Steven Lerner: Collective Bargaining for Homeowners — Heroism or Terrorism?March 25, 2011
Last night, I interviewed the man at the center of a new swirling controversy. Stephen Lerner, a veteran union organizer, wants collective bargaining for homeowners that owe money to the big banks. And this week, he was caught on tape talking about a “mortgage strike” against the big banks. He suggested that a large number of homeowners stop paying their mortgage until the banks agree to negotiate and modify loans.
Glenn Beck pounced on the recording. And so did Congress. Rep. Jason Chaffetz, a Republican Congressman from Utah, sent a letter to Attorney General Eric Holder wrote to the Department of Justice that Lerner’s threats “clearly constitute domestic terrorism”, and asked for an investigation.
I interviewed Lerner, to get his side of the story – his first interview since being attacked by Beck. Lerner talked about the mortgage strike idea, the big banks, the Tea Party and Glenn Beck’s attack, and being accused of terrorism.
“Glenn Beck and this group of people are basically shilling for Wall Street”
Here’s Lerner on the Tea Party’s defense of the big banks:
You know I can’t explain it. Why Glen Beck and this group of people are basically shilling for Wall St. and the big banks it just makes no sense. So I can’t get into their head on why they’re doing it, what it feels like is that Wall St., sort of the elites at the top are just really, really worried that when people understand all the things you said and when people understand on top of it that the banks get free money from the fed—it was very funny in a number of discussions that I’ve had, I say to people well if you got a billion dollars in free money and then loaned it out at 3% would you make any money? Everybody said yeah I’d make money, I’d say well you’re a brilliant banker. So I don’t know why they’re shilling for the banks, I don’t know why they don’t want to make markets work. And that’s the thing that seems to scare them, you can’t have markets when you have Too Big to Fail, you can’t have competition when you have Too Big To Fail and we’re trying to figure out how to keep people in their homes, how to fix state budgets and how to make the economy work and it’s stunning how some people seem more interested in protecting the super rich who have all our money than in supporting people who are trying to fix the economy and get people to work.
“We’re not going to keep paying you as you said when you got this by stealing”
Here’s Lerner, on a “mortgage strike” and homeowners acting like businesspeople:
What you’re getting as is I think the thing that is so important to realize, that’s the deal the bank makes when they loan you money that if you can’t pay it back or if you don’t pay it back they get the house. What I think is so interesting about this is—I don’t know if you remember I think it’s the Mortgage Banker’s Association after giving speeches on the sanctity of never walking away walked away from their own building and gave the keys back. There’s this very double standard I think is what’s really stirring people up more and more in the country. Everybody has sacrificed, everybody has taken a hit and the only people that don’t want to share in the sacrifice are the people that got us in the mess and that’s why a lot of people are saying individually I may not have a lot of power but if we start to act together we can try to negotiate with Wall St. and the banks and saying we need a better deal, not just for me individually but for the country so we can get the economy working again.
“People start throwing out words like terrorism and try to intimidate people into not speaking.
Lerner, on being accused of terrorism by Congressman Jason Chaffetz:
It really shows that something is off when people talking about doing something that’s completely legal that mirrors exactly how business operate that people start throwing out words like terrorism and trying to intimidate people into not speaking. The only thing I can figure on this, you know you started off by talking about how much money the banks have and their influence and their relationship with government is that there is a whole set of people that just seem to say I have to defend the banks and Wall St. no matter what happens. It’s an attempt to sort of scare people and scare regular people and scare homeowners and scare people who are trying to figure out how to put their economic lives back together, to scare them out of standing up. I don’t think it would work but it’s really a disappointment that people go into that kind of sensationalism instead of saying let’s really fix the problem here and keep people in their homes and get the economy working and lets really say we need to address Too Big to Fail instead of trying to intimidate folks that think the economy is a mess because of the banks.
Steven Lerner is a former director of the Service Employees International Union’s banking and finance campaign. He created the website WheresTheNote.com, a website for homeowners to research which financial institution actually holds their mortgage note after Wall Street banks securitized, repackaged, and sold American’s mortgages en masse.
