New Orleans

The tricks of the trade are seductive:

• Deferrals:  sure seems like a friendly thing to do but the debt accumulates and grows while the payments are postponed.
• Compound Interest:  I forget the movie where the old rich fellow was telling the callow the youth the secret to wealth, and it was “compound interest,” not “plastics.”  The ability to charge interest on top of interest on top of interest, takes the simple debt and its simple interest rate to stratospheric levels once you add time.  You are thinking this isn’t predatory, right?  This is just the way loans work, chump!  If there is no effort to explain the consequences transparently, then over time this morphs into a predatory practice as well.  Get it?
• Penalties and fees:               The story detailed preposterous charges of $20000+ and $50000+ for turning over collection to a debt agency.  What?!?  How can that be possible?

More of this is going to happen to young people given the huge recession.  But according to the story there is over $750 billion and only 40% of the debt is being actively repaid.  This also means the debt (see above on compound interest) is also soaring on that 60% for sure.

There was a story of a doctor who had $250,000 in debt which has now gone over $500000+ in 5 years with what and what.  There was another story of a mother whose unemployment check of $300 is being garnished by the federal lender, Sallie Mae, for $120 because she had signed for her son while he was in school, and he lost his $29000 job, and defaulted because he was unable to keep up.

If trying to own a home is one ticket to trying to achieve financial security for working families, and we are watching much of that dream wash away in foreclosures and fallen prices, then education was certainly supposed to be another investment in a better future.  With eroding jobs, increasing debt, escalating college pricing, and no relief, this looks like a mess.

Seems to me that getting these young scholars right sized on their debts would have been a good investment by the government when it was in bailout mode, but perhaps the reason the government is allowing the banks to patty cake around on the foreclosure mess, is the fact that clearly the government is not willing to write down some of this outrageous debt that they are allowing to grow unabated through predatory practices.

Monteverde

In this light an article posted on the New American Media site caught my eye entitled:  “Scarcity of Non-Profits in Neediest Communities Will Hinder 2010 Census”  by Cassidy Friedman.  Most of the piece was focused on California and San Francisco particularly and the fact that even though the City of San Francisco had appropriated almost a half-million dollars to fund door-to-door outreach efforts by nonprofits in this well resourced city, the efforts were flagging in lower income areas where most of the nonprofits did not have a base and were not well know.  Bay View – Hunter’s Point and Visitacion Valley were the examples used because the undercount was lowest in these two areas in the 2000 Census.

“This is a big, big challenge,” said Ted Wang, a census consultant with Grantmakers Concerned with Immigrants and Refugees, which is coordinating private sector funding for outreach in California. “Neighborhoods that have the least amount of infrastructure often are the ones that are the most difficult to count.”

Does it really matter, especially to the future citizen wealth of lower income communities?  Hell, yes!  We are talking big bucks here.

“…when the city was undercounted by 100,000, resulting in a loss of more than $300 million in federal funding, according to a 2007 study.   If the same pattern repeats across the state, California residents could lose billions of federal dollars for vital services over the next decade.”

These Republican and rightwing attacks may look like they have little impact, but when you start counting how much money is at stake especially for the beleaguered cities and strapped states in the current economy, it is easier to understand the real game here and the partisan effort to deny resources and capacity where it is needed the most.

Oh, and it goes without saying, if my memory serves me, that one of the strongest bases for San Francisco ACORN used to be in Bay View – Hunter’s Point and similar efforts.  I think you can put the pieces of this puzzle together for yourself can’t you?

Quepos           

            Partially, it was simply the “one that got away.”  It’s footprint was smaller with a base in Santa Barbara that was too far away from our groups and members to do much damage.  They had gotten into this predatory business and done very well, but were impervious to the impacts.  What did it matter to their normal customer base  in Santa Barbara after all?

