A Fighting Chance (7 page)

Mother and Daddy came to visit us in Philadelphia soon after the move. Mother sat by herself in the living room, playing the piano and singing for hours at a time. She talked more about when she was a little girl, about growing up out on the prairie, and about when she and Daddy were first married.

My parents visited us two or three more times over the next few months. Each time, I pressed them on when they would move to Philadelphia. Finally Daddy said, “Betsy, we aren’t moving up here. We need to go back to Oklahoma.”

The kids were older now, and I didn’t need as much help as before, but I very much wanted Mother and Daddy close by. We were kin; we were part of each other’s lives. I couldn’t understand why they wouldn’t agree to come, and I wheedled and pleaded and even cried. But Daddy was quiet and calm and immovable. “We need to go back to Oklahoma.”

Bruce and I helped them buy a house in Oklahoma City, which Daddy promptly named “Old Blue” because of its offbeat color. It was just a few blocks from my brother David, and my brother John was a short drive away. A few weeks after they moved, David called me. “Talk to Mother,” he said. “She says she won’t get a new driver’s license.” In a place as spread out as Oklahoma City, that seemed crazy. Besides, she was only seventy-eight.

I called her, but she wouldn’t change her mind. “I’m through driving.”

I remembered Mother behind the wheel of our old Studebaker. When the car stalled at a stoplight, she would put it in neutral, set the brake, pop the hood, grab the huge screwdriver from under the front seat, jump out of the car, hold the screwdriver by the blade, and pound on some part of the engine while she shouted at me to push down on the gas pedal with my hand. She couldn’t name a single part of the engine and didn’t know why this worked, but it was what Daddy told her to do and we always made it home.

Now my mother would never drive again.

Changes were everywhere. Amelia was no longer my buddy. Now a teenage girl with a mane of long, curly hair, she regarded me as a complete pain in the rear—her rear. Bruce played referee, and he blew the whistle on both of us plenty of times. Still, even if she didn’t want my opinion on one single thing, I could see that she was turning into a pretty sensible young woman.

Alex was changing, too. He was still a cranky kid who butted his way through life, but by seventh grade he was taller than I was. He was also whip smart and very funny. We had bought him a rudimentary Texas Instruments computer when he was five, and by now he was a full-fledged computer geek. At his prodding, the four of us—Bruce, Alex, Trover, and I—watched every episode of
Star Trek: The Next Generation
and loved almost every minute of it. Meanwhile, Alex went about the tough business of growing up.

Amelia headed off to college. Alex read stacks of books. For the first time in more than a decade, the knot in my stomach began to ease. Maybe I hadn’t ruined my kids after all. I was making peace with being a Working Mother.

Banking Isn’t Boring

I kept teaching bankruptcy, but the world outside my classroom was changing, too. The numbers of people going bankrupt kept climbing, in good times and bad. By 1990, more than seven hundred thousand families filed for bankruptcy in a single year—the number had more than doubled in the decade since I had started teaching. That shocked me.

Early one spring semester, a student came by. She settled herself in and made some small talk, looking everywhere but at me. Finally, she asked if she could close the door. She wasn’t the first—I knew what was coming.

“My parents are bankrupt.” She started to cry. I pushed a box of tissues across the desk and waited.

They had a small business. It went under, but not until after her parents had cashed out their retirement savings and lost the house.

She gave a strangled sob. I came around the desk and pulled up a chair next to her. I rubbed her forearms and patted her hands. She didn’t care that her parents couldn’t help her with school—she’d been on her own for a while. She cried because the world was imploding for people she loved.

And it spilled out beyond classes. At school, I heard from secretaries and cafeteria workers. I heard from other professors whose children or old friends were in trouble. Sometimes someone would stop me in the mailroom or while I was waiting in line for a sandwich. Most people didn’t ask for help. They just seemed to want me to know. I think they hoped to hear me say, “There are a lot of good people who end up bankrupt.” At least, that’s what I believed, so that’s what I always said.

In the early 1990s, the big banks stepped up their efforts to change the bankruptcy laws.

