Jumping the gap from Wall Street bonuses to cornbread mix

August 17th, 2010 by Mike Hinshaw

That recovery we keep hearing so much about?

Seems to be going be well–if you work in the neighborhood where the Great Recession was engineered.

According to an Aug. 13 article in MarketWatch, “Bonuses in the financial services industry will increase slightly this year as the sector outpaces the recovery of the broader economy, according to a forecast published by Johnson Associates Inc. Thursday.”

Supposedly, it’s a big deal among legislators, too. Apparently some of them see problems with bonuses for those in the sector that caused the problems that nearly drove the economy off the cliff.

“The increase in bonuses would come at a time when rising compensation in the sector has become a hot issue for lawmakers in the wake of the financial crisis.”

Of course, bonuses were off the charts during the boom leading up to the crisis. Trouble is, nothing changed during

Cuomo’s report

“But when the financial crisis hit in 2008, compensation stayed at these levels even as bank earnings plummeted. According to an investigation by Attorney General Andrew Cuomo’s office, at Bank of America net income fell to $4 billion from $14 billion, but total payouts still remained at $18 billion. Citigroup and Merrill Lynch, now owned by Bank of America, lost $54 billion in 2008, but still paid out about $9 billion in bonuses. Read more about Cuomo’s [2009] report here. [" According to the 2009 article, "Attorney General Andrew Cuomo's office analyzed 2008 bonuses and earnings at the nine financial institutions that were the first to receive government money from the Troubled Asset Relief Program, or TARP."

Another bailout beneficiary, GM is doing pretty well, although fellow bailee Chrysler is still struggling. Ford, not a bailee, is doing OK, too. Other big corps are reeling in the dough, like say, Disney (riding blockbusters Toy Story 2; Alice in Wonderland; and Iron Man 2).

The 'new abnormal'

And people aren't just buying downsized cars and going to the movies. Describing a "bifurcated market," this July 29 BusinessWeek article says bewildered-and-bewildering consumers are scrimping on soap and other basics in order to blow money on luxuries.

"The new abnormal has given rise to a nation of schizophrenic consumers. They splurge on high-end discretionary items and cut back on brand-name toothpaste and shampoo. Companies such as Cupertino, California-based Apple, whose net income jumped 94 percent in its last quarter, and Starbucks Corp., which saw a 61 percent increase in operating income over the same time frame, are thriving.

"Mercedes-Benz is having a record sales year; deliveries of new vehicles in the U.S. rose 25 percent in the first six months of 2010. Lexus and BMW were also up. Though luxury-goods manufacturers such as Hermes International SCA and Burberry Group Plc are looking primarily to Asia for growth, their recent earnings reports suggest stabilization and even modest improvement in the U.S."

Well, who can blame the American consumer for being at least a little crazy?

As the Aug. 17 Detroit Free-Press says, "The U.S. lost nearly 3 million jobs in the second half of 2008.

A 'deep hole'

"The hole was so deep that even with the 620,000 private-sector jobs that the Economic Policy Institute reports were added over the last seven months, it doesn't feel like a recovery to many.

"Charles Ballard, a Michigan State University economist, agrees that the recovery is very slow, but not ending.

" 'We're coming out of the worst economic downturn in our lifetimes,' Ballard said. 'Given that a sledge hammer was taken to the economy when Lehman Brothers failed, we're lucky the damage hasn't been worse.' "

Earlier in the year, some encouraging reports were noted, hinting that unemployment, foreclosures and bankruptcies had bottomed out. More recent reports say no.

Foreclosures still raging

From an Aug. 13 ABC News report: "In July, banks repossessed the second highest monthly number of homes ever, according to the California-based foreclosure listing firm RealtyTrac, Inc. There were 92,858 properties taken over by banks in July, an increase of nine percent in the month and six percent for the year.

"A sagging job market is the likely culprit. The silver lining: Overall foreclosure activity in July did drop about 10 percent from a year ago. But it was the 17th straight month of foreclosure actions on more than 300,000 properties, according to RealtyTrac."

Apple cakes and cornbread

That report also describes a consumer pushback of sorts, as people sick and tired of waiting for help are increasingly taking matters into their own hands--even if their plans are, let's say, fanciful. Efforts range from representing themselves in court--as more judges are  getting savvy to lender tricks--to having large-scale "bake sales."

