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“They’re Stuck With The Mess”: Why Ordinary People Bear Economic Risks And Donald Trump Doesn’t

Thirty years ago, on its opening day in 1984, Donald Trump stood in a dark topcoat on the casino floor at Atlantic City’s Trump Plaza, celebrating his new investment as the finest building in Atlantic City and possibly the nation.

Last week, the Trump Plaza folded and the Trump Taj Mahal filed for bankruptcy, leaving some 1,000 employees without jobs.

Trump, meanwhile, was on twitter claiming he had “nothing to do with Atlantic City,” and praising himself for his “great timing” in getting out of the investment.

In America, people with lots of money can easily avoid the consequences of bad bets and big losses by cashing out at the first sign of trouble.

The laws protect them through limited liability and bankruptcy.

But workers who move to a place like Atlantic City for a job, invest in a home there, and build their skills, have no such protection. Jobs vanish, skills are suddenly irrelevant, and home values plummet.

They’re stuck with the mess.

Bankruptcy was designed so people could start over. But these days, the only ones starting over are big corporations, wealthy moguls, and Wall Street.

Corporations are even using bankruptcy to break contracts with their employees. When American Airlines went into bankruptcy three years ago, it voided its labor agreements and froze its employee pension plan.

After it emerged from bankruptcy last year and merged with U.S. Airways, America’s creditors were fully repaid, its shareholders came out richer than they went in, and its CEO got a severance package valued at $19.9 million.

But American’s former employees got shafted.

Wall Street doesn’t worry about failure, either. As you recall, the Street almost went belly up six years ago after risking hundreds of billions of dollars on bad bets.

A generous bailout from the federal government kept the bankers afloat. And since then, most of the denizens of the Street have come out just fine.

Yet more than 4 million American families have so far lost their homes. They were caught in the downdraft of the Street’s gambling excesses.

They had no idea the housing bubble would burst, and didn’t read the fine print in the mortgages the bankers sold them.

But they weren’t allowed to declare bankruptcy and try to keep their homes.

When some members of Congress tried to amend the law to allow homeowners to use bankruptcy, the financial industry blocked the bill.

There’s no starting over for millions of people laden with student debt, either.

Student loan debt has more than doubled since 2006, from $509 billion to $1.3 trillion. It now accounts for 40 percent of all personal debt – more than credit card debts and auto loans.

But the bankruptcy law doesn’t cover student debts. The student loan industry made sure of that.

If former students can’t meet their payments, lenders can garnish their paychecks. (Some borrowers, still behind by the time they retire, have even found chunks taken out of their Social Security checks.)

The only way borrowers can reduce their student debt burdens is to prove in a separate lawsuit that repayment would impose an “undue hardship” on them and their dependents.

This is a stricter standard than bankruptcy courts apply to gamblers trying to reduce their gambling debts.

You might say those who can’t repay their student debts shouldn’t have borrowed in the first place. But they had no way of knowing just how bad the jobs market would become. Some didn’t know the diplomas they received from for-profit colleges weren’t worth the paper they were written on.

A better alternative would be to allow former students to use bankruptcy where the terms of the loans are clearly unreasonable (including double-digit interest rates, for example), or the loans were made to attend schools whose graduates have very low rates of employment after graduation.

Economies are risky. Some industries rise and others implode, like housing. Some places get richer, and others drop, like Atlantic City. Some people get new jobs that pay better, many lose their jobs or their wages.

The basic question is who should bear these risks. As long as the laws shield large investors while putting the risks on ordinary people, investors will continue to make big bets that deliver jackpots when they win but create losses for everyone else.

Average working people need more fresh starts. Big corporations, banks, and Donald Trump need fewer.

 

By: Robert Reich, The Robert Reich Blog, September 21, 2014

September 22, 2014 Posted by | Bankruptcy, Plutocrats, Student Debt | , , , , , , | 1 Comment

“Usurping The Will Of The People”: The Dirty Tricks That Rushed Detroit Into Bankruptcy

Governor Rick Snyder (R-MI) was so desperate to make Detroit the largest American city to declare bankruptcy that his lawyers apparently used deception to make sure their filing was in before a judge could block it.

