Bailout Plan Hits the Poor June 25, 2009Posted by rogerhollander in Economic Crisis, Poverty.
Tags: bailout, bank loans, consumer credit, consumer debt, consumer law, consumer protection, consumer rights, H&R Block, hsbc, jackson hewitt, jp morgan chase, loans, low-income, poverty, predatory lending, rals, refund anticipation, roger hollander, Santa Barbara Bank & Trust, tarp, tax preparers, tax refund, victor corral
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When Congress hastily created and passed the Troubled Asset Relief Program (TARP) last fall to bail out the financial sector, the program didn’t offer any consumer protection against the type of predatory lending practices that led to the financial crisis. It came as no surprise, then, when Santa Barbara Bank & Trust, a self-described “community bank” in California, announced in January that it was intending to use its $180 million in bailout money to make high-priced refund anticipation loans, known as RALs.
RALs are short-term loans borrowed against a consumer’s tax refund. They’re often advertised as “quick cash,” because they allow people to get their tax refund in days instead of waiting for the IRS, which can take at least 10 days. Historically, poor communities have been targeted for these loans. According to the IRS, 85 percent of the people who took RALs in 2006 had incomes of $37,300 or less, and nearly two-thirds were recipients of the Earned Income Tax Credit. On average, a person pays between $200 and $500 in fees for a RAL.
This tax season, it’s expected that low-income taxpayers will pay more than $1 billion in fees and triple-digit interest rates associated with RALs.
Refund anticipation loans are made by a handful of banks, including HSBC, JP Morgan Chase and Santa Barbara Bank & Trust. The banks give tax preparers—including H&R Block and Jackson Hewitt, as well as preparers found at places like used car lots—a share of
the hundreds of dollars in “application,” “processing” and “e-file” fees that can be made from a single loan.
“These multimillion dollar corporations are basically skimming off another layer of taxpayer money with these loans,” said Chi Chi Wu, a staff attorney with the National Consumer Law Center, an organization that specializes in consumer law issues on behalf of low-income people.
While refund anticipation loans can be classified as abusive, predatory loans, they escape government regulation because they are bank loans, Wu said. National banks are immune to state consumer protection laws. Other than requiring full disclosure about RALs, all most states can do is sue for the fraud frequently associated with these loans.
Recently, the IRS began to implement the initial phase of a new system to process tax returns and issue refunds within 48 to 72 hours. “While this is significant, the refund anticipation loan business is anticipating this,” said Kimberly S. Jones of the California Reinvestment Coalition, a group that advocates for fair access to banking and financial services. “Now, some preparers provide RALs where you can walk out of there with a check or a check card. But it’s still a good thing, because it shortens the amount of time that they can accrue interest.”
Staff from the California Reinvestment Coalition and other groups recently met with Congress members to alert them to how bailout money was being used. “There was a lack of awareness on how TARP funds were being used” said Jones, who added that the groups are going to keep pressing Congress and the media about this “because there is a genuine, and appropriate, disgust with how TARP has been spent.” © 2009 ColorLines
Grand Theft Auto: How Stevie the Rat Bankrupted GM June 8, 2009Posted by rogerhollander in Economic Crisis, Labor.
Tags: car czar, Citibank, general moters, gm bankruptcy, gm pension, Greg Palast, jp morgan chase, labor, labor unions, labour, Obama, obama administration, pension funds, robert rubin, roger hollander, steven rattner, tarp, treasury secretary, workers, workers rights
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Monday 01 June 2009
Screw the autoworkers. They may be crying about General Motors’ bankruptcy today. But dumping 40,000 of the last 60,000 union jobs into a mass grave won’t spoil Jamie Dimon’s day.
Dimon is the CEO of JP Morgan Chase bank. While GM workers are losing their retirement health benefits, their jobs, their life savings; while shareholders are getting zilch and many creditors getting hosed, a few privileged GM lenders – led by Morgan and Citibank – expect to get back 100% of their loans to GM, a stunning $6 billion.
The way these banks are getting their $6 billion bonanza is stone cold illegal.
I smell a rat.
Stevie the Rat, to be precise. Steven Rattner, Barack Obama’s “Car Czar” – the man who essentially ordered GM into bankruptcy this morning.
When a company goes bankrupt, everyone takes a hit: fair or not, workers lose some contract wages, stockholders get wiped out and creditors get fragments of what’s left. That’s the law. What workers don’t lose are their pensions (including old-age health funds) already taken from their wages and held in their name.
But not this time. Stevie the Rat has a different plan for GM: grab the pension funds to pay off Morgan and Citi.
Here’s the scheme: Rattner is demanding the bankruptcy court simply wipe away the money GM owes workers for their retirement health insurance. Cash in the insurance fund would be replaced by GM stock. The percentage may be 17% of GM’s stock – or 25%. Whatever, 17% or 25% is worth, well … just try paying for your dialysis with 50 shares of bankrupt auto stock.
