If you ever doubted that we are all in this together, the subprime foreclosure crisis surely dashed all denial on this front. Whether homeowner, renter, worker, retiree, family farmer, or small business owner -- everyday people nationwide have been negatively impacted by a housing crisis that drove us all into the ditch. The latest casualty, state budgets, does not bode well for digging ourselves out anytime soon.
According to the Center on Budget Priorities, this economic recession has resulted in the most significant decline in state tax revenues on record. The Center reports that in 2010 nearly 40 states are on track for budget shortfalls. The state budget crisis didn't come out of nowhere. Greedy and unchecked financial institutions tanked our economy, sending tax receipts south. The result is more states cutting services when they are most needed, and increased job losses when we can least afford them.
Don't be surprised if state budget shortfalls become the next populist flashpoint in the U.S. Rising foreclosures and unemployment coupled with service cuts and furloughs will only raise the tension level in an already tense environment. In Iowa, where the shortfall appears to be around $1 billion for 2010, people from across the state have made the connection between their own state budget gap and the banks at the heart of the recession. On Tuesday, January 26, hundreds of Iowans who are members of Iowa Citizens for Community Improvement (CCI) are forcing a Showdown at the Statehouse as they seek to advance a "Put People First" platform.
Putting people first is going to be a challenge as the state debates how to address the budget gap. Steadfast, Iowa CCI members are going to send a clear message to the Governor and the State Legislature: Don't balance this budget on the backs of Iowa's workers, small business owners, and retirees. Instead, balance the budget on the back of the banks that broke the economy and benefited from a historic taxpayer bailout.
In Iowa, the big bank with the biggest presence is Wells Fargo. From 2005-2007 Wells Fargo made more subprime loans and high-cost loans in Des Moines than any other lender in the nation. Wells Fargo Financial, which specializes in debt consolidation loans, auto refinance, home equity, personal, and car loans, is headquartered in Iowa.
In 2006, the last year before the subprime bubble began to burst, Wells Fargo originated or co-issued $74.2 billion worth of subprime loans nationwide, making it one of the top subprime lenders in the country.
Wells Fargo's record as a corporate citizen is spotty -- multiple studies have been released, like this one in The New York Times, document a pattern of racial disparities in Wells Fargo's home mortgage lending, with African-Americans being over 3 times as likely to receive a high-cost loan (essentially 3 percentage points over the Treasury rate) as a white borrower with a similar income.
Wells Fargo also has a history of financing payday lending. Payday lenders are the bottom feeders of an industry well stocked with bottom feeders. They prey on people when they are at their most desperate. In an economy as grim as this one, there is plenty of desperation to prey upon. Payday lenders, including those that Wells Fargo finances, charge interest rates as high as 400%. As a result, the average $300 payday loan ends up costing the borrower $800.
Last week Wells Fargo announced that in 2009 it had its best year ever, breaking previous records with $12.3 billion in net income and total revenue coming in at over $88 billion. Their 2009 bonus pool is said to be in the $26 billion range.
So, after hundreds of Iowans take their message to the Statehouse, they will take their message to Wells Fargo, demanding they do their part to fill state budget shortfalls nationwide, modify loans to keep families in their homes, and invest in small businesses that create jobs.
Iowa CCI points out that the nation's state budget shortfall could be wiped out, if the big banks contributed their total bonus packages (estimated to be about $140 billion) back to the states.
According to a media advisory released by Iowa CCI, "For all intents and purposes, their bonuses are our bonuses because we bailed them out. Now we want our bonuses back!" This sentiment is not unique to Iowans. Conversations I've had with community leaders from across the country point to more statehouse showdowns in which banks will be asked to do their part.