Commentary
Protecting banks not borrowers?
By Jerry Mazza
Online Journal Associate Editor


Jul 22, 2008, 00:25

�In 1980,� Wikepedia tells us, �due to inflation, national banks, (banks that generally include N.A. in their name), federally chartered savings banks, installment plan sellers and chartered loan companies were exempted from state usury limits by the federal government through a special law. This effectively overrode all state and local usury laws.� This, thanks to a Democratic president and Congress also opened the door to the election of a Republican president, Ronald Reagan, and eight years of his �free-market� friends to continue the journey to the brink of our economy�s collapse.

Usury, also as defined by Wiki, �originally meant the charging of interest on loans. This would have included charging a fee for the use of money . . . After countries legislated to limit the rate of interest on loans, usury came to mean the interest above the lawful rate. In common usage today, the word means the charging of unreasonable or relatively high rates of interest.�

Veteran journalist/author William Greider, writing on usurious subprime debt, recently said in THE NATION, �We are witnessing a momentous event -- the great deflation of Wall Street -- and it is far from over. The crash of IndyMac is just the beginning. More banks will fail, so will many more debtors. The crisis has the potential to transform American politics because, first, it destroys a generation of ideological bromides about free markets, and, second, because it makes visible the ugly power realities of our deformed democracy.

�Democrats and Republicans are bipartisan in this crisis because they have colluded all along over thirty years in creating the unregulated financial system and mammoth mega-banks that produced the phony valuations and deceitful assurances. The federal government protects the most powerful interests from the consequences of their plundering. It prescribes �market justice� for everyone else.�

Appearing last Friday on Bill Moyers Journal to comment on the show�s investigation of the plundering of Cleveland�s real estate by predatory lenders, Greider said, �Usury, to be clear about it, is rich people taking advantage of poor people by lending them money on terms that are sure to make them fail. All three of the great religions, Judaism, Christianity, Islam, had a moral prohibition against usury because they recognized that society can�t function like that. People of great wealth and their institutions, like banks, naturally have the power to overwhelm people of lesser means. And you can�t allow that in a decent society. It won�t survive.�

Cleveland�s crisis is described in the report by Cuyahoga County Treasurer Jim Rokakis as �Back in the old days when there was no sheriff in town, people would rob the banks. Well, here we are in modern day era. And there�s no sheriff in town. The banks were robbing the people.� The victim of the total lack of qualification for borrowing was not only the borrower, but �the person that lives on that block, that person who pays their taxes, plays by the rules, has done nothing to deserve what they�re facing today, which is a devastated neighborhood, with their most valuable asset, their home, now worth virtually nothing. That�s the victim.�

Another Ohioan, Tony Brancatelli, representing the neighborhood of Slavic Village, is on Cleveland�s City Council and said, �I was born and raised in this neighborhood. And . . . seeing what�s been happening in the families has been very heartbreaking. Seeing what�s been happening to our housing stock has been very heartbreaking. And so it�s tough to wake up every morning and see that we�re averaging two foreclosures a day. That is just unheard of.�

Rokakis said, �In 1995, there were 3,300 private mortgage foreclosures filed in this county. By 2001, the number was 7,000.� This led Rokakis and his group to meet with the Federal Reserve Bank in Cleveland, asking it to intervene. After a conference on subprime lending, predatory lending in Ohio, in March of 2001, the officials listened politely at a nice lunch they threw, but in the end the Fed didn�t do a thing.

Rokakis� bottom line was that �the Fed really is there to protect banks, and not to protect the consumers.� In fact, when the Cleveland Council took up an ordinance to ban predatory loans, the Republicans at the State Capitol in Columbus who controlled the governorship and both houses, along with lobbyists for the mortgage industry, pressed for and passed a law prohibiting Cleveland and other Ohio cities from regulating lenders. The foxes, so to speak, were in the henhouse and feasting freely.

Moyers� excellent piece perfectly exemplifies what all this subprime lending comes down to, the decimation of a working class neighborhood in Cleveland. Yet this humble neighborhood was important enough profit-wise for national, even world-wide institutions like Deutsche Bank, Wells Fargo, Countrywide and HSBC, to have issued the mortgages; and later, to file about 1,300 foreclosures, after profiting from their issuance. They created, as one resident said, �The environment that led to a lot of bad loans.� Cleveland�s Mayor Jackson adds, �Without them, this would not have happened. But for their actions, this would have not occurred.�

And so it goes. And how it ends is that the City of Cleveland spent $6 million this year as last year, $12 million in all to demolish these homes now in decay, often broken into and robbed of anything of value, or set on fire, or inhabited by drug addicts drawn to squat in their squalor. That $12 million is taken from investment in infrastructure and strains police and fire budgets. This so the big banks and lending companies can make billions with no supervision whatsoever, once more revealing that �free market� really means �free to pick our pockets.�

