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Changing Bankruptcy Rules and the Sanctity of Contracts
The banks are very upset over the possibility that Congress may change the law to allow bankruptcy judges to rewrite the terms of mortgage loans as they can other loans when a person declares bankruptcy. Naturally they are pulling out all the stops in making their case. The Washington Post quotes a Bush administration spokesperson saying that the proposed change "is interfering with contracts."
This is an interesting charge to come from the Bush administration and to be associated with the banks. Those old enough to remember may recall the bankruptcy reform of 2005. This bill altered the enforcement of loans in the opposite direction, making it easier for lenders to collect from debtors. It was applied to loans that had already been contracted not just future debt yet to be incurred, in that sense, it interfered with contracts.
Clearly, neither the Bush administration nor the banks, both of whom eagerly supported the bankruptcy reform bill, have any principled objection to interfering with contracts. Their objection seems to be based more on whom the interference is favoring. The reporters covering this issue should have provided readers with this background.
--Dean Baker
COMMENTS (8)
hehe...isn't that how we all are? Sticklers for the rules when they favor us.
I'll bet a lot of these bankers would have given you a good lecture about how the market is eventually really good at shaking out bad economic decisions and so the government should not interfere with their new debt instruments.
Posted by: Erik L | February 27, 2008 7:44 AM
This looks bad. Have you seen it? http://www.gao.gov/cghome/d08524cg.pdf
Posted by: Robert | February 27, 2008 10:56 AM
Excellent point although I think you're asking too much of the mainstream media. Maybe a Financial Times columnist or commentator would mention it. Despite Bush's lack of popularity among most of the US population polled, his lame duck status, most if not all of the MSM continues to be pretty uncritical of the Bush Administration.
For instance, that the Bush executive branch has once again made it very clear the laws don't apply to them (deleted e-mails)--yet do you hear any calls for impeachment? Sanctions? Nope. Yet they bayed & ran with the GOP hyenas for Clinton's blood when he "lied."
Posted by: azurite | February 27, 2008 5:32 PM
Somehow with more expertise could corroborate but, Isn't it current accepted practice that, in bankruptcy cases, judicial modification of a loan can be done when the borrower is a corporation?
If so, the change proposed is nothing egregious...at least for people without ideological blinders, which is not the case with the current Administration.
Posted by: Francois | February 27, 2008 5:56 PM
Robert, thanks for the link to the Walker/GAO presentation. It does appear to tell the truth, if not the whole truth, but makes odd leaps that diverge from the facts as presented. What do the facts show? Republicans have dug a massive debt hole, Social Security is in fine shape except that it is the lender for a lot of that (bad?) debt, America consumes too much and is dependent on foreign capital, and the health care system is completely broken. No surprises there.
Posted by: Chase | February 27, 2008 6:16 PM
The greatest shortcoming of the report that Robert linked to is one that Mr. Baker describes on a regular basis. That is government spending on health care grows very quickly as a percent of GDP while Social Security spending remains essentially flat as a percentage of GDP.
This report largely ignores the increases in health care spending by our government and instead focuses on Social Security spending and that ideology places this report at the top of the "Spin Chart" even though it is an official government document.
Posted by: Mark | February 28, 2008 10:18 AM
the Sanctity of Contracts
Can we get in the wayback machine to the first time a health corporation declared bankruptcy to get out of a union contract which was (obviously) signed with guns to their heads?
The shelflife on any (conservatives OR Repubs) AND the word "sanctity" has long since passed.
Posted by: ThresherK | February 28, 2008 2:56 PM
Consumers and banks have begun to feel the effects of the credit crunch. Anyone can fall into financial crisis. Every now and then we hear the continuing issue of the financial crisis due to sub-prime mortgage and housing bubbles. About ten million households declare bankruptcy every year. There are those who point the finger at the payday loan industry, indicating that they are the cause for the amount of bankruptcies occurring. Because of how prominent and popular payday loans have become, they have been receiving a lot of negative responses. This statement is absolutely unfair. It is an unfair judgment considering those who are applying for the loans are adults who are able to make their own financial decisions responsibly. Research by Vanderbilt Law School Assistant Professor Paige Marta Skiba found that applicants who were approved for payday loans were more likely to file bankruptcy than those who did not. This seems to be a silent dispute in the sense that those who are applying for the loans are applying because they need money. Those who are heading towards bankruptcy are the people who are always in need of money because of a tendency to spend hastily and irresponsibly – therefore more likely to apply for more money on a regular basis. Most payday loans have a minimal qualification criterion, which makes them a great target for those that are less credit worthy. The bottom line is it is unfair to make a judgment on the payday loan industry based on an individual’s irresponsible financial usage. Click here to read more on Payday Loans.
Posted by: Lisa O | December 12, 2008 4:21 AM