Like many who were following the situation in Steubenville, Ohio involving the rape and horrific mistreatment of a 16 year-old girl by two high school student football players and their friends, I was relieved by the guilty verdict handed down by the Judge in the case. Relieved because this case and the attention it received could have served as a serious set back for victims of rape and sexual assault in the future, much like the tawdry William Kennedy Smith case in the early 1990s served as yet another disincentive to women to come forward to report their rapes and risk having their reputations, life, and even name dragged through the mud (remember NBC inexplicably published the name of the victim in the Kennedy Smith case for no good reason).
What I was not prepared for was the intense backlash against the victim coming from seemingly every direction including a mainstream television network, CNN, who when reporting the verdict lamented what the effect would be on these young boy's promising futures. When was the last time we saw someone convicted of murder or robbery have the type of sympathy that these young men were shown for their horrific and nearly inhuman acts they committed.
The internet, and especially Twitter, was awash with the most unbelievably violent, uncaring, and quite frankly insanely dumb attacks against the victim that you could imagine. If you want a nice collection of the worst of the tweets, please check out Matt Binder's twitter feed @MattBinder. Most of these were the usual, blaming the victim for getting drunk, saying what did she expect, so on, so forth. But an alarming number of these attacks seemed to go further than that. They seem to endorse a rape culture which accepts rape as a normal part of life. The attacks seem to say not only that if a woman gets drunk she should expect to get raped (an argument that is unbelievably stupid and scary in its own right), but that if a woman gets drunk (or dresses provocatively, or has had sex before, or engages in kissing or petting, etc.) that it is OK to rape her. An alarming number of these attacks came from women.
I'm tempted to just throw up my arms and say our society is going straight to Hell (which it may be). But to do that would be to ignore everything I've done in my adult life to combat rape and sexual assault. So, instead, I and everyone else who cares about this issue, and cares about each other and humanity in general have to rededicate ourselves to combating rape in our culture and the best, most effective way to do that is through education.
Recently, Democratic strategist and rape survivor Zerlina Maxwell went on Fox News and made a statement that instead of arming women and telling them how to avoid getting raped in order to prevent rape, perhaps we should teach men not to rape. I don't know how this was such a controversial statement, but it was. Immediately Maxwell was deluged with death threats and attacks for daring to suggest what seems to be, to me at least, a rather obvious statement.
The reason that it is an obvious statement to me is that teaching men not to rape, and moreover teaching both men and women not to accept a culture in which rape is acceptable is something I've been doing for more than twenty years. When I was in college at Syracuse University, a group of students formed a group called Students Concerned About Rape Education (SCARED), of which I was proud to be a member and in my junior year its President. In addition to speaking out against campus rape and forcing the administration of the university to stop sweeping the problem under the rug and adopt actual policies which dealt with the problem, we embarked on a very successful and groundbreaking educational program. In it we simply spoke to both men and women about the crime of rape: what it was, how it affected us and them, how to prevent it (which included nothing about not wearing short skirts) and what changes we could implement in our lives to prevent rape from happening.
What amazed me then and what amazes me now is how many people (including both the defendants and the victim in the Steubenville case) don't know what rape and sexual assault is. Robin Warshaw wrote a revolutionary book called "I Never Called It Rape." I recommend it for every person reading this. It should be mandatory reading in every high school orientation in the country. Warshaw's work was the foundation for our programs at Syracuse. In it Warshaw calls out actions which then and now are all too accepted for what they are -- rape. Whether it be an unconscious victim, a dating situation in which one partner forces himself on the other resulting in unwanted sex, whether a victim has been promiscuous in the past, etc, it is rape.
What happened in Steubenville is all too common and I think it is a pretty safe bet to state that the same thing has probably happened in your community as well. Alcohol is a part of high school life. It always has been. It was when I was in high school and it is now. Overly privileged athletes who are held up as heroes in their towns are especially at risk for committing rape because of a culture which tells them the rules don't apply to them, and will help cover up the crime afterward in order to protect their futures, or more realistically, the fortunes of the current sports season.
The prosecution in Steubenville is one way to combat this. But, the more effective way to combat it is being open and honest with our young people about sex, relationships, respect for one another, and rape. I have to think, that had the young men and women at that party had the same kind of educational program that we did back when I was in college, that the chances of there being at least one person who would have stepped in and said "Enough!" or "Stop!" or "This isn't cool," would have been better. I have to believe that had the parents and educators in Steubenville, or Syracuse, or Shelby, NC educated their children about these issues better that this rape and the many, many others which happened across our country that very same night might not have happened.
And for those of you out there who are lamenting the "tragedy" that happened to these good young boys and how their future is destroyed, had we educated them about the law, and sex, and sexuality, and responsibility, and respect, they wouldn't be waking up each day for the next several years in a youth detention facility (i.e. jail for kids).
I used to be asked the question when I was serving as President of SCARED "How many rapes have you really prevented?" I always answered that question without fail with "You can start with the one that I could have committed." Although that answer was intentionally provocative, it does have a central truth about it.
We can teach men not to rape. We can save lives. We can learn to treat each other with dignity and respect. We can destroy this culture of rape that is all to prevalent in our society.
Will you join me in seeing that this happens?
Tuesday, March 19, 2013
Monday, February 4, 2013
Canaries in a Coalmine
This is a brief follow up on a previous post about how I believe the next great economic collapse will be brought about by the securitization of student loans into collateralized debt obligations, much like the CDO's backed by residential mortgages brought about the last collapse in 2007-2008.
There were three seemingly unrelated events that got my attention over the last couple of weeks that brought about a sense of foreboding and for me acted as a canary acted for coal miners in previous centuries - as a warning of imminent doom. These three were in no particular order, the stock market reaching 14,000, my main local bank collapsing and having to be bought out for peanuts by another regional bank, and the news that ratings agencies were threatening to lower the credit rating of colleges or universities who lowered their tuition.
Let's look at these in reverse order. First, the ratings agencies.
If you have followed the aftermath of the economic collapse five years ago, or have read my previous blog posts on the subject, you will know that the credit ratings agencies played an important part in the run-up to the collapse. The agencies, of which there a primarily three -- S & P, Moody's, and Fitch -- were either duped or knowingly participated in fraud by classifying mortgage backed securities made up of liars' loans and sub-prime mortgages as AAA investments. Since the agencies were paid by the very same banks that were selling the loans, the answer is probably a little bit of both. By labeling investments that were garbage as AAA, they allowed investors to buy up these assets believing they were safe, while the banks putting them together were actually betting against them.
Since the collapse, the ratings agencies have appeared to get tough on investments, whether it be by dropping entire countries' credit ratings (as S & P famously did to the U.S. following the debt ceiling debacle in 2011) or by issuing harsher more critical reviews of various investments. At least this gives the appearance of independence and freedom of thought within the ratings agencies themselves. This is simply a mirage.
Over the last couple of months, there were reports that several colleges and universities were bucking the trend of exponentially increasing tuition costs and were instead deciding to lower their tuition, in some cases drastically. One of those colleges was Belmont Abbey, a small Catholic college nearby to where I live. (See here) At first this seemed like great news to me, possibly that colleges and universities were responding to the market rather than to investors and speculators and that possibly this death spiral of debt caused by increasing tuition could be coming to an end.
Then I saw this. Less than a month after news came out that some colleges were thinking of lowering their tuition to meet the demands of students for low cost education, Moody's dropped their forecast for colleges and universities to negative based on a stagnant or diminishing tuition income. Although the news is couched in terms of lowering costs and increasing efficiency, the message to colleges and universities thinking about lowering their tuition was clear -- DON'T.
