Robbed to rescue the rich
looks at how the worst financial crisis since the Great Depression has revealed, once again, two worlds of the haves and have-nots, existing side by side in America.
ALL MEN are created equal, says the Declaration of Independence. But when it comes to life, liberty and the pursuit of happiness, some Americans seem to be more equal than others.
At the start of October, Congress and the Bush administration put the finishing touches on a $700 billion bailout to save Wall Street's richest banks and financial firms from the disastrous consequences of their own gambling. That's roughly $2,300 from every man, woman and child in the U.S. to rescue the same businesses that continue to foreclose on homes, that jack up interest rates on credit cards, that cut off student loans.
And no one knows if $700 billion is enough to save the banks. The chaos they caused with their reckless speculation has set off a financial chain reaction that is shaking the world system--and now the rest of the economy as well, as layoffs and cutbacks begin to bite in one industry after another.
But if no one knows whether the handout to the banks will work, we do know one thing: The vast majority of Americans won't get a helping hand of any kind. Millions of ordinary people in the U.S. have "bad debts" on their books, and they could be kicked out of their homes because of it. But the federal government is doing next to nothing.
For people like Addie Polk, the pressure became too much.
Addie and her husband bought a home in Akron, Ohio, in 1970, and managed to pay it off by 1982, just before they hit retirement age. But in the last decade, Addie, now a widow and suffering health problems, ran into financial difficulties, so she re-mortgaged her home--most recently, visiting a Countrywide Home Loan office in 2004.
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No problem, declared the helpful people at Countrywide. At the age of 86, Addie signed a 30-year mortgage for $45,620 and took out an $11,380 line of credit.
She began missing payments. In 2007, the government-backed mortgage company Fannie Mae took over the loan and began foreclosure proceedings. The house was reportedly sold at auction earlier this year for $28,000, and sheriff's deputies began delivering eviction notices.
When the deputies arrived for another attempt on October 1, they heard gunshots. A neighbor used his ladder to get in a second-floor window, where he found Addie lying unconscious on the bed, shot twice in the chest. She was taken to the hospital, barely alive.
Apparently, a 90-year-old woman's suicide attempt--and a nationally publicized one at that--was enough for Fannie Mae. Executives found it in their hearts to decide that Addie's loan would be forgiven.
But of course, Addie Polk is one among so many. "There's a lot of people like Miss Polk right now," said Akron City Council President Marco Sommerville. "That's the sad thing about it...This is just a major problem."
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COUNTRYWIDE FINANCIAL, whose home loan division made the new mortgage loan to Addie Polk in 2004, is one among many, too.
There were hundreds of mortgage brokers, scores of lenders like Countrywide, banks that bought the mortgages, investment banks that re-bought them and sold them again as get-rich-quick investments--an immense and twisted web of people who got rich off the housing bubble, and now need ordinary Americans to pay for their binge.
Still, Countrywide founder and former CEO Angelo Mozilo stands out as a particularly vile piece of work.
There are the thousand-dollar suits, the palatial homes and a fleet of Rolls Royces and other luxury cars, of course. But Mozilo really stands apart for his unapologetic ruthlessness in preying on people like Addie Polk.
Mozilo was the driving force behind Countrywide's meteoric rise to become the country's largest mortgage lender by the 2000s. He pushed the company to steer borrowers toward whatever loans would make the most profit. To Mozilo, there was no question that homebuyers should be lured by the promise of low initial monthly payments toward mortgages with hidden traps.
Meanwhile, Mozilo made sure he was well taken care of personally. According to Securities and Exchange Commission filings, he didn't buy a single share of Countrywide stock in the last 20 years. Instead, he sold his own stake, reaping--by one estimate late last year--$415 million since 1984, with roughly a third of that coming in the preceding 12 months, as Countrywide hurtled toward bust.
When Countrywide got sold off last year to Bank of America before its outright collapse, Mozilo had a 24-karat gold parachute waiting for him--a severance package worth $110 million. Under the glare of publicity, Mozilo decided to forego some of the deal, but he still got tens of millions of dollars, just to walk out the door.
But don't expect any humility from the man. Mozilo insists he and his company were the innocent victims of "economic forces beyond our control."
And not only faceless economic forces, either. At a conference sponsored by the Milken Institute--named, appropriately enough, after the infamous 1980s junk bond king Michael Milken, who went to jail for financial fraud--Mozilo explained that Countrywide was forced to push risky and highly lucrative sub-prime loans on borrowers because...the loan industry was facing pressure from civil rights advocates to lend more to racial minorities.
Mozilo and the Countrywide criminals had plenty of help on the way up from friends in the Washington. Democratic senators Kent Conrad and Christopher Dodd face allegations that Mozilo personally helped them get preferential treatment on mortgages.
