It’s all in the way you think about it. Debtors or victims? Creditors or usurers?

The ancient dance of debt and credit has changed partners and its moral compass through 4000 years of recorded history. Humanity has had an ambivalent relationship to debt since civilization began. The current battle between borrowers and lenders reveals the age-old struggle shows no sign of abating.

The New York Times published a remarkably biased report entitled, “Debts Rise, and Go Unpaid, as Bust Erodes Home Equity,” on the growing phenomenon of Americans “choosing” to walk away from debts. Far from “all the news that’s fit to print” the yellow journalistic tone of the article makes one wonder whether writer David Streitfeld and the New York Times were fronting for bank lobbyists. Streitfeld writes that defaulting homeowners “prefer” bankruptcy to honoring their contracts.

Of course this reasoning is so logical, as we all know how simple it is to declare bankruptcy. Just become a prisoner for the next 20 years of your consuming life and it’s basically a walk in the park! (Perhaps he was thinking of Central Park at midnight.)

The normally fair-minded Marc Gunther who pens a column on sustainable business followed up the Times article with more borrower bashing in an article entitled simply, “American Deadbeats.” Gunther wrote while he doesn’t mind paying for his sunroom, he doesn’t want to pay for yours too. In his blog, Gunther pontificates on the moral hazards of unemployment and defaulting on debt.

The housing meltdown is, needless to say, still with us today. It’s the single biggest reason why millions of Americans are unemployed, people aren’t spending and the economy remains choppy, at best. It’s also a cause of what, at the risk of sounding like a fuddy-duddy, looks to me like an erosion of moral values, as many thousands of borrowers simply refuse to pay what they owe.

Simply refuse to pay what they owe? Who? Where? What?

Never mind that being unemployed might lead to a tragic inability to pay ones debts, not by choice, but by no choice. Gunther notes the source of the economic crisis is the housing collapse, yet rather than sympathize with those whose incomes have evaporated and find themselves overwhelmed by debt because of it, he judges their state harshly as a willing abandonment of American “moral values.”

Neither of these articles acknowledges the economic suffering going on in Middle America. People are struggling to stay in their homes, struggling to keep the lights on, struggling to find work, struggling to feed their families. They are literally struggling to keep themselves alive and not shoot themselves in the head due to long-term joblessness and continuing threat of homelessness.

How did they miss that? Is the New York Times so cushy a job that the economic despair of the nation can go unnoticed?

Sure let’s make the victims of the housing collapse—the underwater, unemployed, overextended— the source of the problem. Why not, victimize the victim? Isn’t that a brilliant tool of defense used by many abusers? Doesn’t a rapist say of his victim, she wanted it? Essentially that is what these folks are saying. Debtors are walking away from their homes, because they want to go bankrupt? Excuse me, but what ordinary person (not corporation) wants to go bankrupt? I don’t know any.

In the NYT article, Streitfeld portrays borrowers unable to repay debts as “unwilling” to pay. He uses quotes from a Phoenix attorney Christopher A. Combs who teaches classes on foreclosure and claims, “Mom and pop making $80,000 a year were taking out $300,000 home equity loans for new cars and boats.”

Firstly, any lender who was reckless enough to issue a loan at 4 times a person’s income was knowingly spinning a roulette wheel. Chances are the “lender” sold the unstable loan to Wall Street underwriters for a fast and fat premium. Wall Street sold it back to mom and pop pension funds for an even fatter premium. No one held the loan for a more than a few weeks. Now who do we feel sorry for?

Secondly, I don’t know too many Mom and Pops with 80k incomes who own yachts, do you? More likely, “mom and pop” took out equity loans to send their kids to college, fix a leaky roof, or pay for their liver transplant.

A little due diligence on Times “expert” Combs, reveals he is part of “CAI,” a group of Arizona bottom-feeder lawyer lobbyists making big bucks from foreclosures. Mr. Combs claims that settling debts for less than the full amount of the loan “rewards immorality.” I guess he would know.

Streitfeld’s second “expert source” is a collection agent who makes his living squeezing pennies out of down and out debtors. A vulture capitalist who pays $500 for $20,000 loans from lenders, any amount Clark Terry extracts from the misery of others is worth his time. Never mind that the borrower and he never willingly entered into a contractual agreement. Parasite Clark somehow feels righteous enough to preach to the fallen. As he pounds the nation’s struggling unemployed and foreclosed with thousands of legal threats and phone calls a day, Clark opines, “Americans seem to believe that anything they can get away with is O.K.” Yes indeed.

Even more peculiar was the fact that two of the three borrowers depicted in the article were not “mom and pops” at all, but savvy real-estate investors who walked away from investment properties. A real-estate agent who defaulted on one of his properties said, “I am not going to be a slave to the bank.”

Perhaps an investor has the choice not to be enslaved to a bank, but ordinary homeowners do not. Anyone who lives in a community where their kids go to school, their friends and family live and where they have put down roots for a life cannot just walk away from an underwater property. First of all, that investment is their home, not a dispensable luxury. Secondly, if they declare bankruptcy or default on their mortgage, who is going to rent to them with trashed credit?

For many “mom and pops” loss of income, a family business and long-term unemployment has become a nightmare of debt enslavement from which there is no escape but bankruptcy or default. You don’t walk away from a home even if its value has decreased if you have no place to go. Bankruptcy limits one’s options for home and job severely – even in post-financial crisis America.

While it would be easier to believe that debtors are “choosing” to walk away from underwater homes, more likely than not, those losing their homes are trapped in a living hell. Foreclosure destroys marriages, families, neighborhoods, communities, careers and lives. It undermines the very foundation our nation is built upon – home ownership and hard work.

While Streitfeld and Gunther call defaulting debtors “deadbeats” and “immoral,” these people are actually our unemployed neighbors and friends who have been caught up in a mortgage securitization Ponzi scheme they could never have foreseen. The sad truth is that many defaulting borrowers have been caught in an ancient struggle for 21^st century survival.

Debt Slaves

Debt slavery has a long history in human civilization dating back four thousand years. Back in the day when one’s collateral was his or her own labor, things went from bad to worse for debtors. Ancient Mesopotamia just south of Hammurabi’s kingdom was the birthplace of the first recorded “Wall Street” and home to a thriving debt slavery industry.

According to Yale’s financial history wizard, William Goetzmann (and contrary to the common belief that only American consumers have gone to borrowing hell), the ancients were living their own credit and debt nightmare. 

Time is money and the ancient lenders figured out what modern finance understands all too well—your time and your money equal my profit. Evidence of a complex lending and loan trading industry in the Sumerian city of Ur (circa 1800BC) reveals that the oppressive system of credit and debt that evolved four millenniums ago has remarkable parallels to our modern credit-based economy.

Ancient bankers paid low interest on deposits and charged large interest for credit. Legal interest rates were limited to 20%, but savvy lenders figured out how to circumvent the rules and charged the limit on a monthly basis.  (Congress circumvented interest rate limits in 1978. In the U.S., the sky, literally, is the limit on interest.) Lenders borrowed silver mina from the Temple at 20% over five years (3.78% annually) and made short-term loans to ordinary folks not fortunate enough to access Temple funds. (Nowadays big banks borrow from the Fed Discount Window under 1% and lend it to you at 29%.)

Longer-term loans were issued generally over five year periods based on a person’s future production. Debt was commonly sold and borrowers were often obligated to repay someone they never met. (This is 2010 practice as well.) A largely agricultural society, borrowers offered future crops as collateral. Fisherman borrowed against the day’s haul. If crops or fish did not manifest, borrowers pledged their freedom in return for necessary credit. In Ancient Mesopotamia, you could borrow from your neighbor and ultimately be enslaved to your worst enemy.

The ancient system of credit was a matter of survival. The uncertainties of nature could force hard-working people into debt. Floods, droughts, storms, insects, earthquakes and natural disasters could result in a debtor and his or her family becoming slaves of creditors.

The system of debt and credit quickly became a destructive force of oppression in Sumerian society. At one point, more citizens were slaves than were free. Just like the U.S. today, Ancient Sumerian society could not function without the free flow of credit. So the Babylonian King, Rim-Sun had no choice but to cancel all the debts. Creditors were not happy, but debt slaves were freed and the Ancient City of Ur flourished once again.

Debt Slavery in America

It is time to understand that the system of debt and credit in post-subprime mortgage America has become a destructive force of oppression in modern society. Many debtors in today’s economy are victims of the outrageous and callous actions of a few hundred thousand mortgage brokers, lenders, underwriters, securitizers and finance pros. I hate to break it to Mr. Gunther, but we are already paying for the sunrooms of several thousand CDO traders as well as their Porsches, swimming pools and Hampton homes. Yet in a democratic society, this is how it is. We pay for each other’s mistakes. That is why we create laws to prevent them.

Since September 2008, the rules have changed on debt and credit. When the top tier financial institutions (i.e. creditors) reneged on their debts, all bets were off for the rest of America. Many of today’s debtors are former prime borrowers—people who had long-term secure jobs, solid incomes and perfect credit scores. People who were never late paying a bill and would have found it unthinkable to do so now field calls regularly from aggressive collectors—the same creditors that created the credit crisis in the first place. Streitfeld writes:

The amount of bad home equity loan business during the boom is incalculable and in retrospect inexplicable, housing experts say. Most of the debt is still on the books of the lenders, which include Bank of America, Citigroup and JPMorgan Chase.

