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2 Bankrupt approach to judgement
day By Julian Delasantellis
In the Old Testament's Book of Judges,
Chapter 2, it is described how the Lord raised up
judges - rulers - for the Israelites' benefit, and
woe betide the people when the judges were
disobeyed.
Nevertheless the Lord raised up
judges, which delivered them out of the hand of
those that spoiled them. And yet they would not
hearken unto their judges, but they went a
whoring after other gods, and bowed themselves
unto them: they turned quickly out of the way
which their fathers walked in, obeying the
commandments of the Lord; but they did not
so.
You might think that with the
current political situation in the
United States, if there
was one group that would be faithful to carry out
biblical injunctions down to the last jot and
tittle, it would be the right-wing ideologues of
the Republican Party, especially since for 30
years now they have very successfully used the
Bible as a sturdy truncheon to beat their
opposition.
Lately, that appears not to be
true. The political right has rebelled against the
judges, and in much more important ways than just
objecting to the legal rulings from the bench that
have allowed abortion, or decriminalized
homosexuality.
Just as the Hebrews served
the false gods of Baal and Ashtaroth, right-wing
Republicans are once again proving their undying
allegiance to the false gods of Lucre and Moolah.
No golden calf or other graven image is necessary
for them to prove their devotion to these deities;
the gold in their washroom fixtures accomplishes
this just as nicely.
It was last week,
when, early in the morning, I turned on my
television to catch the NBC network morning happy
talk chat show Today, expecting to see what
natural disaster, a tornado in the breadbasket or
a visit by the ex-Mrs Heather Mills McCarthy, had
befallen America during the night. Instead, I was
amazed - actual news on an American network news
show!
Breathlessly, as if it would risk
one’s life should another bite of Pop Tart or
another sip of orange juice be taken before
hearing this news, the hosts led off the show with
reports that, in response to the deepening housing
crisis in America, the US Congress was, even as
they spoke, moving rapidly towards final passage
of a new bill that would, as they put it, aid the
struggling housing situation in America.
Of course, by any objective look at the
matter, those currently struggling most with the
housing situation in America would be, by a 2005
estimate of the National Alliance to End
Homelessness, the just under 750,000 Americans
without any place to call home, the homeless. But
no national news program in competition with other
networks would lead with a story on homelessness,
not with remote controls ever present and ready to
switch to more favored programming. In the case of
news on the homeless, this might be the farm
report, or the traffic ordnance debates on the
local community cable access show.
What
was being referred to was the real crisis stalking
American society, that anybody with a 10th-grade
education, who wouldn’t necessarily know an
adjustable rate mortgage from an adjustable socket
wrench, could no longer make 20% or more of yearly
capital appreciation from their primary, or, for
that matter, their second, third, fourth or fifth
homes. It’s far from easy to drive Americans’
attention away from celebrity gossip, new diet
books or marriage advice, but if there was one way
to do it, Today’s news editors probably
thought this was it.
'For Sale'
nightmare Accompanying that morning’s news
reports of the legislative initiatives were the
traditional file video clips of unoccupied
suburban three-bedroom, well-gilded colonials with
"For Sale" signs in front of them. (This image,
more than that of the planes slamming into the
World Trade Center on September 11, represents
America’s new national nightmare - it’s the vision
that comes to the middle class in the depths of
the night, in John Malklovich’s words in In the
Line of Fire, "when the demons come") - not
actual details on what the bills really contained.
I resolved to do some research to see just what
all the shouting was about. When I did, I
discovered that this initiative, like all other
previous policy attempts to assist those trapped
in their subprime mortgages, indeed, like most of
what passes for public policy and debate in
America these days, was following a familiar
pattern.
Debate on public policy in
America continues to be governed by this iron rule
- it’s a whole lot more important to look good
than to do good.
Like most products of the
American legislature these days, the bill
currently winding its way through Senate (the
House of Representatives will take it up when the
Senate finishes it, probably late in the week)
accomplishes no single great goal, certainly no
significant change in the vast majority of
Americans’ lives - the thinking apparently being,
well, if Grigori Aleksandrovich Potemkin’s
villages could fool the Russian Empress Catherine
into thinking he was actually doing something,
doing likewise with the American people through
highly publicized legislation should be a piece of
cake.
There’s a provision for a US$7,000
tax credit for those who buy new or foreclosed
properties - c’mon you All-American house flippers
and property speculators, get back in the game!
