The Betrayal of the American Dream (23 page)

One of the organizations on the front line of this issue is the Owner-Operator Independent Drivers Association (OOIDA), representing 150,000 independent truckers and drivers on matters from safety to legislation. Sandi Soendker, the editor in chief of
Land Line,
the association’s magazine, has seen deregulation up close in her twenty-five years with the association. Throughout that time the industry has been in upheaval, but by 2012 even some old-line trucking companies that managed to survive the cutthroat practices unleashed by deregulation in years past were going under. “We are dealing with this every week,” she said.

Soendker said that some companies collapse so suddenly that they leave their drivers stranded:

The companies have been hanging on as long as they can. But when they go under, they’ll have drivers out on the road delivering a load. They stop to fuel up, and the fuel card doesn’t work. They call the company, but nobody answers.

They are out on the road hung out to dry—with a truck that is not theirs, with a load that is not theirs, and puzzled as to why they can’t get through to their dispatcher. What is this guy going to do just to get home? Meanwhile at home, their paycheck has either bounced or never arrived.

She said the chronic instability of the industry has a ripple effect. When a trucking company fails, she said, “everybody gets hurt. Not only the driver behind the wheel but the shipper. How does he get his money?”

Soendker confirmed that even the drivers who have continued to find work have lost ground. “What you get paid for being a truck driver is pitiful,” she said. “And it hasn’t gotten better for a long time. Everything costs so much more. So if you are making the same amount of money, or just a little bit more, it’s costing you five times as much as it did two years ago. Suddenly that little bit of money that you started making is gobbled up by the expenses.”

The sword of Damocles for many U.S. truckers is the provision in the North American Free Trade Agreement (NAFTA), the free trade agreement with Mexico, that would allow commercial trucks from Mexico to use U.S. highways. Implementation has been held up for years by legislation, litigation, and safety concerns, but once the remaining litigation is disposed of, Mexican trucks will begin streaming onto U.S. highways.

Many U.S. companies have operations in Mexico that manufacture products for the American market, so one can only imagine the volume of truck traffic that will eventually pour into the States from Mexico. One doesn’t need to be a mathematician to understand what will happen. Mexican truck drivers earn about one-third of what U.S. drivers earn.

Even so, the ever-optimistic U.S. Department of Labor says that truck driving is one of the most promising sectors for job growth in coming years.

The deregulation of airlines and trucking has been a catastrophe to the men and women in those industries. It has depressed wages and benefits, engendered chronic job insecurity, and unleashed destructive competition. But because it has saved shippers and consumers a few bucks, that makes it an unqualified success to the deregulators.

UNLEASHING THE BANKS

As successful as they were in remaking those once-stable industries, the real prize for deregulators was money itself: the deregulation of banking.

Proponents included President George H. W. Bush, who predicted in 1991 that banking deregulation would create “a U.S. financial system that protects taxpayers, serves consumers, and strengthens our economy.” The reality turned out to be quite different.

Financial deregulation in the United States nearly brought down the global economy in 2008. Wall Street and the banks have since recovered, thanks largely to huge bailouts from taxpayers, such as the Troubled Asset Relief Program (TARP), and capital infusions from the Federal Reserve. But millions of Americans who lost their jobs, their homes, and their retirement savings during the collapse did not receive a bailout and will not recover.

The law that caused a great deal of harm was the Financial Services Modernization Act of 1999, the brainchild of then Texas senator Phil Gramm, the high priest of deregulation in Congress for many years. The law removed regulatory barriers between banks, securities companies, and insurers so that they could sell each other’s financial products. In effect, the law let banks become stockbrokers as well as bankers, and it allowed stockbrokers to also become bankers. “I believe that this [law] is the wave of the future,” Gramm said upon its passage. After he left the Senate, Gramm became a vice president of UBS, the Swiss banking giant, one of the banks that benefited from the Financial Services Modernization Act. UBS, it should be recalled, later was investigated by the IRS and Justice Department authorities for its role in offshore tax evasion schemes. The bank later agreed to pay $780 million to the United States to settle claims that it had helped cheat the U.S. Treasury out of tax revenue.