The irony of this statement is that these are three of the institutions that are directly responsible for the housing collapse and continuing financial chaos. The further irony of this is that these three banks actually receive government support (away from TARP bailouts) to put these debts “off the balance sheet.”

Ever heard of Term Auction Lending Facility or Term Securities Lending Facility? These are official “federal programs” (i.e. legal ways to avoid repaying debt) that allow insolvent or debt ridden banks like B of A, JPM Chase, and Citi to unload bad “assets’ like defaulting mortgage securities in exchange for taxpayer cash.  

Yet JPMorgan Chase, B of A, and Citi are three of the nation’s most aggressive foreclosers and debt collectors. Yes it’s true—the same folks who put us in debt are now collecting on our debts.

Creditors have become the modern oppressor – enslaving borrowers in debts they themselves refuse to pay. So the bad investment you made on your home is your problem and the bad investment your creditor made on your home is your problem too.

The difference between leveraged creditors and ordinary debtors is that the government (Federal Reserve, U.S. Treasury and Congress) has their back and not yours. Big creditor banks are legally allowed to dump their debt on taxpayers, but they will pursue folks experiencing economic hardship directly due to their own mismanagement to the “fullest extent of the law.” All this subjective “immorality” proves is that the “law” needs to be changed.

So who is the real deadbeat now? The underwater unemployed borrower swimming upstream to try to salvage his or her home? Or the bank that created the economic collapse and is now able to have you pay all their debts through bailouts, “toxic asset” programs, special privilege, lobbying and distortion of the free market system?

Like King Rim-Sun it might be time to give the debt enslaved some relief and put ordinary citizen toxic debts “off balance sheet” too.

Like the third debtor in the New York Times article remarked, “There is strength in numbers.” Come on America, let’s turn this tanker around.

©2010 – All Rights Reserved

Monika Mitchell - Executive Director  

www.good-b.com/blog

Often politics and business mix in a big way. Small Business America is no exception. Access to credit for small business, sole proprietors and entrepreneurs in the United States is in dire straits according to every walking & talking politician out there from the Big O to the Fed Chief to elected officials from both political parties. Yet nowhere is any real and effective help forthcoming.

The recent Small Business Jobs and Credit Act was shot down with filibuster assault rifles by the entire Republican Senate. The act included tax incentives and federal lending guarantees. Even one of the authors of the small business bill Olympia Snowe, the moderate Republican Senator from Maine, voted “No.”

Guys and Gals, while you are fighting amongst yourselves for power and privilege, Small Business America is sinking like the Titanic!

Why did the Senate torpedo such hopeful help for the nation’s entrepreneurs? Because according to opponents, it’s a mini-TARP. “It has all the quality and features of the TARP program, ” said Snowe.

And what is wrong with that??? Have you forgotten there is a continuing credit crisis for anyone but the largest banks and corporations?

Let me ask you a question Ms. Snowe and fellow Senate naysayers, why would you deny helping small biz the same way you helped big biz? Are you unaware that the TARP program is credited with “saving” the economy by many of the nation’s top economists?

Did you also forget that TARP was created and engineered during the 8-year Republican Presidency of George Bush Jr., under the direction of former Goldman Sachs CEO (US Treasury Secretary) Hank Paulson and Federal Reserve Chairman Bernanke – both appointed by that President?

Did you also forget that the purpose of TARP at the time of its origination was specifically sold to Congress as a way of supplying necessary credit to consumers and small business?

The fact that TARP was a fraud to cover for banking mismanagement and designed with no lending stipulations whatsoever for big banks is a matter worthy of criminal investigation. Errant financial firms were bailed out, because “credit needed to keep flowing.” Our Fed Chief Bernanke claimed that the purpose of the bailout was to support Small Business & Consumer America. Yet we still have not done so nearly two years later.  Are you waiting for America’s small businesses to die on the vine in the name of politics?

It has been repeated over and over by  members of Congress and most recently President Obama, “Small businesses create two out of every three jobs in this country.  So our recovery depends on them. And if we want to keep America moving forward, we need to keep investing in our small businesses.”

Yet for all the talk, Republicans do not want to pass any small business legislation before November midterm elections for fear that will help Democrats get the vote. And Democrats have waited twenty months after the credit crisis began to help the little guys just in time for an election fight.

Where is Small Business America in all this? Left in the dust of the partisan politics that is the state of the U.S democracy circa 2010.

Small Business has been on life-support since September 15, 2008 when Lehman Brothers, the investment banking giant and toxic debt King, crashed and burned. Since then we have saved AIG ($183bn), Goldman Sachs and Morgan Stanley ($20bn) and allowed them to borrow tens of billions more from the Fed at zero percent, liquidated Fannie Mae and Freddie Mac ($160bn), bailed out Bear Stearns for JPMorgan Chase’s benefit ($30bn), gave Bank of America an early Christmas gift of Merrill Lynch with taxpayer money ($45bn plus $118bn federal guarantee of toxic debt losses), saved Citibank for their bad behavior with another $45bn taxpayer cash and $306bn in toxic debt acquisitions, supported state, city, and federal government workers with a $1.2 trillion “stimulus”, and billions of government “buybacks” of toxic debt, (i.e. defaulting mortgage securities created by the big banks and so-called investments from “bad” banking) for a total of $6.4 trillion according to CNN’s Bailout Tracker.

Brother, Can You Spare a Dime?

Yet we can’t spare $30bn more for small business lending even though it supplies 2 out of 3 jobs? With 300 million Americans this amounts to an investment of ten cents each. Brother, can you spare a dime?

In this country, our politicians have their priorities mixed up.  Senators and House members continually pretend to represent Americans. “Americans want…America is…”Americans need….”  You know what Americans need?  They need a government that gives a damn whether they succeed or fail – instead of picking and choosing the winners from the campaign trail.

As an entrepreneurial American I will tell you straight from the trenches, Americans are behind small business. It is built into our DNA. Yet despite this basic fact, the battle cry of small business is dimmed by loud partisan bickering of hypocritical lawmakers. Walk your talk people. We are dying out here.

Recently I spoke confidentially to the CEO of a $10bn hedge fund on the state of credit; he said, “The U.S. is a credit-driven economy. Right now there is no credit at the consumer and small business levels.”

Why then is nobody with power to change this listening?

“Among the most difficult challenges facing small businesses in Washington and throughout the nation is access to credit…Expanding Main Street’s access to credit is the most effective thing we can do to promote our ongoing economic recovery,” according to Washington State Senators (D) Cantwell and Murray.

Yada Yada Yada. We might as well be talking to a wall. Forty two Republican Senators filibustered an end to any hope of small business credit. How long can you remain underwater before you drown is the question for Congress?

Small Business: The Key to Recovery

According to Federal Reserve Chairman, Ben Bernanke, commonly believed by Republicans and Democrats alike to be the top expert in the nation on the economy, “Boosting credit to struggling small businesses is key to the economic recovery.”

Dear Congress: Rather than hear it from politicians who have been supported by taxpayer bailouts their entire career, small business itself has something to say: Step up to the plate and hit the damn ball!

Instead Senators continue to claim they “love” small business—only not enough to actually support it.

Senator Lamar Alexander (R-TN) said “While I support the bill’s tax incentives for America’s job-creating small businesses, I can’t support creating yet another lending fund that turns the Treasury Department into our national bank.” In other words, Small Business America is not worth investing in.

(By the way Senator, just FYI, the Federal Reserve (not the Treasury) does serve as the nation’s central bank.)

Small business feels the heartbeat of America better than any elected or appointed official. They represent the grit and hardiness that politicians love to covet. Small business doesn’t want charity – these are entrepreneurs, the kind that America celebrates – those hardy folks that create something from nothing on their own wits and ingenuity. All small business wants in post-bailout America is a fighting chance. How can it compete against the federally funded coffers of the Big Boys?

“To support the recovery…small businesses are important in creating new jobs,” says Bernanke.

So where is the funding to do this job creation? Where is the low cost Federal lending given freely to big banks and in turn to bond issuing corporations for the past two years for small business economic recovery? Why are there two standards for lending – one of unlimited credit for errant too-big-to-fail institutions and another, “Sorry pal, can’t turn the Treasury into a national bank,” for the little guys that hold the nation up?

In his testimony to the Senate Banking Committee, Bernanke spoke of the continuing credit crisis for the nation’s job creators:

“Small businesses, which depend importantly on bank credit, have been particularly hard hit.”

That is a mouthful. Now that we agree on the problem, what are we going to do about it?

Chairman Bernanke: “At the Federal Reserve, we have been working to facilitate the flow of funds to creditworthy small businesses. Along with the other supervisory agencies, we issued guidance to banks and examiners emphasizing that lenders should do all they can to meet the needs of creditworthy borrowers, including small businesses. We also have conducted extensive training programs for our bank examiners, with the message that lending to viable small businesses is good for the safety and soundness of our banking system as well as for our economy. We continue to seek feedback from both banks and potential borrowers about credit conditions. For example, over the past six months we have convened more than 40 meetings around the country of lenders, small business representatives, bank examiners, government officials, and other stakeholders to exchange ideas about the challenges faced by small businesses, particularly in obtaining credit.”