            Direct discussions with Jackson & Hewitt, when I was with ACORN, when round-and-round, with J&H always claiming they would not “unilaterally disarm,” but would do so as H&R Block did so and others like Liberty Tax Services.  H&R Block was going to move from HSBC to its own bank.  I’m not sure if that happened or not.  Liberty was also a big customer for Santa Barbara. 

            The actions of OCC and other banking regulators are key here, because the withdrawal of Santa Barbara from this line of lending could finally push RALs out of the market, which would be huge.

            This was the Christmas present report from Bloomberg News:

Regulators ordered Santa Barbara Bank & Trust to stop providing the loan money, which covered about 75 percent of Jackson Hewitt’s financial products program, according to a regulatory filing by Jackson Hewitt.

Shares of the company, the No. 2 tax preparer behind H&R Block, dropped $1.34 to $4.50 on Thursday.

The Office of the Comptroller of the Currency told Santa Barbara Bank & Trust on Dec. 18 that the lender would not receive regulatory approval to originate the refund anticipation loans in 2010, according to a statement from the bank’s parent, the Pacific Capital Bancorp.

A bank spokesman, Tony Rossi, said that “the tax refund loan business is a sort of niche business that falls outside of what would be considered core banking operations.”

The bank signed a nonbinding letter of intent with a private equity firm to sell the tax business, the statement said.

Tax preparers are locked in a battle for customers, with Jackson Hewitt vowing this month to regain market share from H&R Block. Firms can attract clients with refund anticipation loans, in which customers who need cash immediately can get a short-term loan, typically lasting a few weeks, that is based on the expected amount of their tax refund.

Jackson Hewitt, with 6,600 outlets and almost three million clients, has been losing customers to H&R Block and Intuit, which makes TurboTax software. It suspended its dividend in March and has hired Goldman Sachs to explore “strategic alternatives,” language that typically means a company may be sold.

            The next target for economic justice reformers and citizen wealth advocates will need to be the unknown “private equity” company that will be tarnishing its reputation and brand – if such a concept is possible in private equity – by buying the Santa Barbara RALs business.  The other target may end up being whomever buys Jackson & Hewitt if Goldman Sachs is able to do the offload.

            You sow what you reap.

      

            Even the bright spots crept through some clouds when we would pass massive new school construction blocks away from huge shuttered parochial facilities with fences flapping in the wind.  Bill Covington, an old colleague from the HOTROC organizing drives in New Orleans, was my guide and mentioned there were 11,000 abandoned houses in the city now.  Each one entailed $10,000 in costs to demolish.  The city had announced a multi-year plan to tear down 500 per year.  Gulp.  That would be 22 years of demolition while the inventory would continue to grow and communities would be living with permanent scars.

            I was reminded of Professor Ken Reardon’s conversation with me in Sicily about his efforts to build a center at the University of Memphis to address the crises of mid-sized cities and their future.  I had heard these stories in Springfield, Massachusetts recently and now Buffalo, New York seemed like deja vu.  More than an institute is needed though.  The isn’t an organizing plan yet, and that’s work work and thought.

            Talking about Citizen Wealth that evening to a great group of hardy souls, the frustration kept arising around healthcare and the slow and fragile development of any progressive legislation.  There’s no happiness in Mudville.  We may be close to getting something on healthcare, but no one is talking about “winning” anymore.

            Today’s papers were discouraging.   To reach of Senator Sanders being thwarted from even trying to have a debate about something better is disheartening.  To reach the role of the U.S. Catholic Conference’s willingness to hijack any hope for reform around what now seems to be their single issue (abortion) and to realize that a great, historic advocate for the poor and downtrodden has beyond myopic is depressing.  It isn’t hard to feel the gloating of the Republicans over the success of their “kill reform” at any price strategy.  What the heck?!

