Double Standards In Bankruptcy

Posted by David Falvey on Monday, May 5th, 2014 - 3,563 views

Double Standards in Bankruptcy was the headline which was recently published my the New York Times as an Editorial, April, 2014. The Editorial Board pointed out that the bankruptcy of the City of Detroit in Chapter 9 exposed this double standard.

The pensioners payments from the City of Detroit are guaranteed under the Michigan Constitution, yet those pensioners reached a deal to reduce their retiree benefits with the goal of helping the City of Detroit get a ‘fresh start’.

However, the Editorial Board noted that when you contrast the City of Detroit bankruptcy with the housing bust, they noted that the powerful banks did not have to cut deals in court with bankrupt homeowners. They correctly noted that in Chapter 13 of the bankruptcy code, lenders cannot be forced to rework most residential mortgages. It was noted that this section of the bankruptcy code was heavily influenced by the financial industry. In other words, the lobbyist for the Big Banks got to write the law and the consumer was squeezed out of any influence.

The New York Times noted that in Detroit’s ‘bust’, pensioners had to negotiate new terms for their pensions but with the housing ‘bust’, big banks did not have to negotiate mortgage payments or interest rates, and, consequently, the homeowner or the ‘little guy’ got ruined.

The Editorial pointed out the statistics, namely, that 8.6 million homeowners owe more on their mortgages than their homes are worth. The total negative equity was noted to be $430 billion. According to the Editorial, 9,600,000 homeowners have lost their homes and there’s another 2,100,000 homeowners who are joining the ranks of foreclosed property owners or almost 12,000,000 homeowners.

Early in the financial crisis the article observed that Congress could have changed the bankruptcy law to law relief for the homeowners. The consequences have been that there has been unnecessary impoverishment and a poor economic recovery.

But actually, the Editorial didn’t present the hard facts as I see them. They failed to bring President Obama to task and question him why congress didn’t enact special bankruptcy legislation to save homes and help ‘the little guy’.

President Obama was elected in 2009 and the ‘crown jewels’ or center piece of his legislation was the proposal under House Bill 200 and Senate Bill 61 “Helping Families Save Their Homes in Bankruptcy Act of 2009′ to amend the Bankruptcy Code to allow the bankruptcy judge to modify mortgages.

The legislation passed the House. I was stunned that such a piece of ‘radical social legislation’ passed the US House. It was absolutely historic and I said to myself, ‘Well, perhaps Obama is ‘Change You Can Believe In’. That was his campaign motto or slogan.

Real and serious changes were on the horizon

I voted for Obama for President because I thought, ‘Well, perhaps,just perhaps he will be in favor of ‘real and serious change’ to help the average citizen. Well, here’s what happened.

The Bill was defeated in the US Senate which was controlled at that time by the Democrats. There were 2 Democratic Senators from the South and 2 Democratic Senators from the West who voted against the legislation and Obama didn’t say ‘boo’, he said absolutely nothing. I then remembered his slogan, ‘Change You Can Believe In’.

He failed to even use the Presidency as a ‘Bully Pulpit’ to express any dismay and to castigate his fellow Democrats: one of the Democrats who voted against this bill was Democrat Arlen Specter.

However, Timothy Geithner was Obama’s Secretary of the Treasury who hired lobbyist Mark Patterson as his Chief of Staff, and, ‘Change You Can Believe in Obama’ had promised not to hire lobbyists in his administration. But then in case you didn’t know, Mark Patterson was the chief lobbyist and a vice-president for Goldman Sachs and Goldman Sachs was the Number 1. contributor to Obama’s campaign.

Goldman Sachs benefitted greatly from the real estate bubble which they helped to created and then ‘shortened’ their position and deliberately and knowingly defrauded their clients.

Read the investigation report from the U.S. Senate. Go and search: “U.S. Senate Subcommittee on Investigations”. You’ll be able to read Sens Carl Levins, Democrat, and Tom Coburn, Republican, report mapping the detailed unethical, immoral and illegal stock manipulations of investment bankers such as Goldman Sachs that caused our real estate bubble.

And while you are researching, you can search under “Pecora Commission Report of 1934‘ and read that report. You’ll be shocked to see how we learned some important lessons about the causes of the Great Depression of 1929 (we’re in the ‘Great Recession’ of 2007) and President Clinton a/k/a ‘slick Willie‘ repealed the major safe-guard such as the Glass-Steagall Act which had prevented Banks from speculating in stocks.

Bank speculation (an ‘Over Exuberance’ Alan Greenspan) greatly contributed to the Stock Market Crash of 1929. If you read the 1930’s Pecora Commission Report and compare that with Carl Levin’s Report, you’ll be shocked at the similarities. Only in the 1930’s, bank fraud artists went to Sing Sing Prison. Today, banks are too big to fail and no one goes to jail except for petty crimes.

Gordon Gekko in Wall Street said, ‘greed is good’, but tell that to the people who are unemployed, lost their homes, or were victims of Bernie Madoff.