Invasion of the Moneylenders - Part 4 – “Sixteen Tons”

By Peter Ewart

    This is the fourth in a series of articles on the banking and credit industry.  The other articles were:   “Invasion of the Moneylenders – Part 1,” “Invasion of the Moneylenders – Part 2,” and “Invasion of the Moneylenders – Part 3.”

“You haul Sixteen Tons, whadaya get?

Another day older and deeper in debt

Saint Peter don’t you call me cause I can’t go

I owe my soul to the company store.

[If ya] See me comin’ better step aside

A lot of men didn’t and a lot men died

I got one fist of iron and the other of steel

And if the right one don’t get ya, the left one will.”

Back in 1946, when country singer Merle Travis first recorded his song “Sixteen Tons”, the miner in the song had few options other than continuing to live a life of quiet desperation.

But are things much different in 2007 in Appalachia or other parts of the U.S.?  Yes, today, the miner would probably be sent off to an anger management class, and, afterwards advised by a credit counselor to invest in mutual funds.  When he got home and checked his mailbox, there might be a credit card application offering to consolidate his existing loans into a new one at a lower interest rate, or he might get a phone call from a call center inviting him to sign up for yet another card.

Whether it was 1946 or 2007, however, he’d still be “another day older and deeper in debt,” although probably much deeper today.  Indeed, American household debt now stands at $11.4 trillion and is rising rapidly.  The personal savings rate has dipped below zero.  And wages are stagnant.  According to James Scurlock, author of “Maxed Out,” the current bankruptcy rate is 10 times the rate of the Great Depression of the 1930s. (1)

Other countries, like Britain and Canada, have similar problems.  The Certified General Accountants Association points out that, in Canada, household debt has been increasing by 4.7% each year for the past 30 years, and now amounts to over $1 trillion. (2)

It’s as if a great net has been cast over our society that few escape.   The size of this net has been greatly expanded since 2001, especially in the U.S., when, with the combination of the U.S. Federal Reserve Bank drastically lowering interest rates and the increasing “deregulation” of the financial sector, the “debt industry” went on a major offensive to entangle millions more people, especially lower income ones, in credit card, mortgage and other types of debt.  As a result, the so-called “subprime loans” have, in the course of a decade, gone from being a small fraction of the U.S. market to an estimated $800 billion today. (3)

The result has been a huge transfer of assets from the most vulnerable sections of the population into the hands of finance capital.  According to one analyst, this amounts to “a form of class warfare” (4).  Practices that were once labeled “predatory” or “loan sharking” have become the norm because of deregulation in the financial sector and conscious policy of the moneylenders.

Who have been the targets?  Just about everyone in the U.S.  But, too often, it has been lower paid workers, blacks and immigrants, the elderly, the disabled, soldiers, and young college students.  Even established business publications like Business Week are acknowledging that “an explosion” of predatory lending activities has been going on, targeting “subprime” borrowers. (5)

Over the last few years, people have been bombarded by direct mail campaigns and deceptive advertising of various kinds, as well as besieged by brokers “trolling the backroads” of states like Mississippi looking for easy pickings.  According to one documentary, unscrupulous brokers “cheated, scammed and lied to get people to take out mortgages they couldn’t afford.”  Even the head of the U.S. Federal Reserve Bank, Ben Bernanke, has acknowledged that “abusive lending practices and outright fraud” took place (6).

Often, the people who were sold these mortgages could barely read or write and had limited financial knowledge.  Sometimes they were elderly people with diminished capacity.  And other times, even disabled people were targeted.  James Scurlock gives the example of CitiFinancial, which is a branch of CitiBank, the largest banking institution in the U.S., “suing a mentally retarded woman and her severely retarded son for default, which would force them out of the modest house they’ve shared for years.” (7)

There are those who try to lay the blame on unscrupulous real estate and mortgage brokers for these activities.  As various analysts have noted, however, it is wrong to single out these lower level brokers and others in the industry as being the main culprits.  Indeed, it was the big banks and credit card companies “who invented the scams that are bleeding the borrowers” (8).  

