A BLUEPRINT FOR RADICAL REFORM
Millions of Americans carry too much debt - student loans, car loans, credit cards, first mortgages, second mortgages, payday loans, autoleases, etc. 0 The average American works ten years of their lives just to pay interest in one form or anot her. 0 Our federal government cannot get through one day without going further into debt. 0 Young people oft en,.enter marriage with six years of debt -while they should have six months of savings. 0 Americans as a whole spend 16% of their incomes on debt service. As of July 2010, we had $820 billion in cred it card debt and$829 billion in student loans. No wonder fewer people can actually buy anything. Credit cards are a poor substitute for union cards. Instead of rising wc:iges and reliable pensions, Americ;ans are often forced to useplastic to survive. Swedes, Danes, Austri ans, and Ital ians, for example, do not need to borrow for vacations -they get annual vacation bonuses. Finlanders do not need to borrow for college - it is free . The Germans and the Dutch do not need to borrow for health care-their maximum deductibles are under $500. Americans are going into debt for things that foreign workers get for free . We may lack the will to tax the rich, but we certainly know how to borrow from them. Here is what should be done: I. Cancel student loans after 10 years of repayments. " Repayments must be be based on income. If you have a $50,000 student loan and wind up working for $12 an hour! then your payment would be capped at $100 a month. After ten years, the loan will be forgiven, even if a balanceremains. e Private colleges must return to giving grants, not loans. (Over.40 large colleges with endowment .funds have already stopped using loans.) • Vocational schools often have the worst loans - from now on, they had better help their students find decent jobs, ortheir loans will be massively repudiated. ., In the words of Les Leopold, "Stop Student Loan Sharking, Make C llege Fr ee." We could send every B student toa four year college - free, with no loans - for abo'tt $70 billion a year. We can either raise taxes by about 1% to cover the $70 billion, or get the money from the defense budget . (Does anyone remember the GI Bill? It not only paid for college, it had family allowances for young parents. Millions of today's 'Tea-Partier s' were nurtured on generousfederal benefit s.) II. Cancel all medical debts in excess of $7,500. o The amount whic;h exceeds $7,500 would be paid off by Medicare, at approximately fifty cents on the dollar. (This isfar more than hospitals usually collect from cash patients anyways.) o • It may cost $20 billion a year to help the uninsured in this fashion-but this is less than we spend on Medicare for theelderly every th· ree weeks. Agai n, we can raise taxes or tap the defense budget . o Large medical debts would be remove.d from all credit historie s.
" The $7,500 threshold could be lowered for people who have no assets - for them, Medicare wou ld pay off debts over $5,000, orover $3,000, as appropriate . 0 The forgiveness of debt must never be taxable. Medica l debt is an ugly by -product of trying to run hospita ls on user fees, and then not provid ing universal insurance. In Canada and Brit ain,hospitals and am bu lances are owned by the public, paid for by taxpayers, and free to the pat ient . In nations like France, Spain, and Australia,hospitals can be private, but no one has junk policies with unaffordable deductibles. Debt does not need to be forgiven, because it never occurs in thefirst place. m. Cap all credi1t card rates at 5% above prime. e Anyone paying 20 to 30% interest would immediat ely see their rate reduced to 5% over prime - today, the rate would be about8.25%. • No credit card company would be allowed to raise rat s over the 5-point limit in the future. • C.red it card compan ies would be requir.ed to reduce existing balances. For example, if a p erson' s balance has ballooned from $6,000 to $15,000 due to 30% interest, even while they were making minimum payments --the balance would be reset toappro ximat ely $7,000. Any lawsuit or collection effort will be capped at $7,000. Any past penalties or fees deemed excessi.ve must also be refunded. o Any card debt that is five years old could be paid off interest-free- i.e. if you can pay off the principal, then the accrued interest wouldbe forgiven. This would not require an attorney or settlement firm. o No more cred it would be granted, if your monthly card pay,-,,ents exceed 5% of your income. As a r esult, people with low incomes and· bad payment histories may not qualify for any credit cards . To help them, we must establish public banks to make emergency loans for utility bills, medicine, etc. These loans w ou ld be low-interest, subsid ized, and repaid through tax withholding. If we lent $2,000 each to 20 million people, for emergencies,it would not be a major item on the federal budget - even if some of them never paid us back. It would put many payday loan companies out of business. Lo w-limit cr edit cards are not inherently bad. They are cheaper than pawn sh ops, and they do resolve prob lems in our daily lives -emergency travel, lost wallets, car repairs, etc. They help us get money without providing an explanation to bankers or judgmental family members . Cred it cards have also propped up consumer demand in America, by providing a large transfer of money from well -off savers to theless wellcoff, in the form of loans. Unfort unat ely, the less well-off are now "maxed out", so this form of stimulus cannot continue . Revolving credit is like steroids --- Le., extremely dan gerous if handled without caut i on. Once the sugar rush is over , credit cards become anightmare of new loans to pay debt service, new lo\ ns to pay off old loans, and the ce rt ai nty of f inancial exhaustion . Ec onomist DavidRosenberg notes that "Tota l pr ivate sector credit market debt relat i ve to nat i ona l income is still near 140%, versus a long -term norm of80% meaning that $6 trillion of excess household and corporate debt has to be paid off, written off, or somehow eliminated ." IV. Allow a 3-year grace period of lower mort gage payment s for families w ho are in trouble. Exa mp le: a Your cur rent mortgage payments tota l $2,000 a month, and along with other debts, it is unbe arabl e. Foreclosureand bankruptcy are on the w.ay. • Your total family incom e is $4 , 00 0 a m onth, clearly not enough to survive as you are. Whether this is due to jobloss, or bad luck, or your own overspend i ng, is not the issue here.
