The Pennsylvania Progressive

The Student Loan Mess

Congressman Paul Kanjorski has been in the forefront of efforts to repair the broken system for student loans.  A side effect of what began as a sub prime mortgage meltdown money has been diverted from many different credit markets as investors got the jitters.  Let's recap this issue a bit so it can be easily understood.

As Wall Street got more and more creative bundling and marketing mortgage securities more and more capital was attracted to these unregulated markets.   Returns were very good and a flood of petro dollars and investors from places like China were looking for places to put their money.  Since the hedge funds were making money hand over fist in these risky securities more and more money flowed into them and made more money available for credit.

More money available for credit meant loan originators got more and more creative about who qualified for these loans.  They needed a market so they kept loaning the capital which was flowing into the loans.  Since no one entity was actually responsible for the loan defaults because of the way they were packaged and sold everyone was willing to take the risk.  Eventually the loans began defaulting and now everyone is affected.  The ripple effect is hitting every loan market including student loans.

Those investors who readily provided the capital which fueled this credit expansion have taken their money elsewhere and there is less money available for loans.  The consequence is that the requirements for loans is much tougher due to tighter markets.

Scores of student loan companies have gotten caught in the squeeze and are no longer providing college loans.  This is serious for our economy for several reasons.  First college educations are an important step forward on the economic ladder for young people.  A college degree is worth a million dollars in earnings over a lifetime.  College has become so expensive that few students can afford the education without incurring debt.  Many local economies are dependent upon institutions of higher learning.  Up to now living in a college town meant you were largely recession proof.  No more if the student loan industry collapses.

One solution we're seeing are major universities dipping into their endowments to provide grants to lower income students.  Harvard began this trend and has been followed by many others.  Not every college has this capability however and if the student loan market isn't stabilized it could cause some institutions of higher learning to close.  What the federal government is seeking to do is provide emergency funds for the market and act as a "lender of last resort."  Another solution would be to restore funding for Pell grants to their pre-Bush Administration levels.  George W. Bush has continuously cut funding for Pell grants.

Another important action needs to be cutting the interest rates on student loans.  Once at low levels of 2-4% some students now pay upwards of 25-30% on their student loans.  No one can pay off loans at those high rates.  This won't help increase funds available for these loans but would have a lasting positive effect on the overall economy.  College graduates saddled with such debt will never be able to buy houses for example.

This is one economic issue we have to address in addition to the mortgage crisis.  Credit markets have been under attack from all sides and all are feeling the tidal wave of recession from the mortgage meltdown.  It's imperative we solve these problems.

National Regrets and Paying for Reagan-Bush Policies

This is a guest column by Stephen Crockett of Democratic Talk Radio, and a frequent contributor here.

Our current list of national economic difficulties and governmental failures is a direct result of nearly 30 years of failed Republican policies. We are paying the price in many ways for our national love affair with slick, emotionally appealing Republican political rhetoric and candidates. We ignore the harsh reality behind the deceitful words.

 

We have all experienced bad relationships and failed romances. Long after the romances are over, we are still dealing with the negative consequences both emotional and financial. We keep paying the unhappy costs.

 

The legacy of distrust, dealing with debts accumulated based on lies, self-doubts for believing the nice sounding lies and living with an awareness that we all are subject to the weakness of emotional reasoning remain long after the relationships have collapsed. There is always the possibility that the burden of dealing with the problems is so great that we go into denial and repeat the same mistakes by buying into slightly repackaged versions. It plays hell on emotional, physical and financial well-being. We all have been there.

 

It is long past time for the American public to end our soured love affair with deceitful Reagan-Bush Republicanism and start cleaning up the mess left behind. It will be emotionally upsetting but has to be done. The damage is great. It will require a real change in both our behavior and thinking to undo the damage and avoid repeating the same mistakes. It can be done!

 

In 2008, we are finally be forced to start paying the price for the falsely named set of economic policies once labeled “economic deregulation” that became the national political creed with the election of Ronald Reagan in 1980. We shifted the tax burden to those least able to bear the strain by raising taxes on both the poor and the middle class. We cut dramatically the tax burden of the wealthy and even more so for the Super Wealthy. We encouraged paper financial profits over real economic growth. We exported our industrial base weakening our nation because it temporarily profited our economic elite.