DYLAN: Today, caught on tape! Sort of. An exclusive interview with Steven Lerner, a union organizer whose mere suggestion of organized demands for principle write-downs from the banks has him being dubbed a domestic terrorist. We’ll talk him first and get his side of the story, starting right now.
Welcome to Episode 43 of Radio Free Dylan. Today, a special caught-on-tape episode. Is it truly a liberal conspiracy to bring down the big banks or something nefarious? We will be joined momentarily by a man by the name of Steven Lerner. He is the Former Director of the SEIU’s Banking and Finance Campaign. He created the website WheresTheNote.com, and has been so insane as to suggest that the banks themselves who have been funded with your tax money, who have collected 100 cents on the dollar and in no-strings-attached bank bailout that the Tea Party purports to object to from a few years ago, and yet continued to collect mortgage payments in full from folks whose houses frequently are worth far less than the mortgage that exists.
So if a bank lends money that was not theirs, because they didn’t have it, and is bailed out when it turns out they don’t have any of the money that they were lending by you, the taxpayer, why is it that the homeowner is left on the hook? Why haven’t we seen the principle write-downs that would share the pain between the banks and the homeowners; that would be the rational resolution if you were to reveal or identify a scam, in which banks were lending money they didn’t have to people who couldn’t pay it? Perhaps it’s because the banks supply 40% of all political funding in America and enjoy an extraordinarily special space in this country, in which they are allowed to collect all the compensation they so choose to pay themselves, and have no responsibility to incur the consequences of any of their losses.
Steven Lerner is familiar with this dynamic of banks lending money that they don’t have, being let off the hook, but then leaning on people to maintain their payments even if the bank themselves was incapable of lending the money that was lent in the first place, but for the bail-outs. Steven, why did you decide to really start to look into what was going on in American banking and housing finance in the first place?
STEVEN: I think a lot of people have been stunned, not just that the banks crashed the economy, not just that they got rich doing it, but how at this moment after we bailed them out, they’re using the very crisis that they created to continue squeezing regular Americans. And it’s just maddening I think to a lot of us to see them really holding the country hostage saying, “Well, if you don’t give us tax breaks, we’ll move our jobs abroad; if you don’t do what we want, then we’re going to continue to put the screws to you.” So we started – we keep thinking about these guys got trillions in bailouts, they got a new and better deal, and the whole country is stuck in recession because they won’t write down principle so folks can stay in their homes and we can fix the mortgage market. They have cities trapped in exotic things like interest-rate swaps so public services that cuts, they can create excess interest in it. It’s really the big bang’s Wall Street that is stopping the economy from recovering.
DYLAN: If you were to look at the relationship between the banks and the government, can you find a better example of the unholy alliance between business and state in this country; an unholy alliance that is allowing dysfunctional corrupt businesses to influence the government in order to benefit themselves, and in the process continue to jack the price of food, reduce the number of jobs, destroy the value of the housing stock, and maintain our dependence on something like oil when we could easily adapt to other fuels, if we were forced to bear the burden of the real cost of oil but for the legislative manipulations of those in the unholy alliance? Can you think of a better example about how unholy the alliance between business and state is than the scenario that we see between banks, homeowners, and the government?
STEVEN: I can’t think of anything more unholy, and it feeds off of each other because the richer they get, they more money they have, the more they buy politicians; you have the whole revolving door. One day, you’re in a regulatory agency, the next day you’re at a big bank or down on Wall Street. And what’s extraordinary I think to a lot of us is that nobody on Wall Street has been arrested for any of this. You know, the economy’s lost trillions in wealth, we have JPMorgan, I think the whole scandal on what’s been happening to servicemen and veterans, and it just seems that no matter what happens, the banks become hungrier and continue to do these things more and more, which is why I think people all over the country are starting to stand up and saying, “Wait a second; there’s a double standard.” There’s one standard, which if the banks get in trouble, they say change the rules, bail me out. And then if you’re in your home and you’re about to lose and you say, “Hey, can you modify my mortgage? Can you write down the principles?” The banks say, “Oh no, that’s a contract; we can’t change it.” And it’s set a core to what’s wrong in the economy now, which is this sort of teeny group of the super elite that feel that no rules apply to them, all the wealth should go to them, and then the rest of us should be stuck cleaning up the mess that they made.
