The inability of Americans to discharge student loan debt in bankruptcy proceedings creates a system of indebtedness like the one that existed during the era of Charles Dickens, when people who couldn’t afford to pay their debts were routinely tossed into prisons, a top Democratic senator declared this week.

Illinois Sen. Dick Durbin (D) has introduced legislation that would make it easier to discharge private student debt in bankruptcy proceedings, much as people are able to do with debt from mortgages, credit cards, and other loans. But even as Americans are collectively swimming in nearly a trillion dollars of student debt — $150 billion of which is owed to private lenders — the legislation has gone nowhere, leaving them crushed by debt they often can’t repay, Durbin said:

How can it be that the deck is so stacked against students who borrowed to go through school? How can “certainty of hopelessness” be the standard for borrowers to obtain any relief in bankruptcy court. This harkens back to the debtors prisons of Europe and England. Charles Dickens would have a ball with this standard.

Congress needs to address this issue. Right now there is $150 billion in outstanding private student loan debt that is crushing many borrowers -– $150 billion. I have a bill, the Fairness for Struggling Students Act, that would once again permit private student loans to be discharged in bankruptcy as they were before 2005. Mark my words, there is no good reason why private student loans should be treated differently in bankruptcy from any other type of private unsecured debt.

Nearly every other type of debt is easily discharged in bankruptcy, but student loan debt, particularly that which is acquired through private lenders and for-profit colleges, is not, even as the total amount of student debt held by Americans has ballooned in recent decades. Undoing those restrictions as Durbin suggests would do away with what The Roosevelt Institute’s Mike Konczal called “a giant subsidy to private agents” who lend to students.

The growth in debt has had severe effects on the nation’s economy, and those effects could pose an even bigger risk in the future. The growth in student debt has held back the housing recovery since the Great Recession, and a growing number of America’s elderly are being crushed by debt they took on to help family members attend college. The securitization of student loans by big banks has made it possible that loans could be the next “debt bomb” facing the economy, similar in structure (if not in size) to the mortgage bubble that burst before the recession.

Given that 80 percent of bankruptcy lawyers have reported a “substantial increase” in clients struggling with student debt, Durbin’s legislation to undo bankruptcy restrictions could reduce the threat posed by the growing mass of student debt Americans hold. (HT: Kay Steiger)

During the buildup of the housing bubble, one subprime lender stood above all others: Countrywide, which issued $97 billion of subprime loans, nearly $17 billion more than the next largest lender. The bank blew itself up via these loans, and was bought by Bank of America in early 2008.

The $40 billion in losses and thousands of foreclosures caused by Countrywide don’t bother former CEO Angelo Mozilo though, who said that his bank was a “world class company” and that he has “no regrets”:

Mozilo, who led the lender blamed by lawmakers and regulators for contributing to the housing collapse, spoke in a June 2011 deposition as part of a lawsuit between his firm, which was bought by Bank of America Corp. (BAC), and MBIA Inc. (MBI), according to documents filed this week in New York. [...]

Mozilo was responding to questions from an MBIA attorney who asked if he regretted how Calabasas, California-based Countrywide was run after “all the foreclosures and ruined lives and lawsuits.” Mozilo called the lawyer’s question “nonsensical and insulting.”

“I have no regrets about how Countrywide was run,” Mozilo said. “We were a world-class company in every respect.”

Mozilo once called homeowners looking for relief on their mortgages “disgusting” and “outrageous.” Countrywide was also notorious for using VIP loans to secure favorable public policy.

The Justice Department this week announced that it will settle with mega-bank HSBC over charges that the bank facilitated money laundering by drug cartels and terrorist organizations. The bank will pay $1.9 billion as part of the settlement.

The New York Times reported that prosecutors were hesitant to do more because “criminal charges could jeopardize one of the world’s largest banks and ultimately destabilize the global financial system.” In a statement released yesterday, Sen. Chuck Grassley (R-IA) blasted the settlement as a “get-out-of-jail-free card” for the bank:

The Department has not prosecuted a single employee of HSBC—no executives, no directors, no AML compliance staff members, no one. By allowing these individuals to walk away without any real punishment, the Department is declaring that crime actually does pay. Functionally, HSBC has quite literally purchased a get-out-of-jail-free card for its employees for the price of $1.92 billion dollars.

There is no doubt that the Department has “missed a rare chance to send an unmistakable signal about the threat posed by financial institutions willing to assist drug lords and terror groups in moving their money.” One international banking expert went as far as to argue that, despite the “astonishing amount of criminal behavior” from HSBC employees, the DPA is no more than a “parking ticket.”

A former banking regulator added that it is “mind-boggling” how the Department believes that “you can have a financial system and allow this kind of impunity.” Future bank employees with a choice between following the law or profiting from illegal activities will have been taught the lesson that they will never face prison time for their actions. Consequently, this DPA does little to discourage future lawbreakers, and leaves the U.S. financial system highly vulnerable to exploitation by drug cartels and terrorists.

Grassley has consistently opposed settlements that let big banks avoid public accountability. When a judge rejected a settlement between Citigroup and federal regulators, Grassley said, “Judge Rakoff is right to ask for information. The SEC needs to provide a clear rationale for the enforcement penalties in this case and in others. Otherwise, the public is in the dark about whether the settlements are adequate and the court’s role is reduced to a rubber stamp. A settle and slap-on-the-wrist approach has not and will not deter the defrauding of investors.”

Prosecutions for financial fraud hit a 20-year low in 2011.