Real Help for Real People 

Forty meetings over six months and we arrive nowhere. None of these efforts matter a hill of beans unless there is some official enforcement behind it. Regional and community banks are not receiving the same bailouts their big banking brothers are, so the Federal Reserve is trying to incent them with government guarantees—the same guarantees that failed to incent their liquidated siblings. Smaller banks always on alert for FDIC takeover will be understandably less likely to take on added risk. In the current economic stress and continued joblessness, small business credit is a major risk for not-too-big-to-fail banks.

What is the solution then? Incent businesses to hire using tax breaks and federally sponsored access to credit – similarly to the way the Feds handle big business and big banks.

First and foremost: “Credit-worthy” small business is a loaded term. Many businesses without access to credit have levered up to the limit of their former credit lines, borrowed from family and friends, mortgaged their homes (if they could) and depleted their personal savings to stay afloat. This is how the real entrepreneurs of America fight for survival – by the skin of their teeth. Not on the cushy backs of banking lobbyists and government paychecks.

Credit allows businesses to wait for receivables, hold onto employees, and generally weather the storm until the recession clouds part. In the process of waiting for the economic tides to turn, many small businesses have lost their former good credit status, laid off long-term employees and generally had trouble making ends meet.  It’s war out there in Real (non-government sponsored) America.

This is where the Feds can step in. Liquidating the big banks through TARP allowed these businesses time and money to recover income and absorb losses. Big banks borrow at the Fed “Discount Window” when they are short of cash, can’t make payroll or need to invest in revenue producing innovations. (For example, Goldman Sachs borrowed $10bn from TARP and paid  $10.9bn in compensation a few months later. From the Fed lending facility, the firm has been able to borrow unlimited cash with almost no interest to invest in profit making ventures. So how did Goldman get back to the top of the heap? They borrowed their way back – that is how a credit economy works. Business needs capital to run.)

1. Therefore, the Federal Reserve should create direct source lending at near zero percent for small business in the same way they do for the big guys. $30bn? Try $90bn for starters – an investment in American small business at 30cents per citizen.
2. Credit worthy? Use the same criteria the Fed used for the big banks who were actually insolvent when they were bailed out and take their bad assets “off” the balance sheet. Now how credit worthy are they? Is their business obsolete? Or do they just need funds to wait for economy to rev up again? How about access to credit to meet payroll?
3. Investment tax breaks are great. But if this is about jobs, then why not give tax breaks for creating jobs? What about significantly reducing employer payroll tax for every new hire or rehired worker? After all, this will cost the government far less than social services in the end.

Contrary to popular pundit bellyaching – people want to work. They want to be useful. They want to create businesses and fuel the entrepreneurial engine of America. That is how our nation was formed on self-reliant innovation. We like to invent the wheel and we prefer to do it on our own.

But there are extraordinary circumstances, like the once-in-a-lifetime economic tsunami, where help is necessary to get back on your feet.  Small business was knocked down and is still trying to get up. The words of a Billy Holiday tune echo the cry of the 2010 American entrepreneur, “I been down so low, it looks like up to me.”

Senators, Small Business America is calling on you to help our nation’s entrepreneurs boost job creation.  So fellas and gals, put your, er… our money where your mouth is.

For heaven’s sake, what are you waiting for?

©2010 – All Rights Reserved

Monika Mitchell - Executive Director  

www.good-b.com/blog

More Resources:

Federal Reserve Chairman Bernanke: July 21, 2010 Testimony on State of Small Business

The issue of restitution is front and center in the Gulf. How does a publicly traded corporation like BP compensate business owners and workers who suffered severe economic loss due to its negligence?

In our survival-of-the-fittest world of capitalism, the traditional response is “tough luck sucker” if you are on the losing end of the deal. In the late 20^th century model, compensation for BP’s mistakes would not even be on the table.

No one compensated Katrina victims for lost homes and businesses despite the fact that the City of New Orleans and the State of Louisiana were directly responsible for building inadequate levies. No one paid hundreds of thousands of entrepreneurs and small business people for lost incomes when a few dozen mortgage securities firms collapsed the economy.

In the second decade of the 21^st century, who pays the price for failure?

The tide is changing when it comes to corporate responsibility and economic fallout. BP in the eyes of the President, Congress and much of the nation is obligated to repay lost income for Gulf residents. This could include everyone in that region.  The tragic accident will affect the lives of the people of the Gulf for years to come. The simple question remains, how much to compensate lost income is fair and just?

Under pressure from the White House, BP has publicly promised to compensate Gulf businesses through a $20 billion “Victims’ Compensation Fund.” Obama’s aides said if needed the government would “force” BP to compensate victims and claim that “we have the legal authority” to do so.  An official spokesperson stated, “We’re confident that this is a critical way in which we’re going to be able to help individuals and businesses in the Gulf area become whole again.” The White House is unequivocally convinced that negligent companies that interfere with livelihoods must pay the price for that economic disruption.

None other than Kenneth Feinberg, social justice compensation King, has been sent to the Gulf to fix the unfixable. Feinberg was the one accomplished diplomat and lawyer who compensated families of victims after the September 11 attacks. Somehow, he managed to maneuver the tempers and high emotions of the restitution process and still come out with his reputation for fairness and sensitivity intact. Feinberg says of the BP fund payouts, “This program I am running is absolutely voluntary — nobody has to do it. It’s my opinion you are crazy if you don’t participate.” Participants like their September 11 brethren must sign a waiver not to sue BP or the federal government if they accept compensation from the fund.

The two-part repayment plan begins “with the relatively easy process of getting emergency payments, available without obligation to eligible claimants who can prove their losses, up to six months’ worth of damages at a time. (BP has paid out more than $200 million from 36 claims offices to more than 32,000 claimants so far.) Then, 90 days after the well is plugged, comes the tougher phase of the three-year program: negotiating with each claimant for the lump sum to cover economic losses from the spill.”

Receiving compensation from a company to pay for their negligence is nothing new. Among many corporate settlements, the pharmaceutical giant Merck settled claims for its deadly Vioxx in the mid 2000’s. In the 1980s, A. H. Robins Company paid victims $2billion to compensate for defective Dalkon Shield birth control devices. Both companies fought allegations that their zeal for profits allowed them to ignore known dangers of their products. Such allegations are being levied at BP. 

What sets the BP fund apart from other corporate negligence debacles is that the product BP was selling is not the issue; the process from which it was sourcing that product is at the heart of the matter. BP has harmed the ecosystem we all rely on. Its fund participants are those whose livelihoods are directly derived from that system. By damaging the delicate balance of nature through its pursuit of profits, BP has interfered with the life and livelihood of Gulf residents.

This is a ground breaking shift in the way we look at corporate responsibility. The United States federal government and the mega-corporation BP have set an important precedent. Those victims who can prove loss of income directly due to a company’s negligence and/or misconduct are due to be compensated for those lost revenues.

The folks in the Gulf are soon to be paid emergency funds to help them weather  this challenging time and the difficult months ahead. All of America’s hearts are with them. We hope and pray they are treated fairly and justly. BP is already accused of putting mountains of paperwork ahead of real payment for those struggling to survive like fisherman, tourist industry professionals and any other business reliant on a healthy Gulf.  The direct connection between the BP Oil Spill disaster and their livelihood is clear. Any other response would be even more tragic on the part of BP and the Feds.

A New Level of CSR

It brings to mind another group of people who have lost their incomes directly due to the negligence and misconduct of global corporations: the victims of the subprime mortgage markets and the credit crisis.

In New York, California, Arizona, Nevada, Florida and across the nation, there are hundreds of thousands of such victims. As a former partner in a Wall Street recruiting company that directly supported the work of Good Business International, my firm lost two solid years of revenues as a result of the misconduct of the subprime mortgage securities industry. Yet we are only one business of many that experienced this harsh reality.

Construction companies, builders, retail stores, landlords, real estate professionals, regional bankers, employees of non-mortgage related banking and small businesses like dry cleaners, newspaper stands, restaurants and dozens of others have been devastated economically.

Errant subprime lenders like Wachovia, Washington Mutual, Countrywide and Indy Mac have paid their top executives multi-million dollar compensation packages while declaring bankruptcy and simultaneously bankrupting thousands of entrepreneurs. Firms like AIG, Fannie Mae, Freddie Mac, Goldman Sachs, Bank of America, Morgan Stanley, Citigroup, JPMorgan and Wells Fargo have received hundreds of billions of federal taxpayer dollars while impoverishing directly related businesses.

The question arises then, where is the Subprime Mortgage Market Victims’ Compensation Fund? As an entrepreneur in a financial services or real-estate business, you may have lost your entire source of income due to the inappropriate and borderline criminal actions of specific companies and never recover a dime. This economic disaster and continuing credit crisis has changed the lives of many of those dependent on the financial industry for years to come. Yet who has paid the price for the failure of the subprime mortgage markets and its economic fallout?

So far no one responsible has paid any compensation to those who were victimized by their negligence and misconduct. The rating agencies, securities firms and commercial banks continue to book record profits while millions of small businesses close their doors.  

Based on the response to victims of the Gulf disaster, it seems high time such a fund is created to compensate small business people who received no compensation, no unemployment insurance, no restitution of any kind after suffering huge income losses at the hands of the big bailout banks. 

Beyond personal injury lawyers, perhaps a new legal specialty has formed in the wake of the BP tragedy: income injury law.

Let the trials begin.

