Earlier this week, that wishful thinking turned into bargaining amongst lawmakers for a history-changing $700 billion-plus bailout for the investment banks on Wall Street–the very ones accountable for the nefarious lending practices that created the now-worthless mortgage-backed securities that are, according to Treasury Secretary Henry Pauslon, wreaking havoc on the market. Now, at least for many Americans on Main Street, they’ve finally hit the next stage of serious anger.

Darryl Dahlheimer

“What’s really upsetting about the current proposals this week is it’s a huge power grab with very little proposed oversight. It’s kind of like prescribing more of the illness to get better,” says Darryl Dahlheimer, a project manager at Lutheran Social Service financial counseling in Minneapolis. The organization counseled more than 10,000 people last year free of charge as foreclosure issues, bad refinances, and credit-card debt have bloomed nationwide. Dahlheimer has seen his workload double since the crisis began in 2006.

Dahlheimer points to one reason for the financial collapse: financial markets that went into a feeding frenzy as regulations fell away. “We’ve been fetishizing free markets for the last 15 years to the detriment of the consumer and families and stable communities,” he says. “We have favored capital over labor, we’ve favored credit over debting, and we’ve allowed the inflation to happen in the financial system with our full blessing with companies based on fundamentally unsound lending practices.”

Dahlheimer sees those unsound lending practices play out into reality every day. He sees people living on the the edge or upside-down in loans for homes that have become more than they’re worth. He sees people stuck with new subprime products, like H&R Block’s refund anticipation loans, payday title loans, and paycheck-advance loans that often come with hundreds of percent in interest. Here in Minneapolis, new payday lending stores are popping up on street corners every month.

“We have allowed financial structures to create all this jeopardy,” Dahlheimer says. “But it plays right into the financial culture of never saying no to ourselves and having no responsible leadership over thrift, stewardship, and sacrifice.” Indeed, in the current administration, the national debt has doubled. Eight years ago it was $200 billion; today it’s more than $400 billion.

Now, as the Bush administration asks taxpayers to pay for the Wall Street bailout, consumers are starting to fight back. Lawmakers report receiving hundreds of emails a day asking them to vote against the bailout. A group of people in New York are planning to, literally, dump their junk on Wall Street in protest today as lawmakers meet and try to swiftly get a bill through with little time for real consideration as Bush touts “panic” as a reason to act now. And here in the Twin Cities, a group has scheduled a protest in Lowertown St. Paul this afternoon and another plans to gather in front of the Federal Reserve Bank on Hennepin in Minneapolis.

“It’s not so much that it’s $700 billion big,” Dahlheimer says of the bailout package. “It’s not so much the size of it, but the fact that no accountability is being asked for. That’s the real problem here. And until that happens, nothing will change.”

How we got here and the politicizing of the free market

As the last eight years have brought more government control over individual freedoms like a woman’s right to choose, same-sex marriage, and privacy issues, a deafening “less-government” rallying cry has been the trademark of this administration and its supporters. And while the deficit and spending have actually increased, the government-get-out-of-my-pocketbook concept has taken form in the politicization of government regulation of the market place.

And it was the lack of regulation and freewheeling grab-and-go greed that opened up the market for fraud and failure. In 1999, the Glass-Steagall Act was repealed and replaced by the Gramm-Leach-Bliley Act, which was signed by President Clinton. The act replaced a New Deal law that prevented commercial banks from blending with investment banking because that very lending was the main source of the great crash of 1929 and the resulting Depression.

What’s more, mortgage brokers were specifically written out of the law for fidiciary duty of care, a law that creates standards of equity and consumer rights and ensures, say, agents for products like insurance do not sell grossly inappropriate packages to someone. Yet mortgage brokers were able to wiggle out of that responsibility, and in 2003, at the height of subprime lending, were selling no-doc loans, balloon loans, and liar loans at rapid speed. Last year, Minnesota passed an anti-predatory lending law that required stricter requirements for brokers. And many of them fled.

Dahlheimer says it’s the politicization of the free market that helped to create the crisis, and in keeping it unregulated the market will continue to serve the wealthy and hurt consumers. In other words, it’s that kind of backward, zero-regulation thinking that will socialize debt and privatize wealth.

“Free-market capitalism must be seen for what it is: a wealth-creating engine which, without regulation, chews up and spits out consumers and people and families,” Dahlheimer says. “With regulation, it’s the best wealth-creating engine invented. To me, free market is an interesting concept in balance with the moral prohibition against usury and ruin. Which is why we have regulation as oil in the great engine so the engine doesn’t seize up and blow up.”