Thus Branctatelli says he �wants his pound of flesh. . . . [W]e need to have these mortgage companies step to the table and say not just they�re gonna give us the house, because I don�t want the house. I want this house, plus $10,000 for demolition. I want this house, plus environmental remediation money, so I can come in and clean it up and reoccupy it.�

Rokakis points out the infectiousness of this subprime disease: �There�s a suburb, Garfield Heights, over 1,400 vacant homes; Maple Heights, a similar number; Cleveland Heights, over 1,000; Euclid, over 1,000; Shaker Heights, once one of the most prestigious suburbs in America, 500. They will not come back . . . This county has lost over 90,000 people in the past seven years. No county in the country has lost more population, with the exception of New Orleans parish. And as I said to many people, they had the hurricane. And we had overzealous, unregulated lenders. And the impact was almost the same in some communities.�

You can hear the pain in Rokakis� voice, see it in his rugged face, and on the faces in this modest working class neighborhood. And you think to yourself, my god, what�s happening to America? And now, as we wait to have the Fed step in and hand a $300 billion bailout to Fannie Mae and Freddy Mac, you are led to think, whose money is that? Just as Senator Jim Bunning asked of Secretary of the Treasury Paulson at a recent hearing. And Paulson answered, �Obviously, it would come from the government.� And Bunning snapped back, �and who is the government?� Practically mumbling Paulson said, �The taxpayer.�

Yes, it�s coming from us. And perhaps the very least that can be done, as William Greider proposed, is to nationalize Fannie Mae and Freddy Mac, make them federal agencies, efficient as Fannie Mae was when created in the Depression by FDR to help everyday people have the wherewithal to buy a home, to be �an ownership society,� as �free-market� President Bush puts it. But free must come with the promise of reinstating oversight, restoring the laws created to protect against usury, and its uptown name: predatory lending.

As Moyers points out in his introduction, �California�s big IndyMac Bank went down with a crash, the second worst collapse in U.S. history and sent thousands of depositors out looking for their money. The FDIC, the Federal Deposit Insurance Corporation, took over as reports circulated that the FBI is investigating IndyMac for mortgage fraud. Analysts are predicting that as many as 150 of the 7,500 banks in America may fail over the next 18 months, and one analyst even said that number might double over the next three years.�

By the way, Fanny and Freddie hold about half the country�s $12 trillion in housing debt. So giving the helm to the government, the taxpayer, and not a private entity is a great idea.

Amidst this, President Bush is still upbeat about the economy and says it�s all going to come out okay. He seems to have no idea he�s standing on the deck of The Titanic and the iceberg is waiting in the dark between today and tomorrow. In the face of this disaster, one of the great notions from William Greider is, �Restore the federal law against usury. That won�t have too many details to it at first. But it�ll be a general statement that the federal government is prohibiting the kind of outrageous predatory practices, which have become general in this country, of not just banks but other financial firms.�

Pressed by Moyers, Greider responded, � . . . The larger meaning is wealthy people, whether they�re banks or individuals, ought not to be able to use their power, their wealth to exploit people who don�t have wealth, great wealth. That�s not too complicated. And I�m not being utopian here. I�m just saying that you can reestablish legal-slash-moral limits on the behavior of finance and their wealthy patrons. And if they don�t want to observe those rules then they need not apply for emergency loans at the Federal Reserve or the Treasury Department.� Amen. And there�s more . . .

Greider continued, �If you ask me, well, who�s figured this out? The guys in Washington? The politicians and their governing policy advisors. Or the dimwitted public? I would say the public. And I think there�s a lot of evidence in that. You know, they keep seeing these polls where the public expresses doubt about this, about��

Moyers completed the statement, �Eighty-one percent of the people in the most recent polls say we�re heading in the wrong direction.� And Greider capped it, �I call that extreme consensus. Why do the newspapers not celebrate that? They�re always looking for consensus politics. Here�s the American public, they�ve got an 80 -- you know, that�s extraordinary.

�We have an opening in this crisis for, this is really going to sound grandiose. We have an opening in this crisis for a deep transformation in American politics. . . . But it requires people . . . And I . . . think in the next year, two years, five years, you�re going to see both political parties floundering. What do we believe about all this stuff . . . this lovely story for 20, 25 years about the magic of the marketplace. Do we still want to kind of prop that up? That�s where they are now . . . It�s over . . . I think events will demonstrate that. So if they�re not willing to change then we need to change the politicians. And that�s all a bloody process and doesn�t happen quickly. But that�s why I�m optimistic.�

There was a beat as he concluded. Then I could hear applause in my mind and see people opening their windows as in Paddy Chayevsky�s great film, Network, echoing the news commentator Howard Beale with �I�m as mad as hell, and I�m not going to take this anymore!� That would be a great ending to our present disaster movie. �I�m as mad as hell, and I�m not going to take this anymore!� Amen again.