One woman who lost her house after losing her job has been inspired by "Teaneck, N.J., homeowner Angela Logan [who] sold enough of her $40 apple cakes to qualify for a loan modification that allowed her to save her home. She dubbed her venture Mortgage Apple Cakes.”

Fueled by visions of Logan’s success, Beverly Davis decided to sell her grandmother’s cornbread recipe (10 bucks for the dry mix or the mix plus a cast-iron skillet for $40; see cornbreadmillionaire.com)–in hopes of raising  80 grand in order to buy her house back. On August 13, the ABC report said she had 21 days left. A quick check at her site shows an Aug. 4 post indicating that the bank told her the house will not be auctioned but instead will go on the market with a “firm price”–but (of course!) they can’t reveal to her any advance info…

No, that would make too much sense–to give out information to the most motivated buyer for the house, somebody who already thinks of it as home.


The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

What recovery? Senate buries collective head in sand of unemployment as year-to-year bankruptcy filings increase

June 14th, 2010 by Mike Hinshaw

We keep hearing that the Fat Lady has sung and exited, stage right. That, of course, would be the Fat Lady of the 1) Great Recession 2) Great Panic 3) economic crisis, or 4) however you like to refer to run-amok unemployment, home-value crashes and ongoing waves of bankruptcy filings.

However, we still don’t hear much convincing news about the Phat Lady of the Recovery.

Sustainable for whom, exactly?

From a June 11 Dow Jones’ piece in The Wall Street Journal, “With a sustainable economic recovery now underway, policy makers will soon have to start thinking about pulling back their monetary stimulus to ensure inflation stays low and inflation expectations remain well-anchored, Philadelphia Federal Reserve President Charles Plosser said Friday.

“While complete healing from the deepest downturn since the Great Depression will take time, Plosser said the recovery is becoming more ‘broad based,’ which should leave the economy to grow by around 3.5% this year and next, somewhat stronger than the underlying trend growth rate of the economy, which he believes to be about 2.75%.

” ‘I believe the economic recovery is on a sustainable path, and I expect further progress even as we unwind the accommodative monetary and fiscal stimulus put in place during the crisis,’ Plosser said.”

He said he expects the business sector to begin buying both equipment and software and looks for improvement in consumer spending, residential investment and hiring–although employment “will take some time to return to its long-run level.”

He makes some other prognostications about Fed policy, financial problems in Europe and fed-funds’ interest rates–all with an eye toward keeping “uncomfortable and costly” inflation at bay.

Late in the story, he is credited with at least acknowledging the continued, bleak unemployment rates.

May numbers ‘somewhat disappointing’

“Plosser called May’s employment numbers ‘somewhat disappointing,’ as all but 41,000 of the 431,000 jobs added in the month were government jobs, mostly reflecting the hiring of temporary census workers. While he doesn’t give one month’s number that much weight, Plosser said, developments must be watched closely in the coming months, which could be marked by more big swings in the numbers before a more accurate picture of the underlying employment prospects emerges.”

This June 10 report from The Washington Independent seems to have a better grasp of the situation than Plosser does.  Using an ex-employee of  J.P. Morgan Chase as a focal point, the piece describes the plight of a class of the unemployed known as “99ers.” These are “the long-term unemployed who have exceeded the maximum number of weeks of benefits,” and Cindy Paoletti, it says, is merely one in a million of them. The 58-year-old woman worked in payroll at the megabank for 23 years. “In December 2007, Paoletti was let go in a wave of layoffs that eventually shuttered the entire Syracuse operations center. ‘My job went to India,’ she sighs.”

Ezra Klein, blogging for The Washington Post, weighs in on Paoletti’s story with an observation about the relation between her mortgage and her income:

“There’s a lot going on in Paoletti’s story, but I’d note one part in particular: She’s underwater on her mortgage. That is to say, the drop in housing prices means she now owes the bank more than her house is worth. So there’s no upside to selling. And that means that unless she’s willing to walk away from her mortgage, there’s no real way for her to leave her economically-depressed town and move to a place where jobs are more plentiful.”

99ers beset on all sides

But as the Independent points out: “Paoletti and other 99ers are afflicted by a constellation of problems.” Chief among those problems, of course, is the unprecedented depth and length of unemployment.  “Of the 15 million unemployed in America, over 7 million have been out of work for more than six months, nearly 5 million for a year and over 1 million for two years — the worst statistics since the government started keeping count in 1948. The proportion of the unemployed out of work for more than six months has doubled in the past year, to more than 46 percent. The jobseekers-to-jobs ratio, which tells how hard positions are to get, remains around 5.6 to 1.”