Why this is a signal to me of the impending doom to the economy is that is shows that the ratings agencies are still working as agents of the Wall Street banks that are dependent on ever-increasing amounts of student loans in order to have a constant stream of loans to securitize into investment products to sell to investors. Whereas the ratings agencies in the run-up to 2007-2008 acted simply as a rubber stamp for the investments they were being paid to approve, now they are acting as the enforcer for the banks in order to insure that the loans keep coming in as the tuition amounts keep increasing and increasing. There is really very little difference between the actions of Moody's on this occasion and a protection scheme by a two-bit mafia hood extorting money out of business owners to make sure that their business doesn't literally go up in smoke.
The next portent of doom was the fire sale of my local bank, First National Bank of Shelby, NC. First National, which had been in business since 1874 was sold to Bank of the Ozarks for the paltry sum of $67.8 million. This bank had previously seemed to be merger proof. They had survived multiple financial collapses intact and had refused bail-out money during the 2008 collapse. While other small banks were being gobbled up by larger and larger institutions following the deregulation of the banking industry in the late 1990s, First National was purchasing other regional banks. They seemed to continue practicing old fashioned painfully conservative banking which may have led to their downfall.
The reason this caused concern to me is that the failure of this bank shows that our economy is still far from robust. The term irrational exuberance has been thrown around over the past several years and appears to be applicable here. The bank simply couldn't overcome the long, drawn-out recession which produced still double digit unemployment in our area, along with the related business failures and unpaid mortgages, which made this pillar of solvency for well more than a century become basically bankrupt.
Throw this in with the Dow reaching 14,000 late last week and you have my third canary. The celebrations surrounding the "milestone" seemed almost crazy when looking at the continuing high unemployment, fiscal malaise, and stumbling recovery. The last time the Dow was this high it was repeated over and over was in the Fall of 2007. The implication was that at least in terms of the stock market, our recovery was complete and we had climbed all the way back from the collapse of late 2008. Of course, it also could signal that we are right back where we were in the Fall of 2007, on the precipice of a financial cliff which would throw us into the the greatest economic disaster since the 1930s.
By failing to act to curb the excesses and lawlessness that led to the economic collapse of 2007-2008, we have insured that it will repeat. We have failed on all levels. We have failed to enact laws that would prevent or at least contain a collapse in any one area of the financial world. The Dodd-Frank act was at best window dressing to give the public the appearance that Congress was doing something while allowing Wall Street to continue the excess that led to the last bubble. We have failed judicially by refusing to enforce our criminal laws to hold accountable the people who benefited most from the collapse and subsequent bailout, namely the executives and CEO's of the large Wall Street banks. We have failed financially by continuing to prop up failed financial institutions through policies by the Federal Reserve and Treasury such as Quantitative Easing and Zero Interest Rate Policy which have led to the propping up of failed financial institutions while at the same time encouraging the continued investment in exotic securities to receive anything near a reasonable return on investment, destroying savings and looting pension funds and state treasuries.
Recently, Assistant Attorney General for the Criminal Division Lanny Breuer resigned the day after a hard hitting expose by the PBS show Frontline exposed his agency's unwillingness to hold executives and CEO's of Wall Street banks accountable for the fraud that was perpetrated both on investors and the public leading to the economic collapse of 2007-2008. I sure hope that President Obama nominates someone with courage and tenacity to take his place, because the same fraud is happening today, and they will surely soon get the same opportunity to hold these same executives responsible when their same actions cause the next impending economic collapse. I'm, of course, not holding my breath on this.
All the signals are there. Is anybody paying attention?
There were three seemingly unrelated events that got my attention over the last couple of weeks that brought about a sense of foreboding and for me acted as a canary acted for coal miners in previous centuries - as a warning of imminent doom. These three were in no particular order, the stock market reaching 14,000, my main local bank collapsing and having to be bought out for peanuts by another regional bank, and the news that ratings agencies were threatening to lower the credit rating of colleges or universities who lowered their tuition.
Let's look at these in reverse order. First, the ratings agencies.
If you have followed the aftermath of the economic collapse five years ago, or have read my previous blog posts on the subject, you will know that the credit ratings agencies played an important part in the run-up to the collapse. The agencies, of which there a primarily three -- S & P, Moody's, and Fitch -- were either duped or knowingly participated in fraud by classifying mortgage backed securities made up of liars' loans and sub-prime mortgages as AAA investments. Since the agencies were paid by the very same banks that were selling the loans, the answer is probably a little bit of both. By labeling investments that were garbage as AAA, they allowed investors to buy up these assets believing they were safe, while the banks putting them together were actually betting against them.
Since the collapse, the ratings agencies have appeared to get tough on investments, whether it be by dropping entire countries' credit ratings (as S & P famously did to the U.S. following the debt ceiling debacle in 2011) or by issuing harsher more critical reviews of various investments. At least this gives the appearance of independence and freedom of thought within the ratings agencies themselves. This is simply a mirage.
Over the last couple of months, there were reports that several colleges and universities were bucking the trend of exponentially increasing tuition costs and were instead deciding to lower their tuition, in some cases drastically. One of those colleges was Belmont Abbey, a small Catholic college nearby to where I live. (See here) At first this seemed like great news to me, possibly that colleges and universities were responding to the market rather than to investors and speculators and that possibly this death spiral of debt caused by increasing tuition could be coming to an end.
Then I saw this. Less than a month after news came out that some colleges were thinking of lowering their tuition to meet the demands of students for low cost education, Moody's dropped their forecast for colleges and universities to negative based on a stagnant or diminishing tuition income. Although the news is couched in terms of lowering costs and increasing efficiency, the message to colleges and universities thinking about lowering their tuition was clear -- DON'T.
Why this is a signal to me of the impending doom to the economy is that is shows that the ratings agencies are still working as agents of the Wall Street banks that are dependent on ever-increasing amounts of student loans in order to have a constant stream of loans to securitize into investment products to sell to investors. Whereas the ratings agencies in the run-up to 2007-2008 acted simply as a rubber stamp for the investments they were being paid to approve, now they are acting as the enforcer for the banks in order to insure that the loans keep coming in as the tuition amounts keep increasing and increasing. There is really very little difference between the actions of Moody's on this occasion and a protection scheme by a two-bit mafia hood extorting money out of business owners to make sure that their business doesn't literally go up in smoke.
The next portent of doom was the fire sale of my local bank, First National Bank of Shelby, NC. First National, which had been in business since 1874 was sold to Bank of the Ozarks for the paltry sum of $67.8 million. This bank had previously seemed to be merger proof. They had survived multiple financial collapses intact and had refused bail-out money during the 2008 collapse. While other small banks were being gobbled up by larger and larger institutions following the deregulation of the banking industry in the late 1990s, First National was purchasing other regional banks. They seemed to continue practicing old fashioned painfully conservative banking which may have led to their downfall.
The reason this caused concern to me is that the failure of this bank shows that our economy is still far from robust. The term irrational exuberance has been thrown around over the past several years and appears to be applicable here. The bank simply couldn't overcome the long, drawn-out recession which produced still double digit unemployment in our area, along with the related business failures and unpaid mortgages, which made this pillar of solvency for well more than a century become basically bankrupt.
Throw this in with the Dow reaching 14,000 late last week and you have my third canary. The celebrations surrounding the "milestone" seemed almost crazy when looking at the continuing high unemployment, fiscal malaise, and stumbling recovery. The last time the Dow was this high it was repeated over and over was in the Fall of 2007. The implication was that at least in terms of the stock market, our recovery was complete and we had climbed all the way back from the collapse of late 2008. Of course, it also could signal that we are right back where we were in the Fall of 2007, on the precipice of a financial cliff which would throw us into the the greatest economic disaster since the 1930s.