Ronald King, an attorney for Detroit’s General Retirement System and the Detroit Police and Fire Retirement System, said that he agreed to delay a hearing on an injunction that would have prevented the city from filing for bankruptcy for five minutes at the request of Snyder’s lawyers. In that five minutes, attorneys filed papers to put Detroit under bankruptcy protection, placing all legal action against the city in a temporary stay.

“It was my intention to grant your request,” Ingham County Judge Rosemarie Aquilina told the pensioners’ attorneys.

“There’s no denying this was a race to the courthouse this afternoon and yet another example of usurping the will of the people,” King said.

Pensions are protected under Michigan’s constitution, but this protection has not been tested in federal court. The city has about $18 billion in debt.

The Michigan Republican Party’s eager embrace of emergency manager powers has left about half of the state’s African-Americans without elected local representatives.

When voters repealed the emergency manager law in 2012 by 53 to 47 percent, the state’s Republican-dominated legislature quickly restored it, including a provision that made it impossible for votes to repeal the law again.

Part of the argument for these laws, which allow state officials to replace all elected city officials in municipalities deemed to be in “emergency” with an unelected bureaucrat, was that this process would prevent bankruptcy, which would be too disruptive.

When Snyder selected bankruptcy expert Kevin Orr to be Detroit’s emergency manager, however, it became clear what path the governor, who faces re-election in 2014, had in mind for the Motor City. Orr  – who has already hinted at his intention to cut pensions – will manage the bankruptcy, carrying out the governor’s wishes.

Unions who have seen Snyder and a lame-duck legislature rush in a law designed to weaken unions along with tax increases on pensioners are not hopeful about  the bankruptcy process.

“Every step of the way, the citizens of Detroit were told that they had to give up their right to democratic representation in order to avoid bankruptcy,” Metro Detroit AFL-CIO president Chris Michalakis and Michigan State AFL-CIO president Karla Swift said in a joint statement. “Now that this filing has come anyway, it is clear that either state control has failed or that Governor Snyder and his emergency manager appointee were not honest about their intentions in the first place.”

As the city’s debts are discharged, the question is who will be asked to pay: workers — who were promised a retirement and have already offered concessions — or investors — who knew they were taking a risk?

UPDATE: Judge Rosemarie Aquilina has ruled the Detroit bankruptcy filing violates Michigan’s state Constitution and must be withdrawn, noting that the there had been a “rush” to bankruptcy.

 

By: Jason Sattler, The National Memo, July 19, 2013

July 22, 2013 Posted by | Bankruptcy, Detroit | , , , , , , , | 1 Comment

Why Polls Are Sinking For New GOP Governors Like Scott Walker

If you’ve  been wondering lately who’s been writing the Republican playbook, I think I’ve  found him. It’s none other than Lenny Dykstra.

Back in his baseball  playing days, Dykstra was a tough as nails leadoff hitter famous for filling  his cheeks with huge wads of tobacco and crashing into outfield walls.  After his playing days were over, he wowed the world with his stock-picking  acumen. Made millions. Drove fancy cars. Owned an $18 million  mansion. He even had a sink that cost $50,000. (It’s true.)

And then, it all came  tumbling down. He went bankrupt. His house was  seized. He was indicted.  And what did he do? He broke back into his old  house … and stole his  prized sink.

Back in November, a new  breed of Republican governor was enjoying its own “wow” moment. Rick  Snyder was the “one tough nerd” to get Michigan’s financial house in  order. Scott Walker was about to take a blow torch to Wisconsin unions.  Florida’s Rick Scott won perhaps the most coveted prize on the presidential  election map. They were supposed to be the leading edge of the Republican  revolution, finally doing what conservatives have long held Americans want  their leaders to do: fundamentally recalibrate the way government operates in  the public square, and disentangling it from the everyday lives of ordinary  people.