Bright spots, dim bulbs

The seekers-to-jobs ratio, however, is among the few bright spots in this picture. At 5.6 to 1, the ratio has improved since its high point in November 2009, when it was 6.2 to 1. By way of comparison, in December 2000, the ratio was 1.1 to 1, according to this report from the Economic Policy Institute.

Another bright spot might seem to a casual reader to be the rate of bankruptcy filings.  Here’s the headline from a June 2 report in The Wall Street Journal: “Decline in Bankruptcy Filings May Be Temporary.”

Except, whoops–there’s no meaningful decline.

Sure, the numbers fell about 6 per cent from April to May of this year. But the May filings are still higher than those from this time last year.

But here’s the lede from the actual report: “The 136,142 consumer bankruptcies filed in May represented a 9 percent increase nationwide over the 124,838 filings recorded in May 2009, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). NBKRC’s data also showed that the May consumer filings represented a 6 percent decrease from the 144,490 consumer filings recorded in April 2010. Chapter 13 filings constituted 26 percent of all consumer cases in May, a slight increase from April.”

To be fair to the WSJ, their article quotes the bankruptcy institute’s director and qualifies the month-to-month improvement: ” Despite the improvement, ‘I think the overall arc is up,’ said Samuel Gerdano, the Bankruptcy Institute’s executive director, and he predicts they will continue to rise.”

Balky Senate schedules one hearing

Back to Paoletti and the question of  getting the U.S. Senate to help the 99ers, the Independent says “. . . the Senate as a whole is less than willing. Sen. Max Baucus (D-Mont.), the chairman of the Senate Finance Committee, has indicated that he will not vote for a fifth tier [of unemployment benefits], as have others. ‘You can’t go on forever. I think 99 weeks is sufficient,’ Baucus told Bloomberg News. Sen. Byron Dorgan (D-N.D.) likewise dismissed the idea. ‘There’s just been no discussion to go beyond [99 weeks],’ he said. And the Senate leadership, without explicitly shooting down a fifth tier, has nodded in agreement.”

Paoletti, perhaps naively, is pinning at least some hope on a hearing scheduled for this Thursday.”Rep. Jim McDermott (D-Wash.), the head of the subpanel on income security and family support for the House Ways and Means Committee, is holding the first hearing on policy responses for long-term unemployment. ‘Our first step to respond to long-term unemployment is obvious — continue the emergency federal unemployment programs to prevent millions of workers from losing their benefits,’ McDermott said in a [June 3] statement. “If we can afford wars, tax cuts and bank bailouts, then we can certainly afford to maintain programs for workers who have lost their jobs through no fault of their own. An increasing number of Americans who have worked hard and played by the rules are now finding themselves with no job, no savings and no support. We must not abandon these workers and their families.”

Astonishingly, the biggest slap is not the palliative (“We must not abandon these workers. . .”). No, the big slap is the delay in working out a solution. The Senate, who arguably dragged the entire country through a tortuous year of health-care pain, not only blew a chance last year to help consumers with reform of the bankruptcy reform act but also took two recent breaks rather than work on the jobless crisis.

And now we learn that Thursday’s hearing is “the first hearing on policy responses for long-term unemployment”? Makes you wonder what it is they do work on, doesn’t it?


The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

As recession hangs on, lack of homeowner-loan workouts may bring bankruptcy reform back to a more willing Congress

September 11th, 2009 by Mike Hinshaw

Well, I’m starting to like Diana Olick.

The preceding post discusses why news of the recovery may be premature.

In Thursday’s “Realty Check,” Olick paraphrases a radio news item as saying, “Good news on the housing front! Foreclosures are moderating, potentially signaling an end to the housing crisis.”

Says Olick, “This is why people don’t trust the news.”


Here’s a summary from another CNBC post on Thursday: “Home foreclosures in August jumped 18 percent from a year ago, but decreased 0.47 from the previous month, according to a new report by RealtyTrac, an online marketplace for foreclosure properties.”

So, yeah, as Olick points out, we saw a .47 per cent decrease from the record high set in July, but the August rate is still nearly 20 per cent higher than a year ago.

Of course, that is better news than yet another record month–but no reason to get giddy. There’s still plenty to come, and there’s still many people who face some tough, tough decisions about dealing with foreclosure, addressing medical debt, looking for work, and whether to file for bankruptcy protection.