By failing to act to curb the excesses and lawlessness that led to the economic collapse of 2007-2008, we have insured that it will repeat. We have failed on all levels. We have failed to enact laws that would prevent or at least contain a collapse in any one area of the financial world. The Dodd-Frank act was at best window dressing to give the public the appearance that Congress was doing something while allowing Wall Street to continue the excess that led to the last bubble. We have failed judicially by refusing to enforce our criminal laws to hold accountable the people who benefited most from the collapse and subsequent bailout, namely the executives and CEO's of the large Wall Street banks. We have failed financially by continuing to prop up failed financial institutions through policies by the Federal Reserve and Treasury such as Quantitative Easing and Zero Interest Rate Policy which have led to the propping up of failed financial institutions while at the same time encouraging the continued investment in exotic securities to receive anything near a reasonable return on investment, destroying savings and looting pension funds and state treasuries.
Recently, Assistant Attorney General for the Criminal Division Lanny Breuer resigned the day after a hard hitting expose by the PBS show Frontline exposed his agency's unwillingness to hold executives and CEO's of Wall Street banks accountable for the fraud that was perpetrated both on investors and the public leading to the economic collapse of 2007-2008. I sure hope that President Obama nominates someone with courage and tenacity to take his place, because the same fraud is happening today, and they will surely soon get the same opportunity to hold these same executives responsible when their same actions cause the next impending economic collapse. I'm, of course, not holding my breath on this.
All the signals are there. Is anybody paying attention?
Tuesday, December 11, 2012
Why I Love #StrikeDebt
One of my favorite things in the world is a simple solution to a complex and seemingly impossible problem. I love it when one person sees a population suffering from generation upon generation of debilitating and painful goiter and eradicates the problem entirely simply by introducing iodized salt into their diet. Or when faced with needless preventable deaths due to an epidemic of malaria in Africa, people simply introduce mosquito nets saving thousands upon thousands of lives. Problems which have seemed impossible and overwhelming for so long can sometimes be solved with just one simple idea. This is why I love Strike Debt and Rolling Jubilee.
In the Fall of 2011, Occupy Wall Street took the nation by storm when they set up an encampment occupying Zuccotti Park in the heart of lower Manhattan's financial district drawing attention to the crimes that had been committed on Wall Street which led to the collapse of the nation's economy in 2008 ushering in the worst economic down turn since the Great Depression. With their protests, marches, occupations and outreach, OWS did more to shine a light on the root causes of our financial strife than any reporter, expert, politician, or economist did in the previous four years. They caught for a brief period of time the imagination, desperation, and outrage of much of the American public.
But, American sensibilities and attention spans being what they are, the occupiers were eventually evicted from what had become known as Freedom Park and their cause seemed to have died out. The main criticism of OWS was their amorphous organization, their lack of any stated goals or plans to achieve such goals. It seemed that OWS would go down as a blip and footnote to the financial scandals which brought about the financial bailout and recession of the late naughts and early teens of the 21st Century.
However, what OWS accomplished during their encampment and went unreported by the media who never could understand the movement, was the sharing of ideas of passionate and committed individuals who had the energy and know-how to put these plans into action. One of those plans grew into the group Strike Debt and their movement Rolling Jubilee.
Strike Debt saw the staggering problem of consumer debt and decided to use the exact same practices which lead to and perpetuate that system of debt to eliminate the debt entirely. Here's how debt works in a nutshell. A creditor whether it be a bank, credit card company, or institution such as a hospital lends a consumer debt which the consumer uses to purchase goods or services with a promise to pay that debt back over a period of time. The creditor makes money on the transaction by charging and collecting interest on the debt. However, many creditors will sell their right to collect the debts owed to them for a variety of reasons, usually because the consumer has defaulted on the debt and the likelihood of collecting further payment has diminished to the point where there is no longer any profit in the transaction for the original creditor.
What happens at this point is when things usually go horribly badly for the consumer. The original creditor will now sell the debt to the highest bidder so that they can realize some return on their remaining investment. Usually these are purchased by collection agencies. Collection agencies are the bottom feeders of the financial world. They buy bad debts for pennies on the dollar and then do absolutely everything they can get away with in order to collect on that debt. Anyone who, like me at one point in my life, has ever had to deal with these poor excuses for humanity, knows the type of abuse and stress that having a collection agency hound you can involve.
When I was in civil practice, I used to take great pleasure in throwing every conceivable legal roadblock up in front of these agencies to cost them as much money as I possibly could in order to collect their money. When possible, I took even greater pleasure in making life incredibly uncomfortable for any of these agencies I could prove engaged in illegal debt collection practices. My absolute favorite involved one insipid agency which had purchased a debt which was more than a decade old and was for all intents and purposes uncollectable. What they did to get around the impediment of the statute of limitations was to send a new credit card offer to the drug addled and mentally ill debtor. A new credit card offer for someone whose credit was destroyed for years would be seen as a gift from God for any such individual. However, what transferring the old uncollectable debt to the new credit card would make it collectable again. Fortunately, the debtors elderly parents intercepted the offer and brought it to me. After a very tersely worded letter offering to forego suing the pants off of the collection firm for illegally trying to collect an uncollectable debt if they would forego ever contacting my client again, they discharged the debt from their books.
But, the genius of Strike Debt is that they looked at the process by which these scum sucking maggots known as collection agencies buy the debts and realized that they could do the exact same thing. Strike Debt formed a 501(c)(4) corporation which serves essentially as a debt collection agency and bids against other debt collection agencies in auctions of distressed consumer debt. Because these debts are worthless to the original holders of the debt, they can be bought for substantially less than what is owed. In fact, they found that for every $1 paid, as much as $20 of debt could be purchased.
Once the debt was purchased, however, unlike the circling carcass gorging vultures known as collection agencies, instead of trying to collect on the debt, Strike Debt would simply extinguish the debt. That's right, the debt would simply no longer exist. In the financial world, this is known as "forgiving" debt. Strike Debt doesn't use this term because in their view, rightly, the debtor has nothing to forgive as they haven't done anything wrong.
This became known to some as the People's Bailout and with good reason. What Strike Debt had done was similar to what the government and the Federal Reserve had done to wipe out the toxic debt held by the Too Big to Fail financial institutions and apply it instead to ordinary debtors. What's even more ingenious is that they used the exact process which had shackled millions of Americans in a spiral of debt and financial ruin, to subvert the system and free those same Americans from those shackles.
But, Strike Debt doesn't stop there. There is also the Rolling Jubilee, a movement which brings this process to the next level and has the potential for permanent debt relief for America and across the world. The term "jubilee" refers to the year in the Biblical Dueteronomic Code in which land and property were returned to its original owner and slaves were freed. Because Strike Debt is purchasing debt and then extinguishing it, thereby returning it to its owner, it is in some fashion acting similarly to this traditional Hebrew law. The term Rolling Jubilee refers to the movement which encourages those receiving a benefit from this purchase and extinguishing of debt to then pass it on and contribute to the purchasing and extinguishing of debt of others.
For example, if you have a medical debt of $40,000 for an operation that you had to have but have no means to pay for it and have defaulted on your debt, your debt will most likely be sold and purchased by a debt collection agency in a debt auction. If you are fortunate enough to have your debt purchased by Strike Debt (they have no way of choosing which debts or debtors they purchase and extinguish, they are simply purchasing a block of debt) you would be notified of this fact. Rolling Jubilee is based on the hope that those whose debts have been extinguished will then use the money that has been freed up to donate back to Strike Debt in order to allow them to purchase and extinguish more debt.
This is what makes Strike Debt and Rolling Jubilee a community building, community empowering self-help organization rather than a charity. If this movement works, it could seriously change the nation's entire economic power structure which causes and perpetuates the economic inequality we see today. So far they have raised over $7 million. With this they can potentially buy $140 million in debt. If those whose debt is eliminated donate just 10% of what was extinguished back, with that $14 million, Strike Debt could purchase $280 million in debt, and so on, and so on.
Right now, this is an infinitesimal amount when looking at the staggering level of consumer debt currently owed in this nation, which the Federal Reserve estimates stands at approximately $2.4 Trillion. However, this movement can have incredible influence if it grows and reaches its potential. The affects of this will be felt throughout our entire financial and political structure. This has the potential to literally change our world.