Dahlheimer says the problems today are not about a “free” market, but an unregulated market. “In essence, you know the doors that slam shut in commercial hotels so the whole place won’t burn down if there’s a fire? We took away all of those doors that slam shut in the ideology of a completely unbridled market. And the whole house is on fire.”

Going debt-free? Consumers fight back

Marne Gerdes has been working two jobs in the last two months to make ends meet. She’s a single woman, and doesn’t have a ballooning or subprime mortgage, but with food and gas prices increasing and a job in the western suburbs–a 20-minute drive from her Minneapolis apartment– paying her student loans, credit cards, and car payment has become more of a burden. Gerdes says thinking about using any of that money to pay for the bailout angers her to no end.

“It’s not the taxpayers’ responsibility to fix that problem,” she says. Not only is she worried about her tax dollars paying CEO salaries, but news of the bailout has also made her rethink how much she gives the lenders in the form of interest payments. “It makes me think differently about debt and my own spending and credit balances,” she says. “My mentality is to try and move towards paying in cash and not using credit as much as possible.”

Her friend Courtney McLean agrees. She’s been on a credit-payoff plan for two years. “I live without most of the time,” she says. But for McLean, it’s better than the alternative. “To me, debt is systemic slavery. And I don’t know if I’ll ever feel differently about that.”

They aren’t alone. For the last few years, anti-debt and mass consumption movements like Simple Living and anti-“affluenza”--an affliction of debt caused by an obsession with material goods and keeping up with the Joneses– have grown, spawning best-sellers and groups nationwide. The Simple Living movment has a monthly simplicity meeting in Rochester, Minn. every third Monday. Issues such as permaculture (using less of the Earth’s resources), living green, and living debt-free are explored.

McLean says her experience with debt in the last few years and ubiquitous Wall Street greed has made her an adopter of the Simple Living lifestyle. “I love money as much as the next guy,” she says, “but the weight and importance we put on it and its related subcultures, such as consumerism, allows for people to become trapped. We are not taught as a culture to understand and respect the fluidity of money. Our nation is built on the very weak foundation of debt; and like parent, like child, many citizens of our nation are personally in debt as well because we have to have this or that and ‘everyone’s in debt.’ Debt that is allowed to accumulate, as opposed to credit that is paid of promptly, is good for no one except for the companies collecting on that interest and the parties associated.”

Dahlheimer says he counsels consumers on similar issues of living debt-free. And because of the cycle that  bred debt and corruption, he says it’s time lawmakers start relying on moral principals as True North, and that any sort of  bailout also involve economic justice for those consumers. “There were certain common moral principles that Judeo Christian and Islamic beliefs have in common, and that’s the prohibition of usary,” he says. “And the way I heard it phrased was that people of great wealth must not be allowed to use great wealth to ruin others who lack that same advantage.”

Of course, the last decade or so of unchecked markets and imprudent lending practices flies in the face of cardinal rules of “moral values” and instead speaks to the free-market fundamentalism that privatizes profits for the very wealthy and socializes debt for the rest.

Yet Dahlheimer hopes the crisis has a silver lining. He hopes the resentment spurs a cultural shift similar to one that happened during the Great Depression. “It means legislators agreeing to balance budgets each year instead of create debt to pass it on for a generation or two or ten. It means individuals accepting limits and redefining patriotism from the most spending I can do, to living with in my means. And it also means at a larger level creating protective structures so that greed cannot exert a winning force in the market place.”

Having it any other way, he says, is like bailing out the drunk again and again. Now is the time, he says, to enact change. “Minnesota is the home of chemical dependent treatment,” he says. “One of the concepts out of the Johnson Institute was the concept of enabling. Enabling is when you inadvertently keep bailing out the alcoholic in a way that continues their alcoholism because they never hit bottom. And that’s exactly what we’re proposing with a zero oversight nationalized bailout of wealthy investment firms.”

He add: “Basically, it’s like saying, I can’t let Uncle Joe go to treatment because I need him to drink and drive me to work. And that’s not really a winning formula.”

Indeed, as Congress scrambles to shore up the mess on Wall Street with more than a trillion dollars in bailouts, many homeowners are still drowning in debt due to the nefarious lending practices that created the crisis in the first place. Not only will they be saddled with the increasing deficit and footing the bill for the trillion-dollar-plus Wall Street bailout, they’re stuck with bills they can’t pay and facing foreclosure and bankruptcy because of the shady lending practices that brought on the bailout.

