A Fighting Chance (13 page)

After the show, Dr. Phil sent someone to fetch me back to his office. Phil said he liked
The Two-Income Trap,
and he thought the argument was right: hardworking people really were getting hammered. I smiled. But the compliments about the book stopped after about five seconds. He didn’t quite come out and say it, but he made it clear that he thought the book was for policy wonks, and he doubted that it would do much to help regular people fix their financial problems. So much for my smile.

Then he gave me some advice: Write another book, and this time write it for people who can use it.

So I did.

The Rules of the Game Have Changed

Amelia and I set to work right away. Life intervened, of course—and so did death. In 2003, Jim Warren developed lung cancer; within months he was gone. He was only fifty-eight. I hadn’t seen him more than a dozen or so times in the many years since our divorce, but I felt truly awful that he had died so young. For Amelia and Alex, the loss of their father hit hard.

Much happier news came the next year, when Amelia announced that another baby was on the way. That motivated both of us to get cracking on the new book, and we completed a draft ahead of Amelia’s due date.

All Your Worth
was a pretty cheery book, full of optimistic advice about how to take charge of your finances and secure your future. But, truth be told, it was born from a fairly dark place. Families were still falling off the financial cliff, and Washington seemed hell-bent on serving the rich and powerful. As far as I could tell, nothing much was going to change that.

Our first book together had described many things Washington could do to strengthen the middle class. But
All Your Worth
started with a very different premise: In a world where no help is coming from Washington, what can you do to protect yourself? A generation ago, people who worked hard and played by the rules usually came out okay, as long as they didn’t go too crazy with spending. That just wasn’t true anymore. Now the rules of the game had changed, and people needed to learn these rules—and fast—so they could protect themselves and their families. The way I saw it, hardworking people were scrambling just to survive, and a giant credit industry had drawn a bull’s-eye on the back of every struggling family. I wanted to show them how to stay low, fight smarter, and take care of their families.

To that end, we created a formula to help people budget their “Must-Have” expenditures (mortgage, child care, utilities, and the like), their “Wants” (an extra pair of sneakers, a latte at Starbucks, or a vacation), and their “Savings.” We called this strategy “financial balance.” We didn’t push people to go on a starvation budget that left no room for fun—life is just too short! Instead, we helped people evaluate whether they were on a sustainable financial path and offered strategies for managing some significant downsizing if they weren’t. We also argued that anyone with a debt problem should cut up their credit cards and pay with good old-fashioned cash. I had seen the giant banks in action, and I knew how dangerous debt could be. I hoped this book would help at least a few people get out of debt once and for all.

The book didn’t turn me into the next Suze Orman. But I loved writing it, and I still get an occasional letter from someone who says the book made a real difference.

Up to this point in my life, I have always relied upon the BOMD [Bank of Mom and Dad]. I not only used my parents as a source of money, but I more importantly also used them as an excuse to continuously ignore my own financial situation.… [Now] I feel empowered.

This month we were able to make our loan payment four days early and we have money left over each month to pay our credit card debt off more quickly.

[Achieving financial balance] won’t happen overnight and that’s probably the hardest thing to accept, but it will happen.

The people who wrote me sometimes told tragic stories, but most of their letters showed determination and threw off sparks of optimism.

All Your Worth
hit the bookstores in March 2005, just before the arrival of a beautiful little sprite Amelia and Sushil named Lavinia. This new addition to our family was a cuddler, and I put the California rocking chair to good use. Sometimes, late at night, when the house was quiet, I’d scoop Lavinia out of her crib and hold her. We’d rock back and forth in the dark—not because she needed it, but because I did.

We got more good news that year when Harvard offered Bruce a professorship. He loved Penn, but it was time to stop commuting and at last come home to Massachusetts. By now we were thoroughly settled in our home a few blocks from the law school, close enough that Bruce, Faith, and I could walk there every day, even in the blizzards.