            But, just like Buffalo there are still strong rays of hope, though perhaps more mirage than reality.  Seems that more than one can play the amendment game, and Senator Rockefeller from West Virginia had two great cards on the table according to the story in the Times: 

“Senate Democratic leaders said they would probably accept two contentious proposals by Senator John D. Rockefeller IV, Democrat of West Virginia. One would increase the powers of a proposed new agency to limit the growth of health spending, including payments to hospitals.

The other proposal would require insurers to spend a specified share of premiums — at least 85 percent — on clinical services and activities that improve the quality of care. This would, in effect, limit the profits of insurers.”

Hope springs eternal!

Memphis

By early Monday morning there signs of stirring in the hinterlands.  A couple of alumni emails and some phone calls hit the university president’s office and were referred over for handling.  The press office was drafting various responses.  The campus police were mentioning they had a SWAT team.  There were two interviews with local TV stations and the local paper, so who knew what to expect.

No one was around when we showed up at the auditorium, but before the start we heard there were a couple of Tea Party demonstrators with homemade signs out on Central Avenue.  Most of the signs were riffs on the theme of “Commu-nuts!” which I thought was creative, cute, and meaningless, but whatever.  Once speaking I noticed we had some outliers that started drifting in and sprinkling themselves in the crowd who didn’t fit the general study body type, so I assumed these were some of the protestors coming in from the misty cool of the Memphis evening.

The remarks went well enough, but as usual I was most interested in hearing the questions and continuing to gauge what was on the minds of people trying to grasp the impact of organizing.

The first guy was a roofing contractor who believed that his workers took off from October through December to make sure they got their Earned Income Tax Credit (EITC) without any trouble.  I asked him if hunting season had anything to do with it, but he didn’t appreciate the comment.  It was hard to believe his example, but no sense in arguing about his experience.

A number of questions focused on real estate and pushed back around the role of CRA.  These were some healthy readers of the CRA low-income family conspiracy to explain the greed of Wall Street and sub-primes.  The real conspiracy is a blood boiler, so it’s not easy to understand why my friends on the right want to blame their neighbors rather than the multi-gazillion dollar beneficiaries who caused and collected the spoils.

Talking afterwards to some of the interrogators was interesting.

One who was most convinced that getting full access to benefits would create dependency was unemployed with a hard luck story that included an older brother with a meth addiction.  It was very important to him to believe that “people chose poverty.”

Another who had raised a very pointed question about a position he claimed that ACORN had taken with HUD Secretary Cisneros during the Clinton Administration insisted we had lobbied against a change that would have impacted the “choice” of a family about where to live.  I said I didn’t know the exact letter he was referring to, but our position on fair housing was to oppose any dilution of the protections against discrimination.  We talked past each other for a little while.  Afterwards he told me that ACORN had sued him in Memphis in 1995 at a realty outfit where he worked because the advertisements were alleged to not be sufficiently diverse.  He claimed the suit was dismissed, which may have been the case.  It turned out the complex question was really about a specific situation of a mixed Filipino client of his that wanted to live in a specific community.  They had asked HUD for a fair housing clarification and 18 months later had gotten an answer which said they could represent the client in this area of “choice” discrimination, if they had a written request from the client.  This was my best understanding of the unique circumstances.  The bottom line:  he had a beef with ACORN and was glad to finally have the chance to catch me in the open field to have me take some accountability for his grievance.  Fair enough, I thought!

There were questions about illegal immigrants.  Nothing on healthcare, which surprised me.  Very little actually about ACORN.

People are out there searching, and they want to engage.

The paradox that underlies the controversy that seems to surround some of my visits to campuses these days is that the students love hearing the message and linking in with the passion for change and the call to organize, the community is intrigued, and the opponents are really delighted to have the opportunity to engage directly and have a chance to really debate their position with someone who is going to listen, respond, and pushback.  That’s a hard bargain to beat and frankly a public service that University Presidents should be pretty proud to offer in building bridges in these troubled, polarized times.