Here in Minnesota, home prices in some areas have plummeted by more than 20 percent. Nationwide, prices have dropped 18.4 percent since July 2006, according to the Standard & Poor’s/Case-Shiller 20-city index. And while Treasury Secretary Henry Paulson claims a “housing rebound” is around the corner, Minnesota’s housing market appears to be facing a long stretch of trouble.

For one thing, the Joint Economic Committee estimates that Minnesota will see another 27,871 foreclosures by the end of 2009. That’s due in part to the fact that 57,000 Minnesotans, or approximately 25 percent of those who still have Adjustable Rate Mortgages, will see their rates increase in the next year. Add to that the problem of declining home prices—which some experts predict could fall as much as another 25 percent in the next three years—negative equity, and more homes being dumped on the market, and that rebound looks more like a deep puncture.

In fact, the Center for Responsible Lending estimates that 8,000 families each day are going into foreclosure, and that over the next five years, about 1 in 8 mortgages in the U.S. will go into foreclosure. That’s 6.5 million foreclosures. And while the Bush Administration’s plan offers a handout to those responsible, it has yet to address the serious issues facing homeowners who were victims of egregious lending and grab-and-go greed.

“This is just absurd,” Cox says of the current bailout plan. “It’s like a reverse criminal action where you give restitution to the criminals and put the victims in jail.” Cox talks to MnIndy about how we got here and why the bailout needs to change.

MnIndy: With the Bush Administration’s current plan, it’s as if no one wants to discuss how the crisis happened and instead only wants a quick-fix cover-up. You know, there’s “no time for the blame game” kind of philosophy. So how did we get here? And who is responsible?

Prentiss Cox: The fact that we are spending a substantial part of the next generation’s income on this bailout is astounding. The people who were really responsible for this catastrophe are for the most part left wealthy, and in the case of Wall Street, feel the right to shape the terms of the bailout. Wall Street was one of the parties responsible for the problem. So it takes amazing shamelessness for Wall Street to demand that it has this bailout without any other restrictions or any help for homeowners who were victimized.

We got here in a fairly direct manner. First, we had massively irresponsible and unfair lending primarily by unregulated institutions. That lending was funded and to a large part shaped by Wall Street. And those Wall Street investment firms knew early on what they were dealing with. In the first major predatory lending case against a company called First Alliance Mortgage Company, Lehman Bros., who’s now in the news, had a memo saying, “If we want to deal with this company we have to check our morals at the door.” And that was over ten years ago. So Wall Street knew what they were dealing with when they were dealing with these subprime mortgage companies, and they financed them anyway.

Prentiss Cox

Then, there was a second wave that started around 2003 and 2004. In that wave, Wall Street flooded the market with massive amounts of money and helped shape the terms of the kinds of loans that would be made. And that lending spread far beyond the stand-alone subprime companies and became standard industry lending practice. It’s really that second wave that led to the scope of the catastrophe that we’re dealing with now.

MnIndy: So we’re talking here about the Alt-As and no-doc loans that still have to shake out of the market.

Cox: It allowed loans to be made without adequate underwriting for quick fees. The primary attributes were, number one, lending to homeowners with no down payment; number two, lending to homeowners with teaser rates that would explode even if the interest rates were stable; And number three, encouraging homeowners to use stated income. The worst borrowers encouraged borrowers to make up specific stories that you would see over and over again in loan documents.

Fourth, there were loans that trapped homeowners with pre-payment penalties and high fees that ate away substantial amounts of equity. And fifth, there was lots of fraud, including fraudulent appraisals. All of this was undergirded by the belief that home prices would continue to escalate and cover up all the sins.

So that’s how we got here. Wall Street firms funded it all. And banks and other major institutions also made and bought a substantial amount of these loans so that the pain is spread fairly large and wide.

MnIndy: We know this has been going on for years. And then finally, last August of 2007, we saw the height of the foreclosure crisis hitting homeowners. Why did it take so long for the Bush administration to finally call this a serious problem?

Cox: This was a disaster before it was a crisis. And what I mean by that is families and homeowners were being negatively affected by these unfair and imprudent loan products before the financial collapse. The reason we didn’t hear about it is because we treated them as individual tragedies. The homeowners were either able to sell their homes because of the rapidly appreciating prices or refinance into an even worse and riskier loan.
So the housing appreciation allowed a cover for the risky loans and made them appear better products than they were. So when the housing values started to fall everything went into reverse.