Not bad for a bunch of dirty, unwashed hippies hanging out in a New York park banging drums, huh? Simple ideas can have incredible effects. It makes me excited to see what other ideas have been planted in the garden of Zuccotti Park that are just waiting to emerge and blossom.
Saturday, October 13, 2012
Been a While
Hey there. Been a while, I know. Is there anyone still out there? Work and life have been conspiring to leave me little blogging time. That doesn't mean the ideas aren't there, however. So, you'll probably be deluged with a bunch of posts in a very short time. First, there is the matter of Uptown Shelby which is suddenly cool. Enjoy.
Friday, August 31, 2012
In Praise of Sisters
Recently, the stodgy old men's club known as the Vatican decided to launch an all out inquisition of the Leadership Conference of Women Religious. The allegations concerned the group's apparent focus on ministering to the poor and suffering among us, rather than focusing on more important issues like, you know, speaking out about abortion and making sure that people don't use condoms or birth control pills. The Vatican went as far as calling this group of American nuns "radical feminists." I was reminded of Inego Montoya's line from the Princess Bride "I don't think that word means what you think it means."
I guess by radical feminism the Vatican means that these Catholic religious women look to God, rather than their religion's all male hierarchy for guidance in their ministry. How absolutely Christ like of them!
Needless to say, more than a few current and former Catholics are disturbed by the treatment of their Sisters by the leadership in Rome. For many of us, Sisters have served as a tremendous influence especially in the foundation of our faith and personhood. Despite our jokes about rulers, rapt knuckles, and roller skates, almost everyone I know, myself included, has heart warming memories of the Sisters from our childhood.
For me, it was my first Principal at St. Mary's School in Baldwinsville, New York. Sister Eucharista was simply the kindest person I've ever met. Although she was no pushover, she loved teaching and even moreso loved children. In return, we loved her back.
Sister Eucharista knew that the true meaning of the axiom "spare the rod, spoil the child" referred not to physical discipline, but to parental guidance, steering the pupils under her care in the right direction. Still to this day when I come upon two people facing each other having a conversation, I go out of my way to go around them or, if stepping in between them is unavoidable, doing so as unobtrusively as possible and apologizing as I do. This is because in my tender years, I unknowingly walked between a conversation she was having with someone and was stopped by Sister Eucharista and told, quite gently, that this was not the proper way to act and told to apologize. This was not done in a way to embarrass me or to be mean in any way, it was done to teach me and done with firm kindness because she understood I had not encountered this situation before. This is how you teach children, and this is why I think of her each time this happens to this day.
But more importantly than her guidance and her leadership, Sister Eucharista was our strength when we needed it, too. This was most apparent to me in an incident which happened to me in First Grade.
Up until I had my tonsils and adenoids out when I was 7, I was a rather sickly child. I had constant ear infections and nasty tasting thick pink penicillin was a mainstay in my Parent's refrigerator.
I was suffering an ear infection on the day of the incident.
Now, to understand this story, I have to explain something about the winters in Central New York and the clothing of the time. On this day, just like on most days, we were having a fairly heavy snow fall. The boots we wore for some reason that I can't quite remember required the wearing of plastic bags over our feet which we would then place in the boots. This, combined with the hats, scarves, mittens, and snowmobile suits that we would layer on each morning made the arrival in the classroom rather time consuming as we commenced the inevitable disrobing necessary to get ready for class.
On this particular day, my bus which covered the neighborhoods of Seneca Knolls and Village Green was late arriving due to the heavy snow. My fellow classmates on the bus were doing our ritual disrobing, placing our boots under the heater to melt the snow, placing our school shoes on our feet and so on, while the morning prayer, pledge, and announcements were being read over the loud speaker.
Inevitably there was some kind of commotion going on as would be expected of 6 and 7 year-olds on a snowy winter morning. Our teacher, the rather stern Sister Charles Dorothy not taking kindly to the commotion decided to make an example of one of us and for no particular reason at all chose me. She asked me to repeat what the announcement had been. I could not tell her since I had not heard the announcement. She assumed it had been because I was goofing off. What she didn't know is that I couldn't hear it because I was suffering a raging ear infection and my ears were filled to the brim with fluid and puss. Her punishment was banishment and I was made to leave the classroom and stand outside in the hallway.
Of course, it didn't take long for the tears to start flowing. As I stood alone in the hallway with tears streaming down my face, Sister Eucharista happened to walk by. She asked me why I was in the hallway. I explained what happened and why I had been made to stand in the hallway. She asked if I had been talking during the announcement and I explained about my ears.
Sister Eucharista very calmly told me to return to the classroom and asked me to have Sister Charles Dorothy come to speak with her. After a couple of minutes the most incredible thing up to that point in my life happened. Sister Charles Dorothy returned to the class and apologized for having made me stand in the hallway.
Now, looking back on the incident, I can see this with a whole lot of perspective I didn't have at the time. First, in my memory, Sister Eucharista went up one side and down the other of Sister Charles Dorothy. I know for certain this didn't happen. I imagine that she treated the younger, less experienced teacher with the same firm kindness with which she treated me when I walked in the middle if her conversation - not to embarrass, but to guide. And, looking back Sister Charles Dorothy is not the ogre I thought she was at the time either. She was a very young woman, inexperienced and in over her head trying to control a bunch of hyperactive First Graders while trying to impart the basic foundations of education. Like all of us, she was doing her best and sometimes coming up short.
But what Sister Eucharista did was in fact extraordinary because what she was able to show a sickly, skinny, scared little boy was that it was ok to stand up for yourself when you are right. She did that not with words but with actions. She taught me to stand up for myself by standing up for me when I couldn't. I never forgot that and I am forever grateful.
Everyone has experiences like this. The Catholic women religious are the heart and soul of the church. It pains me to see what they are being put through with this investigation which seemingly aims to cloister them, returning them to the meek, silent stereotype of nuns spending their time in secluded prayer and meditation.
I have heard many of the leaders of the LCWR interviewed about this. They are inevitably asked why they don't just leave the church, or if they would consider doing that if the commission comes down harshly against them which is everyone's expectation. They always respond with great sadness. Leaving the church to which they have dedicated their life is like a death to them. It is almost inconceivable and a choice which they should not be forced to make, but which they know they may have to. My heart breaks for these incredible women who have done nothing but do the thankless dirty work of their faith, feeding the hungry, clothing the naked, comforting the afflicted, and yes at times afflicting the comfortable. In other words, they are doing the work that Christ himself did in his ministry.
It is my sincere hope that the Sisters are able to carry on as before, or at least to find a place of comfort within the faith to which they have dedicated their lives. If they don't find this place of comfort, I know that they will find their place, as I have, elsewhere in a faith that stands with its arms and hearts open to offer comfort and loving acceptance of the gifts that they offer every day of their lives.
For our Sisters, let us pray. Amen.
I guess by radical feminism the Vatican means that these Catholic religious women look to God, rather than their religion's all male hierarchy for guidance in their ministry. How absolutely Christ like of them!
Needless to say, more than a few current and former Catholics are disturbed by the treatment of their Sisters by the leadership in Rome. For many of us, Sisters have served as a tremendous influence especially in the foundation of our faith and personhood. Despite our jokes about rulers, rapt knuckles, and roller skates, almost everyone I know, myself included, has heart warming memories of the Sisters from our childhood.
For me, it was my first Principal at St. Mary's School in Baldwinsville, New York. Sister Eucharista was simply the kindest person I've ever met. Although she was no pushover, she loved teaching and even moreso loved children. In return, we loved her back.
Sister Eucharista knew that the true meaning of the axiom "spare the rod, spoil the child" referred not to physical discipline, but to parental guidance, steering the pupils under her care in the right direction. Still to this day when I come upon two people facing each other having a conversation, I go out of my way to go around them or, if stepping in between them is unavoidable, doing so as unobtrusively as possible and apologizing as I do. This is because in my tender years, I unknowingly walked between a conversation she was having with someone and was stopped by Sister Eucharista and told, quite gently, that this was not the proper way to act and told to apologize. This was not done in a way to embarrass me or to be mean in any way, it was done to teach me and done with firm kindness because she understood I had not encountered this situation before. This is how you teach children, and this is why I think of her each time this happens to this day.
