Bankrupting the Common People

Bankruptcy Filings Spiking: Chapter 7 Booming and 8 Years of Credit Card Industry Lobbying and $100 Million in Fees

October 8, 2009

mybudget360 - Since new legislation went into law in 2005, bankruptcy has been harder to file. So the recent increase in filings makes it all the more troubling:



Since 2005 the rise in quarterly bankruptcy filings has been steady. This is indicative of the nature of the current deep recession. The average American is feeling the strain of the high unemployment rate and the country is combating a market that is not willing to hire (i.e., Alcoa cutting jobs). And recent bankruptcy filing data is showing the trend still moving up. The latest data that we have is for August and it showed 119,874 consumer bankruptcy filings and that is a jump of 24 percent from last year.

You would think that with the massive amount of capital in banks, that lending would be easier so that would mitigate filings in the short-term but banks are not lending to consumers. Early this week we saw the continuing contraction in consumer credit.


Now these data points are important because they show what is really happening on Main Street. Wall Street is being pumped up by easy credit provided by the U.S. Treasury and Federal Reserve but most Americans don’t pay their monthly bills because the S&P 500 went up 10 points. Bankruptcy is the ultimate sign of distress. That is, someone has reached the point of financially being unable to meet obligations. This isn’t like missing one bill payment. This is someone sitting and looking at all their obligations and throwing in the towel.

Keep in mind that this new change comes in light of the 2005 tougher bankruptcy laws. That is why in the above, the chart shows a dramatic spike. What changed in 2005? A wide group of consumer advocates, legal scholars, and retired bankruptcy judges questioned the soundness of the legislation and recommended against it. The credit card industry lobbied hard. The contention was that bankruptcy was wrought with fraud. There wasn’t much data backing up that assertion, but remember that in 2005 the good times were going on so hardly anyone was paying attention and the legislation was jammed through. The major changes included means testing but also shifting people into Chapter 13 instead of Chapter 7. The big difference here is with Chapter 13 people filing have to work out some kind of agreement to rework their obligations while in Chapter 7, current debts are paid from current assets. Of course this shifts the burden completely on the consumer instead of lenders actually spending the time to be more diligent. This worked perfectly in a mega housing bubble world. Take a look at Chapter 7 even in light of the tougher legislation:



The biggest proponents of the bill were the credit card industry. In fact, the credit card industry spent 8 years and $100 million in lobbying for this effort. If you look at the legislation, it actually enforces a means test by looking at your state median income. If you are at your state median income, you will not be able to qualify for Chapter 7 if you can pay 25 percent of the unsecured debt. What it does is that it allowed for credit card companies to give anyone and anything credit while shifting the burden to the states and consumers. Once things go bad as they are right now, credit is yanked from the system and now debtors are being forced to pay any penny they have to the credit card companies.

In the new legislation counseling is also required. Yet what about counseling for the credit card companies? The bill is a lobbyist dream and we are seeing the ramifications of this bill today. In fact, if it wasn’t for the bill we would be seeing tens of thousands more filing for Chapter 7 today but people are holding off because what use would it be to go into Chapter 13 and still need to pay off your debts?

What many of the credit card companies didn’t see however was the massive rise in unemployment. In fact, with 26 million unemployed and underemployed, I’m sure many will be falling below the state median income test thus allowing people to file for Chapter 7 and liquidate. nsecured debt like credit card loans are usually washed away in court hence the big lobbying by the credit card industry. So this is becoming a more likely option and as the chart shows above, more are opting for this...

Only in some bizarre universe is spiking bankruptcies, foreclosures, and unemployment some sign of a rebounding economy.

Obama Offers No Relief to Growing Army of Jobless Workers

October 7, 2009

WSWS - In the face of the mounting unemployment crisis, the Obama administration has no plans to offer serious relief to the 15 million workers out of work and the millions more facing job losses and economic ruin in the coming months.