Memphis

Many themes returned again and again, but one of the themes that echoed so loudly that it was impossible not to hear was the way that developers were literally having their way with the City of Memphis and Shelby County.  A more than $100 million dollar giveaway of public dollars for one developer of the Memphis Fairgrounds was averted with no community benefits agreement asked or offered for the nearby communities.  Planners in the afternoon told me story after story of developers benefiting from 15 year tax incremental financing (TIF) districts in the by-and-by hopes of community benefits without any efforts to assure community benefits on the front end.  It was enough to make my head spin.

These were great leaders, well trained and experienced with a good grip on the issues and the nuances of Memphis, who needed a process to finally make a decision to re-engage resources and participation for this generation of organizations and activists to curb the excesses and try to wrest the city away from the developers and their public lackeys and back to the people.

The last point made by a well respected minister at dinner caught my ear.  A developer named Harold Buehler was being given 140 lots in a lower income, inner city area of Memphis, despite owing over $2 million in taxes for his previous developments.  People were outraged.  There was a roar of response about the “fix” being in with the County Commissioners.  It all seemed so wild and bizarre, I knew I would have to look under the hood to try and figure it out.

I found a squib by Jackson Baker in something called the “political beat” in the Memphis Flyer. Despite Baker’s bias in favor of Buehler and his contempt for Commissioner Henri Brooks, and anyone who opposes this project, his piece does confirm the facts behind the minister’s disgust and my new friends’ revulsion at this action:

Memphis Mayor Pro Tem Myron Lowery spoke before the commission on the premise that it would be folly not to develop the vacant lots Buehler sought title over (140 out of some 3,000 in the inner city, including many that were the result of arson and neglect). Antonio Burks, the former Memphis Tigers basketball star who was recently wounded by gunfire, showed up on crutches to extol Buehler for having provided Burks’ mother a rental home for the past decade.

Even a Klondike resident who had been featured in The Commercial Appeal as opposing Buehler rental property on style points was shown in a Buehler-produced video extolling the builder for having arrived at new designs. (Both the video and several posterboard displays of previous Buehler properties were stage-managed by Upton.)

Buehler opponents got up to speak, too, including one man who said,” We need to do a background check on this criminal.”

Besides Brooks, overt opposition on the commission itself was limited to another longtime critic of the builder, Mike Ritz, who succeeded in adding an amendment to Commissioner Steve Mulroy’s enabling resolution, one that required full repayment of Buehler’s delinquent taxes. Another Ritz amendment, which would have mandated approval of Buehler designs by community development organizations in all affected areas, was rejected.

In any case, Wednesday’s apparently definitive vote notwithstanding, Brooks announced that she intended to soldier on. “I’ve just begun to fight,” she said — though how and with what allies and to what end remained to be seen.

From this piece it looks like a “Hail Mary” pass forcing Buehler to pay up before he cashes in on these lots may have landed safely in the end zone, so I’ll have to check on that, but regardless of the pros and cons here, there’s no doubt that the community is increasingly clear that Memphis cannot continue to be developer heaven and community hell.  One dinner guest who lives near the development in Memphis caught my ear making the point that the area had housing, but “needed jobs!”  There were other comments that could not be missed about the need for people to have a “voice” again and the lack of equity and citizen centered priorities in Memphis.

It was great to be a fly on the wall and an excuse for some great people to get together who could make a difference in Memphis by deciding once again that “enough is enough,” and taking the next steps to make something happen again in this great city.

Baltimore

The reasons the students questions were so hard is because we really have no satisfactory answers in current public policy.  The largest federal supports continue to go towards home ownership through mortgage interest deductions on federal income taxes without any specific targeting for especially poor families.  Furthermore the current tightened credit markets and the fight to prevent foreclosures have dampened the boosterism around home ownership as a real asset building strategy for the poor.  As the students pressed the issue, it was obvious to me how vacuous the answers are that are provided by current policy and programs.  A student from Cameroon also kept reminding me about my skepticism in the book about using debt to reduce poverty, so among my careful readers I had to be very accountable.