DYLAN: The interesting thing and you were caught on tape trying to organize what exactly?
STEVEN: Well, I wouldn’t even say I was caught on tape because what I was saying in this meeting is what I’ve said in lots of meetings publically and whatever’s writing, which is we were raising the idea – we actually inspired, and I don’t know if you’ve ever heard of this guy named Dylan Ratigan, but on February 3rd he wrote something called “They Keep Stealing: Why Do We Keep Paying?” And what people are so frustrated about is for a couple of years now, people have been trying to figure out how do we write down principle, how do we modify mortgages? And the banks, as you know, have – they’ve stopped legislation, they’ve stopped cram-down, they use their political power to interfere with this again and again. And so a lot of mainstream economists, a lot of people have said, “Wait a second; when a business is in trouble, they renegotiate their debt.”
Or if a business – I think it was called Stuyvesant Town, New York, there’s a whole series of things where real estate developers, they were underwater on their properties, so they gave the keys back to the bank and they said give me a better deal or you can have it back. And we said, “If we behaved like rational business people, and said we’re stuck in a bad deal,” a deal, as you said that came out, in many cases, cheating and malfeasance on the bank’s part. If the banks – right now, a lot of people are already on their own sort of spontaneously saying, “Take the keys back; it’s not worth my paying you money that I’m losing everyday when you stuck me in this deal.” And then when we start to talk about what would happen if people did it in an organized way and they said to the banks, “Negotiate with us. Negotiate so we can fix this problem. And if you’re not willing to negotiate with us, then we’ll give you the keys back. We’re not going to keep paying you,” as you said, “when you got this by stealing.”
DYLAN: The other thing I don’t think people understand is that you pay a higher interest rate on your home mortgage than you do, for instance, in your student loan because it has more risk, the risk being that the homeowner might not pay and instead would post the house as the collateral as they indicated they would at the time of the mortgage, whereas with a student loan, there is nothing a student can do to get out of it because the student can’t post their four years of education as collateral.
STEVEN: No, what you’re getting at is, I think, the thing that is just so important to realize. That’s the deal the bank makes when they loan you money, that if you can’t pay it back or if you don’t pay it back, that they get the house. And, I guess, you know what I think is so interesting about this is – I don’t know if you remember that the, I think it’s the Mortgage Bankers Association, after giving speeches on the sanctity of never walking away, walked away from their own building. You know, there was a whole – and gave the keys back. This is a very – this double-standard I think is what’s really stirring people up more and more in the country. Everybody sacrificed, everybody’s taken a hit, and the only people that don’t want to share on the sacrifice are the people who got us in this mess, and that’s why a lot of people are saying, “Individually, I may not have a lot of power, but if we start to act together, we can try to negotiate with Wall Street and the banks in saying, ‘We need a better deal, not just for me individually, but for the country, so we can get the economy working again.’”
DYLAN: The thing that struck me as most interesting about this was that after this sort of came up, that you came under attack specifically by Glenn Beck and the Tea Party crowd. The reason that is so interesting to me having been at the center of the financial crisis in 2008 while I was hosting the closing bell on CNBC and Fast Money on CNBC, was the emergence of the Tea Party in direct rebellion to the corrupt functionality and nature of the bank system, which clearly had overstepped and had gone beyond the bounds of capitalism and had become a vampire that was purely sucking money out of the machine using the leverage of the fact that it’s too big to fail. So halleluiah, here comes the Tea Party, here come the Freedom Fighters, here come the people that really care about American; they’re going to step in, Ron Paul, Karl Denninger, some people that I have a tremendous amount of respect for, are going to come in and they’re going to put an end to the madness where a business can step in there and run itself into the ground, in debt, half the country, and all sorts of nonsense, and then collect all of the compensation from 10 years of chicanery, be bailed out, be propped back up, made bigger than ever, and go forward, and that will not be tolerated, not on the watch of the Tea Party, or let alone Tea Party leaders like Glenn Beck.
