have made the decision to pull out of the US ans invest in more profitable countries with younger pops (mainly asia right now). They look at countries as franchises.

[LiberalEsto]

10. Thanks SO much, Joe Biden

Biden voted in favor of this bankruptcy legislation.
He and his family members aren't going to lose homes to foreclosure, you can bank on that.

This is a key reason I would never support Biden in the Democratic primary. He kowtows to his corporate masters.

[sarcasmo]

11. Kick.

[Cronopio]

12. The just wages of dumbassed corporate thuggery.

Good. It doesn't happen often enough.

Will this cause a rethinking of the "good business is screwing the customers more efficiently with a smile" meme? Hmmmm.

[UpInArms]

13. and that doesn't even take into account that all those folks who

rolled their credit cards into those nasty ARMs and now are defaulting

fitting justice

[JPZenger]

15. Barron's: Largest Shareholder in Citibank is Saudi Prince

Barron's this week has a cover story about Citibank. It confirms the story that the largest shareholder of Citibank is a Saudi Prince.

I think we should all include a few extra dollars in our credit card payment to Citibank this month as a donation to help them out of their mortgage mistakes.