MnIndy: Regardless of the Wall Street bailout, homeowners still have falling home prices to contend with. Yet Paulson says a “housing rebound” will ensure that taxpayers won’t be stuck with the nearly trillion dollar bailout package for Wall Street. Is that even feasible that taxpayers won’t be stuck with it given that a rebound looks dubious?

Cox: I think it’s really unclear. I think that anyone who thinks they know the answers to this has a crystal ball I don’t have. Of course the Treasury Secretary is going to say that we can expect a rebound because he is trying to get the biggest bailout in U.S. history by a fairly wide margin, and he wants it done with almost no strings or regulations. And most importantly, he wants it done in a way that harms homeowners. He calls that a “clean” bill. Anyone who wants to do anything to help the victims is complicating the “clean” bill.

But I don’t think that it’s realistic to say that we will recoup the money. There’s a chance it could happen, it happened in Sweden when that market faced a collapse in the early nineties. But there’s a key difference here: They drove a much stronger bargain with the collapsed industries. This is simply a “we’re giving all this money to Wall Street and trust us” bill. This isn’t a thought-out policy. This is a “we have such a good track record with these things, trust us,” which gives one pause.

MnIndy: What can homeowners expect from the bailout? The Democrats’ bankruptcy provisions aside, under Paulson’s plan, is there any chance the bailout could affect homeowners positively, like opening up more loans and allowing them to refinance? Or are we just talking about a bailout for the investors who caused the crisis and leaving homeowners and taxpayers footing the bill once again?

Cox: That’s the real question. Look, this is outrageous. I mean, is it necessary to do a $700 billion bailout? Probably. We probably needed to do all of these bailouts. They tried to contain it. It wasn’t containable. So they probably need to do an incredibly bold stroke like this in order to restore the market, pull out the assets, and deal with them rationally. While it’s unbelievable that we got to this place, given that we’re here, a bailout seems to be a rational policy choice.

What makes my jaw drop is we’re doing this in a way that completely ignores any possible assistance for homeowners who were victimized by this. And in fact, just to rub salt into the wounds, the bill probably will result in limiting existing defenses to foreclosure and protections that individual homeowners have under existing law when they default on their mortgage, because it’s a federalization and federal law would preempt many of those protections and wipe out those defenses, as sometimes happens when the FDIC takes over an institution.

So that is incredible. This is just absurd. This is like a reverse criminal action where you give restitution to the criminals and put the victims in jail. I have been astounded from day one that so many people are so comfortable basically socializing business risk to a degree never seen before in our country while at the same time completely ignoring any help, I mean any help, for homeowners.

MnIndy: You mentioned earlier that home declines were seen as an individual crisis and not necessarily a systemic problem. Is it a type of thinking that foreclosures and home-price declines are individual cases, or “individual responsibilities,” part of the reason homeowners are being ignored the victims in this case?

Cox: It’s that homeowners don’t rate. They don’t rate a thought or a mention here. When you do try to help, like we did with the Foreclosure Deferment Bill last year, which is looking pretty darn good at this point, you get these ridiculous lines like, ‘We don’t want to interfere in the market.’ Take a step back, folks! We’re giving a trillion dollars to these institutions that caused these problems.

We’re socializing our financial system. We’re socializing the wealthiest and largest players in our financial system to an unbelievable degree. But we don’t want to help the homeowners and families who were victimized by these loans. It boggles the mind. It truly boggles the mind that people can hold those principles together in their mind and not cringe.

MnIndy: It goes back to the decades’-old idea of the “invisible hand” of the market that’s been at the center of discussions about the foreclosure crisis from the beginning. Let it work itself out, except when it affects Wall Street. How much of this is about politics and clinging to a philosophy than addressing the reality of the situation?

Cox: It absolutely has become about that. If you’re truly a real free marketer, how can you suddenly support all these bailouts? It’s comfortable for me to support both, because I don’t believe markets have much capacity to exist outside of reasonable public control and limits. So for me, subsidizing the markets was a result of our terrible thinking over the last 25 years. I would use the word “childish” thinking about the ability of financial markets to police themselves.

So it doesn’t surprise me that we need to do this. But the idea that we need to enact socialism for business risk, but believing basic government protections–even when they don’t cost money to the public–for homeowners who were caught in this disaster is somehow an affront to the free market and availability of credit is a ludicrous and contradictory position. It speaks not well of our politics that people can hold that position without having to defend themselves from questions about the obviously discordant nature of their views.

