What do Wall Street titans have in common with Ada Noda, an 80 year-old grandmother? They have all found themselves deeply in debt and desperate for a way out. From her mobile home in St. Augustine, Fla., Noda told NEWSWEEK, "My outflow was more than my intake."
According to Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and President Bush, that's pretty much what's happening to several major financial institutions in the current economic crisis. In the last month, the government has brokered three bailouts (Fannie Mae, Freddie Mac, AIG) totaling nearly $400 billion. In Washington and on Wall Street, there are dire warnings that more corporate failures await. While a solution is debated, the front-running fix is Paulson's original $700 billion bailout. Taxpayer funded, it's designed to steady the markets by strengthening ailing companies.
Noda's options were fewer, far less complex—and didn't include an emergency influx of cash. A child of the Depression, she learned from her parents how to live on a tight budget but had a difficult time after double-bypass surgery stopped her from working on the housekeeping staff at a local hospital. Though she'd worked all her life—into her mid-70s—her $968-a-month Social Security check couldn't cover her bills—especially the new medical debt. By 2005, She'd run up $8,000 in credit-card debt and had her car repossessed.
The following year, she had to do something that horrified her: she declared bankruptcy. She's not alone. In the 12-month period ending June 30, 2008, 934,009 American consumers filed for bankruptcy. That's 28 percent more than 727,167 bankruptcies filed in the preceding year. "It was a last resort for me," she said, but said she understands why it was necessary and feels grateful for the chance to start again, with debts forgiven. "I don't have any credit cards now, and I don't want any. I keep a ledger of what I spend and I make the bills out ahead of time because I know what to pay."
It disturbs Noda that Wall Street isn't following her path—and instead is asking for what could be the mother of all credit cards. "The corporate people that are getting all the big bucks—they should investigate them and see who's to blame before they bail out anybody," she said.
So far, 166 economists, critics from both parties and the majority of the nation (55 percent, according to a Los Angeles Times/Bloomberg poll), agree with her. "The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise," the economists' letter to Congress said. Former labor secretary Robert Reich argued "the process should resemble Chapter 11 under bankruptcy." Even GOP stalwart Newt Gingrich has been making the rounds to assail the bailout, calling it a power grab that is "outside the law," and one that will lead to large-scale corruption.
Noda says there are already criminals who need punishing in the financial fiasco: "Get rid of the CEOs and prosecute them—get rid of all these people getting the big bonus," she said. "All these other Enron people who did something—they prosecuted them and they went to jail. If you or I did something wrong we'd go to jail."
Noda may get her wish. The FBI is already investigating three failed banks suspected of mortgage fraud: Countrywide Financial Corp., IndyMac Bancorp Inc. and New Century Financial Corp., but this week expanded the probe to other firms whose financial fumblings hurt the economy: mortgage giants Fannie Mae and Freddie Mac, insurer American International Group Inc. and investment bank Lehman Brothers.
Whatever the punishment may be, Noda says the best thing to do is take your lumps and move on. Fending off creditors ("they'd just torment me to no end") and facing bankruptcy was stressful for the octogenarian, but she got through it and says she is doing fine on infinitesimally less than a CEO payout. She shops at thrift stores—"I'm not proud, honey"—and gets by on her Social Security check. "I can manage. If I don't have the money, I don't spend it. I live in a mobile home with my dog and my cat, and I just thank God every day I can get up and take care of myself."
Despite her limited means, she's even willing to lend a hand to the stumbling financial behemoths that are asking to take even more from her: "I would tell them they need to learn how to budget and do better book work. Tell them come look at my ledger, and I'll show 'em how."
Editor's note: Ada Noda was able to file for bankruptcy with the help of the Legal Aid Society office in Saint Augustine, Fla. If you have limited income and need legal help (or if someone you know does) you can find your local Legal Aid office with the this map.