But more importantly than her guidance and her leadership, Sister Eucharista was our strength when we needed it, too. This was most apparent to me in an incident which happened to me in First Grade.
Up until I had my tonsils and adenoids out when I was 7, I was a rather sickly child. I had constant ear infections and nasty tasting thick pink penicillin was a mainstay in my Parent's refrigerator.
I was suffering an ear infection on the day of the incident.
Now, to understand this story, I have to explain something about the winters in Central New York and the clothing of the time. On this day, just like on most days, we were having a fairly heavy snow fall. The boots we wore for some reason that I can't quite remember required the wearing of plastic bags over our feet which we would then place in the boots. This, combined with the hats, scarves, mittens, and snowmobile suits that we would layer on each morning made the arrival in the classroom rather time consuming as we commenced the inevitable disrobing necessary to get ready for class.
On this particular day, my bus which covered the neighborhoods of Seneca Knolls and Village Green was late arriving due to the heavy snow. My fellow classmates on the bus were doing our ritual disrobing, placing our boots under the heater to melt the snow, placing our school shoes on our feet and so on, while the morning prayer, pledge, and announcements were being read over the loud speaker.
Inevitably there was some kind of commotion going on as would be expected of 6 and 7 year-olds on a snowy winter morning. Our teacher, the rather stern Sister Charles Dorothy not taking kindly to the commotion decided to make an example of one of us and for no particular reason at all chose me. She asked me to repeat what the announcement had been. I could not tell her since I had not heard the announcement. She assumed it had been because I was goofing off. What she didn't know is that I couldn't hear it because I was suffering a raging ear infection and my ears were filled to the brim with fluid and puss. Her punishment was banishment and I was made to leave the classroom and stand outside in the hallway.
Of course, it didn't take long for the tears to start flowing. As I stood alone in the hallway with tears streaming down my face, Sister Eucharista happened to walk by. She asked me why I was in the hallway. I explained what happened and why I had been made to stand in the hallway. She asked if I had been talking during the announcement and I explained about my ears.
Sister Eucharista very calmly told me to return to the classroom and asked me to have Sister Charles Dorothy come to speak with her. After a couple of minutes the most incredible thing up to that point in my life happened. Sister Charles Dorothy returned to the class and apologized for having made me stand in the hallway.
Now, looking back on the incident, I can see this with a whole lot of perspective I didn't have at the time. First, in my memory, Sister Eucharista went up one side and down the other of Sister Charles Dorothy. I know for certain this didn't happen. I imagine that she treated the younger, less experienced teacher with the same firm kindness with which she treated me when I walked in the middle if her conversation - not to embarrass, but to guide. And, looking back Sister Charles Dorothy is not the ogre I thought she was at the time either. She was a very young woman, inexperienced and in over her head trying to control a bunch of hyperactive First Graders while trying to impart the basic foundations of education. Like all of us, she was doing her best and sometimes coming up short.
But what Sister Eucharista did was in fact extraordinary because what she was able to show a sickly, skinny, scared little boy was that it was ok to stand up for yourself when you are right. She did that not with words but with actions. She taught me to stand up for myself by standing up for me when I couldn't. I never forgot that and I am forever grateful.
Everyone has experiences like this. The Catholic women religious are the heart and soul of the church. It pains me to see what they are being put through with this investigation which seemingly aims to cloister them, returning them to the meek, silent stereotype of nuns spending their time in secluded prayer and meditation.
I have heard many of the leaders of the LCWR interviewed about this. They are inevitably asked why they don't just leave the church, or if they would consider doing that if the commission comes down harshly against them which is everyone's expectation. They always respond with great sadness. Leaving the church to which they have dedicated their life is like a death to them. It is almost inconceivable and a choice which they should not be forced to make, but which they know they may have to. My heart breaks for these incredible women who have done nothing but do the thankless dirty work of their faith, feeding the hungry, clothing the naked, comforting the afflicted, and yes at times afflicting the comfortable. In other words, they are doing the work that Christ himself did in his ministry.
It is my sincere hope that the Sisters are able to carry on as before, or at least to find a place of comfort within the faith to which they have dedicated their lives. If they don't find this place of comfort, I know that they will find their place, as I have, elsewhere in a faith that stands with its arms and hearts open to offer comfort and loving acceptance of the gifts that they offer every day of their lives.
For our Sisters, let us pray. Amen.
Friday, August 10, 2012
Brace For Impact
It has been four years since the economic implosion caused by financial derivatives, housing bubbles, and big banks putting trillions of dollars at risk on casino style bets for which there was no collateral. The result was the vaporization of untold trillions of dollars, an unprecedented bailout of the financial industry, the largest financial crisis since the great depression, and the loss of millions of jobs throughout the American economy.
Since then, our economy has been sluggish at best, crawling along through a painfully slow and anemic recovery. Now, as we start to see what may be the light at the end of the tunnel, the same exact thing is going to happen again, but this time it's going to be even worse.
I'm not talking about the fiscal cliff that Congress boxed themselves into with their inability to come to an agreement on something as mundane as raising the debt ceiling. I'm talking about a re-run of the entire economic collapse of 2008, with even worse results for our country and its citizens.
How could this happen so soon after the economic collapse of 2008? In order to answer that, let's take a brief look back at what caused the collapse four years ago.
The root cause of all of the problems that we are currently facing are the passage of two laws in 1999 and 2000 sponsored by Republicans in Congress and enthusiastically supported and signed into law by Democratic President Bill Clinton. These two laws, Gramm-Leach-Bliley and the Commodity Futures Modernization Act, eliminated the Depression era separation of commercial banks, investment banks, and insurance companies, and insured that the complex financial instruments known as derivatives would remain unregulated. This was hailed as the beginning of a new financial golden age which would lead to unrivaled prosperity and wealth creation. In reality what it did was turn the world of finance into a casino and spread the risk throughout the economy so that even regular everyday banking customers with a passbook savings account were on the hook when everything went to hell.
The casino's main instrument was a derivative called a collateralized debt obligation (CDO) which is an investment wherein a bunch of consumer debt is purchased, combined, split up into tranches and sold to investors as securities. Any kind of consumer debt can be used for CDOs but the most attractive one in 1990s and 2000s was the residential mortgage.
In abstract, mortgages would seem to be a safe debt to use for these investments. Because mortgages traditionally used strict underwriting and financial requirements they were seen as a pretty safe investment. They also rarely had defaults because of these safeguards.
However, as we saw, the amount of money being made in these investments caused banks to create more and more of these types of investments requiring more and more mortgages to securitize. Combined with an official seal of approval from the president to increase non-traditional lending, mortgage lenders started giving mortgages to anyone with a pulse, throwing caution to the wind as the amount of sub prime loans started ballooning as lenders sold their mortgage loans as soon as they closed them. The lend to securitize movement erupted, sending housing prices skyward while at the same time eroding the very foundation of the industry making these once safe investments riskier and riskier.
In the end there were an awful lot of people with mortgages they couldn't afford and a lot of securities that were about to become worthless due to the high number of defaults that inevitably occur when you have people with no income owning $3 million homes.
There was another derivative product called a credit default swap (CDS) which made things even worse. CDS's were sort of like insurance in that you could pay a premium based on the risk that a particular CDO was assigned and if that CDO collapsed because the of defaults on the mortgages that made up the CDO, you would be paid the amount of the investment in the CDO. The only problem was, that these weren't insurance policies, they were derivatives and therefore required no reserves. The insurance giant AIG was bankrupted because they sold endless amounts of CDS's, believing that the real estate market would always go up and that these investments would never default. They had no money in reserve to pay claims in the event of a default. When the real estate bubble burst, AIG's entire worth was wiped out and the entire financial market put at risk as the investors in CDS's discovered that their investments were worthless.
