Sunday, November 7, 2010

Joseph Stiglitz Understands the Problem, Too

In the video embedded in the last post, Amy Goodman asks Michael Hudson to comment on statements made by Joseph Stiglitz in the following interview:

The full transcript can be found here.

At around 16:45, Stiglitz makes an important point, and he uses the 2005 revisions to the bankruptcy laws to make it. 

AMY GOODMAN: Would you support a foreclosure moratorium?
JOSEPH STIGLITZ: Well, I think probably the answer is yes. The fact is that they’ve generated so many bad mortgages, so many fraudulent mortgages. And by the way, this problem of fraud has been known for a long time. The FBI started reporting on this years ago. I talk about that problem in my book. It’s not just risky lending. It was fraudulent, predatory, all these—and so, we have a backlog now. And we shouldn’t be surprised that our legal system is not capable of processing the numbers of foreclosures that have to be processed. We’re talking about probably something in the order of magnitude of three million, three-and-a-half million foreclosures actions this year. Last year, the estimate was about two million lost their home; the year before, two million. Our system isn’t geared to do that.
But there’s a more—there’s a deeper point that I’d like to raise, which is the following. You know, in a democracy like ours, people have to have confidence in the fairness of our legal system. And if they feel that the legal system is stacked against them, then voluntary compliance—our whole social fabric starts fraying. And I think a lot of Americans have come to the view that the system is stacked against them. It began, in a way, with the bankruptcy law that was passed back in 2005 that, in effect, reintroduced bondage in America. I mean, people haven’t realized how bad that law was. If you owe a hundred percent—you know, amount of money that’s equal to a hundred percent of your income—you have a $40,000 income, you wound up with a credit card debt and other debt of $40,000—for the rest of your life you may be working 25 percent of your time for the banks. The way it works is very simple. They can take 25 percent of your income—you know, it used to be easy that you could go bankruptcy and you get discharged of the debt. They made it very difficult. So, you can pay 25 percent of your income every year to the bank, but then the bank can charge you 30 percent interest. So, the end of the year, you owe more money than you did at the beginning of the year, even though you gave 25 percent of your income to the bank. Now, this is an example of something that is clearly socially unjust.
AMY GOODMAN: This was passed when the Republicans were in control.
JOSEPH STIGLITZ: That’s right.
AMY GOODMAN: And this was 2005.
JOSEPH STIGLITZ: That’s right.