©2010 – All Rights Reserved

Monika Mitchell - Executive Director  

www.good-b.com/blog

Fortune Magazine reports that Wal-Mart hit the top of the revenue charts again in 2010 beating out the big boys like Exxon Mobil in insatiable profits. Also in the list of top revenue producers are eight bailed out companies: General Electric (3), Bank of America (7), J.P. Morgan Chase (9), Citigroup (12), General Motors (15), AIG (16), Wells Fargo (19), Freddie Mac (54)….

AIG, made the list? Freddie Mac? Citigroup? GM? Aren’t these more like Misfortune 500 companies?

Question: How can you be completely mismanaged, virtually insolvent and held up by taxpayer billions and still make the Fortune 500 list? That is the Trillion Dollar question.

Answer: What constitutes a “great company” for Fortune Magazine is entirely based on numbers, however creative those numbers may be. The 500 List doesn’t consider how many employees lost their jobs, how many worker benefits were cut, how many millions of American families were rendered homeless, and how many of America’s 15 million unemployed and 15 million under-employed lost their medical insurance and ability to feed their families due to the distorted and singular pursuit of revenues by Fortune’s “Best.”

The top dog position this year falls to discount king Wal-Mart. Fortune asks the question:
“Is Wal-Mart Stores a great company, or what?”

How exactly does Fortune Magazine define “great?”

2010 Fortune 500: Wal-Mart back on top
“The mega-retailer knocked Exxon Mobil out of the top slot to rule the Fortune 500 again this year. Wal-Mart managed to lift revenues, on top of a big increase in 2008, by attracting bargain-hungry customers from competitors with remodeled stores and inexpensive private-label goods, offering everything from frozen pizza to patio furniture in one stop. A single trip also meant less spending on gas. Result: Profits surged a whopping 7% to $14.3 billion.”

Wow, that sure is a lot of frozen pizza. So what is the secret to Wal-Mart’s success? Maybe we can learn something about being “great” from Wal-Mart’s example.

In recent years Wal-Mart has gone green, not with envy but with sustainable business practices –at least that is what we are told.

Naturally wherever the retail giant can save money by cutting back on energy usage and recycling goods would make perfect sense for Fortune’s Number One. But making Wal-Mart the poster child for environmentally sustainable practices would be a big pill to swallow for most of us. (Didn’t we already do that with BP?)

As for integrity some of us cannot forget Wal-Mart deliberately mislabeling foods as “organic” only three years ago.  Nor can we forget the internal memo released by top management to encourage high employee turnover and “dissuade unhealthy people from coming to work at Wal-Mart” to save on healthcare benefits and wages.

But people change and so do companies. Perhaps the “Top Company in America” is a role model for us after all. So just what is the Greenest of Green discount retailers doing today?

Wal-Mart Stores, the $14.3bn revenue producer, is flexing its big legal muscles to fight a $7,000 fine issued by the Occupational Safety and Health Administration (OSHA) for failing to protect the safety of a minimum wage worker who was trampled to death in November 2008.   Wal-Mart, who agreed to a settlement with the Nassau County District Attorney to avoid criminal charges, does not feel the fine is fair. Why is it unfair? Because “crowd trampling” is not an occupational hazard that retailers must actively prevent says the big WM.

Excuse me Wal-Mart…an occupational hazard would be any danger on the job.  Two thousand people queued up in front of a store sign that said, “Blitz Line Starts Here” and a 34-year old temporary worker was stomped to death in the rushing surge for a $300 laptop. It seems safe to conclude from this event that crowd danger is an occupational hazard.

This incident reveals a lot about the 2,000 Wal-Mart customers who were clearly more interested in a bargain than respecting human life. The case also reveals a lot about Wal-Mart’s business practices. Birds of a feather you know…

Wal-Mart believes that paying the small sum of $7000 would set a precedent to make them legally responsible to safeguard workers against errant crowds. And they don’t want to be responsible for that—legally or otherwise.

To make their position clear, Wal-Mart has filed 20 motions, 400 pages of legal briefs, and spent 2 million dollars in legal fees. The case is costing taxpayers millions too by demanding nearly 5,000 hours from OSHA legal eagles. In the NY office, 17% percent of attorney hours are taken up with defending the negligence fine levied against Wal-Mart.

OSHA states that Wal-Mart failed to protect employees from “recognized hazards” and to prevent situations that were “likely to cause death or serious harm” due to “crowd surge or crowd trampling.”

Wal-Mart’s official response: “We are committed to learning from the incident and making our stores even safer for customers and our associates.“

Actions always speak louder than words. Wal-Mart’s fierce battle to avoid the fine says more about company values than any amount of legal briefs or PR. The attorney for an injured shopper states, “They don’t want to take responsibility realistically for what they did.”

So in answer to Fortune’s $14.3bn question:  Is Wal-Mart Stores a great company, or what?
If “great” means only bottom-line profits, maybe so.

But if “great” includes the human-bottom line that requires a company to place the sanctity of life and dignity of human beings ahead of profits?

Or What.

At the Global Leaders Summit last week, an octogenarian economics professor from a Southern German university asked, “But will it be enough?” He was referring to the financial reform agreement reached in Congress and passed by the House this week that President Obama calls “historic.”

There have been quite a few references to history lately by self-congratulating politicians. Is the exemption stuffed financial reform bill of 2010 really a history-making event comparable to Great Depression reforms? As the seasoned professor asked, will it be enough to rein in an out-of-control financial industry? Or in the words of one NPR broadcaster, is it inevitable that no matter what kind of reforms are enacted, “Wall Street will find a way to blow itself up?”

A simple look at “history” reveals there was a time when Wall Street was not able to detonate. Economist and financial historian Glyn Davies (A History of Money) writes that following the banking reforms of 1932-1935, “significant bank failures, of the kind that inevitably plagued the unit banking system of the U.S. for 150 years, had been ruled out by the reforms.” Davies points out that from 1920-1930, nearly 5,000 U.S. banks failed. In 1930-1933, 8,812 banks failed. Yet after the banking reforms, the annual average of bank failures fell to 45. In the boom years of 1943-1960, bank failures never exceeded 9 annually—a truly amazing feat after a century and a half of panics and crashes.

It was not until Ronald Reagan and the repeal of Depression Era banking safeguards that the tide began to turn. Under the “Gipper,” the formerly highly regulated Savings and Loan industry became a free market piggy bank for Wall Street masters of the universe. The safe and secure regional banking system was robbed so thoroughly that it ceased to exist. It took taxpayer billions and deep government deficits over the next decade to restart its engines. Sound familiar?

The deregulation continued through the 80s and 90s to reach its crescendo under Bill Clinton with the repeal of the 65 year separation of banking and trading (1999) and the legalization of under-the-radar weapons of financial mass destruction (2000).

A quick history lesson:

Steve Kroft of 60 Minutes reported in October 2008, that the global credit crisis “was magnified worldwide by the sale of complicated investments that Warren Buffett once labeled financial weapons of mass destruction…credit derivatives or credit default swaps.”

These derivatives are “a form of legalized gambling that allow you to wager on financial outcomes without ever having to actually buy the stocks and bonds and mortgages. It would have been illegal during most of the 20th century under the gaming laws, but in 2000, Congress gave Wall Street an exemption and it has turned out to be a very bad idea.”

So it seems that Wall Street was not able to blow itself up when strapped down with heavy bindings called banking reforms. For fifty years, from 1932 until 1980 and the first of the banking deregulatory acts by Congress, Wall Street was not legally allowed to plunder the nation’s coffers. Yet despite those restrictions, Americans enjoyed steadily increasing prosperity for three post war decades.

What happened in the 70s? The first big oil embargo and the nation lined up at the pump and watched inflation fluctuate with gas prices. To combat inflation, Federal Reserve Chairman Paul Volker (1979-1987) manipulated prime interest rates to the obscene level of 21.5% in 1980. In the 1970s and 80s, it was not uncommon for the average home mortgage to cost 10-12%. No wonder the move to deregulation gained momentum.

Well, the old economist is at again and still going strong. This time his ban on proprietary trading (trading one’s own capital) for the big banks dubbed the “Volker Rule” made it into the final version of the bill. Banks no longer have the ability to invest more than 3% of their capital in private equity and hedge funds. (Actually 3% is pretty big when talking about banks capitalized at $10bn plus. Deutsche Bank analysts alerted investors that the final regulation was substantially “watered down.”)

The belief by Volker is that the self-interest of proprietary trading interferes with customer interest. An investment firm might be more concerned about its own money than say … a client’s.

Okay, good thinking Paul and what an accomplishment that this provision made it into the final bill. Hmmm. There is one teeny weeny issue. Banks have until 2022 to wind down their prop trades. Let’s see… it is now 2010, so that is 12 years, 3 presidential elections, two Senate terms, and six House of Representative elections.

Lobbyists, on your marks, get set, go! You have 12 years to turn the clock back before the Volker Rule is set in stone. Mr. Volker will be 94. Were they trying to see who would be left standing – the banks or the Old Fed Chairman?

Where is Scott Talbott, lobbyist extraordinaire of the so-called Financial Services Roundtable (think Knight) when you need him? Don’t let Scott’s peely-wally fade-in-the-woodwork demeanor fool you. This guy only fades in the woodwork after dark. The rest of the time he is slivering through the halls of Washington’s world of money. Talbott’s official response to the Dodd-Frank Act is that banks will earn “less profits.” That is lobby lingo for “Slap me five! “  

Even with such “historic” reform, banks that were too-big-to fail before are now more cocky and confident than ever. The U.S. economy continues to be controlled by the six big swinging banks. And for some inexplicable and rather remarkable reason, Goldman Sachs and Morgan Stanley are still bank holding companies capable of borrowing from the Fed at zero percent. Say, does anyone know if Goldman offers free checking?