So, how could this happen again? Weren't there reforms put in place to avoid this?
In a word: no.
The one grand financial reform bill passed by Congress in the wake of the 2008 economic collapse, the Dodd- Frank Act, really did nothing to prevent this same scenario from happening again. This is because Congress purposely adopted Wall Street's narrative of what caused the collapse of 2008 - that is that greedy and irresponsible homebuyers ran up too much debt causing the real estate market to collapse. This completely ignored the true causes of the collapse and failed to address the systemic problems in the financial industry itself. Therefore, Dodd-Frank's reforms were aimed directly at the mortgage industry and not at the derivatives market. In other words, they treated the symptoms while ignoring the disease.
There were some significant reforms put into place in Dodd-Frank that have made the mortgage industry safer -- especially reforms which took away incentives for banks and brokers to push riskier sub prime loans, and some higher reserve requirements for certain types of investments. These are good things for the economy and for consumers.
But it's what Dodd-Frank failed to do that creates the collapse that we are about to face. Dodd-Frank failed to do anything to reform the derivatives market, which remains for the most part unregulated. This wasn't by accident. Chris Dodd and Barney Frank, both Democrats and both chairs of their respective banking committees in the Senate and House were among the largest recipients of banking industry money in Congress. These two powerful law makers understood as well as anyone the root causes of the crisis and what would truly prevent it from happening again and yet they both chose to ignore real reform and instead protect the industry which had showed them such tremendous financial support over the years. So, suggestions that derivatives be traded on an open market rather than over the counter, that credit default swaps be regulated as insurance policies with reserve requirements and oversight, that large banks be separated into commercial and investment segments were ignored. The casino was reopened and now had the government's backing for its risk taking.
This brings us today. So how could this happen again? Mortgages have been reined in, housing hasn't recovered from its collapse, so how could a 2008 style collapse happen now?
Well, since nothing has been done to reform the derivatives market, Wall Street just needed a new market to pump up, securitize, and sell. Enter the ever increasing student loan market.
During the last several decades, tuition at four year collegiate institutions has increased exponentially. Just in the last ten years for which data is available from the U.S. Department of Education, tuition and room and board at public four year institutions has increased 37%, whereas tuition at private four year institutions has increased 25% during that same period. Average tuition in the 2009-10 academic year for public four year institutions was $14,870 and $32,475 for private four year institutions compared to $10,609 and $26,795 just ten years earlier when adjusted for inflation.
This huge increase in tuition, led to a huge increase in student loan borrowing as well. Again, looking at statistics available from the Department of Education, in the 2007-08 academic year, the average debt burden for students graduating with a four year degree from public institutions was $19,839 with 61.1% of undergraduate students at four year public institutions borrowing. For private four year institutions the amount was $27,349 with 70.6% of students taking out loans.
The stratospheric increase in tuition amounts and the amount of loans being taken out by students in order to pay for these increases has presented fertile new market for Wall Street to exploit through financial derivatives. As the real estate market has continued to sputter, the student loan market has taken the lead in consumer loans. As was done with residential mortgages, Wall Street is now carving up these new loans, securitizing them, dividing them into tranches and selling them as new CDO products to investors looking for larger returns than they can find elsewhere in the bond markets.
In a way, student loans are the perfect consumer debt from which to create CDO's. First, many of the loans are subsidized by the Federal government. This means that if the borrower defaults, the government guarantees payment. The other reason these are prime for derivatives is that all student loans, whether subsidized or private are not dischargeable in bankruptcy, making it more difficult for the borrower to escape responsibility for paying back the loans.
However, despite the apparent security of CDO's based on student loans, you still have the same problems associated with the residential mortgage CDO's that collapsed the entire economy in 2008. First, the fact that these are overtly subsidized by the government is a bad thing for the American taxpayer when you look at defaults on student loan backed CDO's. The nature of the subsidization means that a TARP style bailout of the institutions issuing and purchasing these investments is almost inevitable. Second, none of these safeties prevents default on these CDO's. Even though the loans are not dischargeable in bankruptcy, that doesn't make the borrower pay back the loan, and with the job market failing to return to anything near what would be expected in a healthy economy, the chances of default are becoming greater and greater every day.
But what should frighten the American taxpayer the most about these CDO's is that the requirements for student loans are even less stringent that the requirements for residential mortgages even in the boom days of the sub prime mortgage bonanza. Most of the individuals taking out these loans are teenagers with no credit whatsoever and little knowledge about finances. With nothing done in any of the reform legislation passed after 2008 to curb lend to securitize behavior, and therefore very little risk placed on the initial lender, there is no reason for lenders not to lend to any student applying for these loans.
If you are looking for the types of "liar loans" that earned such infamy during the sub prime boom, with migrant farm workers buying $350,000 homes with 100% financing, look no further than the growth in for-profit educational institutions. According to the Department of Education, in 2007-08 the average amount borrowed for a student at a four-year private for profit institution was $24,635, with a whopping 97% of students borrowing to pay for the for profit educational experience. So, nearly every individual attending a for profit undergrad school is borrowing money, while at the same time the only requirement for admission seems to be a pulse and the prospect for employment after graduation seems illusory at best. These are loans that are guaranteed to fail and end up in default.
Another frightening development is the amount students are borrowing for post-secondary and professional degrees. Again, according to the U.S. Department of Education, in the 2007-08 academic year, law students were graduating with an average law school debt of $80,081 and an overall academic debt of $92,937. Medical students medical school debt for the same year was $119,424 with an overall academic debt of $127,272. These continue to increase in the years since. The problem is that although the cost of professional schools has continued to increase, the job market for these graduates has dried up in the years since the 2008 collapse. Add to this that with the advent of for profit law and medical schools, more and more people are pursuing professional degrees and taking on an ever increasing debt burden to do so, you have a recipe for financial disaster.
What all of this leads to is that student loan market is about to bust and bust big time. So, why will this be worse than the near total collapse of the economy in 2008?
There are a number of reasons this will be worse. The first and most obvious one is that the result of the collapse in 2008, the emergence of the Too Big To Fail financial institution which rather than making the economy safer has put it more at risk. A more apt name for these institutions would be Systematically Dangerous Institutions. Because of their enormous size, the failure of any one of these institutions puts the entire economic system in danger. These huge institutions are so enormous, that the taxpayer has no choice but to bail them out if there was anything approaching defaults in the derivative markets like there were in 2008.
Furthermore, despite what the TBTF institutions claim, the U.S. government still owns a large percentage of these institutions as they have not been able to repay the loans that were forwarded to them during the last bail out. If these institutions collapse, the American taxpayer is on the hook, as both the Treasury and the Federal Reserve are still holding huge amounts of toxic investments that the banks could not get rid of. For the last four plus years the Treasury and the Fed have been propping up these institutions and yet requiring nothing in return for their investment.
Another reason that the coming collapse is going to be worse is that the Federal Reserve allowed the huge investment banks such as Goldman-Sachs, JP Morgan and Morgan Stanley to restructure as bank holding companies following the bail out. This not only allowed these banks to have access to cheap Fed loans, but also allowed them to further delve into commercial banking and further eroded what little separation there was from commercial and investment banking. The FDIC simply doesn't have enough money to cover the collapses that could result from the bursting of the student loan bubble, even though they could be on the hook for just such an occurrence if and when it happens (just look at what Bank of America and its subsidiary Merrill Lynch did when they were concerned about a European debt crisis here).
This collapse is going to happen. I can't tell you when. It could be this week, or this year, or in the next couple of years. There is nothing that either Barack Obama or Mitt Romney are proposing that will stop it. While we debate whether to extend tax cuts to the rich or to the middle class, while we worry about fiscal cliffs, while both sides of the aisle play chicken beating their chests for political gain, the greatest threat to our economy, a giant ticking time bomb of debt, is being ignored and will be ignored by both Democrats and Republicans.
