Saturday, January 17, 2009

Why Citi Turned Around on Mortgage "Cramdowns"/Making the Feds Model Employers


t r u t h o u t | 01.17


Why Citi Turned Around on Mortgage "Cramdowns"

Friday 16 January 2009


by: Robert Reich, Robert Reich's Blog


    The latest data show one out of ten homeowners in the United States is either late in making a mortgage payment or in such serious arrears as to risk foreclosure. Last week, congressional Dems breathed a sigh of relief when Citigroup dropped its opposition to a proposed change in the bankruptcy laws allowing distressed homeowners to do what owners of commercial property and second homes can already do when they can't pay up - use bankruptcy proceedings as a means of working out better deals. (It's called a "cramdown." The practical effect wouldn't be hundreds of thousands of bankruptcy judges striking new deals, as conservative lawmakers predict; the mere option of going into bankruptcy would give homeowners more bargaining leverage with mortgage lenders in striking better deals.)


    As long as Citigroup opposed this measure, it didn't stand a chance. Citi's clout in Washington is legendary. But on January 8, Citigroup's CEO, Vikram Pandit released a statement saying that Citi "believes it will serve as an additional tool to the extensive home retention programs currently in place to help at-risk borrowers." The announcement was greeted with kudos by House and Senate Dems. The bankruptcy provision is now moving, and is likely to be attached to the stimulus bill.


    What happened? Until last Thursday, Citi had been a leader of the Bankruptcy Coalition of the Financial Services Roundtable, an industry group that had staunchly opposed the bill - along with Bank of America, JP Morgan Chase, and Wells Fargo.


    Could it be that Citi's Pandit knew last week that he'd soon need even more help from Congress than the $45 billion bailout the bank already received? Shares of Citigroup had seemed to regain their footing after the bailout. But then, this Monday, all hell broke loose. Citi shares plunged 17 percent, as investors got word of a deal Citi was cooking to sell its valuable Smith Barney brokerage unit to Morgan Stanley. The drop in Citi shares brought the stock back to the lowest level since the government gave Citi its first dollop of bailout funds last November. Citi is losing capital at an astounding rate - nearly $100 million a day in the fourth quarter alone. The firm is expected to report its fifith consecutive quarterly multibillion loss next week.


    Citi has already got the sweetest bailout deal of any big bank, but the probability seems high that it will want more bailout money. This is the easiest explanation for Pandit's turnaround on the cramdown legislation - something the Democratic Congress and distressed homeowners very much want.


    In other words, the Wall Street bailout has had exactly the same effect for Congress that the proposed bankruptcy provision would have for homeowners - it has increased its bargaining power over those who ordinarily pull the strings. The massive tax-payer financed bailout of Wall Street, largely a product of Wall Street's power in Washington, seems to be weakening the Street's ability to veto financial legislation it doesn't like. I'm not sure whether this is something we should be celebrating as a small victory for democracy, or condemning as an extortionate price for reducing Wall Street's grip.


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Making the Feds Model Employers

Obama must put a stop to worker abuse by private contractors

By David Moberg

Features » January 16, 2009

A little over a year ago, roughly 500 workers assembled and sewed backpacks, safety vests and other gear for the military at the Michael Bianco Inc. factory in New Bedford, Mass. According to U.S. Attorney Michael Sullivan, they worked under “deplorable” conditions in a “typical sweatshop,” except that it was operated entirely with federal contract dollars.

Workers nominally made $7.20 an hour, but they typically earned less after Bianco imposed fines—such as $20 for spending more than two minutes in the restroom (where the company limited the toilet paper), $20 for leaving their work for break before the bell rang, and $20 for talking to other workers.

Most workers had no health insurance and were systematically cheated out of time-and-a-half pay for their extensive overtime. Many had to rely on food stamps and other public assistance programs to survive. The Occupational Safety and Health Administration charged the factory with violating safety standards, such as operating with locked fire exits. Workers also accused the owners of inadequately heating workrooms in the winter and not ventilating them in the summer.

Bianco owner Francesco Insolia was sentenced to prison—for hiring roughly 300 undocumented workers—but the company’s new owner raised wages only modestly and made “cosmetic changes,” according to Steve Wishart of UNITE HERE, which is organizing the workers.

In 2002, the federal government directly employed less than 1.8 million civil servants and at the same time indirectly paid for more than 8 million workers through contracts and grants, according to New York University professor Paul Light.

Tom Woodruff, director of the strategic organizing center of the Change to Win labor federation, says that 1 million of those contract workers earn less than $8.20 an hour, and most of those low-wage workers receive no benefits.

Under contract

Many in the labor movement hope President-elect Obama will take executive action early in his tenure to raise the standards and protect the rights of all workers under government contracts. They argue it’s a matter of common decency and smart economic strategy.

Under Bush, contracting out has skyrocketed—growing by 86 percent from 2000 to 2005, according to a study prepared in 2006 by the minority staff of the House Committee on Government Reform for Rep. Henry Waxman (D-Calif.).

