Sunday, August 16, 2015

Another crisis looms as the moneylender rules.

We won't be so willing next time
by Richard Mellor
Afscme Local 444, retired

Imagine a group of people being lost in the desert and coming upon a guy at a well with ample water but refusing to give you any unless you fork over some cash or possessions.  You would not look favorably on this man to say the least, after all, water is a life-sustaining product. He would be considered selfish. He would be seen as a parasite if he demanded from the thirsty their few worldly possessions each time they needed to drink.  There would be talk of commandeering his well, most willing to share the now collective product with him but others willing to introduce him to his maker for his his greed and lack of humanity.

Yet the economic system under which we live is based on this sort of activity. It is based, as James Connolly once said on the, “strong devouring the weak; its theory of the world of men and women is that of a glorified pig-trough where the biggest swine gets the most swill." The competition for possession of the world’s wealth has driven nations in to violent conflict and two major world wars ending with the nuclear annihilation of whole civilian populations. Isn’t the so-called free market swell?

By their own account, the heroes of this system, are the men (and women but mostly men) with the well. They own the accumulated wealth, the product of generations of human labor power in use and use that wealth to accumulate even more. When wealth creation through the labor process is impossible or limited for various reasons, they resort to a more parasitical activity, gambling, at times shifting wealth from one capitalist to another as they compete for riches and all times appropriating surplus value from the working class.  This type of gambling has dire consequences for humanity and the natural world in which we live. For the capitalist it can be exciting and lead to incredible social power and domination over others. This class calls it success and this success from their point of view, is the product of hard work.

One example of a successful and hard working capitalist is Wesley Edens. Edens is the founder of a gambling and moneylending outfit called Fortress Investment Group.  Mr. Edens was on the front page of the Wall Street Journal last week. These journals detail the activity of these people announcing their successes and failures and providing insights in to how this gravy train can keep on running. He is a golden boy for the moment.

Edens lost big in the Great Recession of 2007 as he didn’t bet money, as others of his kind did, that workers, mostly low waged or retired workers, would be driven to the point where they couldn’t pay the moneylenders that are in the home lending business and their homes, or human shelter were taken from them as a result.

Things were so bad, the Wall Street Journal says, that his company’s stock price fell below $1. But Edens pulled himself up by his bootstraps as “self made” men are wont to do. He worked a lot of overtime I assume and saved up $124 million and invested it in another moneylending outfit called Springleaf Holdings.  Springleaf Holdings is not going to make the same mistake and has been investing in subprime lending. And just to clarify, Subprime are people who are a bit of a risk. For the poor moneylender it, “…means making loans to people who may have difficulty maintaining the repayment schedule, sometimes reflecting setbacks, such as unemployment, divorce, medical emergencies, etc.”, more here.

As Investopedia puts it:  A subprime mortgage is a type of loan granted to individuals with poor credit histories (often below 600), who, as a result of their deficient credit ratings, would not be able to qualify for conventional mortgages. Because subprime borrowers present a higher risk for lenders, subprime mortgages charge interest rates.

Credit rating agencies are organizations of capitalists designed to protect their interests, to ensure they get paid, and if not the guilty party is punished. They rate the ability of an entity to pay, or their credit worthiness as they say. Any working class person, or community business owner who has, through no fault of their own fallen on hard times, is well aware of the power of these institutions that can make it impossible to rent an apartment buy a home or buy a car to get to work. They can make you homeless in no time at all.

So far Mr. Edens honest hard work is paying off. In five years that $124 million has “ballooned” to $3.5 billion according to the WSJ, 27 times the original investment. A further $1 billion investment in Nationstar, has so far brought in $350 million.  Nationstar is an organized gang that collects payment on home loans, about 20% of them subprime.

Edens as the largest investor in Fortress, owner of these two other moneylending gangs, Springleaf and Nationstar, personally picks up $200 million for his efforts and no doubt other moneylenders and related personal share the rest. Eden’s puts his hard earned money to good use benefitting society as a whole; he’s a part owner of the Milwaukee Bucks. 

His successes has made Mr. Edens the new “Subprime King” but as we are well aware, it could be short lived as the only thing constant in the capitalist economy is never ending insecurity.  Mr. Edens is not keen on this new title as the term Subprime reminds them all of the Great Recession when capitalism tottered on the edge of the abyss only to be saved by massive injections of public funds. Nationalization of auto, banking and other failed industries helped although the US 1% prefer the term “conservatorship”, it’s a little less socialistic.

Eden’s motive are purely altruistic he would have us believe, “…it’s not a shameful thing helping people finance themselves. It’s not a bad thing”, he tells the WSJ as he explains that today’s subprime market is different than the one that kicked off the Great Recession.  “Today’s expanding subprime-loan market is different from the last one.”, the Wall Street Journal writes, and, “This boom is fueled largely by auto loans, credit cards and personal loans, which appeal to borrowers straining under the limp economic recovery and puny wage gains”. It’s interesting the words they use to describe the results of their economic activity that makes it all seem so harmless, we all become “collateral damage”, why, that’s no damage at all.