Still on the books is the repeal of the Net Capital Rule that until April 2004 had limited large banks from borrowing more than 12 times its assets. The rule was overturned at the SEC at the request of former Goldman CEO Hank Paulson (among others) allowing the big financial institutions absolute freedom in terms of leverage. This limitless borrowing encouraged high-risk trading and exacerbated the credit crisis multiple times. Goldman, for example, went from 12-1 debt to assets in 2004 to 25-1 debt to assets in 2008. The greatest abusers of this lack of regulation however were Lehman Brothers and Bear Stearns who were levered around 35-1. You know how that ended.

So while the historic Glass-Steagall Act of 1932 had no fuzzy wuzzies and separated boring banking from risky gambling with a meat cleaver as Salon.com wrote, the “historic” Dodd-Frank Act is warm and fuzzy all over.

Only “below par” credit-default swaps are required to be traded through a clearinghouse (exchange). Who decides which swaps are “high-grade” or “below par?” Credit rating agencies – the same ones, Moody’s, S&P and Fitch that blew the markets up in the first place – now have the power to rate swaps.

Rating agencies hover somewhere on par with Bernie Madoff on the trust meter these days. What were our legislators thinking? I guess they were bleary-eyed towards dawn as they hammered out the bill.

There are so many exemptions in the 2,300 plus page bill that the real question is – will there be anything of real reform left when the dust settles?

So I ask you – does this sound like history-making banking reform? Or does it sound more like history repeating itself.

Hell hath no fury like a lobbyist scorned. Congratulations Scott.

©2010 – All Rights Reserved

Monika Mitchell - Executive Director  

www.good-b.com/blog

Who knew until just a few weeks ago that Big Oil had a contract with God? BP, the self-proclaimed poster child for corporate social responsibility, got their right to dig one mile below the surface of the sea direct from above.

Yup, that is just the way it is. Nothing any of us can do about it. Because if God gave them the right to drill baby drill, who are we mere mortals to question their authority? 

How else would the American government, the international maritime agencies, and oil industry regulators have allowed this one profit-driven company and any oil digger out there, the right to destroy our God-given eco-system? It must have been the Big Guy, or Gal, herself.

You don’t believe me? It says so right in the Good Book. Look it up.

Genesis, Chapter 1, Verse 1: “In the beginning God created the heavens and the earth.” Okay, so what happens after that?

Chapter 1, Verse 28: “God blessed them; and God said to them, “Be fruitful and multiply, and fill the earth, and subdue it; and rule over the fish of the sea and over the birds of the sky and over every living thing that moves on the earth.”

So human beings, i.e. governments, private profit-driven oil companies, industry regulators, have determined they were given the right to “subdue and rule” over the earth and sea from the highest authority. That must be why Big Oil believes that off-shore drilling is its Divine Right. How else would these shareholder companies have the opportunity to drive their drills down five thousand feet underwater to annihilate our fish of the sea, birds of the sky, and every living thing that moves?

Do you get it now? We can’t blame BP. They get their mandate to destroy the eco-system from a higher authority. They do it all in the name of the Almighty.  In the case of global oil companies, that higher authority is the Almighty Buck.

That means for BP and Big Oil, Buck is God himself. Or for all practical purposes in the United States of America, God is the Almighty Buck. Yup it has to be. Otherwise why would we worship it over Creation?

We would never let anything less than a Supreme Being take from us our rightful heritage. No human being would have the ability to trade our eco-system for profit. It just couldn’t be done—because we understand that nature itself is sacred.

We live in a shared world. No single person, group of people, corporation or nation has the moral, ethical, or legal right to rape, pillage and plunder what belongs to the living and yet unborn. Not unless it was given away by the Creator itself. So that must be the Almighty Buck.

Now I feel better. The Oil Spill in the Gulf at the hands of the inept and dangerous BP must be an act of God – like an earthquake or something. The Lord Giveth and the Lord Taketh away. For Big Oil, Buck giveth and taketh away.

So I ask you as you grumble, moan and wring your hands in despair at the great tragedy in the Gulf, WHO GAVE BRITISH PETROLEUM OIL COMPANY THE RIGHT TO DESTROY THE SEA?

Almighty Buck.  Buck is in charge. Buck is the one who decides who lives and who dies, who thrives and who perishes. You did not create the universe. You cannot determine how to use our earth. That is Almighty Buck’s  job and only He decides who has dominion over earth and sea.

Right now that is BP.

You thought a mere oil company would not be free to poison the seas that belong to you, me, our children and theirs.

You thought that nature was so grand and awe-inspiring in design that no person or institution should be allowed to tamper with its majesty.

You believed that human beings were given the privilege of protecting and preserving our natural world.

You thought wrong.

Our sacred covenant with the earth is not to protect and preserve it after all. BP and our oil drilling laws have shown us that the covenant with Almighty Buck gives human beings the right to strip the earth of its abundance and leave behind environmental devastation for posterity.

The earth and seas are under the rule and dominion of private profit-driven international corporations. The global community decided long ago that this is how it should be. Common economic ideology dictates that our natural resources should serve only short-term human needs. Our governments, even the most enlightened among them, are convinced that profit is more important than people, that shareholder value is greater than nature’s value.

In the name of freedom, free markets and that Holy Grail called “Enterprise” we have forsaken our own eco-systems—those that sustain us. In the process, we have forsaken humankind.

Somehow we cannot see a way to value life and money at the same time. We cannot find a way to profit without endangering the delicate balance of the earth.  We cannot imagine a comfortable existence without sacrificing our natural surroundings for it.

We continue the call for off-shore drilling. Almighty Buck wants it that way. We will not “kick our addiction to oil,” or so he says. We are not willing to sacrifice convenience for longevity. So we are told.

As we watch the billions of gallons of toxic oil plumes deadening our sea life, the majority of us would gladly inconvenience ourselves for an end to this destruction. We are willing to forgo shareholder dividends for peace of mind and a greater future on this earth.

It takes our business, political, religious, and global leaders to say “enough.” By ourselves, we do not have the power to stop “off-shore drilling.” We do not possess the engineering skills to create a green car, cheap solar power, or replace our national oil dependency with eco-saving alternatives. Yet we can imagine it; speak of it loudly and boldly for all to hear.

To effect real change, we must join forces in large numbers and say no more to the savage raping of our earth and sea.  No more to off-shore drilling. No more to threatening our eco-systems. No more to profit over people and life itself.

There is another way.

We can hold a vision, a dream perhaps, of a balanced life where the earth and sea serve us as we preserve them. Our vision includes a symbiotic relationship with nature – where She provides for us and we protect Her.

In the meantime, we watch in agony the destruction of the Gulf coast, the livelihoods of those that live by nature and the unbelievable toll of perishing sea life.  We recognize our vision remains a “pipe dream.” (No pun intended.)

Yet it does not have to be. Nature should not be trumped by private interests. People need not take second place to profits.

If you are looking for someone’s “ass to kick,” you might try finding Almighty Buck.

©2010 – All Rights Reserved

Monika Mitchell - Executive Director  

www.good-b.com/blog

Do you believe in miracles? Well, brace yourself. We may have another one coming down the pike. Financial reform bills have been passed by both the House and the Senate. Lawmakers are currently working on the final version. We just might see the most sweeping financial reform since the Great Depression within our lifetime. Considering the aggressive and well-funded lobbying by banks, financial institutions, large corporations, and highly placed politicians, this would truly be a miracle.

Why didn’t we have financial reform before this, you may wonder? Because… “The markets can regulate themselves.” Well, at least that is what we believed back in the Bronze Age (20^th century.)

In our post financial crisis world, the big question of “to regulate or not to regulate” has been definitively answered. Former libertarians like myself recognize that the markets don’t (and can’t) regulate themselves. The “markets” include groups of money-lusting individuals completely incapable of controlling those desires. To be sure there are lots of good folks out there in business and finance. But the money-lusters interfere with the freedom of the rest of us. They seem incapable of seeing the bigger picture. These folks focus on how much they can get for themselves at the expense of everyone else. Sort of like Pavlov’s dogs—ring the bell and the dogs are off and running to find food.

Therefore it has become unmistakably clear in the last 21 months since investment banking as we once knew it died, that the markets need genuine supervision.

The new  financial reforms currently debated will affect all of us who live in the U.S.  So it’s worth it to take a look at what we are bargaining for.

The Senate Plan outlines the following:

    1.  Establish a new council of “systemic risk regulators.”

The main goals of this council are to stop companies from getting too-big-to-fail, preventing another collapse, bursting economic bubbles before they get too dangerous, and managing systemic risk. A tall order perhaps and one that sounds almost fantastical. How this agency hopes to achieve this lofty goal is still being hammered out.

    2.  Establish a new consumer protection agency within the Federal Reserve.

Been there, done that. Didn’t work the first time to protect consumers. In fact, the Fed failed pretty miserably. This agency should be independent of the Fed, the Treasury and all the Old Boys who are afraid some smart woman (Warren, Bair) will run away with their pots of gold.

    3.  Give more power to the Federal Reserve to supervise risk activities of the largest financial institutions.

OMG.  