There have been lots of ideas kicked around for inclusion in a deal that would avert the so-called “fiscal cliff,” the tax increases and spending cuts scheduled for year’s end. But Democratic Sen. Carl Levin (MI) wants one more item placed onto the table — corporate tax revenue:

Sen. Carl Levin (D-Mich.) pushed Friday for including tens of billions of dollars in additional revenues from corporations into any year-end tax-and-spending deal. [...]

On the Friday call, Levin said that he wanted the elimination of corporate tax breaks to be an immediate revenue-raiser in a deal, or that a commitment to end those incentives be part of a broader, long-term deal.

The Michigan Democrat also said that wringing some $200 billion to $300 billion out of corporations would be sufficient in a broader deal.

Corporate tax revenue is currently below its historic average, even though corporate profits are at an all-time high. The corporate income tax used to track reasonably well with the rise and fall of corporate profits, but has become decoupled in the last few decades due to the proliferation of credits, deductions, and loopholes, and the growing use of offshore tax havens, as this chart shows:

Last year, the effective tax rate paid by American corporations fell to 12.1 percent, a forty-year low.

Our guest blogger is Amy Sinden, a member scholar at the Center for Progressive Reform and professor at the Temple University Beasley School of Law.

“Election over, administration unleashes new rules,” trumpeted an Associated Press story this week.

What are these newly unleashed rules? Perhaps the big food safety rules that have been stalled for more than a year have gone through? Rules limiting greenhouse gas emissions from new and existing power plants? Long-awaited rules to protect coal miners’ safety?

Not quite. In fact, the AP strained to come up with just tiny examples: “[T]he Environmental Protection Agency has proposed rules to update water quality guidelines for beaches and other recreational waters and deal with runoff from logging roads.”

The recreational waters standard was a welcome development, but not particularly consequential or abrupt. EPA was required by law to issue the recreational water standards by 2005; it has issued them now only after being ordered by a court to do so. And as the agency explained in its press release, “The criteria released today do not impose any new requirements; instead, they are a tool that states can choose to use in setting their own standards.”

As for the rule earlier this month on runoff from logging roads, it’s not what you might imagine: it says that EPA will not be regulating pollution from logging roads. That regulation was issued in an incredibly short period of time; it took only three months from the agency proposing a rule to issuing its final “rule.” If only the Administration were so aggressive with protective rules.

The AP next points to the National Highway Traffic Safety Administration’s proposal to require event data recorders (black boxes) in cars. Also a welcome requirement, but again not evidence of the regulatory deluge that conservatives quoted in the article bemoan. In reality, 96 percent of new cars already have the devices, and the auto industry is not opposing the requirement.

In truth, the administration has made little apparent progress on environmental, health and safety since the election. Given that the administration essentially stopped regulating for a period of months in the run-up to Election Day, we might have expected more activity. Some progress is possible later today, when the EPA is under court order to finally issue a rule on soot pollution. But a host of key rules still hang in the balance.

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When the nonpartisan Congressional Research Service issued a report that found high-income tax cuts have little impact on economic growth, Republicans attempted to spike it. The CRS ultimately pulled the report, but after revising some language, clarifying its methodology, and adding more citations, CRS re-issued the report Thursday.

The new report’s findings, unsurprisingly, are the exact same. Lowering income tax rates and the rate on capital gains investment income hasn’t helped economic growth, but it has resulted in more income inequality:

The results of the analysis in this report suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top statutory tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie. But as a small proportion of taxpayers are affected by changes in the top statutory tax rates, this finding is not unexpected.

However, the top tax rate reductions appear to be correlated with the increasing concentration of income at the top of the income distribution.

Both the Congressional Budget Office and International Monetary Fund have issued reports that come to similar conclusions. And as these charts from Michael Linden, the director of tax and budget policy at the Center for American Progress show, neither the general supply-side policies favored by Republicans nor the tax cuts for the rich conservatives say are necessary actually lead to faster economic growth:

Since the passage of the Dodd-Frank financial reform law, lobbyists for Wall Street banks have been trying to gum up the implementation of many of its rules. Particular ire has been reserved for the Volcker Rule, which is meant to rein in the sort of risky trading that contributed to the financial crisis.

While the biggest banks may kvetch about the Volcker Rule, the vast majority of the nation’s banks won’t be affected by it, as a new report from Public Citizen finds:

There are 7,181 federally insured banks in the United States. After a new rule is implemented to prohibit banks from making risky trades, the business activities of 7,175 of these banks will remain essentially unchanged. The Volcker Rule, among the most controversial aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act, will prohibit federally insured banks from engaging in proprietary trading, which involves speculation through short-term trades in stocks, derivatives and other securities.

The financial crash, borne of reckless banking practices, cost the economy about $12 trillion, give or take. But Wall Street lobbyists have succeeded in elevating concerns over the relatively minuscule costs of the Volcker Rule to a paramount position in the debate over how regulations should be crafted to implement it. In reality, the Volcker Rule will mean no change, no closure of business divisions, no costs from foregone financial activity, for more than 99.9 percent of banks.

The rule will, according to an estimate by Standard & Poors, reduce profits at the eight largest banks by a combined $10 billion. However, that’s out of a combined $63 billion in profits last year. And S&P also notes that those same banks would be made safer and more stable by the rule. A study by economists Arnoud Boot at the University of Amsterdam and Lev Ratnovski at the International Monetary Fund found that something like the Volcker Rule is necessary to prevent big banks from threatening the whole economy.