Brooksley Born again

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In my Oct. 23, 2008, post “Brooksley Born and the Economy of Doom,” I told you how the Wall Street meltdown was predicted 11 years earlier by Brooksley Born when she was head of the Commodity Futures Trading Commission. In one Congressional hearing after another, Born tried to explain that unregulated financial instruments called derivatives, which include credit swaps, could bring down the economy. Let me regulate them, she said, or at least require Wall Street investment houses to report how much money they’re putting into them.

But absent any understanding of what she was talking about, senators and congressmen consulted people they trusted to see what they thought, and those people, led by then-Fed head Alan Greenspan, assured them that the risk was spread out too much to be a problem, and Greenspan in particular told them that Wall Street firms cared too much about their good names to let anything bad happen. By the time I wrote about this in October, Lehman Brothers was bankrupt, several other Wall Street firms were being absorbed by more solvent houses, and Greenspan had publicly apologized for his misjudgment.

Greenspan stands out today, not only for his primary role in making Born a Cassandra, but for his manning up to admit he had gotten it wrong. Wall Street executives cared more about their lavish bonuses than about the good names of the institutions they worked for. But he wasn’t the only one taking a stand in favor of an unregulated market for derivatives. Clinton advisors Larry Summers and Robert Rubin also told members of Congress that Born was wrong — indeed that her very warnings could cause a market panic. Texas Senator Phil Gramm, an economist by training, sponsored a bill in 2000 to make it the law of the land that derivatives were not regulated. The bill moved through Congress with Gramm lining up Republican votes and Clinton officials working the other side of the aisle. One of those aides was Gary Gensler, Treasury undersecretary for domestic finance and a former executive of Goldman Sachs.

President Obama’s nominee for head of the Commodity Futures Trading Commission, the job Brooksley Born did so well or tried to, is…Gary Gensler.

Obama has also made Larry Summers his main behind-the-scenes economic advisor.

There is an argument in some political circles that Obama needs people with experience to manage the financial crisis, even if they made mistakes in the past. As far as mistakes go, I buy that. Mistakes can make someone smarter later on.

But Greenspan and these other guys were driven in part by an almost theological belief in unregulated markets that is unjustified by the facts. They read too much Ayn Rand. They have not recanted their beliefs. They remain heretics, non-believers in the sensibility of basic rules for any game. We need not burn them at the stake, but they have certainly burned us, and so much is at stake in the current economic crisis that I worry what further harm they can do.

Jan

30

Have you earned the Earned Income Tax Credit?

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The more complicated the financial world gets, the more the average person tends to get victimized, not merely by the unscrupulous and predatory but by our own ignorance, while others, who make a hobby of knowing all the rules, game the system for all its worth.

This applies to the tax code, too, because it’s as complicated as the rest of the financial world, and I’ve heard stories from tax preparers and IRS personnel alike of people who think they’re gaming the system with their nickel and dime tax fraud while leaving bigger money on the table that they actually qualify for.

And then there is the Earned Income Tax Credit.

The Council for Native Hawaiian Advancement, recognizing that many Hawaiians have low enough taxable income to qualify for the credit, is spreading the word Friday about its availability. On behalf of my son and daughter who are part-Hawaiian I’m happy to pitch in.

The Earned Income Tax Credit and Child Tax Credit apply to single filers or families who have less than $38,646 taxable income. See what I mean about complexity? Who worked this up so it would be $38,646 instead of $40,000? How do you spread the word about something for which the cutoff is $38,646?

But I digress.

With one child the credit can be as much as $2,917 — with two or more keiki, up to $4,824. If you owe $1,000 on your taxes, and you qualify for $4,824, the tax service sends you $3,824. Really. You can wind up paying negative taxes, getting money instead of paying it.

For more information you can call 596-8155 or 800-709-2642 and ask for Rosalee Puaoi. If you’re not Hawaiian and don’t want to burden the council with your questions, see a tax preparer. This money was appropriated to aid lower income families.

Jan

28

The bankruptcy-foreclosure myth

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This blog post will expand on an “Ask Howard” question Wednesday morning — whether you can keep your home in bankruptcy. The answer is, not necessarily. It’s a myth that the primary residence in off-limits to creditors.

Bankruptcy is complicated. There are several forms of it for individuals — Chapter 7 liquidation, Chapter 13 restructuring of all debts, and even Chapter 11, like companies use, in some cases. The rules for each are different. But one general principle is that bankruptcy puts all debts on hold TEMPORARILY but sooner or later you have to face your debts, either paying them off in full or making other arrangements with creditors that would have to abide by instead.

A company can always go out of business altogether, or threaten to, but an individual expects to go on living, and that kind of changes the expectations of creditors.

Not only is it a myth that your residence is automatically off-limits to creditors in a bankruptcy, but a mortgage creditor in some cases has more power to collect than some other creditors do.

This could change, however. Over the anguished protests of the mortgage industry, the House Judiciary Committee is recommending that Congress empower bankruptcy judges to order changes to the terms of mortgages.