We need to directly confront the ideological and political objections to direct income transfers that are standing in the way of programs that would create actual family savings with incentives to increase and build protected accounts to marshal and expand financial security and create additional inducements that modify and direct behavior in such ways that expand assets.  Simply put:  we need to give money, encourage savings, and create accounts that can be used for the emergencies that devastate   citizen wealth as well as the education, investment, further savings, and homeownership that can be leveraged to create citizen wealth and intergenerational wealth with permanent impacts for the family and the community.

Unfortunately all of the existing programs that move in this direction for the poor are small and precious and really only amounting to small change in the total expenditures designed to dent poverty.  All of this is more pilot than program.  We talk savings, but we are unwilling to create the hedge for the poor that a real bank account and savings book would do for people.

Professor Steve Soifer was engaged by the question and sent me several emails late into the night reminding me of the power of compound interest based on incremental payments over decades in adding up to real assets over time.  Somehow we have to give people the leg up to either save incrementally or allow the government to create accounts for families or children to create real wealth.  Let’s spend some time doing the “organizing math” to figure out what it would take to create citizen wealth this  way.

Thanks to the Community Organizing class at UMSSW for doing the hard work with me!

Hartford

All of which left me thinking about a question Monday afternoon that a perceptive student had picked up in a Springfield College calls on wealth and poverty.  I can’t remember how it came up in the dialogue, but I offhandedly mentioned that I was not a huge fan of debt as a poverty reduction strategy, and mentioned that we should talk about the tension around that issue in the current fad for micro lending.  One young woman challenged me later about mortgage based lending and foreclosures and how that squared with home ownership as a citizen wealth strategy.  An excellent point obviously and a correct one in my mind, even though it was easy to plow through in a discussion about equity and the net gains in home ownership despite the high foreclosure rate even among subprime loans if values recovered and equity right sized the loans.  Nonetheless, it is absolutely true that all of this ideology about homeownership does not square with good public policy for cities or for poverty reduction, even though that has been the big game in the USA for a long time.

All of this brings me to Kiva, which I’ve written about for years in a largely positive vein, despite my skepticism.  Kiva’s attraction for small donors was the ability for someone in developed countries to use their internet tools to directly connect to people in other countries who were seeking loans for their individual micro-lending projects.  The Premal Shah, director of Kiva, in the 2008 Tides Momentum conference had movingly and ambitiously described his hopes of the huge scale of person-to-person direct lending possible from Kiva model, as well as the exciting sustainability of the Kiva model based on simply asking the regular person lender/donor to pitch in a little more to pay for the small Kiva staff.

There was a signature debunking piece by Stephanie Strom in the Times a couple of days ago that picked up on a blogger report by David Roodman, a research fellow at the Center for Global Development.  To quote:

“But Mr. Roodman’s blog post said that lenders like Mr. Kristof were not making direct loans. Borrowers like Ms. Cruz already have loans from microfinance institutions by the time their pictures are posted on Kiva’s Web site.

Thus, the direct person-to-person connection Kiva offered was in fact an illusion. Kiva’s lenders were actually backstopping microfinance institutions, and since Kiva and other online giving and lending models pride themselves on their transparency, Mr. Roodman and others suggested it might better explain what its lenders’ money — about $100 million over four years — was really doing.

“The person-to-person donor-to-borrower connections created by Kiva are partly fictional,” he wrote. “I suspect that most Kiva users do not realize this.””

Frankly, I’m still confused.  I understand that it was an “illusion” but where was the money really going?  Strom was less than transparent on her reporting here, but if the borrowers already have loans are the small lenders simply transferring their money to the big microfinance agencies to build their lending pools or hedge against defaults from the small borrower?  Was a Kiva lender simply greasing the process?

