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Financial Implosion: 2nd Chance for Progressive Banking Reform?

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The big winners were corporations such as General Electric that got to buy 28 apartment complexes with nearly 6,000 units at a price that was half their market value. The major winners in the S&L bailout were the bargain-seeking investor and the commercial banks, whose policy plans led to the disappearance of the S & Ls their major competitor.

As Greider convincingly documented in his 1996 book Who Will Tell the People? The Financial Democracy group and its allies, including the chair of the House Banking Committee, were too weak when compared to the power of corporations and the rich. In the halls of Congress and behind closed doors, special-interest lobbying had fundamentally broken the state of democracy in America. All efforts at major reform in Washington came up against a political system dominated by hidden relationships that linked politicians with the wealthy and corporate power who could subvert the needs of ordinary citizens.

In the end, the S&L cleanup cost American taxpayers an estimated $124 billion. What did we get in return? The solution by Congress and the Bush 41 administration made things even worse. The RTC was staffed with ex-bankers and political hacks, mostly Republicans.

Ironically, the same rich bankers and investors who had benefited from the deregulation that caused the S&L crisis in the first place were taking advantage of the fire sale sponsored by the RTC. Politically connected investors were snapping up foreclosed properties at RTC auctions at bargain-basement prices. The best-selling author, Martin Mayer, correctly titled his book about the S & L crisis, The Greatest-Ever Bank Robbery. Deregulation of banking continued, full steam ahead.

The Financial Democracy coalitions attempt to steer the S&L bailout in favor of ordinary citizens was largely a failure. Now, however, progressives and liberals once again have an opportunity to help lead us out of the present financial crises.

Since the early 1990s, progressive forces have grown stronger. For example, ACORNs strength then was mostly local. It successfully engaged mayors, governors, and business with demands generated from local organizing campaigns. ACORNs size has more than doubled in size in the early 1990s. With more than 1,000 employees, 400,000 dues-paying families, and chapters in 103 cities in 38 states, ACORN has become a formidable vehicle for mobilizing the poor and working class for economic justice and political reform.

ACORN is trying to lead us in the correct direction.

Today ACORN announced that on Tuesday it will picket Federal Reserve Banks and financial institutions in 40 cities to protest the failure of the Bush administration and the Federal Reserve to include lifelines for American Homeowners facing foreclosures in its big bank bailout bill.

“Secretary Paulsons plan calls for spending a trillion dollars of taxpayer funds to bailout out his former colleagues on Wall Street, but does not devote a single penny to rescue American homeowners who were victimized by the predatory lending of these same institutions,” said Maude Hurd, president of ACORN. “We urge Congress to protect the millions of American homeowners facing foreclosure before they bailout the shareholders of big banks.”

ACORN called on leaders of Congress to include homeowner rescue provisions in any Wall Street bailout, including:

1. Bulk restructuring of mortgages for distressed homeowners. Any financial institution that participates in the federal bailout must be required to extend affordable mortgage restructuring to homeowners facing foreclosure. The modification program recently enacted by the FDIC and the depression-era Home Ownership Loan Corporation should be the models. This provision would apply to any home mortgages, either wholly owned or included in securities owned by the institution. If the Bush administration could change the short selling rules of the financial markets overnight to protect banks from the perceived threat of short sellers, then surely they can change the rules governing failed financial instruments to protect American homeowners from the real threat of foreclosure.

2. Bankruptcy shelter for homeowners. Congress should amend the bankruptcy bill to allow homeowners to restructure their home mortgages in bankruptcy and save their homes.

3. Outlaw remaining predatory lending practices. Cap at 36 percent the interest rate on small loans charged by payday lenders and other predators.

4. Expand unemployment benefits, food stamps, and heating assistance for families in need.

5. Extend the Community Reinvestment Act (CRA) to investment banks and insurance companies. Any financial institution that benefits from the bailout must in return provide public benefit by investing in low- and moderate-income communities under the provisions of the CRA.

For progressives, the CRA extension to mortgage companies, insurance firms, and securities companies should be at the top of the progressive agenda. The CRA is one banking regulatory reform praised by housing experts, state regulatory agencies, and bankers alike. Since the New Deal, federal regulatory agencies, through deposit insurance and access to central bank credit, have ensured that depository banks were safe and profitable. The CRA requires banks to invest in neighborhoods where they take deposits consistent with safe and sound operations.

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John Atlas is President of the Montclair, NJ based National Housing Institute and contributing editor of Shelterforce magazine. He is the author of the forthcoming book SEEDS OF CHANGE.The Story of Acorn, America's Most Controversial Anti-Poverty (more...)
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