It’s been an unpredictable week when it comes to the financial sector, none of which inspire faith from the American consumer.
Detroit Files Bankruptcy
News broke on Thursday that Detroit had officially filed bankruptcy, making it the largest city in history to turn to such drastic measures to handle growing financial problems. A spokesperson cited a “steep” population and declines in tax bases. If the city is given the green light, the assets could be liquidated to repay creditors. Governor Rick Snyder said this is the “only feasible path…for a way out”. He goes on to say that the residents of Detroit both needed and deserved a way out and creditors needed to be able to count on being repaid. These changes, he explained, would allow for a radical restructuring effort as it seeks to rebuild itself.
When creditors weren’t willing to play ball on cuts in the balances of their accounts, Snyder said earlier this year that bankruptcy would be the next alternative. With no plans in place to avert this measure, it came full circle. Even the pension boards and the city’s unions refused to play ball. The decision makers wanted creditors to take pennies on the dollar for their debts.
Yesterday’s filing started the clock on a waiting period of no more than 90 days. The total amount being filed is $18.5 billion. While it may not seem as though this would affect the average consumer, the fact is, there are many cities filing bankruptcy around the country. It’s a growing problem that is bound to affect taxpayers.
Restoring the City
In a press conference on Thursday, Orr assured those in attendance that the bankruptcy route is the “first step toward restoring the city.” He then promised that there would be no changes “from the ordinary citizen’s perspective.” Detroit’s mayor was also in attendance. Dave Bank said he didn’t want it to go as far as it did, but now that they were at that stage, he and his constituents simply had to make the best of it.
IRS and Congress
It didn’t take long for the air to become heavy during testimony by the IRS on Thursday. A veteran IRS employee was called to testify and took the opportunity to explain how officials from a Washington office led by a political appointee intervened in the screening of Tea Party applications. This was the first time an employee with the IRS spoke publicly about whether the higher ups were aware or involved in the controversial and unethical practices.
Leading Inspector General J. Russell George was more than slightly upset, “This is unprecedented,” he said, referring to the way he was treated during his testimony in front of the House Oversight and Government Reform Committee. First, Republicans directed questions regarding targeting tea party members and delaying approvals. Then, the Democrats took over. They too wanted to know how he could ignore signs that liberal groups were also targeted. While it should come as no surprise to anyone, the fact that Democrats and Republicans couldn’t come together as a united front to handle these problems with the IRS. He said, after the hearing,
I have to admit, I am a little concerned that this type of forum could have a chilling effect on the operations of inspectors general.
Massive Student Loan Debacle
Remember the student loan deal that was golden and touted by both Republicans and Democrats? It’s not exactly golden these days; in fact, Dems are saying it’s a temporary fix – and a very short term one, at that – and that higher borrowing costs are part of the bigger picture, courtesy of their Republican counterparts. And now, there are some advocacy groups who are coming around to the same conclusions.
Those who are opposed to the new “once-golden” plan say that higher rates will begin surfacing within a couple of years and it could very easily be higher than the interest rates we pay for car loans. Remember, these lawmakers have known the July 1 date was coming fast and they chose not to do anything. They’ve promised, however, that once a new deal is reached, the lower rate reverts back and it’s retroactive.
This deal that now appears to have soured would have kicked the 3.9 percent interest rate into place almost immediately. That would have made it easier for the retroactive specifics to kick in. Now, though, it’s anyone’s guess. The new information’s surfacing reveals why some have changed course. Turns out, the lower rate would only be good until 2015. There would be a rate cap, but at 8.25 percent, it hardly seems like a protective mechanism.
There’s the Credit Card Debt
While this is important, there are still millions of college graduates who are not only facing student loans that are coming due, a tough job market and no solid future, at least in the short term, but they’re also facing tremendous credit card debt. The new laws didn’t go into effect until 2010 and even now, it’s not impossible for those under the age of 21 to get a credit card, despite those laws.
The stakes are high, no doubt, but it looks as though lawmakers are less inclined to follow their common sense these days.
Instead of making student loans more affordable for both today’s students and tomorrow’s, this deal locks in long-term changes that provide short-term benefits for current students by increasing long-term costs for future students,
said Lauren Asher, president of the Institute for College Access and Success.
To get a clear understanding of just how dire the entire spectacle has become, consider this: on Wednesday, the Consumer Financial Protection Bureau revealed outstanding student debt at $1.2 trillion. That’s a whopping 20 percent increase in just two years. The collective student loan debt is out paced only by mortgage debt.
All of these turbulent goings-on won’t be good for a nation that still struggles to meet the challenges of a recovering economy. At some point, there are going to be hard questions asked that demand solid answers. It’s time for lawmakers to step up to the plate.
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