Could Alan Greenspan have had MORE power? He spoke and the whole WORLD listened. The man moved markets by breathing! So let’s remember how that worked out for us.  Memories may be beautiful and then…just too painful to remember the way we were. This provision has to go. We may be dumb, but we are not stupid! Hopefully. 

    4.  Increase government authority “in extreme cases to seize and liquidate a failing financial company in a way that protects taxpayers from future bailouts.”

Isn’t the FDIC already doing this and doing it better than anyone else? Didn’t the other “government” agencies blow their big opportunity with unconditional and unlimited bailouts of AIG, Fannie Mae, Freddie Mac, Goldman Sachs, JPMorgan Chase, Citibank, Bank of America, and Wells Fargo? Seems to me when they gave away the store without securing consumer lending and employee compensation, they failed in this mighty task. Let me ask you a question. If you screw up at work do you expect to be ? a) reprimanded b) fired. c) promoted.

Perhaps we can apply common sense logic to our reform bill. Given their track record of handing billions to buddy banks while letting the rest of the Street and the nation crash and burn, the Federal Reserve and the Treasury should never have the authority to liquidate any firm.

A glaring example of official mismanagement is the U.S. government “ownership” of 27% of the perpetually insolvent Citigroup. The Federal Reserve and Treasury engineered a taxpayer guarantee of $300bn of toxic assets and poured billions upon billions into this banking Titanic. 

Yet has this enormous investment reduced bank exec bonuses, home foreclosures, or credit card interest rates for the public that paid for it?  Has our ownership increased lending for small business in any way, shape or form? Have these billions of taxpayer dollars given American consumers any relief from their own toxic assets? The answers are no, no, and no.

Chief execs are paid in the gazillions. Banks are predatory foreclosure machines. Small businesses are left in the dust as big business accesses easy credit. Anyone unlucky enough to have credit card debt from one of the bailed-out banks has seen their fees and interest rates hit the roof.

The provision for “government” liquidation should be maintained strictly within the FDIC since this is the only organization that has done a fair job at it. When a bank is failing the FDIC does not reward errant execs à la the Federal Reserve and the Treasury; they take the bank over and “sell” it to a proven money manager. FDIC’s Shiela Bair has suggested this rule be expanded to include insurance companies and other large non-bank financial institutions. (This would mean AIG execs who were paid big bonuses for losing billions would be out of luck under the FDIC plan.)

    5.  Transparency and oversight for the derivatives markets through a “third party.”

You might be asking, what the heck are “derivatives” anyway? They are the smoke in smoke and mirrors. If you have a hard time understanding how these ”exotic financial instruments” work, welcome to the club. Even the former Fed Chairman, Poindexter Greenspan didn’t have a clue. Hopefully, the “third party” that the Senate Plan stipulates is a regular trading exchange.

Basically, derivatives are “bets” placed between two parties on how markets and  assets will fluctuate in the short and long term. Their value is derived from the value of an unattached asset. They include confusing words like options, futures, and those stealthy neutron bombs called “swaps.”

It works sort of like this: I bet you that a particular horse is coming in first in the race. You bet me that my horse will come in last. Neither of us owns the horse, yet we have money on the race. You can bet at the track or Off-Track betting parlors or we can make a “side bet.” In the derivative world, there is no track (exchange) or OTB—just side bets. This scenario is the root cause of AIG’s $182bn rescue. A multi-trillion dollar credit default swap market grew from third party traders who simply bet whether an asset-backed security would go up or down; they don’t have to own it.

Financier George Soros believes these “air” bets should be eliminated. Parties should have an “asset interest” in the derivative product. Sounds reasonable, but the market for derivatives has reportedly reached $668 trillion. These contracts would be worthless if the Soros rule was enacted. The challenge would be how to wind these down without  economic catastrophe.

The House bill has a few variations from the Senate bill:

    6.  Exemptions  from a trading exchange would be allowed under the House bill for certain derivatives traders. It doesn’t seem reasonable for any of these fake assets to continue under-the-radar. Not if taxpayers or investors are on the hook. We need to know how many of these WMD’s (Buffett’s term) are out there for the public’s economic safety.

Senator Blanche Lincoln’s (D-Ark) solution is to eliminate derivatives altogether from big bank books. (Warning: Don’t make the gals mad fellas. You never know when they will become your boss.) The view behind this clause is to re-establish a separation between boring banking and high risk gambling. Chances of that happening in this bill are slim however; even Paul Volker is against it.

    7.  Prop trading: Speaking of the former Fed Chairman circa 1980s, the Volker rule to prohibit proprietary trading by banks is also on the table. (Prop trading is trading a firm’s “own capital.” This can create a fundamental conflict of interest with investors and clients.) Perhaps there is a middle ground to “silo” a prop desk from the rest of a firm’s transactions. This way the firm’s capital would not be traded based on insider knowledge of its customers’ movements. In the last ten years, proprietary trading has grown to astronomical proportions. It might be virtually impossible to wind them down without devastating economic results.

    8.  Audit the Fed: The best parts of the House bill lay in its power to audit the Fed in a financial crisis. Phew! Do we need this and fast! No unilateral power without checks and balances should be given to any branch of the government. The Constitution was written specifically to prevent this. Yet here we are—at the mercy of the Federal Reserve and the U.S. Treasury as to how our trillion dollar bailout proceeds.  In effect, this is unconstitutional. No one should have their hand in the cookie jar without fear of being caught. The Congressional Oversight Panel headed by Elizabeth Warren is still asking, “Where’s the beef?”

Lastly, the Consumer Protection Agency should do just that—protect consumers. Independent of any politically motivated federal agency that has a clear self-serving agenda like Treasury or the Federal Reserve. An autonomous consumer oversight arm would finally deliver some of the equal economic representation American citizens were promised at our founding.

Isn’t that what it is all about anyway?

Perhaps surprisingly, enormous opposition to an independent agency exists—hence, the push to keep it in the Fed. (FYI: The Federal Reserve is a quasi-public-private agency, run as much by the government as it is by private banking.)

Judd Gregg (R-NH) summed up the alleged fears of Senate opposition to financial reform when he claimed regulating markets would “undermine” the system and warned, “It will inevitably contract credit.”  Was the Senator asleep for the past two years? How could he not notice that lawlessness in the markets created a severe “credit crisis” that has few signs of abating?  Some of us take more time to learn than others.

For the rest of us, it’s time to wake America up and pay close attention to what our lawmakers are doing on our behalf. Post crisis, we no longer have the luxury of looking the other way. All eyes should be on Congress this month as they hammer out the nitty gritty details of our future banking system.

Anyway you look at it, after nearly thirty years of dangerously deregulating banks, real financial reform of any kind would truly be a miracle.

Monika Mitchell ©2010 – All Rights Reserved

Humanity is at a pivotal moment of transformation. How we proceed from here will determine the level of suffering we will endure or the level of peace we can achieve in our lifetime.

The more strife and hardship experienced by our world, the more we question the status quo. We have not arrived at this moment by accident. We are part of a growing force of voices that yearn to bring about change.

Humanity has suffered tremendously in the 20^th century.  The traumas of wars, conflict, and injustice over the past 100 years have taught us great lessons. From these painful moments we have made great advances in terms of human rights. The second half of the 20^th century brought forward a consciousness for the urgent need  to protect the innocent and to “right” the many wrongs of society. Before this shift in thinking, human rights was a fringe idea held by a small group of brave and enlightened souls. The creation of the United Nations and the hundreds of advocacy groups that evolved from it represent the dramatic change in our cultural beliefs. We have gone from killing each other to saving each other. At least some of us have.

What this proves is that it is possible for human beings to change in a fundamental way. As change agents, this is important for us to remember as we move through the often frustrating process of transformation. While it can be slow, plodding, and exhausting, when we look back over the last century we see enormous progress in the way human beings relate to one another.  In spite of those who wish to maintain the status quo, change does come.

One of those areas of progress is the treatment of women.

Beginning half a century ago the plight of women as second class citizens was brought to the world stage. We discussed civil rights, education, and economic rights, and made serious political and social advances. Most of all a consciousness grew that refused to relegate women to the simplistic roles of submission and subjugation we suffered as a gender for the previous 2500 years.

If you remember the progress we have made in recent years (after more than two thousand years of repression and suppression), we recognize as a species human beings have advanced further than we think. Yet the fight is still on…

We hear of young girls subjected to vicious attacks as they fight for their right to be educated. We witness the violent abuse of women worldwide as they struggle to take their rightful place along side of men. All of these challenges reawaken us to a simple fact. There is still so much to do.

We have arrived astonishingly in this new century at a crossroads of spiritual and cultural evolution of the world community. The advancement of women is a crucial part of that evolution.  If we wish to advance as a species, the 21^st century is poised to become the Century of Women. This will be the century where women fully participate in the decisions and direction of their own lives.

I worked in the financial industry in the U.S., here in New York, for several years—a traditionally male world. For all the progess America claims in the advancement of women, the world of money in the United States and across the globe is still controlled by a small group of men. The proof of this unilateral control was exemplified by the financial crisis that began in the U.S. in 2008 and spread around the world in a matter of days. It continues to wreak havoc today. Hundreds of millions of innocent people are struggling to survive due to the aggressive and predatory acts of a few thousand men.

I am convinced (and I am part of a growing consciousness) that the only thing that can right this great wrong will be the addition of women to the economic and political systems in a real and integral way.