o If this is your only residence and there are children at home, then your monthly payments on all mortgages can bereduced to $1,200 a month for three years. (30% of gross income) You will NOT need to be in default to_ get the grace period . You will NOT need the approval of the mortgage holder or servicer . If thegovernment approves your request for lower payments, the bank or service company is legally bound to accept it . This will NOT increase the p_rincipal. This will NOT create late fees, legal fees, or penalties. If you pay the specified amount, no one can foreclose on you. Your escrow account cannot be seized to make up lost interest. The 'investo rs' cannot block your reductio n. The difference between $2,000 and $1,200 per month will be permanently forgiven. You do not have to pay it back later, and you will not oweextra taxes. Whomever services the mortgage will simply collect less int erest. The homeowners can decide to either : a) keep the house, and make the full payment when the grace period ends; or b) do a short sale, with no prepayment penalities and no deficiency judgements; or c) take the mortgage company to court, if the loan andits servicing are tainted by fraud. Several judges have cancelled predato y mortgages already, and the families were allowed to keep their homes mortgage-fr ee. If we demand that banks 'produce the note,' many homes will actually be foreclosure-proof. Granted, this will resu lt in billions of recognized l·osses for hedge funds, banks, mutual funds, insurance companies, m unicipalit ies, and federal agencies like Fannie M ae. For years, they have been allowed to represent as assets money they are owed.rather than money they are truly able to collect. There will have to be changes in accounting rules, so that these institutions are notsuddenly considered bankrupt. V. Ban employers and landlords from any access to credit records. e Bankruptcy must become completely private. e Your credit hist ory has no relevance to a job as a truck driver or a trainer in a gym. ,. Employers cannot even ask for permission to check records, because job applicants do not feel they are in a posit ion tosay no. Bankruptcies will never disappear. America will always have business failures, death, divorce, and plain bad judgement. Financial forgiveness and a second chance must remain part of our safety net - even if ,D. arwinists and Calvinists are disappointed.Bankruptcy does make it harder to borrow in the future - but only for about 5-7 years. In bankruptcy, your credit score will be ravaged -but then, if you were trying to quit smoking, how bad would you feel if someone reduced your nicotine score? Conclusion Stripped to its core, the Anti-Debt Agenda calls for the following changes: • Educational debt will be forgiven over ten years, and then essentially disappear.. ,. Medical debt to hospitals will be paid off by government, and then disappear. Modest debts to doctors and dentists can remain . e Credit card debt will be reduced, by the nationwide enforcement of usury laws. 0 Mortgage debt will be easier to escape, if it has be ome unsupportable. . -3-
The reduction of debt is not a moraf or religious issue, however- it is a power struggle . Debtors understand that they will be ruined unless there are write -offs -- and some groups do not take kindly to being ruined. 0 The American Revolution occurred in part to resist British creditors. " Shay's Rebellion in 1786 Massachusetts was essentiafly armed resistance to foreclosures. " Nine American statesrepudiated all or part of their public debt in the 19111 Centu ry. e The Great Depression was hastened (and worsened) by the refusal to cancel unpayable debts. 0 Hist ory has many instances of "Kill the Creditors" as a repugnant, but effective way to cancel debt s. If you owe.the bank $10,000, and you cannot pay, you are in trouble. But when ten million people refuse to pay their mortgages or credit cards, t he_n the banks are in trouble: Individual debtors may have no money, and precious little self-esteem. Currently they suff r in solitude and guilt. But they do have vot es. If every American in financial trouble would vote for an ant i-debt, populist party-say a Dennis Kucinich --they would win every election and have veto-proof majorities. Meaningful social change usually occurs when those in power are literally afraid of theirvictims . Then the banking industry could no longer buy its own legislation . The national priority would be bailing out consumers, not hedge funds and investment banks. Instead of hearing bankers say" Sorry for the loss of y. our job or house, but the debt must be collected," we would hear populistgovernments tell the banks "Sorry for the loss of your receivabl es." All it takes is political will. Why should the US Treasury and the President have to bribe, beg,_and plead with banks to modify debts? Where possible thegovernment should just push the private sector aside. Let's protect the people who actually need the help. Let's change the very relationship betweenlender and debtor. CHECK OUT THESE WEBSITES:
Caveat Emptor Credit Slips Credit Writedowns The Cook Plan Max Keiser.com Economic Collapse Bear Market News Give me my Credit Back The Economic Populist Jubilee USA Michael Hudson· God's Politics Consumer Warning Network Bank lmplode-o-Meter Let Justice Roll Let Them Fail Shame the Banks Web of Debt Defend Your Dollars Public Bank Blog Americans for Fairness in Lending 10 Per Cent is Enough Stop the Squeeze New Deal 2.0 Dandelion Salad War on Debt Americans fcir Financial Reform Counterpunch
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