 

We ended usury laws, weakened government regulation of our financial institutions, permitted government “no-bid” contracts to go to political powerful corporations and ignored anti-monopoly traditions. Consumer protections were weakened. Our federal courts were packed with Republican Right-Wing Radicals willing to overlook any kind of corruption by government officials, corporations or Republican politicians as long as the results favored the wealthiest of the wealthy and the politically powerful.

 

Our dollar is in the toilet because we exported debt in exchange for cheap imported goods. Wal-Mart raked in a fortune by lowering wage rates in community after community, fighting all efforts at unionizing their workers, and undermining our manufacturing base by encouraging American factories to relocate to China. A government truly serving our national interest would have adopted trade and tax policies that would have stopped Wal-Mart from pursuing these policies. However, the Reagan-Bush Republicans did the opposite.

 

Even during the brief periods of Democratic Presidential rule under Clinton, Republican policies were often still pursued. The NAFTA and WTO deals received White House support although the majority of Congressional Democrats often opposed these falsely-named “free trade” deals. They were passed largely with Congressional Republican votes. Media consolidation resulted as a direct result of some Democrats buying into the Republican “economic deregulation” arguments. Media consolidation reduced competition instead of promoting it. It hurt small business advertisers and media consumers. Both policies have been severe failures for the American nation. They have undermined the health of both the American economy and American Democracy.

 

The Republican Presidential candidate John McCain promises to deliver more of the same failed policies. Although McCain has an impressive past military record, his services in the political arena are not impressive. His record on economics or finding a quick exit from the Iraq quagmire inspire little hope or confidence. McCain is simply not prepared to deal with the modern challenges facing the nation in the 21^st Century.

 

For most Americans, a McCain victory will mean a lower standard of living and even less real influence on government policy. McCain is certainly no friend of American workers or consumers. McCain will do nothing to restore America’s industrial base or basic economic health. The “100 Year War Man” has no answers for the real fundamental problems facing our nation today! He is a real threat to our long-term national security.

 

Both leading Democrats are likely to be a big improvement over McCain. However, we still will need to elect Senators and House members willing to support more populist economic reforms that actually reverse some of the damage done over the past 30 years. We need to elect the right kind of Democrats and to keep pressuring them to restore economically responsible policies. We need to demand more open government, more civil liberties protections and democratically responsive governance.

 

I urge strongly that voters educate themselves before voting in November. Two excellent books that we all should read by then are Free Lunch by David Cay Johnston and Bad Samaritans by Ha-Joon Chang. A daily visit to Buzzflash.com or Mid-Atlantic Labor.com would certainly help you become a more informed voter. Listening to talk radio shows like The Rick Smith Show, Thom Hartmann, Andy Johnson, Ed Shultz, Guy James, Democratic Talk Radio or Air America programs would help with the brain rot resulting from listening to Rush Limbaugh, Michael Savage, Sean Hannity and the like.

 

You can count on the Republicans feeding you, as voters, lots of crazy emotionally charged slogans and arguments. The Corporate media will go after reform minded Democrats like resigned New York Governor Spitzer with zeal and venom while largely ignoring similar or worse behavior by currently serving Republican Senators like Louisiana’s Vitter or Idaho’s Craig. Vitter and Craig are reliable votes supporting the failed Reagan-Bush Republican policies while Spitzer actually prosecuted some of the worst Corporate abusers.

 

Only by educating yourself about policies can you avoid making the same mistakes over and over again. For your own sake and that of your children, this year break the cycle and vote based on substantive issues like healthcare, trade policies, re-industrializing America, shifting some of the tax burden back to those most able to pay higher taxes, resumption of usury laws, jobs, consumer protection, balancing the budget, ending an unaffordable war and a return to anti-monopoly law enforcement.

Health Care Dispute Idles GM

The United Auto Workers struck General Motors yesterday because of negotiating impasses.  One of the principle areas of disagreement is over the creation of a health care trust.  Once again, the lack of single payer, universal health care is having a serious negative impact on our economy.  The idea of union run health care trusts for workers is gaining ground where companies are willing to adequately fund them.