Reading more doesn’t necessarily make it easier to sort out as you can see below when Strom parses Shah’s effort to defend and other critics’ comments:

“Premal Shah, Kiva’s president, said he could foresee a day when Kiva really did provide person-to-person connection, once some legal hurdles are cleared and when people in the developing world began using their mobile phones to use credit and make payments.

“That’s the future of Kiva,” he said, “when through that disintermediation process you can bring down the costs of these transactions and put them directly in the hands of people.”

For now, however, analysts are raising questions about Kiva’s model, which relies in part on its own data, offers lenders no recourse against default and deploys volunteers to do most of its auditing.

Mr. Ogden goes so far as to question Kiva’s role in the lending process. “Kiva’s new documentation explains, if you read it, that Kiva is a connector not of individual lenders to individual donors, but of individual lenders to microfinance institutions,” he said. “If Kiva’s users want to be connected to an individual borrower, Kiva doesn’t do that, and so the big question is, do Kiva’s users want to be connected to a microfinance institution — in which case, why do they need Kiva?”

Indeed, individual lenders can support microfinance institutions directly through, for example, Microplace, or make donations to support nonprofit groups like the Grameen Foundation and Acción that support microfinance.

Mr. Shah said he thought Kiva’s distinct advantage was in making it easier for small lenders to support microfinance than the other programs.

The difficulty is in engaging the person who wants to lend $25, a mother of three in Des Moines, for instance, “and create a simple way for her to participate in microfinance, which is what we do,” Mr. Shah said.

The question is, does the lender understand that his money may not be supporting the loan he picked on Kiva’s Web site?

The uproar has proven beneficial in an unexpected way. “If anything, it has drawn more people into the nuance and beauty of this model of microfinance,” said Mr. Shah, who joined Kiva from eBay. “It’s highly imperfect, but it’s like a 3 1/2-year-old child: it has a lot of potential.”

He said he had so far seen no impact on Kiva’s business, which set a record with $293,000 lent on the day he was interviewed and celebrated its fourth anniversary last month by announcing it had lent more than $100 million all told.”

And, kill me now if anyone feels better for the future as they read about a future “disintermediation process.”  Communications doctor for Brother Shah, stat!

Maybe Shah is right, and people are ok with moving their money to lenders through Kiva as an intermediary?  I don’t know.

What I do know having spent recent years out there in the world where this work happens is that the unwillingness to really empower direct connections, particularly using community-based organizations where there is huge capacity to do this job, has been frustrating and divisive.  Community organizers in Kenya and the Philippines have often complained to me that they to survive they have seen their roles reduced to being microloan collectors.  Of course the Kiva-type model is sustainable especially if they are not vetting the borrowers but off loading that on to their silent microfinance partners.  Having to sustain a real infrastructure in the field even at a minimal or transactional level is necessary, as even bankers will concede.

In many cases these microloans at best provide survival based informal employment rather than sustainable poverty reduction programs in most cases, and the process of getting and repaying the loans is difficult and involves interest rates that often verge on the predatory.  That’s the facts.

Several years ago I remember a hopeful set of conversations I had with some of the visionary leaders of the Credo/Working Assets team about whether or not some of the Kiva or Prosper type models could be applied on person-to-person work in the USA and elsewhere.  I talked to them about the people ACORN leaders and organizers knew who needed bridge loans at regular rates to staff off foreclosures or in the Katrina case to finish construction and rebuilding in the lower 9^th ward and elsewhere.  I thought we could privilege the base and provide the direct connections.  There was excitement and interest, but the more they talked to the folks around the Bay Area involved with these projects, the more another great idea seemed to wither on the vine.

Now I wonder if they didn’t figure out the real story back then as they looked under the hood?

All of this can be done, but it requires something more like trust and community than just some click and “send” features on computer terminals with microfinance NGO color pictures.  It also requires perhaps a little extra in terms of an actual gift and not just a no interest/low interest loan.

We need to make sure in the rage of debunking that we don’t throw out more babies with more bath water.