But in Sunday’s Washington  Post, Norman Ornstein of the right-leaning American Enterprise Institute took a  moment to detail the woes these boy wonders have since encountered. Rick  Snyder’s approval rating is at 33 percent. Scott Walker’s is 43  percent. Rick Scott: 29 percent.  [Read the U.S. News Debate: Should Congress Raise the Debt Ceiling?]

Seven months ago they were  the toast of the town. Now, milquetoast. What happened?

Well, as Ornstein  describes it, the governors launched initiatives aimed at “cutting benefits for  the poor and middle class while adding tax breaks for the rich” while also  trying to get rid of collective bargaining. As you might imagine,  that wasn’t very popular with a lot of people (for instance: the poor and  middle class). And, shockingly, it hasn’t done much to balance their state budgets either. So now, according to Ornstein, “the only areas left for  meaningful budget reductions are education, Medicaid, and prisons.”

Let’s see: Your approval  numbers are in the tank, and all you’ve got left are gutting schools, letting  out convicts, and taking healthcare away from disadvantaged kids.  I’m guessing, as a re-election strategy, that leaves something to be desired.

In other words: fellas, it  ain’t working. And what’s so surprising about all of this is that for  some, it’s so surprising. Is it really so hard to figure out that one of  the reasons government is its current size and shape is that people have needs  that they want their government to try and meet? It doesn’t always work,  of course. But frustration over government spending on programs that  aren’t working isn’t the same thing as saying people no longer want good public  schools. Understanding that distinction is the difference between doing  the hard, more complicated work of reforming something that isn’t working as  well as we would like, and becoming fixated on an ideological goal that doesn’t  end up fixing anything at all.

Which brings me back to  Mr. Dykstra and his beloved sink. Now, in fairness, those of us who have  been consigned to using standard-issue sinks can only dream about the  hydrological wonders of the $50k variety. Perhaps it dispensed nothing  but delicious milkshakes. More likely: Even as his world was crashing down,  Dykstra couldn’t take his eyes off the one thing he coveted the most. Now  it looks like he’s going to prison.

Republicans may be in for  a similar electoral fate. Instead of helping the people they were elected  to serve, they’ve gone about ruthlessly pursuing an elusive conservative holy  grail. Dismantling government—it’s the GOPs $50,000 sink. And they can’t  take their eyes off of it even as their house burns down around them.

By: Anson Kaye, U. S. News and World Report, June 13, 2011

June 14, 2011 Posted by | Bankruptcy, Collective Bargaining, Conservatives, Democracy, Elections, GOP, Government, Governors, Health Care, Ideologues, Ideology, Labor, Lawmakers, Medicaid, Middle Class, Politics, Public Employees, Republicans, Right Wing, State Legislatures, States, Voters, Wealthy | , , , , , , , , , , , , | Leave a comment

Mitt Romney: The Anti-Jobs Candidate

My friend Peter Daou had an item the other day, noting the potency of the Republican presidential frontrunner’s message: “Romney is a threat because he can focus on a dead simple message: ‘I’m a successful businessman, I’ll create jobs and fix the economy.’”

That’s exactly right. Mitt Romney, at least this latest version of him, has an entire campaign rationale that fits comfortably into a tweet. Better yet, it’s a message that voters are eager to hear.

Ed Kilgore had a related piece on this the other day, summarizing the argument that Romney and his backers are likely to push aggressively: “Romney has an extensive corporate background, looks the part of a CEO, and without question, he would prefer an issues environment focused on anything other than health care reform or the cultural issues on which he’s never inspired trust among conservatives.”

Romney doesn’t want to talk about health care or the fact that he was a pro-choice moderate who supported gay rights and gun control. Indeed, he would just as soon hope people forget he was even a governor. This is Businessman Mitt, running as a less ridiculous version of Herman Cain.

Kilgore’s argument is that this message is simple and straightforward, but it probably won’t help him in a competitive Republican primary. That’s compelling, but my take is a little different: I think Romney’s biggest problem is that the message brings to the fore his key weaknesses — Romney’s record on jobs is atrocious.