Here's the concept.  Instead of a corporation guaranteeing health care coverage for it's workers they pay into a fund owned and managed by the union.  The onus is on the union to provide coverage.  This frees up the legal obligation of the company, as negotiated in it's union contracts and the union members are guaranteed they won't lose their health care if a company goes under or unilaterally decides to cut benefits.

The argument is over how much the company will contribute.  The United Steelworkers/Goodyear strike was over this same issue because Goodyear refused to adequately fund the trust.  They finally came to an agreement and the UAW and GM will also.

The over riding issue, though, is why corporations building cars and unions are in the insurance business at all.  GM, Ford and other automakers should only have to concentrate on their own businesses.  Unions should only have to concentrate on worker issues like safety, pensions, wages, rules and resolving grievances.  Even this solution is bad because all it does is transfer the responsibility for managing health care coverage to unions.  What experience do they have in this?

The unions are trying to guarantee their workers won't be left holding the bag.  If GM goes bankrupt (or Ford for that matter) the workers lose their jobs and health care.  This way, even if the companies go under the union still has the health care coverage to provide.  It's a safety net for workers.  It's imperfect though because those benefits could be cut as costs continue soaring.

The only real solution is comprehensive, single payer health care for all.  Nothing else is going to save our manufacturing industries and good jobs.  It also has the side benefit of providing healthier, more productive employees and saving and extending lives at less cost.

Supreme Court Limits Workers Rights

Everyone knows if you're a woman you make less than men for the same job.  It's been a persistent problem of sexual discrimination in this country and yesterday the Supreme Court voted to uphold the practice.  In a 5-4 vote they overturned a ruling on the grounds that the time to sue (statute of limitations) had expired and the woman didn't have a right to sue for back pay. 

Instead of taking the initiative and establishing the legal inequities and objections to this discrimination the Court decided the case on very narrow legal grounds.  Lilly Ledbetter was a supervisor in a Goodyear plant in Alabama and was paid significantly less than her male co-workers performing the same work.  At one point the difference was over $6,000/year.   Lower courts awarded her relief in the form of damages.  The Supreme Court over turned those decisions and, in essence, authorized such systemic discrimination.

Ruth Bader Ginsburg, the only woman sitting on the Court, wrote a blistering dissent:

"In our view, the court does not comprehend, or is indifferent to, the insidious way in which women can be victims of pay discrimination."

People in the workplace are often hesitant to file suits for wrongdoing, discrimination, and other issues for fear of retribution.  Such fears are very well considered.  25% of employees involved in union organizing efforts are routinely fired for this activity even though it's illegal.  Many employers refuse to pay overtime, make people work "off the clock" and so forth.  Afraid to press the case for fear of getting fired they often wait to take legal action.

By establishing the fact one must sue within 180 days or whatever other time period laid out in law, the Supreme Court has just undone decades of progress in protecting workers and women from exploitation.  It is imperative that Congress rewrite these laws to protect people.

Bad Trade Deals

Not having television at all is making it a bit harder to follow the news but a friend called to tip me off about this bad new trade deal between Nancy Pelosi and the Bush Administration.  Anytime I see a trade deal supported by the Chamber of Commerce and the National Association of Manufacturers I don't need to look much farther.  The bad part is we can't look much farther on this deal because its details are secret.  Oops, that's another big red flag.

Recent trade deals have been very bad for working people, the backbone of the Democratic Party.  How long will we continue selling out their jobs in the name of "free" trade?  How long until we awaken to the reality that if we don't begin adopting "fair" trade we're doomed?  NAFTA was the giant sucking sound Ross Perot warned us about.  That giant sucking sound took millions of good, middle class American jobs and shipped them south of the border.  Those folks are now driving trucks and greeting you at Wal-Mart.

How many times are we going to allow the DLC Democrats to screw over working people before we stand up and say no, not again?  It won't be, folks, until the unions and the working people stop contributing money to Democratic candidates and causes.  Face it, there's only one thing they understand above all else:  $$$$$.  Money talks and b*llsh#t walks.  While we're discussing accountability in Washington let's also hold our own leaders accountable.  If Nancy Pelosi is going to join forces with the Chamber and NAM the rest of us have a duty to call her out on the issue.

