By
Robert Reich
Thirty
years ago, on its opening day in 1984, Donald Trump stood in a dark topcoat on
the casino floor at Atlantic City’s Trump Plaza, celebrating his new investment
as the finest building in
Atlantic City and possibly the nation.
Last
week, the Trump Plaza folded and the Trump Taj Mahal filed for bankruptcy,
leaving some 1,000 employees without jobs.
Trump,
meanwhile, was on twitter claiming he had “nothing to do with Atlantic City,”
and praising himself for his “great timing” in getting out of the
investment.
In
America, people with lots of money can easily avoid the consequences of bad
bets and big losses by cashing out at the first sign of trouble.
The
laws protect them through limited liability and bankruptcy.
But
workers who move to a place like Atlantic City for a job, invest in a home
there, and build their skills, have no such protection. Jobs vanish, skills are
suddenly irrelevant, and home values plummet.
They’re
stuck with the mess.
Bankruptcy
was designed so people could start over. But these days, the only ones starting
over are big corporations, wealthy moguls, and Wall Street.
After
it emerged from bankruptcy last year and merged with U.S. Airways, America’s
creditors were fully repaid, its shareholders came out richer than they went
in, and its CEO got a severance package valued at $19.9 million.
But
American’s former employees got shafted.
Wall
Street doesn’t worry about failure, either. As you recall, the Street almost
went belly up six years ago after risking hundreds of billions of dollars on
bad bets.
A
generous bailout from the federal government kept the bankers afloat. And since
then, most of the denizens of the Street have come out just fine.
Yet
more than 4 million American families have so far have
lost their homes. They were caught in the downdraft of the Street’s
gambling excesses.
They
had no idea the housing bubble would burst, and didn’t read the fine print in
the mortgages the bankers sold them.
But
they weren’t allowed to declare bankruptcy and try to keep their homes.
When
some members of Congress tried to amend the law to allow homeowners to use
bankruptcy, the financial industry blocked the bill.
There’s
no starting over for millions of people laden with student debt, either.
Student
loan debt has more than doubled since 2006, from $509 billion to $1.3 trillion. It
now accounts for 40 percent of all personal debt – more than credit card debts
and auto loans.
But
the bankruptcy law doesn’t cover student debts. The student loan industry made
sure of that.
If
former students can’t meet their payments, lenders can garnish their paychecks.
(Some borrowers, still behind by the time they retire, have even found chunks
taken out of their Social Security checks.)
The
only way borrowers can reduce their student debt burdens is to prove in a
separate lawsuit that repayment would impose an “undue hardship” on them and
their dependents.
This
is a stricter standard than bankruptcy courts apply to gamblers trying to
reduce their gambling debts.
You
might say those who can’t repay their student debts shouldn’t have borrowed in
the first place. But they had no way of knowing just how bad the jobs market
would become. Some didn’t know the diplomas they received from for-profit
colleges weren’t worth the paper they were written on.
A
better alternative would be to allow former students to use bankruptcy where
the terms of the loans are clearly unreasonable (including double-digit
interest rates, for example), or the loans were made to attend schools whose
graduates have very low rates of employment after graduation.
Economies
are risky. Some industries rise and others implode, like housing. Some places
get richer, and others drop, like Atlantic City. Some people get new jobs that
pay better, many lose their jobs or their wages.
The
basic question is who should bear these risks. As long as the laws shield large
investors while putting the risks on ordinary people, investors will continue
to make big bets that deliver jackpots when they win but create losses for
everyone else.
Average
working people need more fresh starts. Big corporations, banks, and Donald
Trump need fewer.
ROBERT B. REICH, Chancellor’s Professor
of Public Policy at the University of California at Berkeley and Senior Fellow
at the Blum Center for Developing Economies, was Secretary of Labor in the
Clinton administration. Time Magazine named him one of the ten most effective
cabinet secretaries of the twentieth century. He has written thirteen books,
including the best sellers “Aftershock" and “The Work of Nations."
His latest, "Beyond Outrage," is now out in paperback. He is also a
founding editor of the American Prospect magazine and chairman of Common Cause.
His new film, "Inequality for All," is now available on Netflix,
iTunes, DVD, and On Demand.