In fact, as posted Wednesday at USAToday.com, nationwide bankruptcy filings in August were 22 per cent higher than in the same month a year ago: “From January to August, national bankruptcy filings reached 954,911, up from 703,732 in the same period of 2008, according to Automated Access to Court Electronic Records.”

Now, there’s a few crucially interesting items showing up in light of these data.

One is hinted at the sheer number of projected bankruptcy filings by year’s end, now expected by some experts to reach 1.45 million–which would put us near the record levels established in the period leading up to the so-called Bankruptcy Reform Act of 2005, when the credit-card lobby rammed through changes designed to make it tougher for consumers to file bankruptcy. As the USA Today post continues, “After the bankruptcy law changed in 2005, filings had slowed.

” ‘But we’re now heading back close to where they were before the law was enacted,’ Lawless says. ‘It’s not surprising, because the 2005 law did nothing to change the underlying economic reality of why people file for bankruptcy.’ ”

That’s important enough to repeat:  “. . . the 2005 law did nothing to change the underlying economic reality of why people file for bankruptcy.”

For point two, we’re back to Olick and a post from Wednesday: “The House passed it, the Senate defeated it, but you had to know the idea of bankruptcy judges getting into the business of mortgage modifications would not go gently into that good night. Today the Treasury Department released its latest progress report for the Home Affordable Modification Program (a.k.a. the housing bailout).”

Previously Olick has come out against new legislation that would allow bankruptcy judges to modify terms of a loan for a primary residence, perhaps most noticeably here, where she writes what I consider the takeaway: “Personal bankruptcy is really no better, which is why I have trouble understanding why lawmakers are pushing for bankruptcy judges to modify loans. That would just give borrowers more incentive to file for bankruptcy. I guess the argument is that they have no choice, and at least bankruptcy could keep them in their homes.”

But in Wednesday’s piece, she follows the mention of Treasury’s report with a table showing results of major lenders’ modification efforts as relevant to Team Obama’s Home Mod plan. Following the table, Olick summarizes thusly, “Some of the results are pretty abhorrent, like Bank of America, the lender with the largest number of eligible delinquent loans, starting modifications for just 7% of those loans.”

She ameliorates BoA’s numbers a bit, but then quotes Congressional testimony from Asst. Secretary for Financial Institutions Michael Barr that ends, “There is unevenness in performance as you can see from our public reports, unevenness in performance among and between the servicers involved. We think all the servicers could do more than they are doing now.”

Olick also quotes House Financial Services Committee Chairman Barney Frank as saying, “The best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a very good job of modifying mortgages. If they do not improve their performance, then they improve the chances of that legislation.”

So, point two is that that dragging out the loan modification process may well enable Congress to re-address real bankruptcy reform, in a meaningful way. As we’ve stated repeatedly, it simply makes no sense to allow judges to modify terms of loans on vacation homes and other luxury items while preventing the same judges from modifying terms on primary residences.

This also brings up another point. As discussed here, the companies who actually service mortgage loans might prefer to foreclose rather than modify loans, because the loan servicer has “perverse incentives” to collect more fees by handling the foreclosure rather handling the loan modification.

And as discussed here, loan servicers can actually face lawsuits from investors if the loan servicer agrees to modify a home loan.

So, for point three, let’s just say it’s abominably astounding that no official program addresses these two concerns.


  • If mortgage-loan servicers really do have perverse incentives to foreclose rather than modify, then we need to get that fixed.
  • If mortgage-loan servicers really are subject to bona fide lawsuits from downstream investors, then we need market-reform legislation to address that, too.

And that brings us full circle on the bankruptcy issue: Maybe the simplest answer after all is to simply grant the loan-mod powers to bankruptcy judges that they should already have.


You may be facing extended unemployment, imminent foreclosure, overwhelming medical bills or unworkable credit-card debt–or a combination of all these. Regardless of your situation, filing personal bankruptcy can offer you legal protection and relief from stress while also providing a way to better credit in the future. Whatever your circumstance, the sooner you get advice from a competent, experienced bankruptcy attorney, the sooner you will have facts to help you decide what’s best for you and your family. Here’s some links to get started.

Bankruptcy questions

Bankruptcy principles

Bankruptcy Act of 2005

Bankruptcy exemptions

Bankruptcy laws in your state