They got in the fight through an odd twist in an old law. Ever since the days of the Founding Fathers, the United States had had laws in place that made it illegal to lend money at extraordinarily high interest rates, a practice known as usury. Later, during the Great Depression, the United States created more regulations to ensure that banking would be safe and dependable. From that time on, banking became a pretty boring business. Banks weren’t allowed to speculate in crazy, risky ventures. Banks had to keep plenty of money in reserve in case anything went wrong. FDIC insurance promised to protect the deposits entrusted to the banks by their customers. And, since the usury laws put caps on interest rates, the only way for a bank to make a profit was to go to a lot of trouble to make sure that nearly all of their loans would be repaid—in full and on time. Bankers put plenty of safeguards in place so they wouldn’t lend money to people who couldn’t pay them back.

With usury laws and the 1930s banking regulations as a backdrop, banks played a really important role in helping America’s economy grow. They lent the money for families to buy homes, and those monthly payments became a sort of giant savings plan, so that by the time people retired they owned a valuable asset—and a place where they could live without paying rent. Over time, banks financed cars and college educations. They helped small businesses get a start. A handful of larger banks served the biggest corporate clients, giving them access to the money they needed to expand and create jobs. Banking was all about evaluating customers, making sure that they would be able to repay loans, and keeping interest rates competitive with the bank across the street.

It all worked pretty well. Until the 1980s, that is.

At that point, with scant notice and very little public discussion, a momentous event occurred: thanks to a Supreme Court ruling about a century-old banking law and an amendment quietly passed by Congress, the cap on interest rates was effectively eliminated. Suddenly, banking was changed forever. The usury ban for large American banks disappeared, and deregulation became the new watchword. The bigger banks were now unleashed, and they started loading up credit cards with fees and escalating interest rates—tactics that would have been illegal just a few years earlier. Once the banks began to figure out just how lucrative these cards could be, they started juicing their profits by lending money at superhigh interest rates to people who were a lot less likely to repay all those loans. By the 1990s, they were targeting people who were barely hanging on—those with modest or erratic income, those who had lost their jobs and were scrambling. In other words, the banks were targeting people just like the folks who ended up in the bankruptcy courts.

But for all their enticing new opportunities to make big profits, the bankers faced a new problem. As the number of bankruptcy filings continued to skyrocket, the megabanks had to write off more and more bankruptcy losses.

One spring, an executive at Citibank called me. He had read some of my bankruptcy work, and he invited me to come do a day-long seminar to help them think through how to cut their bankruptcy losses.

I took the train from Philadelphia to New York and arrived at the Citibank building in Manhattan just as hundreds of employees were streaming into the building. I was ushered into a brightly lit conference room with about forty men, all outfitted in expensive suits. I pulled out my graphs and charts, the Citibank people pulled out their data, and we got under way.

As we discussed the bank’s bankruptcy numbers, I wasn’t surprised. Most people struggled with debt for a long, long time before they went bankrupt. People didn’t suddenly run up credit card bills on Tuesday and then dash to the bankruptcy courts on Wednesday. People who ended up in bankruptcy court put up lots of red flags ahead of time. My advice to Citibank was pretty simple: If you want to lose less money, stop lending to families who are in financial trouble and can’t afford to take on more high-interest debt.

After finishing my pitch, I heard lots of interested murmurs, and hands went up around the room. But before anyone took the floor, a slightly older man spoke up. He had been quiet, watching the discussion with a faintly bemused smile.

“Professor Warren,” he said firmly.

The room went immediately silent, signaling that the Head Honcho was now speaking.

“We appreciate your presentation. We really do. But we have no interest in cutting back on our lending to these people. They are the ones who provide most of our profits.”

He got up, and the meeting was over. I never heard from Citibank again.

So there it was. The banks were losing money when people filed for bankruptcy, and even though they knew they could cut their losses with a quick credit check on their customers, they didn’t want to stop. In fact, they did the opposite. Even as a family got more and more behind on their bills, the banks made more offers: Consolidate your bills with our new credit card! (At a mere 29 percent interest…) Take a home equity line of credit! (And the bank takes your home if you get too far behind…) Get a second mortgage—and a third!