The 1999 law repealed parts of the Glass-Steagall Act, which was passed in 1933 to rein in the financial industry excesses that helped cause the Great Depression. Glass-Steagall had worked just fine for decades, but banks hated it because it barred them from selling stocks and mutual funds. Gramm hated it because he said it interfered with the free market. “Government is not the answer,” he said after Glass-Steagall was repealed. “We have learned that freedom and competition are the answers. We have learned that we promote economic growth and we promote stability by having competition and freedom.”

Along with two laws passed in the early 1980s that would later open the door for exotic mortgages and other lending instruments, the Gramm legislation gave a powerful boost to the deregulation movement in financial services and mortgage lending. The law came along at a time when the mortgage industry was being transformed. Whereas in the past a lender who provided a mortgage held on to the loan and collected interest from the homeowner, now an independent broker arranged the loan, collected a fee, and passed the loan on to someone who bundled it with other mortgages for sale to investors, just as if the mortgages were bonds that guaranteed a solid return.

Before the mortgage industry was deregulated, a lender was careful to make sure the homeowner could repay the loan; otherwise, he’d be stuck with a foreclosed house. But in the new world made possible by Congress, the loan originator didn’t care. He got his cut off the top and passed the liability down the line. What did the mortgage broker care if the loan he’d arranged went bad? He’d already been paid.

This change in the way the business operated opened the door to untold abuses by the financial cowboys and hucksters who gravitated to the field. Fraudulent credit reports, hidden interest charges, usurious loan rates—all of these were by-products of the gold rush to generate more and more loans. The more loans, the more fees. This frenetic activity helped power an entirely new market in so-called subprime mortgages—loans to homeowners with below-par credit or few assets were charged higher rates of interest for their loans, which then generated much larger fees for the lenders. By the time Gramm’s bill was passed, the subprime market had grown to $150 billion—a 600 percent increase in just five years. In the next decade, it would grow ten times more.

So in 1999, at a time when the industry needed more oversight than ever by federal regulators, the message out of Congress couldn’t have been clearer: allow Wall Street, banks, the financiers, and everyone else connected with this go-go industry to continue conducting their business without any interference.

Legal aid lawyers and consumer groups saw clearly what was happening and warned Congress that the run-up in subprime lending and other abuses in the mortgage field were paving the way for an impending collapse, but the industry poured millions of dollars into campaign contributions to lawmakers to deflect opposition. Among the recipients of the industry’s largesse was Bob Ney, a Republican congressman from Ohio, who was chairman of the House Financial Services Committee’s housing subcommittee. Ney, a figure in the Jack Abramoff lobbying scandal, later went to jail after pleading guilty to charges of conspiring to defraud the federal government and falsifying financial disclosure forms.

The lenders, in the best Washington tradition, created a lobbying committee with a friendly-sounding name—Coalition for Fair and Affordable Lending. It had little to do with fairness, but a lot to do with bad loans. Its membership was loaded with subprime loan companies, and they had just the right lobbyist: Wright Andrews Jr., a former senatorial aide who, as one commentator later put it, had “developed a niche representing some of the least sympathetic and most predatory players in the financial industry.” From 2003 through 2007, the Coalition spent $6.7 million lobbying, with $3.2 million going to Andrews’s law firm.

Every attempt by consumer groups and lawyers for mortgage victims to amend the law and impose more stringent regulations on lenders failed.

The rest is history. Since 2007, an estimated 12 million home foreclosures have been filed; at least 4 million Americans have lost their homes, and millions more are in danger of losing theirs; the average price for existing homes in the United States has dropped more than 20 percent, and more than $5 trillion in home equity has vaporized.

