Getting Back To What Got Us Here

On Thursday, the Senate defeated amendment (Amdt. 1014) to the Helping Families Save Their Homes Act of 2009 (S.896). The amendment proposed by Sen. Dick Durbin, IL, provided a mechanism for troubled homeowners to avoid foreclosure. Specifically, before a homeowner entered bankruptcy, they would first have to meet with the lender and give the lender the opportunity to offer a loan modification, such that the homeowner's debt/income ratio would be reduced to 31% or less. If the homeowner refused, the bankruptcy court would not be allowed to modify the loan. If the lender refused to offer a workout, the bankruptcy court would have the power to make the aforementioned modifications to the loan terms. In other words, the banks would be forced to offer legitimate workout plans that reduce principal, as opposed to the current, farcical loan modifications that we've seen consistently fail.

The amendment was defeated 45/51 with 3 abstentions, primarily due to intense lobbying by the American Banker's Association, the US Chamber of Commerce, and the Financial Services Roundtable. Per Bloomberg, Sen. Durbin responded:
"These bankers who brought us into this crisis are literally shunning and stiff-arming the people who are facing foreclosure,” said Senator Richard Durbin of Illinois, sponsor of the legislation and the chamber’s second-ranking Democrat.........Democrats led by Durbin had sought a compromise on the measure with JPMorgan Chase & Co., Wells Fargo & Co., Bank of America Corp., the American Bankers Association and Financial Services Roundtable. The lenders that scuttled the negotiations are “surviving today because of taxpayers’ dollars,” Durbin said. The three banks he named received $95 billion in U.S. aid.
The financial industry rationalized its position by claiming that Durbin's measure would destabilize the housing market. This logic makes little sense, because it's hard to envision anything more destabilizing to the housing market than a wave of foreclosures. The real goal of the banking industry is to make bankruptcy as unappealing as possible to troubled debtors, as demonstrated by the uber-sleazy Bankruptcy Reform of 2005.
Diana Olick of CNBC made a telling statement:
One insider very close to the process on the Hill tells me, "If you asked me four months ago, I would have said cram down was a lock."
Four months ago, bailouts were a fairly novel stench and the public was starting to realize that the financial industry controlled much of the government. Obama and Congress performed an impressive charade by publicly lambasting bank CEOs and the SEC, but Mario Cuomo is the only official to actually attempt to strike blood. Banksters even delayed making the campaign contributions, which are the fuel of our present democratic circumvention. As I've said before, this economic crisis was bought and paid for with campaign contributions. They were the root cause and have created a situation where a non-voting entity, like the ABA, has more political power than the electorate. Four months later, the contributions have brazenly resumed in earnest, no doubt the result of demographic studies that show that the American public has returned to its uneasy slumber. By allowing the continuation of corporate governance, it is clear that the Profit Gods will be appeased at our collective expense. This constitutes an unsustainable situation that I sincerely believe will end badly.


  1. Some good points, but keep in mind the ramifications for contract law w/ these type of proposals.

  2. Yes, after watching the debacle at Chrysler, I agree. Nevertheless, I can't see how a principal reduction is less favorable than a discharge to a note holder.