Despite official claims that the economy is recovering, the Labor Department reported last week that a higher-than-expected 263,000 workers lost their jobs in September, with another 571,000 workers dropping out of the labor force after giving up looking for work.

The official jobless rate reached 9.8 percent last month—a 26-year high—and analysts predict unemployment will hover around 10 percent for most of 2010 and possibly for several years thereafter.

In his weekly address Saturday, President Obama almost casually remarked that “employment is often the last thing that comes back after a recession” and said the jobless figures were evidence that “progress comes in fits and starts.” He added that his administration would “explore additional options to promote job creation,” but offered no proposals.

The bulk of his address was focused on his plan to slash health care costs, which he claimed would lead to job creation.

“Reforming our health insurance system will be a critical step in rebuilding our economy so our entrepreneurs can pursue the American Dream again,” he declared.

Obama signaled with his lauding of “our entrepreneurs” that no measures would be taken to address the social crisis that impinged on the profit interests of big business.

News reports this week made it clear that the options the administration is considering center on another round of tax breaks and incentives for corporations. According to Tuesday’s New York Times:

“Among the options for additional steps is some variation on Mr. Obama’s proposal during the stimulus debate to give employers a $3,000 tax credit for each new-hire, which Congress rejected last winter partly out of concern that businesses would manipulate their payrolls to claim the credit. Another option would allow more businesses to deduct their net operating losses going back five years instead of the usual two; Congress limited the break to small businesses as part of the economic stimulus law.”

Such measures will reward corporations while doing virtually nothing to halt the economic slide being experienced by millions of workers. The most the administration and the Democratic congressional leadership are prepared to do is extend meager unemployment and health care subsidies that are scheduled to expire at the end of the year.

The administration has rejected out of hand the only means to provide immediate employment for jobless workers—a large-scale federally funded public works program. Obama has continually insisted that the private sector, not the government, is the “engine for economic growth.”

At the same time, he has awarded the private sector “engine” trillions of dollars in government bailouts, while insisting that the resulting explosion in the budget deficit be reversed by drastically cutting social spending.

With great fanfare last February, Congress passed a $787 billion stimulus package, which the administration said would “save or create” 3.5 million jobs. At the time, the administration’s so-called “left” supporters at publications like the Nation claimed the Recovery Act was a “21st Century New Deal” and that Obama was embarking on a massive program of public works and infrastructure investment.

It was nothing of the sort. Since the passage of the Recovery Act, two million jobs have been wiped out. Obama’s apologists have been reduced to asserting that the situation could be worse.

The administration’s refusal to address the unemployment crisis is consistent with all of its other economic policies. From the multitrillion-dollar Wall Street bailout, to the assault on General Motors and Chrysler workers, to health care “reform,” the administration’s central aim has been to secure the interests of the financial elite. Rather than reducing unemployment, the administration is seeking to use mass unemployment to blackmail workers into working harder and faster and accepting permanent cuts in their wages and benefits.
A recent article in Bloomberg News noted that the administration’s economic policies have encouraged big investors to launch a new wave of corporate mergers and acquisitions, which will result in the destruction of many more jobs.

The article pointed out that such activity is being driven by the fact that billions in investment capital can find no productive outlet. It cited a note to investors by Credit Suisse Group saying, “M&A now looks ready to make a comeback.”

Bloomberg said a series of mergers in mining, telecommunications, airlines, food production and other industries is anticipated, guaranteeing big returns for investors who buy a company, “rationalize it, strip out costs and fire staff.”

The prospect of bankers reaping huge fees for deals that result in job losses will cause an outcry, the article continued, “particularly as those fees will mostly be earned by banks that got taxpayer bailouts a year ago.” Bloomberg warned, “The sight of financiers making fortunes while ordinary people lose their jobs will stoke a populist backlash that is already brewing.”

In a similar vein, New York Times columnist Bob Herbert on Tuesday warned of growing popular anger over rising joblessness in an opinion piece entitled, “Does Obama get it?”