MnIndy: Out of this, too, it seems it’s only fueled the same political rhetoric and denial. But a clear analysis and call for action beyond the market crisis seems to still be missing.

Cox: It’s become out of control. McCain’s people have this rhetoric about greed on Wall Street and firing the SEC commissioner? Why don’t they jut fire the Idaho health-department commissioner? It’d be the same thing. It is not how we got into this mess. It is just absurd rhetoric. And, again, we have a poverty of political discourse that a comment like that that isn’t met with howls of incredulity. It’s an absurd statement. And underlying it is a total lack of a policy that will deal with this in any way that will actually help people.

And Obama’s plan is timid. It’s been timid since the beginning. It’s a little more of a step in the right direction. But it never grasped the magnitude of the problem or the need for strong public control over the process to protect the most number of homeowners. All of which is entirely doable. It’s simply a matter of political will. And I really hope that Democrats finally get a backbone and put in provisions that will actually help homeowners.

MnIndy: What is it that the candidates—and especially the Paulson bailout—is missing? Are we talking simply about a provision that would help homeowners in bankruptcy? Are we talking about allowing homeowners facing foreclosure to refinance? What about those facing negative equity?

Cox: If we’re talking about a national solution, helping homeowners means enforced loan modification. That’s number one. So we just have to take the people who are in trouble or in default on their mortgages, and we have to rewrite these loans in a way that’s fair. You can’t save everybody. You can’t save more than half the people at most.

But these risky loans a huge part of the part of the problem. And you’ve saved a lot of homeowners, you’ve prevented properties from being dumped on the market. The homeowners aren’t going to get a bail out. No matter how you do it, they will still pay for their mortgage. But they might get some balancing of the leverage, so that homeowners have something to come to the table with that will allow them to survive.

The second thing that should happen is preserving and creating more rights for homeowners who were victims of the worst kinds of lending to allow them to recoup their losses. And the third thing, and most important in the long run, is effective regulatory structure. These kinds of things are happening not only with mortgages, but the underlying causes that drove refinancing and the crisis, which is consumer debt in America and they way we don’t regulate consumer debt.

We’ve lost critical years since this crisis started. In the year and a half since we’ve been deep in it, we have done zero, in capital letters, ZERO, to force lenders to force lenders to enter in to reasonable accommodations with homeowners. We have press release after press release after press release about voluntary measures, none of which have done anything to end the problem. They’re just a lot of press releases. And homeowners are still the real victims in all of this.

Never mind the feigned outrage of some commentators over McClellan’s waiting this long to speak; what really torques them off is that he spoke up at all, and in doing so laid bare the extent to which “professionalism” in news media means preserving one’s access to A-list sources, and preserving one’s access to A-list sources means repeating whatever they tell you to repeat.

This is what Judy Miller did in reporting Iraqi WMD claims from a cherry-picked Pentagon source. It’s what the entire US press did with the forged claims of Saddam’s efforts to obtain milled uranium from Niger. It’s the reason the cable news networks have almost completely disappeared the New York Times story from a few weeks back that revealed all the major TV news operations had been used like $20 hookers in their Iraq War coverage by a Pentagon propaganda op conceived to make sure that all war news and views were served sunny side up. 

The LA Times’ Top of the Ticket blog records several network journo reactions. In the video below, network anchors Brian Williams, Katie Couric, and If-I-Only-Had-A-Brain Gibson kick around McClellan’s allegations on the Wednesday Today Show. Also note that Glenn Greenwald at Salon has the goods on Gibson’s indignant insistence that “there was a lot of skepticism raised about” Colin Powell’s WMD speech on the eve of war. (Gibson’s first question about that speech, to Terence Taylor of the International Institute for Strategic Studies: “Specifically, of all the biological and chemical weapons that [Powell] outlined, and the means of delivery, what’s the most frightening? Should be the most frightening?”

Today at Politico, Michael Calderone writes about CNN producer Jessica Yellin’s appearance last night on Anderson Cooper:

Yellin… [revealed] that news executives–presumably at ABC News, where she’d worked  from July 2003 to August 2007–actively pushed her not do hard-hitting pieces on the Bush administration. “The press corps was under enormous pressure from corporate executives, frankly, to make sure that this was a war presented in way that was consistent with the patriotic fever in the nation and the president’s high approval ratings,” Yellin said.

“And my own experience at the White House was that the higher the president’s approval ratings, the more pressure I had from news executives–and I was not at this network at the time–but the more pressure I had from news executives to put on positive stories about the president, I think over time….”