These guys are there for the American people, for innovation investment, and honest to God capitalism where the risk resides with the risk-taker and the reward resides with the risk-taker, and the ability to avoid dealing with the consequences of the risks that you’ve taken cannot be tolerated under any version of American patriotism. And yet, when the bank bailout came through and the bank legislation most notably came through, the Tea Party was absolutely nowhere to be found in the need to end to big to fail in the political debate. In fact, they did absolutely nothing in that regard. And then after we watched the Tea Party claim to be in favor of capitalism and claim to be in favor of American justice, marginalized people like Ron Paul, who I actually do believe does advocate for these types of things, marginalized people like Karl Denninger, who I believe does advocate for these types of things, we find that you, when you look to create a scenario in which you can get the leverage necessary to negotiate with a corrupt banking structure. The one that was, again, foundational to the launch of the Tea Party, it is one of the very self-proclaimed leaders of the Tea Party, I believe he gave the keynote at their march on Washington, Glenn Beck, who indicts you and defends the banks. How do you explain that?
STEVEN: You know, I can’t explain it. I mean, why Glenn Beck and this group of people basically are schilling for Wall Street and the big banks, it just makes no sense. So I can’t get into their head on why they’re doing it. What it feels like is that Wall Street, sort of the elites at the top, are just really, really worried that when people understand all the things you said, and when people understand on top of it that the banks get free money from the Feds, so – you know, it was very funny in this – in a number of discussions I’ve had, I’d say to people, “Well, if you got free money, a billion dollars in free money and then loaned it out at 3%, would you make any money?” And everybody said, “Yeah, I’d make money.” I’d say, “Well, you’re a brilliant banker.” So I don’t know why they’re schilling for the banks, I don’t know why they don’t want to make markets work, and that’s the thing that seems to scare them is you can’t have markets when you’re too big to fail, you can’t have competition when you’re too big to fail, and we’re trying to figure out how to keep people in their homes, how to fix state budgets, and how to make the economy work, and it’s stunning how some people seem more interested in protecting the super-rich who have all our money than in supporting who are trying to fix the economy and get people to work.
DYLAN: And it’s even more stunning if they claim to be in favor of fairness and capitalism, and yet when the rubber hits the road, whether it’s bank reform or anything else, they’re nowhere to be found.
STEVEN: I mean, their kneejerk response seems to be to defend the super elite, and I don’t how you have an economy that functions. I think it’s up to 40% of corporate profits are generated by the casino on Wall Street, and unless you somehow reduce the power of Wall Street, or their economic or power, I don’t know how we have a productive economy where there’s a future for our kids and where things work if everything’s based – it’s ironic, I think it’s Warren Buffett who referred to derivatives as financial weapons of mass destruction. These are the guys that destroyed the economy. And I think the thing that is really sticking in people’s goat more and more is they’re now using the disaster that they created to say we should get rid of the minor laws that were passed to try to contain their behavior. It’s like they haven’t learned a lesson – actually, I take that back. They did learn a lesson. They learned that they could crash the economy, get bailed out, and then become even bigger and more powerful. That’s the lesson they learned, and that’s what they’re going to do unless we have a plan to reduce their power.
DYLAN: So let’s talk about your plan for a second. What you’re suggesting is, and I’ve suggested this explicitly, in understanding that when you take out a home loan, you buy a house, that you have entered into a contract, a contract in which you’re being given access to the use of money to buy the house. In exchange for getting use of that money to buy the house, you agree to repay a certain percentage of it each month In the event you are unable or unwilling to live up to your portion of that contract, the bank has the right to take the house away from you, and the bank also has the right to charge you a higher interest rate than loans that you cannot walk away from like student debt, which markets at 3% or 4%, as opposed to housing debt, which markets in a normal economy, if there was such a thing, at the very least lets say 5% to 7% or 8%. That makes sense, and the parallel that is there for the corporate world, you’ve already touched on, corporations renegotiate their debt and do debt restructurings constantly, and it’s in everybody’s interest.
