Beware the Big Banks
By Albert B. Kelly
In the post mortem on the
financial crisis, there have been all sorts of analysis about what went wrong.
Some of it was focused on sub-prime mortgages and “exotic financial products”
like collateralized debt obligations (CDO’s). Others focused on credit default
swaps and some blamed consumers for borrowing more than they could afford.
But if you want to get
down to the real cause of the financial crisis and why the economy, at least on
the street, shows little sign of improvement, it comes back to the big banks
and greed. I was reminded of this while skimming a recent headline in the NY
Times; “Debts Canceled by Bankruptcy Still Mar Credit; Big Banks Investigated
for Ignoring Courts”.
The nut of the story is
that many thousands of people who went through bankruptcy and had debts
discharged by the courts are still being harassed by the banks for payment of
debts that they no longer legally owe.
The story, by reporter
Jessica Silver-Greenberg, goes on to say that state and federal officials
believe that some of the biggest banks (i.e. JP Morgan Chase, Bank of America,
Citigroup, etc.), simply ignore the courts and keep on chasing down the
discharged debt.
Of course right about now
you’re wondering why the folks involved don’t just tell the banks to go pound
sand; it’s because the banks are keeping the debts alive on the person’s credit
report, forcing borrowers to pay up on the discharged debt in order to clear their
credit.
A bad credit report means
high interest rates, no shot at getting a mortgage, and increasingly these
days; being turned down for certain jobs. You’ll recall that everyone from
employers to apartment managers check credit reports and use this information
in evaluating a person.
So in that sense, it’s
extortion. It’s the banks saying “I don’t care that your debts were legally
discharged by the bankruptcy court, pay up or we’ll ruin you”. Behold the loan
sharks of the 21st century.
But it gets worse. They
keep the discharged debt alive and then sell it to make a profit. Either they
make money from people who pay debts they are no longer obligated to pay or
they sell off debts to third party debt buyers for a price.
In other cases, the large
banks, the ones selling the debt, have deals they work out with third party
debt buyers that has the banks keeping any money that comes in at the18 month
mark or beyond from the date they sold the debt; if anything comes in during
the first 18 months, it goes to the third party debt buyer.
As to what happens next,
that remains to be seen. The US Justice Department is conducting an
investigation into the banks and a few lawsuits have been filed in federal
court that the banks are trying to get tossed out as we speak.
The bottom line is that
the banks are basically ignoring the courts and trying to muscle their way to
more profits from citizens who have had their debts discharged through the
bankruptcy courts.
Debt itself has become the
product. Leading up to the financial crisis, it was debt in the form of
mortgages, car loans, and credit card debt. Of course now its student loan debt
that will likely be the next bubble. No matter, it all got packaged into a
product and sold and resold many times over. The banks peddled cheap and easy
debt to consumers.
But now that the whole
racket has come crashing down- once they couldn’t keep turning over the debt,
once “confidence” evaporated; now the big banks have to find another way to
make money…this time off the backs of the broken.
And maybe that’s the
problem. Debt isn’t just a “financial product”, its people’s lives and their
families and their futures. The banks were “too big to fail” so they got bailed
out, but there’s only bankruptcy court for individuals.
The banks got their fresh
start, their second chance; now they’re unwilling to let people and families do
the same. Hopefully our State Attorney General and members of our legislature
will do some investigating of their own on behalf of the citizens in our state.
I hope so, because they’re
the only thing between us and the banks that are now “too big to care”.