Greed is not the sole province of men. Women are prone to this human flaw as anyone else. Yet what are traditionally recognized principles of feminine energy – compassion, love, receptivity and conscious humanity – are exactly the elements missing from the current economic structures of the world. These human qualities are precisely the factors that can fix the financial system and prevent another collapse from occurring at the hands of greed.

Compassion and business are not supposed to mix, but a human social system (whether political, religious, or economic) that does not include compassion is forever destined to destroy and not create.

The world needs love. The absence of love is the catalyst behind all human-made suffering. When we forget about love for humanity, we become violent, detached, and destructive. We needlessly create pain for others, because we falsely believe that caring about them will make us vulnerable.  The absence of love inevitably becomes a virulent hate; this is the greatest tragedy of our civilization.

Women are lovers. Women know that love makes us stronger. We understand in our deepest core that love not hate has the greatest power to heal. While hate destroys, love rebuilds.

We are mothers. We nurture our children who create the future of the world and give them strength to face the challenges they will meet. We are the givers of life, not the takers of life. In giving life, we give love with it.

Women are healers. Our job is to offer strength, tolerance, understanding, and wisdom to help repair our world.

In this Century of Women, it is not that women will replace men. It is that men by our example will open themselves to the compassion women embody. Men will find the courage to open their hearts to the love women innately feel for the planet, for our children and communities.

In this Century, women will finally face their fears of annihilation and find the strength to step up and take our rightful place as leaders along side of men.

It is only in true partnership of men and women in government, spiritual traditions, and in our economic structures that we can heal the suffering of our modern world.

Monika Mitchell - Executive Director    editor@goodb.net

©2010 – All Rights Reserved

Remember the Old Boys’ Club…? The boring, cranky, devious one that controls the banks, the economy and most of our wealth creation and money supply from behind the scenes? The one where nearly every key position in government is occupied by an Old Boy? Yes, that one.

Well, there are still a few lifetime members of the OBC firmly entrenched in the Federal Reserve (Grandpa Ben), and the Treasury (Timmy G and Larrykins) who continue to give all our money away to their ever-popular clubby friends.

These are the same old boy club members who along with ex-Goldman partner and Treasury Secretary Robert Rubin gave the store away to the big banks in 1999 with the repeal of the Glass-Steagall Act. Ordinary banks like Citigroup could now legally play roulette with government guaranteed deposits. OB Robert Rubin thought it was such a great idea he took a job with Citibank only weeks after leaving the Treasury.

These same old boys, Summers, Greenspan, Geithner with OB Senator Phil Gramm (now a lobbyist for Swiss Bank UBS) the very next year pushed through the ill-fated Commodities Futures Modernization Act – otherwise known as Derivatives-Are-Born-Free Act. This little understood law overturned a century old rule that had prevented unregulated market bets since the Panic of 1907. Now all bets were off…

Meanwhile back at the Securities and Exchange Commission, the agency that was supposed to be supervising the gladiator games, another group of old boys put the final nail in the coffin. In early 2004, Chairman of the SEC William Donaldson (former head of securities giant DLJ) got together with a few good friends, card-carrying OBC members and business colleagues, the heads of the five largest investment banks in the industry including soon-to-be Treasury Secretary Hank Paulson. Together the six overturned a law that stood on the books for three decades limiting the amount of risky assets the nation’s largest securities firms could hold.  In a 45 minute meeting, the barrier between 12 to 1 capital to debt ratios and all hell breaking loose was removed.

Unlimited leverage became official:  the biggest banks no longer had to follow “the net capital rule” and could use their “own judgment” for how much risk to take with other people’s money. Within four short years, the five firms would triple and quadruple their risk levels to the point where three of the five firms collapsed along with the United States banking system.

Who benefited from merging boring deposit-taking banking and casino trading by dismantling Glass-Steagall? Citibank, JP Morgan Chase, Bank of America, Wells Fargo…

Who benefited from under-the-radar derivative anarchy?
AIG, Goldman Sachs, Morgan Stanley, Deutsche Bank, UBS, big banks, the hedge fund and private equity community…

Who benefited from reversing the capital restrictions on  risk for big banks?
Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, Bear Stearns, JPMorgan Chase, Citibank, Bank of America, Wells Fargo…

I think you know how the roller-coaster fun ride ended.

It is clear who did NOT benefit from the free-for-all deregulation of banks and the refusal to create a derivatives exchange…The working public, small business, you and me. In fact it was the elimination of these three important legal statutes that pushed the American financial system to the brink of collapse in less than a decade. Are you getting the picture? In the words of Oliver Hardy, Old Boys’ Club of America: Another fine mess you’ve gotten us into.

And now for something completely different. The All New Girls’ Club.
Move over boys. The girls are back in town.

Democracy and Law

The recent nominee for Supreme Court Elena Kagan summed up the need for law in the preservation of freedom. “Law matters because it keeps us safe, because it protects our most fundamental rights and freedoms, and because it is the foundation of our democracy,” she said. These words could be easily translated to the current debate on financial reform.  Freedom only functions when the laws protect everyone. Keeping our nation’s financial system safe from rape, plunder, and pillage is the ultimate goal for financial reform.

Out of Washington this past decade, little of our government’s actions made rational sense. Economic anarchy was called “free-enterprise” and “reform” was equated with more war and less public safety. Same old story as the old boys kept their stranglehold on the gov and our economy.

Back in the old days (late 20th century America) one voice of reason rang out-the former head of the Commodity Futures Trading Commission, Brooksley Born. In 1998, Born singlehandedly stood up to the firmly entrenched old boy network of Greenspan, Summers, Rubin, Geithner and SEC Chairman Arthur Levitt and fought hard to regulate lethal derivatives citing the risk of unmitigated disaster. Unfortunately, the irrational voices of the old boys drowned her out and her warnings of financial crisis came true.

Sitting on the Financial Crisis Inquiry Commission a few weeks ago, Born had her chance to chastise the champion of free-for-all enterprise and economic recklessness, Alan Greenspan. She told the old boy that he “failed to prevent the housing bubble, failed to prevent the predatory lending scandal, failed to prevent the activities that would bring the financial system to the verge of collapse…You failed to prevent many of our banks from consolidating and growing to a size that are now too big or too interconnected to fail.”

Wow! What a woman. It was almost worth the  painful two years of financial woe to see Greenspan become visibly angry and categorically deny what is already documented fact. Ding dong “the Oracle” is dead.

In a sea of male bankers, another woman’s wise words stand-out. Sheila Bair, Chairwoman of the FDIC and long an advocate of safe banking and distressed homeowner assistance, has the odd distinction of being one of the few banking industry regulators in favor of a Consumer Financial Protection Agency. Such an agency “would help community banks, not hurt them,” she claimed in direct opposition to her old boy colleagues. In accepting the Profile in Courage Award alongside Brooksley Born, Bair said, “I’m particularly pleased to be joining …other female awardees who stood up when some of their male counterparts failed to act, or worse, actively fought them.”

Next up in the House of Feminine Wisdom is consumer rights champion Elizabeth Warren, Harvard Law Professor and Chairwoman of the Congressional Oversight Panel. As head of the panel, Warren is a fierce critic of how the bailout money was allocated by the Fed without condition. She has become the nation’s most vocal and toughest advocate for a Consumer Financial Protection Agency.

Warren summed up her fight for reform with this, “It’s ultimately about protecting the whole economy. When we destabilize American families; when we sell them terrible products that explode in their faces. That in turn destabilizes the entire economy. These products that were gonna offer these huge, huge profits weren’t just lousy deals for consumers. They were lousy deals for investors. They were lousy deals for pension funds. They were lousy deals for the worldwide economy.”

Wall Street: Fix this Mess You Made

Two weeks ago as I stood outside New York’s City Hall listening to angry protestors chant, “Wall Street fix this mess you made.” I realized that only our lawmakers can fix the mess they made.  A financial system without laws protecting the innocent constitutes economic anarchy… And anarchy is a dangerous thing. It has been an expensive and painful lesson for us as a nation and global community. What does the “free market” really mean? What keeps a  society truly free from tyranny after all? Laws can create tyranny or protect us from it – the choice is ours.

The only way to safeguard our economic system for consumers, financial professionals, investors, as well as for bankers is to vigorously regulate the markets. Limiting leverage with capital and debt restrictions, reining in risk of deposit-taking banking institutions (separation of Bank and State), removing conflict of interest from official regulating and rating agencies (eliminate regulator – ratings shopping), and creating a consumer financial protection agency in the same way we oversee every other product on the market from food (FDA) to children’s toys. These changes are basic and reasonable responses to maintain economic freedom, not obscure it.

The Old Boys’ Club has launched a battery of lobbyists who are fighting hard against these reforms and the women in power are pushing back.

Ladies Night

At a recent evening celebrating women leaders, California veteran Senator Diane Feinstein claimed that, “If Congress were all women, we would have financial reform by now.” That may or may not be true. Yet there is something to be said for the healing quality of women. The women in government right now seem intent on fixing the problem, not denying it exists or throwing more wood on the fire.

Feinstein pointed out that 18 years ago when she was first elected to the Senate, there were only two females in that body of Congress. Now there are 17 female U.S. Senators. That is an increase of representation from 4% to 34% in a decade and half. Every election we move closer to shattering the glass ceiling held firmly in place by the OBC that has dominated our nation’s financial system for over two centuries.