But it will explode. And the results will be disastrous. And both sides will say no one saw it coming. And will blame each other. And we, the taxpayers, will suffer the consequences.
Since then, our economy has been sluggish at best, crawling along through a painfully slow and anemic recovery. Now, as we start to see what may be the light at the end of the tunnel, the same exact thing is going to happen again, but this time it's going to be even worse.
I'm not talking about the fiscal cliff that Congress boxed themselves into with their inability to come to an agreement on something as mundane as raising the debt ceiling. I'm talking about a re-run of the entire economic collapse of 2008, with even worse results for our country and its citizens.
How could this happen so soon after the economic collapse of 2008? In order to answer that, let's take a brief look back at what caused the collapse four years ago.
The root cause of all of the problems that we are currently facing are the passage of two laws in 1999 and 2000 sponsored by Republicans in Congress and enthusiastically supported and signed into law by Democratic President Bill Clinton. These two laws, Gramm-Leach-Bliley and the Commodity Futures Modernization Act, eliminated the Depression era separation of commercial banks, investment banks, and insurance companies, and insured that the complex financial instruments known as derivatives would remain unregulated. This was hailed as the beginning of a new financial golden age which would lead to unrivaled prosperity and wealth creation. In reality what it did was turn the world of finance into a casino and spread the risk throughout the economy so that even regular everyday banking customers with a passbook savings account were on the hook when everything went to hell.
The casino's main instrument was a derivative called a collateralized debt obligation (CDO) which is an investment wherein a bunch of consumer debt is purchased, combined, split up into tranches and sold to investors as securities. Any kind of consumer debt can be used for CDOs but the most attractive one in 1990s and 2000s was the residential mortgage.
In abstract, mortgages would seem to be a safe debt to use for these investments. Because mortgages traditionally used strict underwriting and financial requirements they were seen as a pretty safe investment. They also rarely had defaults because of these safeguards.
However, as we saw, the amount of money being made in these investments caused banks to create more and more of these types of investments requiring more and more mortgages to securitize. Combined with an official seal of approval from the president to increase non-traditional lending, mortgage lenders started giving mortgages to anyone with a pulse, throwing caution to the wind as the amount of sub prime loans started ballooning as lenders sold their mortgage loans as soon as they closed them. The lend to securitize movement erupted, sending housing prices skyward while at the same time eroding the very foundation of the industry making these once safe investments riskier and riskier.
In the end there were an awful lot of people with mortgages they couldn't afford and a lot of securities that were about to become worthless due to the high number of defaults that inevitably occur when you have people with no income owning $3 million homes.
There was another derivative product called a credit default swap (CDS) which made things even worse. CDS's were sort of like insurance in that you could pay a premium based on the risk that a particular CDO was assigned and if that CDO collapsed because the of defaults on the mortgages that made up the CDO, you would be paid the amount of the investment in the CDO. The only problem was, that these weren't insurance policies, they were derivatives and therefore required no reserves. The insurance giant AIG was bankrupted because they sold endless amounts of CDS's, believing that the real estate market would always go up and that these investments would never default. They had no money in reserve to pay claims in the event of a default. When the real estate bubble burst, AIG's entire worth was wiped out and the entire financial market put at risk as the investors in CDS's discovered that their investments were worthless.
So, how could this happen again? Weren't there reforms put in place to avoid this?
In a word: no.
The one grand financial reform bill passed by Congress in the wake of the 2008 economic collapse, the Dodd- Frank Act, really did nothing to prevent this same scenario from happening again. This is because Congress purposely adopted Wall Street's narrative of what caused the collapse of 2008 - that is that greedy and irresponsible homebuyers ran up too much debt causing the real estate market to collapse. This completely ignored the true causes of the collapse and failed to address the systemic problems in the financial industry itself. Therefore, Dodd-Frank's reforms were aimed directly at the mortgage industry and not at the derivatives market. In other words, they treated the symptoms while ignoring the disease.
There were some significant reforms put into place in Dodd-Frank that have made the mortgage industry safer -- especially reforms which took away incentives for banks and brokers to push riskier sub prime loans, and some higher reserve requirements for certain types of investments. These are good things for the economy and for consumers.
But it's what Dodd-Frank failed to do that creates the collapse that we are about to face. Dodd-Frank failed to do anything to reform the derivatives market, which remains for the most part unregulated. This wasn't by accident. Chris Dodd and Barney Frank, both Democrats and both chairs of their respective banking committees in the Senate and House were among the largest recipients of banking industry money in Congress. These two powerful law makers understood as well as anyone the root causes of the crisis and what would truly prevent it from happening again and yet they both chose to ignore real reform and instead protect the industry which had showed them such tremendous financial support over the years. So, suggestions that derivatives be traded on an open market rather than over the counter, that credit default swaps be regulated as insurance policies with reserve requirements and oversight, that large banks be separated into commercial and investment segments were ignored. The casino was reopened and now had the government's backing for its risk taking.
This brings us today. So how could this happen again? Mortgages have been reined in, housing hasn't recovered from its collapse, so how could a 2008 style collapse happen now?
Well, since nothing has been done to reform the derivatives market, Wall Street just needed a new market to pump up, securitize, and sell. Enter the ever increasing student loan market.
During the last several decades, tuition at four year collegiate institutions has increased exponentially. Just in the last ten years for which data is available from the U.S. Department of Education, tuition and room and board at public four year institutions has increased 37%, whereas tuition at private four year institutions has increased 25% during that same period. Average tuition in the 2009-10 academic year for public four year institutions was $14,870 and $32,475 for private four year institutions compared to $10,609 and $26,795 just ten years earlier when adjusted for inflation.
This huge increase in tuition, led to a huge increase in student loan borrowing as well. Again, looking at statistics available from the Department of Education, in the 2007-08 academic year, the average debt burden for students graduating with a four year degree from public institutions was $19,839 with 61.1% of undergraduate students at four year public institutions borrowing. For private four year institutions the amount was $27,349 with 70.6% of students taking out loans.
The stratospheric increase in tuition amounts and the amount of loans being taken out by students in order to pay for these increases has presented fertile new market for Wall Street to exploit through financial derivatives. As the real estate market has continued to sputter, the student loan market has taken the lead in consumer loans. As was done with residential mortgages, Wall Street is now carving up these new loans, securitizing them, dividing them into tranches and selling them as new CDO products to investors looking for larger returns than they can find elsewhere in the bond markets.
In a way, student loans are the perfect consumer debt from which to create CDO's. First, many of the loans are subsidized by the Federal government. This means that if the borrower defaults, the government guarantees payment. The other reason these are prime for derivatives is that all student loans, whether subsidized or private are not dischargeable in bankruptcy, making it more difficult for the borrower to escape responsibility for paying back the loans.
However, despite the apparent security of CDO's based on student loans, you still have the same problems associated with the residential mortgage CDO's that collapsed the entire economy in 2008. First, the fact that these are overtly subsidized by the government is a bad thing for the American taxpayer when you look at defaults on student loan backed CDO's. The nature of the subsidization means that a TARP style bailout of the institutions issuing and purchasing these investments is almost inevitable. Second, none of these safeties prevents default on these CDO's. Even though the loans are not dischargeable in bankruptcy, that doesn't make the borrower pay back the loan, and with the job market failing to return to anything near what would be expected in a healthy economy, the chances of default are becoming greater and greater every day.
But what should frighten the American taxpayer the most about these CDO's is that the requirements for student loans are even less stringent that the requirements for residential mortgages even in the boom days of the sub prime mortgage bonanza. Most of the individuals taking out these loans are teenagers with no credit whatsoever and little knowledge about finances. With nothing done in any of the reform legislation passed after 2008 to curb lend to securitize behavior, and therefore very little risk placed on the initial lender, there is no reason for lenders not to lend to any student applying for these loans.