Honest real estate and mortgage brokers in the U.S. have seen the reputation of their professions dragged into the mud because of lack of regulation and the power of the financial institutions.  Some of the most damning indictments, in fact, of what has gone on in the house selling business come from industry insiders such as Carol Trowell, a former real estate broker in Detroit, who charges that “there was a lot of fraud, jacked up appraisals, people starting off at extremely high rates” (9).  These predatory lending policies were developed, put in place, and insisted upon, by top officials in financial institutions, while government turned a blind eye. 

Predatory practices that have been used against lower income people include “steering” unfamiliar clients to agree to unnecessary and usurious debt agreements that they could never afford.  For example, “teasers” were promoted by financial institutions which “loudly advertise” a low initial interest rate, but buried in small-type somewhere in the document that these were, in fact, ‘adjustable rate mortgages,’ which means “that the interest rate will explode to 11% or more after a couple of years, causing the families’ monthly payments to jump by half or more.”  According to various sources, clients would simply never be informed of these interest rate “triggers” and their consequences. 

Other techniques have been developed to target people whom the finance industry ridicules as “ninjas” (no income, no job, no assets).  According to one real estate agent, the “only criterion” to determine loan eligibility was to make sure that the client was “breathing” (10).  Thus thousands of low income people have been steered into taking out “interest only” loans, whereby the borrower only pays the interest on the loan for several years, but then, after a while, the monthly payments are upped to pay off both interest and principal.  In certain cases involving house assessments and car loans, evidence has emerged that forged documents were put together by crooked brokers with the full knowledge of lending institutions (11).

Some people were also invited to take out loans for much more than the house costs, i.e., instead of the loan being for 100%, it was marked up to 125%.  The extra amount of the loan allowed the “ninja” to keep up with the monthly mortgage rates on the house – for a while, that is.  But the chicken inevitably comes home to roost. 

Many people who were sucked into buying houses for the first time have since defaulted, thus losing any equity they put into their home, as well as any other assets or savings.  In addition, their credit rating has been ruined.  Where do they live now?  It’s a good bet that not a few are homeless and living on the street.

Especially tragic are those who were conned into taking out second mortgages that they could not afford in order to pay for medical bills and other expenses.  The end result has been that the equity that these people have built up in their houses over many years, and sometimes over several generations, has become hopelessly ensnared in the web of finance capital.  Many have defaulted and seen their houses sold off at auctions which are now happening all over the country.  Thus, instead of parents passing on their property to their children, the banks and finance companies become the new “heirs” to the estate. 

As a result of all this flim-flammery, at least two million people in just about every part of the U.S. are expected to lose their homes this year and next.  As journalist Alan Farago notes about Florida, “The building boom is in cinders.  It is going to take a long time to tally the costs and devastation to the public interest” (12). 

In states like Colorado and California, block after block of new houses sit empty after being repossessed.  Neighbourhoods have been destroyed, as in Cleveland, Ohio, “where the streets are lined with empty houses, dead gardens and demolition notices pinned to the front doors.”  One real estate agent who was interviewed on a television documentary, doesn’t believe “that Cleveland can be saved.” According to Cleveland lawyer, Ed Kramer, “This is American capitalism at its worst” (13).

So the net has been cast, and now it is being hauled in.  Huge amounts of houses, cars and other property in the U.S. will be repossessed in the months and years ahead, ending up in the hands of finance capital.  Yes, even some banks and hedge funds will go bankrupt – only to be swallowed up by the bigger ones.  There is some irony in the fact that these very moneylenders who cheated, swindled, and lied, and, as a result, have harmed the livelihood of millions of people, are now angling with government to get bailouts, using taxpayer’s money, of course.

On the other hand, many ordinary people, who have worked hard all their lives and contributed productively to society, will end up – once this scandal plays itself out - the same as the miner in “Sixteen Tons” They will “owe their souls to the company store.”  And, they, like the miner, will be as angry as hell. 

Next in this series of articles:

“The Invasion of the Moneylenders – Part 5 – A Pound of Hamburger”

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