Now, of course, Washington's top lawmakers are helping their buddies on the way down.
Mozilo isn't the only disgraced top executive who made out like a bandit even as their companies descended into smoking ruins. Jimmy Cayne, former head of the failed investment bank Bear Stearns--who refused to leave an amateur bridge tournament last year when his company first started sinking over bad investments--got $60 million on the way out.
Richard Fuld Jr., the former chair and CEO of bankrupt Lehman Brothers, raked in $34 million in compensation last year as his company was headed south. And that pales in comparison to the fortune Fuld amassed from selling his own personal Lehman stock--nearly a half-billion dollars.
It's not just the failures, either. The survivors on Wall Street won't have to tighten their belts even one notch--even while the federal government bails them out of the jam they themselves created.
JPMorgan Chase agreed to buy Bear Stearns on the cheap after the Federal Reserve said it would cover $29 billion in bad debt. In addition to enjoying the government's handout for his business, JPMorgan Chair and CEO James Dimon pocketed $28 million in 2007.
Similarly, Bank of America snapped up the failing Merrill Lynch, and under the terms of the Wall Street bailout, it will be able to rely on the Treasury Department to take over bad debts on Merrill's books. Bank of America CEO Kenneth Davis brought home $25 million last year.
But for the have-nots and have-no-friends-in-Washingtons, there's no help at all. No political leader is offering to take over their bad debts.
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IF ANGELO Mozilo decides to spend more time at his beach house in Montecito, Calif., an hour's drive up the Pacific coast from Los Angeles, he'll certainly want to head into the neighboring city of Santa Barbara for some fine dining or an evening's entertainment.
But if he does, he'll find fewer parking lots for his luxury cars.
That's because Santa Barbara, in spite of its reputation as a playground for the elite, has had to set aside 12 municipal parking lots for a new wave of homeless who now live out of their vehicles.
Barbara Harvey is one of the parking lot residents. The 67-year-old former loan processor and mother of three grown children lost her job in 2007. From that point, "[i]t went to hell in a handbasket," she told CNN. "I didn't think this would happen to me. It's just something that I don't think people think is going to happen to them...It happens very quickly, too."
Like many of Santa Barbara's parking lot homeless, Harvey has a job. But part-time at $8 an hour isn't enough to afford rent, even with her Social Security benefits added on.
Nancy Kapp, the coordinator of a homeless advocacy group that worked with the city to arrange the parking lot program, says the foreclosure crisis is swelling the numbers of people who need help. "You look around today, and there are so many," said Kapp. "I see women sleeping on benches. It's heartbreaking."
Santa Barbara is only the tip of the iceberg--and in a lot of ways, it's unrepresentative. In Akron, where Addie Polk tried to kill herself rather than be evicted, the neighborhood around her house is filled with people facing similar problems.
"Now I'm going to have a house on my left and a house on my right vacant," said Robert Dillon, the 62-year-old neighbor who climbed into Addie's home and found her. "That doesn't make me feel good, because we were good neighbors. We trusted each other, and we looked out for each other."
Stories like this beg the obvious question: Why do Addie Polk and Barbara Harvey feel like they have no place to turn for help, when the U.S. government can find hundreds of billions of dollars to bail out the likes of Angelo Mozilo and Jimmy Cayne?
There is no other answer but this: Because the free-market system that caused the financial crisis is organized to make sure that some people stay rich and get richer, while the rest of us pay the price. Because capitalism is built around the principle that a few people, like Angelo Mozilo, deserve to be rich beyond anyone else's wildest dreams, while others, like Barbara Harvey--well, their lives and dreams don't count.
That may be the obscene truth about the system we live under, but it isn't an excuse for accepting such a world. This unjust society needs to be changed fundamentally.
Right now, at a fraction of the cost of the Wall Street bailout, the U.S. government could undertake measures that would help millions of people--starting with restoring unemployment benefits that have been whittled down across the country, and continuing with a program to create good-paying jobs through public works infrastructure projects that could rebuild schools and housing in run-down cities.
Moreover, the U.S. now controls Fannie Mae and Freddie Mac, the two largest mortgage companies in the world--which between them own or back nearly half the home loans in the U.S. There should not be a single foreclosure on any home where Fannie Mae and Freddie Mac control the loan--and every loan, not just Addie Polk's, should be renegotiated on terms that borrowers can tolerate.
Ultimately, such solutions would only stop the worst of the suffering. The cause of the worst financial crisis since the Great Depression is nothing less than the chaos and irrationality of a system driven by blind competition and greed.
The only way to prevent such economic cataclysms from taking place is to get rid of the capitalist free market--and replace it with a different system entirely, based on the vast majority of working people democratically using all the resources of society to make better lives for themselves and everyone else in it.