“While devoting enormous amounts of energy to health care, and trying now to decide what to do about Afghanistan,” Herbert complained, “the president has not conveyed the sense of urgency that the crisis in employment warrants.” If that didn’t change, Herbert wrote, increasing joblessness could “cripple” the “political prospects of the president.” He took note of recent polls in which substantial majorities said the government stimulus efforts had mostly helped “large banks” and “Wall Street investment companies.”

Foreclosures Mark Pace of Enduring U.S. Housing Crisis

October 8, 2009

Reuters - Every 13 seconds in America, there is another foreclosure filing.

That's the rhythm of a crisis that threatens to choke off hopes for a recovery in the U.S. housing market as it destroys hundreds of billions of dollars in property values a year.

There are more than 6,600 home foreclosure filings per day, according to the Center for Responsible Lending, a nonpartisan watchdog group based in Durham, North Carolina. With nearly two million already this year, the flood of foreclosures shows no sign of abating any time soon.

If anything, the country's worst housing downturn since record-keeping began in the late 19th century may only get worse since foreclosures, which started with subprime borrowers, have now moved on to the much bigger prime loan market on the back of mounting unemployment.

In congressional testimony last month Michael Barr, the Treasury Department's assistant secretary for financial institutions, said more than 6 million families could face foreclosure over the next three years.

"The recent crisis in the housing sector has devastated families and communities across the country and is at the center of our financial crisis and economic downturn," Barr said.

A September report by a foreclosure task force appointed by Florida's Supreme Court pointed to a shift in the root cause of foreclosures: "People are no longer defaulting simply because of a change in the payment structure of their loan. They are defaulting because of lost jobs or reduced hours or pay."

Florida had the nation's highest rate of homes -- 23 percent -- that were either in foreclosure or delinquent on mortgage payments in the second quarter, and the report said "the latest news for Florida is horrifying."

A recent pickup in sales and home prices in some regions has been heralded as a sign that the crisis in residential real estate may be close to bottoming out, after the steepest price decline since at least 1890.

But nearly half of recent sales have been attributed to foreclosures or "short sales" at bargain-basement prices.

Even as the U.S. economy seems to be recovering from its worst recession since the Great Depression, mortgage delinquencies continue to rise. And that adds risk to any relatively upbeat assessment, since foreclosures depress the value of nearby properties while eroding the net worth of homeowners and the tax base for communities nationwide.

The Center for Responsible Lending says foreclosures are on track to wipe out $502 billion in property values this year.

That spillover effect from foreclosures is one reason why Celia Chen of Moody's Economy.com says nationwide home prices won't regain the peak levels they reached in 2006 until 2020.

In states hardest-hit by the housing bust, like Florida and California, the rebound will take until 2030, Chen predicted.

"The default rates, the delinquency rates, are still rising," Chen told Reuters. "Rising joblessness combined with a large degree of negative equity are going to cause foreclosures to increase," she added.

50,000 Line Up for Housing Aid in Detroit

October 8, 2009

WSWS - An estimated 50,000 residents of Detroit filed into Cobo Hall convention center on Wednesday seeking assistance to pay utility bills and keep from being evicted from their homes. City officials, who expected around 3,000 people to apply for the aid, were overwhelmed by the turnout.

In a scene reminiscent of the crowds of jobless workers who lined up for free soup during the Great Depression, a queue of tens of thousands of workers and unemployed people wound around the downtown arena. Young mothers pushing baby carriages, disabled workers in wheelchairs, senior citizens and throngs of young workers and youth stood for hours waiting. Many had slept on the streets the previous evening to be the first served.

Several people fainted during the wait and were treated by medical personnel on the scene. By 11:30 a.m., Detroit’s mayor, David Bing, made a public appeal for citizens to stop coming to Cobo Hall. Hundreds of police, including officers from Detroit’s special Gang Unit, stood guard at the entrances to hold back the crowd.