WRECKING LIVES

It is possible to see how financial deregulation is playing out up close in the real world in a one-story stucco building just off busy Del Prado Boulevard in Cape Coral, Florida. Tucked into the center of a row of storefronts is the headquarters of the Invest in America’s Veterans Foundation of Cape Coral. Started in 2009, it was sparked by the work of a group of veterans organized by Ralph Santillo, a veteran from New Jersey who relocated to Cape Coral decades ago. A home builder, Santillo had been driven out of business by the collapse of Florida real estate. While fighting his own financial demons, he kept running into other veterans who were also increasingly desperate. They had lost jobs as well as their savings and feared they were about to lose their homes. “The stories were heartbreaking,” he said.

Together with other veterans, including Donald Graf, a retired advertising man from New York, they formed the foundation as a service agency for veterans in southwest Florida. In the beginning, Santillo operated out of his home or the trunk of his car until grants from local businesses enabled the foundation to lease the office on Del Prado. Since then, the place has quickly become a magnet for troubled veterans in Cape Coral and the surrounding area.

On any given day, the office is buzzing as veterans come in seeking counseling and volunteers answer a steady stream of phone calls from other former service personnel in need. A disproportionate number of former military personnel—an estimated 60,000—have settled in the area. It has two attractions: a climate beneficial to those with service-related ailments and affordability.

Santillo said the foundation soon found that it has to deal with a whole catalog of ills—veterans who can’t navigate Veterans Administration (VA) procedures to claim benefits, others who don’t even know they are entitled to VA assistance, and still others who are desperate to find work. The lack of jobs is especially traumatic for younger veterans, many of whom served multiple tours in Iraq or Afghanistan only to return home and find there’s no work for them.

“This is a lost generation for jobs,” said Graf. “These kids are not being hired, and everything politically is being done to stop that because some states are using expanded child labor laws to use teenagers without having to compensate them for their work. And they want seniors to work longer. So all the jobs veterans would get are not there for them.”

As grim as things are for young veterans, foundation volunteers realized that some older veterans were in even more trouble. With service dating as far back as the Korean War, some veterans were on the verge of losing their houses. They became victims of predatory mortgage practices—a by-product of deregulation. Santillo recalled that most of those who refinanced or took out home equity loans were just trying to get money to survive.

“They’re living on a fixed income, usually just Social Security, sometimes a little pension,” he said. “All their costs are going up—insurance, taxes. Most times when people refinanced they used that money just to keep up with their bills and pay their mortgage. So there was no real benefit. It was not like people were going to get rich and live off the money.”

Many didn’t realize the potential ramifications of the loans they were assuming. “There was stuff out there like no-interest loans or loans where you paid 1 percent interest,” Santillo said. “Then all of a sudden you find out two years down the road you are paying $5,000 a month. Some of these were usurious. They would have put you in jail for that years ago.”

But thanks to deregulation, nobody went to jail. Nobody broke any rules because that’s what deregulation means: there are no rules to break. Instead, mortgage brokers and banks were rewarded with lucrative fees in the new mortgage industry that was playing out in Cape Coral and a thousand other places like it across America.

In Florida the process was exacerbated when thousands of ex-cons looking for a way to make a quick buck surged into the Florida mortgage industry and began writing mortgages. A
Miami Herald
investigation in 2009 found that 10,529 persons with criminal records worked in Florida’s mortgage industry from 2000 to 2007. Of those brokers, 4,065 had committed major crimes—fraud, bank robbery, racketeering, or extortion.

Despite widespread evidence that the foreclosure crisis was in part a result of runaway greed by an out-of-control, unregulated industry, Congress and Washington pundits have since contended that the crisis was caused by the federal government’s overzealous attempt to promote homeownership. Under this theory, by easing up on the rules for granting mortgages, the government allowed people who didn’t really have the income or assets to buy their first homes. It’s a convenient way to shift the blame away from Washington and Wall Street, which caused the calamity to the victims who paid the price.