If you are looking for the types of "liar loans" that earned such infamy during the sub prime boom, with migrant farm workers buying $350,000 homes with 100% financing, look no further than the growth in for-profit educational institutions. According to the Department of Education, in 2007-08 the average amount borrowed for a student at a four-year private for profit institution was $24,635, with a whopping 97% of students borrowing to pay for the for profit educational experience. So, nearly every individual attending a for profit undergrad school is borrowing money, while at the same time the only requirement for admission seems to be a pulse and the prospect for employment after graduation seems illusory at best. These are loans that are guaranteed to fail and end up in default.
Another frightening development is the amount students are borrowing for post-secondary and professional degrees. Again, according to the U.S. Department of Education, in the 2007-08 academic year, law students were graduating with an average law school debt of $80,081 and an overall academic debt of $92,937. Medical students medical school debt for the same year was $119,424 with an overall academic debt of $127,272. These continue to increase in the years since. The problem is that although the cost of professional schools has continued to increase, the job market for these graduates has dried up in the years since the 2008 collapse. Add to this that with the advent of for profit law and medical schools, more and more people are pursuing professional degrees and taking on an ever increasing debt burden to do so, you have a recipe for financial disaster.
What all of this leads to is that student loan market is about to bust and bust big time. So, why will this be worse than the near total collapse of the economy in 2008?
There are a number of reasons this will be worse. The first and most obvious one is that the result of the collapse in 2008, the emergence of the Too Big To Fail financial institution which rather than making the economy safer has put it more at risk. A more apt name for these institutions would be Systematically Dangerous Institutions. Because of their enormous size, the failure of any one of these institutions puts the entire economic system in danger. These huge institutions are so enormous, that the taxpayer has no choice but to bail them out if there was anything approaching defaults in the derivative markets like there were in 2008.
Furthermore, despite what the TBTF institutions claim, the U.S. government still owns a large percentage of these institutions as they have not been able to repay the loans that were forwarded to them during the last bail out. If these institutions collapse, the American taxpayer is on the hook, as both the Treasury and the Federal Reserve are still holding huge amounts of toxic investments that the banks could not get rid of. For the last four plus years the Treasury and the Fed have been propping up these institutions and yet requiring nothing in return for their investment.
Another reason that the coming collapse is going to be worse is that the Federal Reserve allowed the huge investment banks such as Goldman-Sachs, JP Morgan and Morgan Stanley to restructure as bank holding companies following the bail out. This not only allowed these banks to have access to cheap Fed loans, but also allowed them to further delve into commercial banking and further eroded what little separation there was from commercial and investment banking. The FDIC simply doesn't have enough money to cover the collapses that could result from the bursting of the student loan bubble, even though they could be on the hook for just such an occurrence if and when it happens (just look at what Bank of America and its subsidiary Merrill Lynch did when they were concerned about a European debt crisis here).
This collapse is going to happen. I can't tell you when. It could be this week, or this year, or in the next couple of years. There is nothing that either Barack Obama or Mitt Romney are proposing that will stop it. While we debate whether to extend tax cuts to the rich or to the middle class, while we worry about fiscal cliffs, while both sides of the aisle play chicken beating their chests for political gain, the greatest threat to our economy, a giant ticking time bomb of debt, is being ignored and will be ignored by both Democrats and Republicans.
But it will explode. And the results will be disastrous. And both sides will say no one saw it coming. And will blame each other. And we, the taxpayers, will suffer the consequences.
Saturday, July 28, 2012
Where Is The Love?
Last Sunday as I sat in my church awaiting the sermon, I expected words of comfort for those of us seeking solace following the tragic events in Aurora, CO just a couple days earlier. Instead I was treated to a reminder of the difficulty all of us face to live up to challenge of being Christian.
This last week has not been a stellar one for the followers of Christ. As often happens following tragedies such as the inexplicable mass killing of movie goers at a midnight premier of the latest Batman movie, religious leaders came forth with various explanations for the shootings. Mostly, they went along the lines of the usual complaints about God not being allowed in schools, or religion being pushed out of the public square. Others took it further, blaming acceptance of gays and lesbians for a breakdown of our society. Even the usually respectable Billy Graham, who in his advanced age has grown further from his ecumenical love and respectful charm and has appeared to fall under the influence of his inept and crass eldest son, called American culture worse than Sodom and Gommorah, inferring that the shootings were somehow God's punishment for our sins.
This has sadly become the norm among Christians in America. It seems that the only difference between many of our mainstream churches and the Westboro "God Hates Fags" Baptist Church is the tactics, not the message. No wonder so many despise us.
Even those that showed some semblance of God's compassion offering prayers and remembrances for the victims missed the point. As was pointed out quite eloquently by Mother Valori from the pulpit last Sunday, where were the prayers for the shooter?
At first I was taken aback by the idea. Why should we show sympathy and love for someone who has shown such a manifestation of evil? The answer when you think about it is quite simple. Because that is exactly what we are called by Christ to do.
Christ's call for all of us is to love. Love each other as God loves you. Love your neighbor as yourself. Even love your enemies. This is the radicalness of Christ's love. The only acceptable reaction to anything or anyone for a follower of Christ is to love.
Where was the love from any of those preachers who sought out blame as an explanation for an inexplicable act? Who looked to find scapegoats and targets to attack and hold responsible? Is this what we have been called to do?
Being a Christian - that is living like Christ - is at once the simplest and most difficult thing to do. The late Catholic priest and radical activist Phillip Berrigan said "If enough Christians follow the Gospels they can bring any state to its knees." This is the power of love.
Christ commanded us to love. This is the only way we can truly practice our faith. We must meet hatred with love. And when we are beat down, shot, killed, beaten, we must show more love. For that is what it means to live like Christ.
So why are we doing such a piss poor job of it?
This last week has not been a stellar one for the followers of Christ. As often happens following tragedies such as the inexplicable mass killing of movie goers at a midnight premier of the latest Batman movie, religious leaders came forth with various explanations for the shootings. Mostly, they went along the lines of the usual complaints about God not being allowed in schools, or religion being pushed out of the public square. Others took it further, blaming acceptance of gays and lesbians for a breakdown of our society. Even the usually respectable Billy Graham, who in his advanced age has grown further from his ecumenical love and respectful charm and has appeared to fall under the influence of his inept and crass eldest son, called American culture worse than Sodom and Gommorah, inferring that the shootings were somehow God's punishment for our sins.
This has sadly become the norm among Christians in America. It seems that the only difference between many of our mainstream churches and the Westboro "God Hates Fags" Baptist Church is the tactics, not the message. No wonder so many despise us.
Even those that showed some semblance of God's compassion offering prayers and remembrances for the victims missed the point. As was pointed out quite eloquently by Mother Valori from the pulpit last Sunday, where were the prayers for the shooter?
At first I was taken aback by the idea. Why should we show sympathy and love for someone who has shown such a manifestation of evil? The answer when you think about it is quite simple. Because that is exactly what we are called by Christ to do.
Christ's call for all of us is to love. Love each other as God loves you. Love your neighbor as yourself. Even love your enemies. This is the radicalness of Christ's love. The only acceptable reaction to anything or anyone for a follower of Christ is to love.
Where was the love from any of those preachers who sought out blame as an explanation for an inexplicable act? Who looked to find scapegoats and targets to attack and hold responsible? Is this what we have been called to do?
Being a Christian - that is living like Christ - is at once the simplest and most difficult thing to do. The late Catholic priest and radical activist Phillip Berrigan said "If enough Christians follow the Gospels they can bring any state to its knees." This is the power of love.
Christ commanded us to love. This is the only way we can truly practice our faith. We must meet hatred with love. And when we are beat down, shot, killed, beaten, we must show more love. For that is what it means to live like Christ.
So why are we doing such a piss poor job of it?
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