Federal laws—such as the 1931 Davis-Bacon Act (covering construction), the 1936 Walsh-Healey Act and the 1965 Service Contract Act—were designed to make sure that such federal contractors paid at least the prevailing wage. But these laws provide wage standards for only a third of federal contract workers. According to a 2000 Economic Policy Institute study, for many occupations covered by the laws, the prevailing wage standard pays below poverty income. And standards are routinely violated and rarely enforced.

In 2007, the Labor Department investigated 659 contractors, and discovered that 80 percent of them violated the Service Contract Act compliance standards. A Wall Street Journal investigation last March found that 40 percent of service contractors did not provide employees the health insurance or cash equivalent the law requires.

Toward the end of Clinton’s presidency, lawmakers and the administration offered proposals to raise standards, including a federal “living wage” for all government contract workers, modeled on the legislation passed by about 140 cities and other local government jurisdictions across the county. In its final month, the Clinton administration amended federal acquisition regulations that required contractors to have a “satisfactory record of integrity and business ethics.” The new rule specified that they must be in “satisfactory compliance with the law, including tax, labor and employment, environmental, antitrust, and consumer protection laws.” It also prohibited contractors from using public funds to promote or deter unionization.

But business groups filed suit, and the Bush administration quickly killed the new requirements.

The high road

While Bush blocked progress at the federal level, at the state and local level, labor and community groups around the country pushed through living wage ordinances, conditions on employment when public money subsidized projects, and sweat-free procurer laws. In many cases, governments set conditions that favored unionization—from prohibiting use of public funds for anti-union activity to favoring contractors who were more likely to guarantee labor peace.

But courts have frequently ruled that federal labor law pre-empts state and local action on many labor regulations. As a result, courts have restricted the scope of non-federal efforts to raise labor standards by encouraging collective bargaining.

At the federal level, President Bush headed in the opposite direction. For example, labor unions in recent years have promoted passage of the Employee Free Choice Act (EFCA), which would penalize employers for unfair labor practices when workers try to organize; recognize workers’ choice of a union when a majority sign membership authorization cards; and provide arbitration of contracts when employers balk at bargaining.

But early in the fall, Bush was preparing to issue an executive order barring any federal contractor from agreeing to union recognition with a majority card check.

Now Change to Win and other union leaders are talking with the Obama transition team about what the new administration could do. Obama has said he supports EFCA, and last summer he wrote a letter supporting organizing efforts by workers at Puerto Rican military supply contractors. So far, union leaders say the transition team seems open to action, but the unions are only asking for relatively limited, if important, changes.

Joseph Geevarghese, Change to Win deputy director of strategic organizing, says the federation is not seeking a broad mandate, covering all contract workers, but “trying to be more surgical in focusing on contracts.”

That could mean targeting new standards to the 25,000 to 30,000 employees of military needle trades suppliers, who are required to be located on U.S. territory. Or it could include other work groups—such as private security guards, hotel workers for private concessionaires in national parks, cafeteria workers or janitors.

“The fundamental challenge at the end of the day is whether President Obama could issue an executive order that says he believes in following the high road, not the low road, for federal contracts,” Geevarghese says. While raising wage and benefit standards might not help unions organize, such action would reduce the downward competitive pressure on unionized employers.

“The economy has been going backwards for workers for 30 years,” says Woodruff. “A big part of getting the economy going is wage growth. … The government’s ability to influence the private sector is huge if it chooses to be a model employer.” In total, companies with private contracts employ a total of 30 million workers.

Woodruff argues that forcing the government contracting divisions to pursue a high road could spill over to the rest of the economy as well.

“The purpose would be to do as much as possible to pay decent wages and benefits, and not interfere with workers’ right to organize,” he says, “They can use the huge footprint of the federal government to get us out of our economic mess in the short term, but it’s also important in the long term.”

UNITE HERE’s Wishart says any new standards should provide for a living wage—not just a prevailing wage. And he wants employer neutrality during organizing, so as to “to make the right to organize a reality”

Laphonza Butler, director of SEIU’s property services division, would like for there to be “some transparency to the system. Right now, there’s no way to tell how many workers there are or where they work.”

Although SEIU has not decided what mandate it would seek for federal security guard contracts, Butler says the union advocates “first, economic security and, second, to provide adequate training. And if that means they have to be in a union, that’s our third priority. Our federal government should be a provider of good jobs.”

The public agrees. In a September survey for Change to Win by Peter D. Hart Research Associates, 86 percent of voters said “companies that consistently violate labor laws should be prevented from receiving federal contracts.” And 71 percent say contracts should be given only to companies that offer good jobs and treat workers fairly. Two-thirds of surveyed voters believed that the president should act change policy to mandate good jobs.

Making the federal government a model employer — directly and indirectly through its contracts—would be a winner morally, economically and politically. To become that model employer, Obama could buttress his stimulus plan and send a message to workers and private businesses with a simple executive decision.

David Moberg, a senior editor of In These Times, has been on the staff of the magazine since it began publishing. Before joining In These Times, he completed his work for a Ph.D. in anthropology at the University of Chicago and worked for Newsweek. Recently he has received fellowships from the John D. and Catherine T. MacArthur Foundation and the Nation Institute for research on the new global economy.

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