Sunday, May 24, 2009

Fail Safe

The federal government is releasing the results of it's stress test of banks. It is a computer simulation to see if the banks have enough cash reserves to weather an even deeper economic crisis than the nation is experiencing at the moment. Nineteen banks are being tested; and many will be told that they must raise additional capital. These include famous names like Bank of America and Wells Fargo. The Obama administration has said it will not allow any of these banks to fail; so the possibility of more bailout funds going to thee institutions lurks over the entire exercise.

The question I have is, what would happen if the government were to give us a stress test and would we be allowed to fail? With unemployment approaching 10%, home prices continuing to fall, foreclosures up, credit markets paralyzed, state budgets in shambles, and more and more families under water; this would seem to be an ideal time to administer a national stress test and see if we can handle things getting worse or even if we can continue to tread water until conditions improve.

Home prices in Phoenix have dropped over 50% since the economy started to melt down. A national study shows between 20-40% of homeowners "underwater", meaning that they are in danger of losing their homes. Homeowners are reporting that when they try to communicate with the banks holding their mortgages, no one will return calls or write back when queried.

Because of all the problems in the housing market, furniture industry business is down as much as 40% inn some parts of the country, with many companies and sole proprietors having to close stores and lay off workers to try to survive. This sounds pretty stressful to me. We know the government says it won't let the banks fail; they won't let them get too stressed. But, what about us? The Senate last week had a chance to pass legislation that would have allowed a bankruptcy judge to require lenders to modify home loans, reduce interest payments, extend the terms of loans, even reduce the principal if necessary to keep a family in their house. This was legislation that President Obama was said to champion. It could help thousands of working Americans stay in their homes. It would have kept them from failing. The Democratic dominated Senate couldn't find 60 votes. They couldn't muster 50 votes. They barely managed to find 45 votes for this legislation, so it failed. Published reports say the Obama Administration did not put any pressure on lawmakers to pass the bill, even though the President said it was an important piece of the home mortgage solution. Democrats, like Senator Ben Nelson of Nebraska, voted against the bill because of fears that it could cause interest rates to rise if banks had to reconfigure a lot of these loans. Opponents said that this legislation would lead to a rise in bankruptcy filings by people trying to save their homes. (No, really? Gosh, how un-American to want to keep your home!) Senator Nelson was outraged that his interest rates might rise in order to "bail out" homeowners who shouldn't have been given a loan to begin with. He was not going to vote to reward such bad behavior. Apparently, fifty-one of his colleagues agreed because the legislation failed.

I wish you could see how much my pen is quaking from the anger, outrage, and incredulity I am feeling right now. I wish the printed word allowed more emotion to seep through so you could share in the disgust this fosters within me. The average American is a hamster in a wheel, a workhorse, a minion, a cog, in the great machine that is the United States; and we can lose our jobs, homes, and livelihoods etc. We can fail in any number of ways; and that is just the cost of doing business. We shouldn't have been given those loans. We should have been scrutinized more thoroughly. We should have known better. Our bad behavior cannot be rewarded. We need to learn an important lesson to live within our means; and to remember that if it's too good to be true, it probably isn't. We need to be more fiscally responsible. Senator Nelson explained that he voted "No" because he didn't want "someone" to cram down their interest rate or principal, and raise his interest rates in favor of those who should not have gotten a loan to begin with. He wasn't going to reward their profligate behavior. It would send a bad message to reward such scofflaws. Are you picking up a theme yet?

Is there anything rising off the paper as you read this? Can you smell it? The whiff of hypocrisy and double standards fill the rarified air of Capital Hill. The Senate and House passed a bailout bill for banks and insurance companies worth over $700 billion in a span of a few weeks. They have given billions of dollars to everyone from AIG to Citicorp and Bank of America. They couldn't move fast enough to shore them up after discovering behavior that would cause a Mafia Don to blush. These companies, wearing $5000 Armani ski masks, robbed, cheated, stole and pilfered trillions of dollars, while making the people running them millionaires and perhaps billionaires. They took the world into a global financial meltdown and passed out billions of taxpayer dollars to the very architects of this international crime. But when given a chance to help average working Americans keep their homes, stabilize their families, and relieve the unbelievable stress that comes from losing their home; only 45 Senators could find the will or spine to push the "Yes" button. The rest were too worried about rewarding bad behavior or letting some irresponsible borrowers off the hook.

I apologize for my shortcomings as a writer because I cannot come up with the appropriate vocabulary to adequately express my anger and embarrassment at the hypocrisy of this action in the Senate. It is also troubling that the Obama Administration apparently did nothing to try and pass the proposal to help average working Americans.

By the way,this is just the beginning. In the months to come, there will be more stress tests for us; and I don't predict much relief. High School juniors and seniors will soon be discovering that there is no money to help fund their college educations. Financial aid is stressed to the breaking point and families are scrambling to find ways to pay for their children's education. Will there be a bailout to help them so their children do not fail? Obama wants to end the program of government guaranteed student loans and have the government lend directly to families. It will save billions of dollars that could be used for college. However, the banks that have made billions from this program over the years are fighting back furiously. Who do you think will win, American families or American banks? (of course you know my position is that college should be free...for less than 10% of the bailout money, every college eligible student could go for you think that will happen?)

By the end of the year, the Obama Administration wants healthcare reform legislation passed. They have begun hearings. The one proposal which would reduce costs for the average family and average small business would be a single-payer plan which eliminates private insurers and guarantees universal coverage. Health insurance companies do not contribute anything to healthcare. They simply pass through the money while taking their share. They stop good healthcare from being administered if it gets too costly. Yet, not a single advocate for single-payer was invited to testify at any of these hearings. Once again, the best solution for the American family fails under the pressure of these paragons of morality and sensitivity, the health insurance companies.

If most of us were given a stress test right now, we would fail. Blood pressure across this nation is at an all time high. Sleepless nights are the norm for most of us (unless we run a bank). Will we be allowed to fail? What do you think? I welcome your comments and rebuttals. Please send them to

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