The one thing that strikes me that you could run into in trying to organize a larger group of people around this, is very explicit banking law, unique law that applies explicitly only to banks that effectively makes it illegal to do any form of organizing or work that could directly result, for instance, in a run on the banks. And is there not a risk that a large collection of mortgage holders refusing to pay could run a foul of that law?
STEVEN: It would be a terrific irony because since nobody’s been prosecuted in the massive run of the banks and all the hedge funds and all the deals where people bet against and tripled down on different bets, it would sure be ironic if people interpreted homeowners exerting their right to be causing a run on the bank; that’s not the goal at all. In fact, but going backwards, I think it would be great if people investigated and prosecuted for all the things the banks did that most normal people would consider a form of the run on the bank. I’m not worried about that because what we’re talking about is perfectly legal, it’s perfectly lawful; we’re just saying –
DYLAN: Well, what are you organizing?
STEVEN: Well, I would say it’s not even organizing. It’s an early discussion of saying, “What if a bunch of people all agreed to say to the banks –”. Maybe what people would say is, “We’re going to put our money escrow, even.” But we’re saying we want you to negotiate with us on principle, and we think a lot of us are all going to say at the same time, “Listen, we’re going to sign up, we’re going to say, “You should negotiate with us.” And when we get enough people who are signed on to saying the banks should negotiate, we’d say, “Well now we’ve evened the score a little bit. You’re the biggest, richest guys in the world, but a lot of us have signed up and said we’re ready to potentially walk away. Why don’t you negotiate on reducing the principle?” So what we’re talking about is people making a commitment to each other saying if enough other people agree to it, we’ll demand the banks negotiate and then if they’re not willing to negotiate, then people can take appropriate action and walk away if that’s what makes sense.
But even more than that, what we’re really talking about is encouraging people to make a good business decision because more and more business writers and other people have written, and they’ve written time and time again, that if a business was in the situation of most homeowners, they would walk away. And so what – we’re saying two things. One, we want the banks to negotiate and we want to fix it. But second, we’re saying people should be rational about their financial life. And as you said, the amount of money that people wasting on a home that they’re not going to be able to stay in because they’re stuck in a bad mortgage versus that it may be a good business decision to say, “I’m leaving and I’m going to rent an apartment.” So we’re trying to do two things: help people make a good financial decision for themselves; and second, do it in a way that’s together that maybe we can start fixing the housing problem. And I’d take it a step farther; I don’t know how we fix the economy unless we stabilize the housing market. And we’re not going to stabilize the housing market if we don’t write down principle.
DYLAN: One of the people that agrees with you on that last measure happens to be the largest mortgage bond holder in the world out at PIMCO, Mohamed El-Erian and Bill Gross. They would love, and many others who are mortgage holders, are very open to taking a reduced payment in exchange for a predictable revenue stream. The clear barrier is exclusively not the mortgage bond holders and investors who would like to have a predictable, recoverable, stable revenue stream as opposed to all the potholes that exist right now with all the non-payment, but the barrier is the servicing banks, Wells Fargo, Citigroup, JPMorgan, and Bank of America, who do not own the mortgages on these houses, but own the second equity, the second line of credit, which in the event there’s a principle reduction on the first line, renders the value of their second liens obviously worthless. And that would really create a challenge for those banks to function because right now they are functioning on the lie that those second liens are worth $0.80 on the dollar when a principle write down would suggest those loans are worthless. Have you reached out to any of the mortgage investors who have ironically a similar interest to the mortgage payers of principle write downs?
STEVEN: I mean, I haven’t reached out to them. But as you know, there’s discussions all over about people who, as you said, whether it’s PIMCO, whether it’s pension funds that feel that they were sold a bill of good when they bought secure-ties mortgages, it’s unending how many business people and corporations feel they’ve been jammed by the big banks on this. And I think it’s going to create a very interesting increasing pressure on the banks because more and more people are coming to see that what’s good for a handful of big banks is not good for the country and it’s not good for the economy. I’d even say not good for the world economy.