Enough is enough, we've lost too many jobs.  Enough is enough, we've given too much. 

Corporate Greed

I'm not against companies and businesses making profits, that's the American way.  Gouging consumers, cheating the public, making money from taxpayers through government privatization, these are all legitimate issues however.  Excess, runaway, rampant greed has taken over in too many sectors however.  I read yesterday where the executives of the 25 largest hedge funds are averaging $540 million per year in compensation.  That's simply obscene, especially compared to what the average worker is earning.

Comcast just reported an 80% increase in profits.  This is for their first quarter reporting.   They attribute much of the growth to their bundled services, phone, tv and internet in one package.  This is amazing however and I wonder how much of these increased revenues they plan on sharing with the employees out there making it happen?  I bet the Roberts family continues seeing the bulk of those funds go into their personal accounts.

Senator Casey is proposing a new tax on oil companies excess profits.   His legislation would impose a 50% levy on profits from oil priced above $50/barrel.  It also revokes tax breaks and raises royalties on leases of offshore oil field rights.  He would use some of the revenue to help poor people pay for gasoline.  ExxonMobil reported a 10% increase in revenues over last year's record numbers.

Circuit City and Worker's Rights

Republicans have strangled worker's rights ever since Ronald Reagan was elected in 1980.  They have so eroded the protections and safety nets for laborers and working stiffs along with deregulating industry, refusing to properly manage OSHA, EEOC, etc.  They have neutered the Department of Labor such that real wages continue shrinking.  People are working longer hours for less money when inflation and taxes are factored into the mix.  The federal minimum wage has not been raised in ten years.

Meanwhile we continue witnessing worker abuse such as that announced last week by Circuit City.  The electronics retailer is going to furlough 3,400 employees to replace them with lower wage people.  These "fortunate" souls will have the "opportunity" to re-apply for their old jobs but at lower wages.  What a great gift!  Imagine what a marvelous company Circuit City must be to work for.

The House of Representatives passed a new bill restoring worker organizing rights and it's awaiting passage by the Senate.  As it is unions are at a serious disadvantage vis-a-vis management when trying to organize workers.  Companies have a free hand to propagandize indoctrinate their workers during work time and there is almost no enforcement of violations of current laws when they abuse the organizing process. 

Look at all the coal miners dying because mine safety isn't being enforced.  Compare this to the millions of dollars in contributions mining companies have given to Republicans.  The mining industries have done extremely well under the Bush Administration and federal lands have been handed over to them for plundering.

Companies such as Wal-Mart are routinely violating labor laws and employing undocumented workers.  When caught they pay a fine and laugh all the way to the bank with all the billions they managed to save in the process.  You subsidize Wal-Mart's low prices by paying for their worker's health care costs through Medicaid.  Yet Wal-Mart will close a store rather than see it unionize and provide protection for it's abused workers.

Circuit City isn't much worse with this stunt.  Laying off 3,400 employees then saying they can re-apply for their jobs at lower wages is abusive.  Workers just continue to lose ground in this economy because the playing field is tilted against them.  Do you want to send a message to companies like Circuit City?  Don't do business with them.  Chains and franchises take money from your community so try to do business with local merchants whenever possible.  Tell Circuit City why you won't buy there again.

Housing Market Collapsing

The sub prime mortgage market is collapsing under the weight of unregulated greed by predatory lenders.  These home loans were given to almost anyone who applied and had onerous terms that are beginning to kick in and causing an upsurge in foreclosures.  The housing market has been the biggest driver of our economy under this Administration.  Home ownersip rates were one of the only accomplishments George W. Bush was able to run for re-election (or election, excuse me), upon.  Even it has proved to be ephemeral.

It was a house of cards.  Instead of conventional, fixed rate mortgages with normal down payments, high risk borrowers were given loans with low rates, low down payments, and escalation clauses.  As interest rates have risen so have the rates on these loans.  Homeowners can no longer afford their homes as mortgage payments are doubling or tripling.  Disclosure of terms was unregulated and/or unenforced and mortgagees either didn't read the terms or couldn't understand the complicated legalese.  Nothing was properly explained or disclosed at settlement.