Yet Citibank and Morgan, says Rattner, should get their whole enchilada – $6 billion right now and in cash – from a company that can’t pay for auto parts or worker eye exams.
Preventive Detention for Pensions
So what’s wrong with seizing workers’ pension fund money in a bankruptcy? The answer, Mr. Obama, Mr. Law Professor, is that it’s illegal.
In 1974, after a series of scandalous take-downs of pension and retirement funds during the Nixon era, Congress passed the Employee Retirement Income Security Act. ERISA says you can’t seize workers’ pension funds (whether monthly payments or health insurance) any more than you can seize their private bank accounts. And that’s because they are the same thing: workers give up wages in return for retirement benefits.
The law is darn explicit that grabbing pension money is a no-no. Company executives must hold these retirement funds as “fiduciaries.” Here’s the law, Professor Obama, as described on the government’s own web site under the heading, “Health Plans and Benefits.”
“The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits.”
Every business in America that runs short of cash would love to dip into retirement kitties, but it’s not their money any more than a banker can seize your account when the bank’s a little short. A plan’s assets are for the plan’s members only, not for Mr. Dimon nor Mr. Rubin.
Yet, in effect, the Obama Administration is demanding that money for an elderly auto worker’s spleen should be siphoned off to feed the TARP babies. Workers go without lung transplants so Dimon and Rubin can pimp out their ride. This is another “Guantanamo” moment for the Obama Administration – channeling Nixon to endorse the preventive detention of retiree health insurance.
Filching GM’s pension assets doesn’t become legal because the cash due the fund is replaced with GM stock. Congress saw through that switch-a-roo by requiring that companies, as fiduciaries, must
“… act prudently and must diversify the plan’s investments in order to minimize the risk of large losses.”
By “diversify” for safety, the law does not mean put 100% of worker funds into a single busted company’s stock.
This is dangerous business: The Rattner plan opens the floodgate to every politically-connected or down-on-their-luck company seeking to drain health care retirement funds.
House of Rubin
Pensions are wiped away and two connected banks don’t even get a haircut? How come Citi and Morgan aren’t asked, like workers and other creditors, to take stock in GM?
As Butch said to Sundance, who ARE these guys? You remember Morgan and Citi. These are the corporate Welfare Queens who’ve already sucked up over a third of a trillion dollars in aid from the US Treasury and Federal Reserve. Not coincidentally, Citi, the big winner, has paid over $100 million to Robert Rubin, the former US Treasury Secretary. Rubin was Obama’s point-man in winning banks’ endorsement and campaign donations (by far, his largest source of his corporate funding).
With GM’s last dying dimes about to fall into one pocket, and the Obama Treasury in his other pocket, Morgan’s Jamie Dimon is correct in saying that the last twelve months will prove to be the bank’s “finest year ever.”
Which leaves us to ask the question: is the forced bankruptcy of GM, the elimination of tens of thousands of jobs, just a collection action for favored financiers?
And it’s been a good year for Senor Rattner. While the Obama Administration made a big deal out of Rattner’s youth spent working for the Steelworkers Union, they tried to sweep under the chassis that Rattner was one of the privileged, select group of investors in Cerberus Capital, the owners of Chrysler. “Owning” is a loose term. Cerberus “owned” Chrysler the way a cannibal “hosts” you for dinner. Cerberus paid nothing for Chrysler – indeed, they were paid billions by Germany’s Daimler Corporation to haul it away. Cerberus kept the cash, then dumped Chrysler’s bankrupt corpse on the US taxpayer.
(“Cerberus,” by the way, named itself after the Roman’s mythical three-headed dog guarding the gates of Hell. Subtle these guys are not.)
While Stevie the Rat sold his interest in the Dog from Hell when he became Car Czar, he never relinquished his post at the shop of vultures called Quadrangle Hedge Fund. Rattner’s personal net worth stands at roughly half a billion dollars. This is Obama’s working class hero.
If you ran a business and played fast and loose with your workers’ funds, you could land in prison. Stevie the Rat’s plan is nothing less than Grand Theft Auto Pension.
It doesn’t make it any less of a crime if the President drives the getaway car.
Economist and journalist Greg Palast, a former trade union contract negotiator, is author of the New York Times bestsellers “The Best Democracy Money Can Buy” and “Armed Madhouse.” He is a GM bondholder and card-carrying member of United Automobile Workers Local 1981. Palast’s latest reports for BBC Television and Democracy Now! are collected on the newly released DVD, “Palast Investigates: From 8-Mile to the Amazon – on the trail of the financial marauders.” Watch the trailer here.