So I think you have the AG’s investigation going on now, you have in many different states people proposing state legislation. There was just some legislation proposed – introduced in California last week that would fine the banks $20,000 for every house that they foreclose on where they haven’t gone through certain procedures. That more and more people on a local grassroots level are saying, “We’ve got to hold these guys accountable.” We have to look at creative ways, whether it’s local legislation, whether it’s blight legislation, whether it’s AGs investigating, or whether it’s homeowners raising the specter of saying we’re not going to pay if you won’t fix the problem. They’re all pieces of a big puzzle that we need to put together if we’re going to get the economy working and leave ourselves in the hands of these guys who seem to have no end to their greed.
DYLAN: One last question that I want to put to you. Representative Jason Chaffetz wrote a letter to the Department of Justice, Eric Holder, who by the way has offered no prosecutions of any of the frauds or oppressions perpetrated by the banks before 2008 or after, saying that “your threats clearly constitute domestic terrorism.”
STEVEN: I mean, it sort of – it really shows that something is off when people talking about doing something that’s completely legal that mirrors exactly how business operates, that people start throwing out words like terrorism and trying to intimidate people into not speaking. The only thing I can figure on this is – you started off by talking about how much money the banks have and their influence and their relationship with government, is that there’s a whole set of people that just seem to say “I have to defend the banks and Wall Street no matter what happens” and it’s an attempt to scare people and scare regular people and scare homeowners and scare people who are trying to figure out how to put their economic lives back together to scare them out of standing up. And I don’t think it would work, but it’s really a disappointment that people go into that kind of sensationalism instead of saying, “Let’s really fix the problem here and keep people in their homes and get the economy working,” and let’s really say we need to address to big to fail instead of trying to intimidate folks that thinks the economy’s a mess because of the banks.
DYLAN: Steven, a pleasure. Thank you.
STEVEN: Thank you.
DYLAN: Steve Lerner, again, WheresTheNote.com. We’re back right after this. All right, thank you, Steve.
STEVEN: Yep, thank you very much.
DYLAN: Welcome back. The fundamental problem in America right now is this unholy alliance between business and state. Banks are not evil, banks are not bad, banks are simply banks. But when banks’ traditional way of making money is threatened by technology and transparency and all the innovations of the past 10 or 20 years, and the banks, instead of either adapting to a new service model of some kind or adapting to a lower compensation model of some kind, instead exploit the unholy alliance between business and state in order to manipulate either the regulations and/or the subsidies, in this case, from the federal reserve that they get, and the laws that apply to their customers.
We see this over and over and over again, whether it’s in American finance, American healthcare, American energy, American trading, meaning with China and elsewhere, or the military. An unholy alliance forms between those who make the most money from that business, whether it’s the bank or the energy company or whoever, and the politicians who they fund. In the process, ironically, these people, like Glenn Beck and others, hide behind the false rhetoric of the free market while desperately trying to avoid paying the actual consequences of living in a free market, let alone being forced to exhibit the adaptability and innovative spirit required of all of us at this point in time, so that we can adapt to the marketplace, a marketplace in which energy is actually very expensive, a marketplace in which lending can be made very cheap, were it not controlled by the special interests that run it. Same could be said for healthcare.
So the more we can all focus our attention on the unholy alliance in this country that exists between business and state, reward the businesses and encourage the businesses that compete for your dollars through good service and real value, and punish the politicians who cater to the weak and pathetic in the business world who cannot adapt or innovate and so use their dollars to try to legislatively manipulate the environment so that they can survive only to come back out barking and claiming free markets. The sooner we can put an end of the madness that is the trillion dollar problems that plague this country of energy, healthcare, the multi-national trading pirates, military, and the bank system. Those five problems, all in the trillions. You deal with those, and suddenly your million and billion dollar problems seem much more approachable. Thank you for joining us as always on Radio Free Dylan, and we’ll talk to you next time.