This is what happens when markets go unregulated and laws aren't enforced.  The greed of the lenders overtook any sensible approach and now it may cause the entire economy to tank.  Real estate markets are softening and an influx of foreclosed houses onto markets will hasten a decline in home values.  Because this is what has fueled consumer spending, Alan Greenspan predicted a recession by year's end.

With no more home equity to tap into and sky high credit card bills Americans will find themselves stuck between a rock and a hard place.  Well accustomed to using their rising equity to bail them out, falling prices may actually see creditors calling sme of these loans.  People won't be able to sell their homes because they'll owe more than they're worth on the market.  The alternative is walking away and letting the lenders foreclose.

The second largest company in the sub prime market is about to fail and the number of mortgagees who missed making their payments at the end of 2006 is sending shivers through the stock market.  The foreclosure rate is the highest in forty years.    FHA loans are at record default rates.  Things are only going to get worse.

This is all reminscent of the 1980's when Ronald Reagan deregulated the savings and loan industry.  Long the place for mortgage lenders, they were allowed to diversify and, without regulation, went on binges resulting in tens of billions of dollars in taxpayer bailouts.  Neil Bush, the President's brother, was one of those who ran a bank into the ground then was bailed out by the taxpayers.  Arizona Senator John McCain was involved in one of the scandals, a member of the infamous "Keating Five."

I'll bet this will entail another huge taxpayer bailout of the banking industry.  An economic sector unwilling to learn from past mistakes, with enormous clout in Washington from people like Chris Dodd, an intense dislike of oversight and regulation, bankers will use the specter of epidemic homelessness to convince the federal government to, once again, save them from themselves.

How many times are we, the taxpayers, going to play this game with these bankers?  They're playing us for fools and we allow them.  The risks are too high to not save all these homeowners victimized by predatory lenders.  Laws are passed then repealed by greedy GOP congressmen who believe in "free markets and unregulated business."  Unregulated business is a disaster, always has been and always will be.  They don't care though as long as the campaign cash flows freely and the golf outings to Scotland continue.

Guess who gets the bill for this corruption dumped in your lap?  You the taxpayer.  Again.

Stocks

Wall Street had a bad day yesterday, down 416 points.   This wasn't surprising since other markets were down the night before predicting a tough day in NYC.  Economic indicators have been bad for a while, mostly centered on the housing market.  President Bush has be hailing his economy as healthy but it hasn't really been since he took office.  Job creation under his tax policy has been stagnant.  Each month we must create 120,000 new jobs just to keep pace.  This is the result of population gain.  If you see job growth numbers under that figure we're actually losing ground.  Under Bush we lose ground more than we gain.

Bush supporters applauded when the Dow Jones finally broke a record last year.  Actually this didn't used to be all that unusual.  In good economic times the Dow Jones Industruals frequently set new highs.  It stagnated under Bush in spite of record corporate profits which was quite unusual.  Stocks usually thrive on profit reports.  There were many, many, very healthy profit reports the past six years.  Remember Enron's?

The underlying problem with our economy is the housing market.  What growth we had this decade has been the result of homeowners tapping their equity.  With wages down people used this financing to pay off credit cards they were using for monthly expenses and to make large purchases.  It fueled what we had for an economy along with the war defense industry.  With interest rates creeping higher and all the sub prime mortgages hitting homeowners with huge mortgage payment increases the real estate bubble is bursting.  This is going to have a serious negative effect on the economy.  Foreclosures are up, new home construction i sdown and real estate sales are also down.

There's no other sector available to rescue the economy this time.  This recession will hit hard and anyone without a fixed mortgage rate is in for a bumpy ride.  As their home payments rise there will be less money in the family budgets for the big screen televisions, new computers, Play Stations, etc.  Dining our is usually one of the first items cut back on as harder times hit. 

The question is was yesterday's downturn the harbinger that we're entering this recession or was it profit taking on a huge level?  Only time will tell.