Several people were reportedly injured in the rush to enter the building after the police finally opened the doors around noon. Those in line were funneled through the glass doors and quickly sped toward a table where they were handed applications and told they had to fill them out and deposit them in boxes before a 2 p.m. deadline.

Wednesday was the last day for residents to apply for the city’s Homeless Prevention and Rapid Re-Housing Program (HPRP). The program, funded by a $15.2 million grant from the Obama administration's stimulus program, will provide assistance to only about 3,400 people, according to Constance Bell, a spokesperson for the program. In addition to the 50,000 applications given out Wednesday, an additional 30,000 were distributed previously, Bell said. This means that only about one out of 23 people who applied will see any money...

Detroit: "Most People Out Here Have Been Unemployed for Months"

October 8, 2009

WSWS - Tens of thousands of people waited for hours Wednesday in downtown Detroit to get applications for housing assistance. The turnout overwhelmed the event's planners, who thought no more than several thousand people would attend. Reporters from the World Socialist Web Site spoke to people attending the event at Cobo Hall.

Jalonda and Kadeja TerryJalonda Terry, a former student and restaurant worker, said her unemployment had run out, and she has nowhere to turn, so she came to Cobo Hall for help. "They're talking about extending unemployment for another 13 weeks," she said, "but that's nothing. Most people out here have been unemployed for months and won't find any work soon. People are going to be starving and homeless," she added. "People are going to die"

Angella Murphy, a former GM worker, related cutbacks in the city to concessions by workers at Chrysler. "They're closing all the schools down, and now they're cutting optical and dental benefits from the auto workers. Obama gave all that money to the banks and not to the people. Why doesn't he start a job-creation program?"

Rosalyn Black said, "Nowadays, people are moving in together just to survive. We need the money, but the banks get it. Why don't they just help us? Why do we have to come out and walk around Cobo Hall like it's a circus?"

Sigolwide AremoSigolwide Aremo, a business owner, complained loudly to a police officer standing by the line, but didn't get any response. The officer pointed to one of our reporters, saying, "Here is somebody that will hear you out."

Ms. Solomon, a former factory worker and UPS security person, said her unemployment had run out. "There are no jobs in the city, and no way to get out of it for people looking for work," she said. "Dave Bing [Detroit mayor] is rich, he doesn't need to ride the bus. But he's cutting the bus services that people need to get to work."

Annette, a former AT&T worker, said, "I have been unemployed since March and I can't make ends meet. My income has fallen by more than half, and I am stretching everything I have, but I can't pay all of my bills. I heard that they were providing $3,000 in help with your bills, so I came down. You can see from all of the people who are here, people are really hurting. We all need help."

Lila Scott worked at Greektown Casino before getting laid off. "I'm getting desperate. Although I have been laid off for several months, my unemployment has not kicked in, and I have three children. I have tried for months to get it started, but I keep getting the run-around. Obama, Bing, [Governor] Granholm, none of these people are doing anything for working people."

"Things will get even worse once winter rolls around and people can't pay their utility bills," said Ricardo, an unemployed worker. "There are going to be a lot of dead people this winter," he said. "What do you do when you can't find a job and your baby's stomach hurts? What do you do?"

U.S. States Face Record Demand for Home Heating Assistance

October 6, 2009

WSWS - As the winter months approach, state agencies throughout the US are being inundated with requests for home heating assistance from workers losing their jobs or facing reduced hours and wage cuts.

Despite the spike in demand, the federal government has not increased the $5 billion budget for the Low Income Home Energy Assistance Program (LIHEAP), which helps pay utility bills for senior citizens, the disabled, and households earning 150 percent or less of the official poverty level.

Last winter, the federal program, which is administered by the states, served 7.3 million households, 800,000 more than the record set in 1985.

