Ms. Lotus Regrets….

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Banks, investment companies, financial institutions of all sorts are in line to be fixed and regulated. Their survival is deemed vital to our economic survival. Get them lending again, we’re told, and we’ll start to see the economy moving.

Everything will be fine and we’ll party like it’s, well, like it’s some year when the economy appeared to work.

But that party may be missing some guests.

And by guests, I mean a significant number of citizens, the regular folks, the working and middle classes.

What if the financial institutions cleaned up, spritzed on their Axe cologne, and the Administration put on their party clothes for nothing because the invitation for a significant number of regular folks got lost in the mail?

Americans have taken a hit. I know President Obama recognizes that fact. But I feel like he recognizes it only in the abstract….”They’ve sacrificed enough…” he said.

But…

But what?

Well, that sacrifice has not happened in a vacuum. Americans are in possession of increasing craptacular credit reports. Some of them got that way through irresponsibility, some due to other factors.

And you don’t get new housing, car loans, mortgage loans, small business loans and sometimes even health care or a job with crappy credit. At least in the new economy, you won’t.

It’s not just that many Americans have lost homes to foreclosure or have houses worth hundreds of thousands less than they paid. Houses they can’t sell, couldn’t sell if they have to move to find a new job.

It’s not just that they’ve been sold junk health insurance or haven’t been able to buy insurance and have had to watch medical bills pile up unpaid as they choose between health and poverty.

It’s not just that they’ve been unable to keep up with spiraling credit card rates or unable to pay credit card bills due to mortgage or health care or student loan debt or inflationary prices.

It’s not just that they’ve had to pay high childcare bills when they don’t qualify for assistance for daycare or pre-school. Or college for that matter.

It’s not just that they’ve cut grocery purchases, clothes purchases, entertainment purchases, or don’t drive due to high gas prices.

It’s that their credit is ruined now that they are living with less and not being able to pay what’s due.

If Obama gave a lending party, joining banks with consumers in the typical tango, will the banks be dancing alone or will there be so many unpartnered banks that they’ll fight to put their hands on the proverbial consumer waist?

Obama has yet to say ANYTHING about how he will deal with this aspect of the recovery. The consumer who pays their mortgage but can’t pay their medical bills or car payment or student loan debt. The consumer who deeded their home in lieu of foreclosure because he can’t sell a home in a neighborhood slapped with a high foreclosure rate.

Yes, you can give the car up, beg to be put in forbearance for your student loans, give the house back, but how do you get a job when an employer checks your credit before hiring? How do you get medical treatment if you’re marked for nonpayment of medical bills?

WHO WILL QUALIFY FOR LOANS? Will a significant number of consumers NOT qualify for mortgages, for small business loans? Will a significant number of consumers be left out in the cold anyway because they have, for any number of reasons, disqualified themselves from borrowing money?

And how about folks who won’t qualify for employment due to bad credit? What about in Sweden, if you are looking for a loan would you be able to get one without a credit check or if you have bad credit? A quick google search for – lna pengar utan UC – could reveal your answer. You could also think about selling your motorcycle if you find yourself in a bit of financial trouble – check out this guide if you are interested in learning more.

I have a client (“Lotus”) whose landlord is evicting the entire building because he doesn’t want to be a landlord any more. If you do it right, it’s perfectly legal under California law. But Lotus has a sick child who, much like my own son, needs constant care for a chronic medical condition. And, much like my own, her insurance policy is junk. Her policy is actually worse than my own, it covers a “well child” visit and that’s about it. God forbid you should have insurance that covers an unwell child or be able to replace that insurance now that you have a child with an existing condition.

Lotus makes too much to qualify for assistance for his pre-school or even free lunch, she makes too little to pay his medical bills. Her credit is devastated and she just received news that her work hours will be cut to two-thirds time (no surprise, she’s an independent contractor). She needs another job, she needs another home, her child needs treatment, she won’t qualify for any of these things because her credit score has taken a huge hit.

What can be done for her?

We can’t go back to the old way of buying a house with a lousy credit rating and people must take responsibility for their own handling of their finances, but what happens to those who now have bad credit due to medical bills and must wait years to qualify for credit again, while still being unable to pay off their medical debts?

The banks are being bailed out, but what will the Obama Administration and financial institutions do to help those who used to qualify for the great American credit machine and no longer can come to the credit party? Those who won’t qualify for new rental housing or jobs because the current economy is writ large on their credit reports?

Where is the symmetry in his plan to save the economy? Where is the equity?

No free handouts, no sanctioning irresponsibility. But if AIG and Goldman Sachs and CitiGroup and Bank of America and Wells Fargo qualify for help to get them going again, what do a significant number of Americans qualify for?

I’m waiting to hear the plan. Right now, the silence is deafening and Ms. Lotus regrets she’s unable to party today.

3 comments

    • ksh01 on March 26, 2009 at 11:54 pm
      Author

    some get the credit rating the economy deserves…

    • Edger on March 27, 2009 at 4:29 am

    They’ve sacrificed enough…” for Geithner and Treasury to be able to shovel the hundreds of billions to Wall Street that they have so far.

    But that’s up to now.

    Next week or month will they have sacrificed enough, too?

    Nouriel Roubini and Matthew Richardson yesterday, March 25,

    Give credit to Timothy Geithner’s new toxic asset plan:

    For the economy to be viable, the financial system must be healthy. For this to occur, the system needs to be cleansed of its poorly performing loans and so-called toxic securities backed by loans. This way, once creditworthy institutions and individuals come to the market looking for capital to borrow, financial firms will be in a position to lend them money.

    [snip]

    The private investors need the government because there are so many bad loans held in the financial sector that only the government’s balance sheet can handle taking them over. The government needs help from private investors so it doesn’t get hoodwinked by the banks.

    Why will investors participate? The deal is structured so that firms will be responsible only for losses on their initial investment. The hope is that by giving this big “freebie,” the government will induce investors to participate, and that competition among them will lead to higher offer prices for the loans and securities, thus encouraging banks to sell them.

    A lot of ifs, but if indeed successful, the plan accomplishes mission No. 1, namely the removal of the bad assets from banks’ balance sheets. Even if banks wanted to do this on their own, they can’t because the market for these illiquid assets has dried up.

    But let’s not have any illusions. The government bears the risk if and when the investors take a bath on the taxpayer-provided loans. If the economy gets worse, it could get very ugly, very quickly. The administration should be transparent in making clear that there is still a wealth transfer taking place here – from taxpayers to investors and banks.

    Also, while this plan is designed by the Treasury, many of the big guarantees are being made by the Federal Deposit Insurance Corp. and the Fed. Why not use only Treasury funds? Well, then the administration would have to deal with Congress. While the populist hysteria of last week suggests this end run might make sense, there is something a little worrying about circumventing the legislative process on such a huge investment.

    [snip]

    What happens if removing toxic assets from a bank’s balance sheet at near-market prices shows it is effectively insolvent? Then we will have to face the elephant in the room. We may then have to start asking, “Why keep insolvent banks afloat?” And having asked that, we will have to search for ways to manage the ensuing systemic risk.

  1. the struggles that far too many people are facing these days.

    But I think Obama’s opening salvo was his attempt to BEGIN to address these. He crafted and passed the biggest spending bill in the history of our country that:

    1. Allowed for the extension of unemployment benefits.

    2. Provided funding to help people make their cobra payments.

    3. Gave billions to the state’s to help them maintain their safety nets.

    4. Provided a small tax cut for 95% of us.

    5. Spent billions to keep/create jobs.

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