And my work at Harvard? I kept launching new research projects and publishing papers in academic journals, but my energy was now spilling in lots of different directions. I didn’t know if
All Your Worth
would spur any big changes, but at least I’d found another way to help more people.

We Lost

In the late spring of 2005, the families who needed help from strong bankruptcy laws finally ran out of luck. The House and the Senate passed the industry-backed bankruptcy bill by lopsided majorities, and President Bush signed it into law.

A few months before the vote, Faith, who had been a gift from my students so many years earlier, died. After that I said to Bruce, “No more dogs. It hurts too much when they die.” Bruce hugged me and didn’t say much. But that summer, he came home with Otis, a golden retriever puppy with huge feet whose first act was to stagger into the house, find an air-conditioning vent, and flop down on top of it. Otis was born ready for a nap.

Okay, so Bruce was getting a dog. I announced that I was fine with this, but I would
not
fall in love. (Yeah, right.)

The changes to the bankruptcy law were set to go into effect in the fall of 2005. That year, more than two million families raced to the bankruptcy courthouse, afraid they would lose their last, best chance at protection. Sure enough, the minute the amendments to the law kicked in, bankruptcy filings dropped sharply. And the credit industry got what it wanted—less help for families in trouble.

No single change made the difference. Instead, it was death by a thousand cuts. The law got more complicated. The paperwork multiplied. Single mothers got less help, and they had a harder time collecting past due child support. Filing fees went up. Some people were still eligible for relief, some people weren’t. Some debts could be discharged, some could not. Some lawyers quit the practice of bankruptcy altogether, and those who stayed in the business often charged more—sometimes a lot more—to navigate the more complex law. There were hundreds of changes, some big and some small, but every change tilted in the same direction: Squeeze the families in trouble and increase the profits for big banks, credit card companies, car lenders, and a slew of other very successful businesses.

The banks also won an important public relations coup. After the changes to the law went into effect, a lot of people thought bankruptcy protection had been eliminated altogether. Many families figured there wasn’t any help for them, no matter how much trouble they were in. Debt collectors advanced this notion, telling people that bankruptcy was now “illegal” or that they would be audited by the IRS if they tried to use bankruptcy to clear their debts. It was a lie, but to someone who wasn’t an expert in the law and who was getting harassed by debt collectors, it probably sounded like the truth.

So what happened to the hundreds of thousands of people who might have filed bankruptcy each year but didn’t? No one knows for sure. Some may have regained their footing, although with their huge debts it’s hard to see how. Some pulled the belt even tighter, gave up health insurance, or stopped taking their kids to the doctor. Some disconnected their phones in a desperate attempt to avoid harassing calls from debt collectors. Some people moved to the underground economy, working for cash so their wages couldn’t be garnished. Some missed the chance to catch up on mortgage payments and lost their homes. Some gave up their dream of getting a college degree. Some single mothers lost hope of receiving their past due child support from their bankrupt ex-husbands and moved in with family or fell into bankruptcy themselves. And some people shut down their small business, because without a fresh start the business no longer had a chance to survive.

On good days, I reminded myself that our fight to protect America’s middle class had held off the banking industry for nearly a decade. From the day President Clinton appointed Mike Synar to launch the National Bankruptcy Review Commission to the final passage of the bill, millions of families had gotten some relief from their debts. On bad days, I admitted that right from the beginning, the game was so rigged that working families never had a fighting chance. The big banks would eventually win. They simply had too much power.

Even with help from great senators like Ted Kennedy, Dick Durbin, Chuck Schumer, Russ Feingold, and Paul Wellstone, we didn’t win. Even with careful research and numerous studies showing the damage being done to America’s families, we didn’t win. Even with the AARP, the NAACP, and dozens of other great organizations on our side, we didn’t win. Even in a democracy, with millions of people pushed to the breaking point, we didn’t win. We didn’t win? Heck, we didn’t even come close. In the end, the vote in favor of the industry-supported bill was 74–25 in the Senate and 302–126 in the House.