Stephen Colbert devoted a terrific segment to this the other day, highlighting Romney’s “real claim to business fame,” which is “founding a private equity company called BainCapital.” The embed won’t fit the column length of the redesigned website, but here’s heart of Colbert’s take:

“You see, Romney made a Mittload of cash using what’s known as a leveraged buyout. He’d buy a company with ‘money borrowed against their assets, groomed them to be sold off and in the interim collect huge management fees.’ Once Mitt had control of the company, he’d cut frivolous spending like jobs, workers, employees, and jobs. Just like America’s sweetheart, Gordon Gecko. […]

“Because Mitt Romney knows just how to trim the fat. He rescued businesses like Dade Behring, Stage Stories, American Pad and Paper, and GS Industries, then his company sold them for a profit of $578 million after which all of those firms declared bankruptcy. Which sounds bad, but don’t worry, almost no one worked there anymore.

“Besides, a businessman can’t be weighed down with a bleeding heart, as one former Bain employee put it, ‘It was very clinical…. Like a doctor. When the patient is dead, you just move on to the next patient.’ See? Mitt Romney is like a doctor! [On screen: Dr. Kevorkian]”

And this is the part of Romney’s record he’s most proud of. Romney slashed American jobs as if his career depended on it — and it did.

Complicating matters, during Romney’s only service in public office, his state’s record on job creation was “one of the worst in the country.” Adding insult to injury, “By the end of his four years in office, Massachusetts had squeezed out a net gain in payroll jobs of just 1 percent, compared with job growth of 5.3 percent for the nation as a whole.”

How bad is Romney’s record? During his tenure, Massachusetts ranked 47th out of 50 states in jobs growth.

Yes, Romney has a simple message: “I’m a successful businessman, I’ll create jobs and fix the economy.” It also comes with an equally simple response: “Mitt Romney is the anti-jobs candidate.”

 

By: Steve Benen, Contributing Writer, Washington Monthly-Political Animal, June 12, 2011

June 12, 2011 Posted by | Bankruptcy, Businesses, Conservatives, Corporations, Economy, Elections, GOP, Ideologues, Ideology, Jobs, Mitt Romney, Politics, Republicans | , , , , , , , , , | Leave a comment

The Most Under-Covered Success Story Of The Obama Era

About two years ago, NBC News establisheda tough benchmark: “As the GM bailout goes, so goes the Obama presidency.”

With that in mind, Jonathan Cohn offers us a helpful update on where things stand.

On Thursday General Motors announced that, for the fifth consecutive quarter, it had made a profit. And not just a measly one, either. The $3.2 billion was higher than experts had predicted and more than three times the profit of the same quarter in 2010, when the company was still struggling to emerge from its bankruptcy.

GM sales in North America were up 25 percent over that period. That reflects the recovery, obviously, but the increase in GM sales was still larger than the industry average. Even if GM can’t keep up that pace, it’s a sign of increasing health.

Still, the most interesting part of the news is not the profit itself. It’s how GM made it.

Right. After the federal intervention to rescue the automotive industry, GM shifted its focus, reducing excess capacity and developing a better lineup of fuel-efficient cars and crossover vehicles. It’s proven to be quite successful.

Cohn noted that GM recovery has not been flawless, and the transition has been painful for many. He concluded, however, “[I]f not for the Obama Administration’s intervention, the entire American auto industry might very well have collapsed and taken the Midwest with it. Instead, the industry is on the rebound, at least for now. That’s not bad for government work. Not bad at all.”

I’d just add, from a purely political perspective, that Republicans still consider this a failure. As far as the right is concerned, the Obama administration’s rescue of the American automotive industry wasn’t just wrong, it was one of the president’s most dreadful mistakes. Confront conservatives with reports like the latest from GM, and the response tends to be that the success of the policy doesn’t change anything.

The thesis about the right valuing ideology over practical results needs no better example.

By: Steve Beden, Political Animal, The Washington Monthly, May 5, 2011

May 6, 2011 Posted by | Bankruptcy, Democrats, Economic Recovery, GOP, Government, Ideology, Journalists, Media, Politics, Press, Republicans, Right Wing | , , , , , | Leave a comment

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