In Michigan, Terry Stanton from the Department of the Treasury, which oversees the LIHEAP program, told the World Socialist Web Site there were 441,500 applications for heating assistance as of August 31, with the month of September not yet counted. Michigan leads the country with an official jobless rate of over 15 percent.

Last month, tens of thousands of workers lined up at the state fair grounds in Detroit after the regional gas and electric company, DTE Energy, announced it was offering help to distressed homeowners and renters. According to a report last month in the Detroit News, Michigan’s two largest power companies, DTE Energy and Consumers Energy, last year cut off heating to a total of 181,000 customers. DTE has already shut off energy to 115,000 households, a pace that will far surpass last year’s 142,000 cutoffs.
Increased demand for heating assistance is stretching already cash-strapped state agencies to the max.

“The overwhelming need we have [for heating aid] far surpasses any of our resources,” Dave Dexheimer of Douglass Community Services in Hannibal, Missouri, told USA Today.

The city, along the Mississippi River, is getting 25 percent more calls than a year ago, he said, although state heating funds have fallen to $60,000, down from $100,000 last year.

The Department of Energy will issue its winter fuels outlook Tuesday, which is expected to show price drops for most heating fuels that had skyrocketed last year. Nevertheless, savings from a drop in some fuel prices “is being canceled out by increasing numbers of families who are losing their jobs,” Mark Wolfe of the National Energy Assistance Directors’ Association told USA Today.

The newspaper cited reports from other states, including:

• Oregon. After providing heating aid to a record 3,700 households in two counties in the last heating season, Oregon Coast Community Action expects a 30 percent increase, says energy services director Patricia Gouveia.

• Maine. Kennebec Valley Community Action Program has more than 5,000 applicants, up from 4,200 at this time in 2008. LIHEAP manager Kelly LaChance expects a record 12,000 applicants.

• Pennsylvania. Applications in Cambria County are up 400 percent from this time in 2008, says emergency management director Ron Springer.

• Illinois. Rockford energy director Mark Bixby expects a record 16,000 applicants. He worries he’ll run out of money and cash-strapped state and federal governments won’t have emergency funds. “We’re extremely nervous,” he told the newspaper...

At the end of last winter, the National Energy Assistance Directors’ Association (NEADA)—an organization of state directors of the federal LIHEAP program—issued the results of a survey that painted a picture of the distress facing millions of families in America.

Among the survey’s findings:

• Record numbers of households reported sacrificing to pay their home energy bills. As compared to 2003 survey, 32 percent vs. 22 percent went without food for at least a day; 42 percent vs. 38 percent went without medical or dental care; and 38 percent vs. 30 percent did not fill prescriptions or took less than the full dose of medicine.

• Households reported that they took actions to reduce their energy bill that could be dangerous to their health or living situation: 44 percent closed off part of their home; 28 percent kept their home at a temperature that was unsafe or unhealthy; 23 percent left their home for part of the day; and 33 percent used their kitchen stove or oven to provide heat.

• Many were shut off from power because they were unable to pay their energy bills: 47 percent skipped paying or paid less than their entire home energy bill; 37 percent received a notice or threat to disconnect or discontinue their electricity or home heating fuel; 12 percent had their electric or natural gas service shut off in the past year due to nonpayment; 28 percent were unable to use their main source of heat in the past year because their fuel was shut off, they could not pay for fuel delivery, or their heating system was broken and they could not afford to fix it; 17 percent were unable to use their air conditioner in the past year because their electricity was shut off.

• High energy bills contributed to the high mortgage foreclosure rate: 28 percent did not make their full mortgage or rent payment; 4 percent were evicted from their home or apartment; 4 percent had a foreclosure on their mortgage; 11 percent moved in with friends or family; and 3 percent moved into a shelter or were homeless.

• Payday lenders provided loans to many families to pay their energy bills: 15 percent received a payday loan. Of particular concern, 26 percent of those with children under 18 reported taking out a payday loan as compared to 8 percent for seniors.