David really did get the slingshot shoved down his throat sideways. It hurt then, and it still hurts now.

The bankruptcy wars changed me forever. Even before this grinding battle, I had begun to understand the terrible squeeze on the middle class. But it was this fight that showed me how badly the playing field was tilted and taught me that the squeeze wasn’t accidental.

We had lost the bankruptcy battle, but this war wasn’t over. People were getting pounded, debts were mounting, and the squeeze was getting more intense than ever.

I spent the next few years looking for more ways to fight back. I joined forces with several professors and we launched another study, this one designed to gauge the impact of the change in the bankruptcy law. (The news was bad.) I updated all of the research from
The Two-Income Trap
. (The news was worse.) This time I had to work the data without Amelia, who had headed off to start another new business and was busier than ever taking care of her two little girls. I helped out on some big lawsuits, and I eventually got to go to the US Supreme Court (as second chair—not the one who actually stands up and speaks to the Justices) on a case to try to get more money for asbestos victims. I wrote more about the crumbling foundations of America’s middle class. I started blogging, posting my own pieces and inviting my students to get involved. I joined a commission set up by FDIC chairman Sheila Bair that was dedicated to helping low-income families gain access to more affordable banking services.

The hard part was figuring out what might actually have some impact. I was restless—restless and anxious. I could see warning signs of a coming catastrophe everywhere, but I couldn’t stop it.

3 | Bailing Out the Wrong People

I
T WAS EARLY
evening on Thursday, November 13, 2008, and the financial crisis was battering the country like a storm whose winds gathered strength every day. No one was sure what wreckage might wash up next.

In about ten minutes, thirty or so hungry law students were going to show up on our doorstep, ready for an informal discussion over dinner about what life after law school might look like. The doorbell rang, and I let in a delivery guy who was juggling several aluminum pans of barbecue. I’d already made four trays of peach cobbler, and the iced tea was steeping. Otis, now a glorious one hundred pounds, had just settled down for yet another nap when the doorbell roused him and the smell of the barbecue gave him a newfound energy. He was slobbering and running in circles around the delivery guy, who was a little uneasy about the oversize dog. I was trying to write a check and get the fellow on his way when the phone rang. My caller was a soft-spoken man who identified himself as “Harry Reid.”

I could barely hear him. “Who?” I asked.

“Um, Harry Reid.” Pause. “Majority leader, US Senate.”

“Oh.” (Great start!)

Senator Reid got right to the point—no “how are you,” no small talk. The country was in a crisis, and he wanted me to come to Washington to help provide some oversight of the Treasury Department’s handling of the bank bailout. I didn’t know what that meant or what I could do, but everyone I knew was scared about what was happening to the economy and to the nation. I don’t think I’d ever met Senator Reid, and I really didn’t know why he believed that I was the right person for this job. But if he was calling, it meant he thought I could help. So I said yes. No questions, no negotiations. Just yes.

It had been thirteen years since Mike Synar had called and asked me to help him with the National Bankruptcy Review Commission, and it had been three years since Congress had ripped gaping holes in the bankruptcy safety net. My time in Washington had left me fed up with the whole place. But this was an emergency. The financial system had melted down, and millions of middle-class families were getting crushed, so if Senator Reid asked me to help by mopping the floors or licking envelopes, I would say yes. Besides, I thought that in an emergency, surely people in Washington would dial back on political maneuvering and focus on finding ways to help struggling people. So if Senator Reid thought I could make a difference, it was time for me to go back to Washington.

As soon as the barbecue was eaten and the last student had left, I called Bruce. He was out of town at a conference with a bunch of other history professors. Otis was sprawled across the floor, his belly bulging from the bits of meat and cornbread that the students had slipped his way. I put on my telephone headset and my long white apron and cleaned up the dishes while we talked.