In reality though, A borrower that is “straining under the limp recovery and puny wage gains.” is a human being  under severe stress. It is a human being that, working for wages or not, doesn’t have the means to obtain so many basic necessities of life for themselves or their families. They have to turn to the likes of Wesley Edens and others, have to resort to debt slavery to obtain basic necessities like transportation, medical care and in some cases food as credit card purchases of food are not uncommon.  If the strain of financing Mr. Eden’s investment portfolio is too much for these borrowers, then their homes, cars and their dignity will be stripped from them and it’s all legal. Some turn to petty crime and the most damaged turn to drug and alcohol abuse.  Those that draw the best conclusions for their predicament seek political answers.

The Journal claims that moneylenders like this new subprime activity because “borrowers” people who need to find shelter,  “Did a better job handling those loans during the crisis than they did with mortgages.” This was pointed out during the Great Recession, that people were much less likely to default on their mortgage than their car loan as without a car they couldn’t get to work and with one they at least had somewhere to sleep. People reading this might recall the websites that were set up to help people walk away form the moneylender’s grasp----people were very angry.

We can see that the activity that kicked of the Great Recession is in full swing yet again. They can’t help it; they are driven by the laws of the market from crisis to never ending crisis until the entire global system collapses. Not so, says Edens, “Lending to people without great credit wasn’t the problem,” His activity is different, as each applicant’s income is verified and his companies won’t make the loan unless it is sure the borrower can pay it back.

What an absurd statement. Whether a person has a job or an income that can provide a decent living has more to do with objective events than personal choices. More than 5 million homeowners lost their homes to the moneylenders after the Great Recession hit. The spin doctors would have us believe this was all poor decision making and that the moneylenders are providing a social service, Edens says of his activity:

“A lot of people live paycheck to paycheck, and if they don’t have financing it’s not good for the country,” Edens tells the Wall Street Journal,  “This is a more humane way of people dealing with credit.”

What a swell guy! But why is it that people live paycheck to paycheck?  It couldn’t be low wages, high rents or exorbitant mortgages could it?

Reading of Mr. Eden’s altruistic activity I am reminded of the last wave of altruism that brought capitalism to the edge of the abyss back in 2007. “…something very nasty is going down.” wrote John Gapper in the Financial Times back then. *  Something very nasty indeed, and the prime recipients of the subprime mess were poor people and African Americans in particular. Martin Eakes, a credit union CEO referred to the Subprime collapse as a catastrophe that could become, “the largest loss of African-American wealth in American history.”**

Gertrude Johnson, an 89-year-old still working as a health aide was a real life victim of this parasitic activity. Her mortgage, at more than $3000 was more than she could handle.  Unlike the moneylenders, Ms. Johnson simply needed a home to live in, human shelter that should be a right in any civilized society. She wasn’t looking to boost her portfolio or increase her share in sports franchise or in “flipping” houses. What a disgusting term that is and it's used as if it is an honorable activity. Instead, Ms. Johnson told the Wall Street Journal:  "I just wanted to be able to eat and sleep in my house and have a roof over my head", says 89 year old Gertrude Robertson, "Every day at midnight when I go to sleep, I think maybe when I wake in the morning they'll tell me to get out."

I wonder where Ms Johnson is now if she's still alive.

This should be a reminder to those who are working the three jobs in the hope that things will change, partying their stress away or avoiding struggle completely, that, as Pericles reminded us, "Just because you don't take an interest in politics doesn't mean politics won't take an interest in you." The stage is being set for another crisis as bad if not worse than before.  What’s different is US capitalism’s ability to recover from it. The anger that still lies beneath the surface of US society due to the bailing out of the culprits last time will reemerge with a vengeance.  The US security machine is also quite stretched involved in numerous wars and military engagements in its struggle to slow its declining influence on the world stage.

What is so great about the system in which we live?  The term Subprime loan is designed to warn the moneylender that they need to take precautions when they lend to poor people needing shelter, food or anything like that. So they do.  Eden’s asks for 26% interest for his generosity. And like all our mortgages, these moneylenders ensure all the interest is at the front end.  Getting their blood money comes first. The poor can never extricate themselves from their predicament having the likes of Mr Edens on their backs and the rest of us will be lucky if we own our homes before we die.

I am not fond of using Biblical quotes as there is just about everything in that book for everyone, sinner and saint, and one can choose what one wants but..........

Proverbs 22:7 has some thoughts on the activities of those who govern the society in which we live: “The rich rules over the poor, and the borrower is the slave of the lender.”  

Leviticus 25:35-37  says: “If your brother becomes poor and cannot maintain himself with you, you shall support him as though he were a stranger and a sojourner, and he shall live with you. Take no interest from him or profit, but fear your God, that your brother may live beside you. You shall not lend him your money at interest, nor give him your food for profit.”

Now Shakespeare warned, in Hamlet, “neither a lender or a borrower be” which is sound advice, particularly for the borrower but this assumes we have free will. And we all know as Marx commented, that we have free will but rarely under circumstances of our own choosing.

In the next and possibly greater crisis as capitalism finds itself on the edge of the abyss, let’s nudge it over OK.

* Financial Times 3-19-07
** ibid

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