• Many of the LIHEAP recipients faced significant medical and health problems in the past five years, partly as a result of high energy costs. Thirty-two percent went without food for at least one day; 42 percent went without medical or dental care; 38 percent did not fill a prescription or took less than the full dose of a prescribed medication; and 24 percent had someone in the home become sick because the home was too cold.

One particularly tragic case put a human face on these figures. In January 2009, neighbors found the frozen body of 93-year-old Marvin E. Schur at his home in Bay City, Michigan—100 miles north of Detroit—several days after the municipal power company had restricted his access to electricity due to outstanding bills.

Since last winter, the official jobless rate in the US has risen from 7.2 percent (January 2009) to 9.8 percent last month, with 4 million more workers joining the unemployment lines. Some 15 million are out of work, with another 9.1 million involuntarily working part-time or abandoning the search.

The unemployment crisis only ensures that this winter will witness even greater levels of suffering and, inevitably, further tragedy.

U.S.: Over a Quarter Million Jobs Lost in September

October 3, 2009

WSWS - The US unemployment rate reached 9.8 percent and the economy lost 263,000 jobs in September, according to figures released Friday by the Labor Department. The latest figures undermine claims of an imminent economic recovery and point to the likelihood that the US economy will remain mired in recession for the foreseeable future.

The job losses were far higher than predicted. Economists surveyed by Dow Jones newswires expected an average decrease of 175,000 jobs, while the most pessimistic expected no more than 250,000. The job losses for August were revised downward to 201,000. With the new figures, the number of job losses increased by 31 percent from the previous month.

The unemployment rate, which is calculated using separate data, grew by 0.1 percent in September to reach 9.8 percent, up from 6.2 percent in September 2008.

Since the recession started less than two years ago, the ranks of unemployed have swelled from 7.6 million to 15.1 million, while the unemployment rate has doubled.

Long-term unemployment also reached a record high, as the number of people unemployed for 27 weeks or more has increased by 260 percent over the previous year. In September 2008, there were 2 million people considered “long-term” unemployed, but last month this figure jumped to 5.4 million, representing 35.6 percent of unemployed people. The average duration of unemployment has hit a high of 26 weeks this month.

The labor force participation rate fell by 0.3 percent over the previous month, as more workers became discouraged by dire employment prospects. On September 26, the Labor Department reported that there are now six job seekers for every permanent job opening, up from a ratio of about two to one a year ago.
Each of the Labor Department’s measures for unemployment increased in September. The broadest measure, including discouraged workers and people forced to work part time, reached 17 percent last month. This is up from 16.8 percent in August and 10.6 percent a year ago.

The sectors with the largest number of job losses were manufacturing, construction, retail and government. Manufacturing lost 51,000 jobs, roughly in line with the past three months. The sector has lost 2.1 million jobs since the recession started in 2007. The retail sector lost 39,000 jobs, while construction lost 64,000.
The government sector lost 53,000 jobs, nearly half of which were in state and local government. This loss is largely attributable to the state budget crises, which have forced states and municipalities to trim their payrolls as tax revenues plummet.

Auto dealerships cut 7,100 jobs in September as the government’s “cash for clunkers” program expired. Car dealers added jobs in August in response to the government’s program, which offered consumers thousands of dollars in incentives to buy new cars. Auto sales plunged by 23 percent following the end of the program.

Meanwhile, the average workweek fell 0.1 hours to a record low of 33.0 hours, and overtime decreased by the same amount. Temporary employment agencies, which typically respond quickly to economic upturns, cut 1,700 jobs...

One year since the start of the bank bailout, the policy of the ruling class has borne its fruit: wages are falling, unemployment creeps upward, and every indicator of social misery is approaching its postwar high. But the big banks are seeing profits return.

Despite some recent losses, the US stock market is in the midst of a significant rally. Over six months, the Dow Jones Industrial Average is up by 18.34 percent, the S&P 500 is up by 21.69 percent, and the NASDAQ is up by 26.28 percent.