Why would the big banks do this? Here was the trick: Even with the bankruptcy losses, the banks could make
more
money if they kept giving credit to people who were in trouble. Yes, the banks had to absorb bigger losses when people went bankrupt. But in the meantime, they could make a
lot
more money from all those people on the edge who didn’t file for bankruptcy protection, or at least didn’t file for another year or so. Interest rates and fees were so high that, in the end, the banks came out ahead—way ahead.

Even with profits breaking records every year, the banks weren’t satisfied. They thought of more fees to tack on, more ways to escalate interest rates, and more aggressive ways to market their cards. Credit card vendors started showing up on college campuses, targeting kids with promises that there would be no credit checks and no need for their parents to sign. Children were preapproved. And occasionally even a dog would get his fifteen minutes of fame, when a local newspaper heard about some cute little pooch who had just been offered a credit card.

To pump up their returns even more, the banks tried a new tactic: What if they could persuade the government to limit bankruptcy protections? Sure, a lot of families were broke, but maybe some of them could be pressed to pay just a little more. If they couldn’t file for bankruptcy, maybe more families would decide to move in with their in-laws, or borrow from the neighbors, or hock their wedding rings, or cancel their health insurance—who knows? If several hundred thousand families a year could be squeezed just a little harder, maybe the banks could add yet more profit to their bottom lines.

The bankers might not have said it in so many words, but gradually their strategy emerged: Target families who were already in a little trouble, lend them more money, get them entangled in high fees and astronomical interest rates, and then block the doors to the bankruptcy exit if they really got in over their heads.

If you knew anything about bankruptcy law—and by now I knew a lot—you could see exactly what the big banks were up to. I was just a law school professor, so I didn’t have the power to change anything, but the deep cynicism behind these new tactics infuriated me. For the banks, a change in the bankruptcy laws was just one more opportunity to try to boost profits. For the families—the moms, dads, kids, grandparents, aunts, uncles, and cousins—who would lose their last chance to recover from the financial blow of a layoff or a frightening medical diagnosis, the pain could never be measured.

Bruce and I would walk Trover, and I would start talking about the damage the big banks were doing to families all across the country. One night my voice started rising as I told Bruce how vile I thought this was. Did the banks have any idea how many people were getting hurt?

I chopped the air with my hands. I clenched my teeth. I talked louder and faster, until finally I ran out of words. And then Bruce asked the question that has gnawed at me ever since:

“So what are you going to do about it?”

A Visit to Harvard

In 1992, Harvard Law School invited Bruce and me to come teach for a year.

Jay, Terry, and I had published our bankruptcy findings in a book called
As We Forgive Our Debtors
a few years earlier. It had caused a mild stir, at least in academic circles, and snagged a national prize. Jay and I were now working on the second edition of a textbook we’d written on bankruptcy law, and another professor, Lynn LoPucki, and I were writing a book on secured financing. I also had a new study on business bankruptcies in the works and another on families in financial trouble. And I had won four awards for outstanding teaching. I loved what I was doing, and I wasn’t looking for a change.

But Bruce thought that a year in Massachusetts sounded like fun, and we could be near his family. Alex thought this was his big chance to see a Celtics game live. And besides, who could resist trying out Harvard for a while? After all, I’d never even seen the place. So I said sure.

By now Amelia was off at college, and Aunt Bee said she and Bonnie the cocker spaniel would rather spend the year back in Oklahoma with Mother and Daddy. So Bruce, Alex, Trover, and I headed off to Cambridge, Massachusetts. Once again, Bruce and I agreed to undertake one of those year-long job tryouts—but this time we had good jobs waiting for us in the same city, back at Penn, so there was no nail-biting. This was more of a fun adventure. Amelia missed most of it, but Alex took the opportunity to reinvent himself at a new high school as a football player and stage crew handyman. Trover was getting old, but she was still eager to chase the ball every afternoon.