Feinstein, Olympia Snowe (R-Me), Susan Collins (R-Me), Barbara Boxer (D-Ca), Kirsten Gillibrand (D-NY), Kay Hagen (D-NC), and Nancy Pelosi (D-Ca) are all leaders on comprehensive financial reform. Margot Dorfman, CEO of the U.S. Women’s Chamber of Commerce took the opposite view on financial reform from her male counterparts at the big business lobby thinly disguised as the U.S. Chamber of Commerce. The USCC is campaigning against the creation of a consumer financial protection agency. Dorfman declared her support for the agency and for “America’s small businesses and communities” by urging Congress to “pass comprehensive financial reform.”

Additionally, Mary Shapiro as head of the new and improved SEC, Bair, Born, and Warren -embody a newly established feminine wisdom that is moving the ineffectual and outdated Old Boys’ Club out of the way.

Women are healers by nature. We are mothers, sisters, daughters, problem solvers, and leaders. The time has come for the feminization of our politics and our economy. Our nation needs to be healed. That’s not a job for the timid or delicate. It’s not for sissies. It is for the strong, powerful, and wise. The way women really are.

The logic of the Old Boys’ Club represented by the ancient Greenspan and the not-so-ancient 50 year old males controlling the nation’s largest financial institutions has rapidly dissipated by its own self-defeating actions.

As for me, I think the patriarchs in the tired dreary old boys’ network had their shot and screwed things up just fine – now it is time for the ladies to take their turn and see if they can clean up the mess the boys made. For my money, I put my trust and faith in the New Girls’ Club.

We have come a long way, haven’t we?

Monika Mitchell - Executive Director    editor@goodb.net

©2010 – All Rights Reserved

It used to be that indifferent wealth building and outsized risk was sexy. For thirty years, the world of high rolling high finance was the object of admiration and envy. The chants of “Wall Street sucks” some ten thousand strong in front of City Hall last week signify that the days of glamour and greed are over. Inarticulate and ineffectual as that phrase might be, it reveals the increasing rage building against Wall Street titans. In the wake of the deepest financial crisis since the Great Depression, economic hardship has become too real for too many.

Wall Street’s ”burn baby burn” ethos isn’t looking so hot these days. The thrill is gone baby. The thrill is gone away.

Last week, Wall Street’s ruling class, the risk managers of the mortgage securities division at Goldman Sachs were skewered to a well-done temperature by a suddenly alive and outraged Senate Committee.

Question: Where was this “you done wrong” stance when the Street paid themselves millions on the backs of the downtrodden and newly homeless? Where was the outrage and effective action when the industry cannibalized itself and then walked away with the Golden Goose? The rage of our elected officials on display across TV Land America seems too little too late to help those in foreclosure or destitute from loss of income directly due to the excessive greed of a select few.

So what was this humiliating display of Goldman Sachs princes falling from grace all about?

The current anger at Wall Street seems to be channeled almost exclusively at one firm and that nefarious place called “Wall Street.” Goldman Sachs has come to represent for many critics, the Great Satan in modern America.  Rolling Stone’s Matt Taibbi called Goldman the “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”  His attack of the Big Bank established lines of battle between those who believe the investment banking giant can do no wrong (Warren Buffet  & junk bond king Michael Milken) and those who believe they are modern day Dillingers (Taibbi and most of America.)

In case you missed it, the Securities and Exchange Commission suddenly awakened from its decades long “see-no-evil” stupor and brought civil charges against Goldman Sachs for allegedly deceiving clients by selling bad debt called “synthetic CDOs” and then profiting on their client’s investment faux pas. These “exotic” financial instruments were once ironically termed “weapons of financial mass destruction” by Goldman’s most vocal supporter, Warren Buffet. (Buffet invested 5 billion dollars in GS in the fall of 2008.)

Goldman’s defense: Our investors are big boys capable of making their own decisions. Translation: “We are not responsible for your ignorance…suckers!”

Taibbi points out in a recent UK Guardian article that the philosophy behind their defense is the medieval business model of “caveat emptor.” He writes, “The investment bank’s cult of self-interest is on trial against the whole idea of civilization – the collective decision by all of us not to screw each other over even if we can.”

Goldman’s greatest critic is indeed correct that the investment giant’s “cult of self-interest is on trial,” but this is not exclusive to Goldman Sachs. They are simply the most visible and seemingly “best” practitioner of unrestrained profit-seeking at the expense of the greater society. Goldman Sachs is not on trial literally (at least not yet). The entire business model of profit-at-any-cost (Atlas Shrinks) is “on trial” in the eyes of the public.

For years, the pendulum swung in the opposite direction. As a culture, we have defended a business model of profits-before-people that has come to bite us in the bloomin’ arse. The model has been reduced to an inane battle of “conservatives versus liberals.” Just curious: Since when is it “conservative” to take the food out of a baby’s mouth and the roof over a hard working family’s heads? Since when is it “liberal” to establish a morally restrained code of behavior that embodies the Golden Rule? All these absurd labels prove is that as a society we force people into tiny boxes for our tiny minds to comprehend and then completely miss the point.

The Point: Are we survival-of-the-fittest capitalists in a deadly game of Darwinian magnitude? Or are we morally responsible and socially conscious capitalists who have personal boundaries in the pursuit of profit which we won’t cross? In other words: In the quest for money, is there anything at all that we won’t or can’t do?

Libertarians or Randian greed-mongers would say no. In the purity of the “free market,” there is nothing we should not be able to do. Theirs is a Wild West philosophy of lawlessness, predatory mortgages, and under-the-radar “derivatives.”

The chances of Goldman Sachs breaking a securities law and being convicted of fraud are pretty slim. They are too “clever” and too connected to behave criminally. Goldman does not have to break laws to profit; they simply change laws to their advantage-circa Robert Rubin, Hank Paulson, and the New York Federal Reserve Bank. The purity of our democracy is the real issue, not Goldman’s alleged “fraud.”

Law of the Land

While in Wyoming traveling from Yellowstone National Park some years ago, the owner of a lodge asked me if I wanted to go grizzly bear hunting. I replied, “I thought it was illegal to shoot grizzly bears.” The cowboy smiled, “We make our own laws here.” Looking around at the rugged and wild expanse of nature surrounding me, it was easy to understand his conviction. He could have killed me too and no one would have ever known.

What struck me most about his question was that he and I were of such contrasting worlds. I, a city girl, was comfortable with society’s rules. He, a wilderness child, had no respect for anyone else’s law. The fact that he thought I would share his love for the indiscriminate killing of innocent animals astonished me. We held a completely different moral view.

It reminds me of a conversation with a former mortgage trader from one of the big banks just after Lehman’s fall. He had been skiing in Aspen in 2007 and overheard two mortgage brokers ranting about a deal they failed to close. “F***ing Bitch,” they swore of the cautious widow who refused their loan. My friend was weary of the business and said, “I made my money; it’s not fun anymore.” His was a rare conscience in the world of finance-one where he gave up “the fun” to become part of Vermont’s middle class. The price of easy money became too high for his morally conscious mind.

What is really on trial with Goldman on the hot seat is our cultural ambivalence to greed. There is no such thing as easy money or “money for nothing” – that is the great American myth. There is always a price to pay when we throw care and responsibility to the wind.

We live in a shared society, not an island apart from the world. We are part of a complex and extensive global community. Everything we do from polluting the environment to polluting the economic system comes back to haunt us. In our adolescent materialism, we forget there are consequences for our actions.

For the record, “Wall Street” is not the few blocks stretching downtown that last week’s protestors symbolically walked. Wall Street is an amorphous destination that exists as much in our minds as it does behind the gold and glass plated doors of 200 West Street. It stretches from one end of the nation to the other – south, north, west, east and everywhere in between. It reaches every continent on earth and directly affects every nation. It operates through every bank, insurance company, corporation, lender, and financial advisor. It includes the stock exchanges and bond markets in New York, London, Hong Kong, Chicago, and around the world. Wall Street is not a “place” at all, but a global economic system. The question is do we want to support a system that creates value for society or destroys it?

The myth of the “free market” is that we should have no laws. We should be able to shoot grizzlies and each other with impunity in our current economic philosophy. No one will really know if we “screw” each other over. As long as we do not leave a trail of emails behind, it’s your word against mine. Who would ever know?

Our market values do not emulate our societal values. We live in a ”free society” within a complicated system of laws designed to protect us from the tyranny of each other. I can no more “kill” you, than you me, without legal consequences. Yet I can sell you bad debt hidden in between thousands of pages and laugh at your stupidity as you writhe in agony from economic disaster. The double standard of our flawed morality makes little sense.

Greed is looking ugly these days. “The great vampire squid wrapped around the face of humanity” is greed itself. Unbridled greed is primitive, crude, crass, dangerous, socially obsolete and not in the least bit sexy. To paraphrase that great philosopher, B.B. King:

The thrill is gone baby.
The thrill is gone away.
You know you done us wrong baby.
You’ll be sorry someday.

Taibbi writes of the task facing the modern world to make a collective decision once and for all, “not to screw each other over” just because we can.

Goldman Sachs is not the source of the problem. The real source is the primitive and socially unconscious business model they embody and we embrace. The acceptable for-profit survival of the fittest model where we “take the money and run” without responsibility for our actions. The model where it is not only “okay” but “good business” to leave dead bodies in our wake. The model where if I survive and you fail… I win!

After all, they shoot grizzly bears don’t they?

Monika Mitchell - Executive Director    editor@goodb.net

©2010 – All Rights Reserved