Local communities and community-based
organizations have $4 billion set aside for them
to buy up foreclosed properties lingering on the
market, driving down prices and blighting
neighborhoods. Just what these organizations will
do with these properties is an open question;
also, since in 2006 the Census Bureau estimated
the total value of US residential real estate at
$20 trillion, wouldn’t $4 billion thus qualify as
the quintessential drop in the proverbial bucket?
The bill’s most interesting provision
calls for $6 billion in new tax breaks for
businesses hurt in the current downturn. (No, no,
you can’t call it a recession, not yet, not until,
according to the arcane rules of this tradition,
the private sector National Bureau of Economic
Research in Cambridge, Massachusetts, officially
calls it next year). The most obvious businesses
getting slammed in the current environment are the
homebuilders; from its high in the summer of 2005
to early this January, the stock of industry
leader Toll Brothers was down by just under 75%.
But it is a common economic canard that
subsidizing something produces more of it.
Homebuilders, of course, build homes, a subsidy to
them means more new homes.
More new homes?
In a market drowning in the unsold inventory
already existent? It is this continually growing
unsold supply that is pressuring prices now,
wiping out house values, and so thus preventing
the subprime borrowers refinancing what could be
the only thing that might save them from eventual
default and foreclosure. That, of course, is the
origin of the howling vortex that much of the
world’s financial system has fallen into, as
declining values for bonds based on defaulted
subprime mortgages is causing a pullback of
lending and liquidity across the entire capitalist
finance system.
In essence, subsidizing
home construction to counter a downturn in home
prices is like subsidizing purchases of Twinkies
and doughnuts to fight obesity.
It is
indicative of just how much power and influence
the homebuilding industry, and, by extension, the
entire American concept of home ownership as a
sacred, ecumenical dogma that unites Americans of
all creeds, colors and races, that serious
Senators are actually pushing this goofy proposal.
In Hollywood they say you can never be too rich or
too thin, but if you are too rich you become Paris
Hilton, and too thin makes you Karen Carpenter. In
Washington DC, they apparently say you can never
build too many homes, even if in doing so you get
the subprime crisis.
My favorite part of
the Senate bill is the provision of an extra $100
million of government funding for what is called
"mortgage counselors."
Explain away the
pain I think this means that people will be
employed to tell borrowers that they have to pay
their mortgages back on time, but what if it’s
not? What if, much as the name implies, it's just
another manifestation of what is called the
therapeutic society, the current ethos that
defines American virtue not by how much good one
does, but by how much pain one feels? If so, a
session with the "mortgage counselor" my go
something like this.
Soon to be
ex-homeowner: "Mortgage counselor, I’m
depressed." Mortgage counselor: " Why?
Tell me how you feel. Don’t hold anything
back." STBE-H: "Well, in a month, my
family and I will be homeless." MC:
"Yes, and what does that mean to
you? STBE-H: "We’ll be spending our days
and nights on the streets!" MC: "Are you
afraid of the streets? Did you fall and skin your
knee on a street as a child?" STBE-H:
"Me and my kids will be sleeping in a cardboard
box!" MC: Do you have unaddressed issues
as regards to cardboard boxes? When you were young
were you abused by one?"
With the current
move in psychiatric practice away from counseling
towards more utilization of psychotropic drugs,
wouldn’t the Senate be better stewards of the
taxpayers money by just writing a Prozac
prescription to the entire housing industry? But
more important than what is being put in the bills
is what is being taken out.
For most of
the subprime borrowers, their experience with the
subprime industry dawned bright and gay, as they
signed the papers that put many of them into the
very first homes they, or anybody in their family,
had ever owned.
For about a quarter of a
million of them each month, their experience with
the subprime industry ends as black as bright it
began. After default, foreclosure, eviction, the
final act in the tragedy becomes a day in
bankruptcy court before the bankruptcy judge,
when, after a negative response to the judge’s
question as to whether there was any chance that
the borrower could ever repay the balance on the
mortgage note, the borrower is discharged from his
obligations into bankruptcy, to spend the next
seven years in the howling wasteland of the cash
economy.
But it was in 2005 that the US
Congress, retreating under a withering barrage of
campaign contributions from the banking and credit
card industries, passed the Bankruptcy Abuse
Prevention and Consumer Protection Act, making it
infinitively harder to file for bankruptcy.
If the borrower, who has already lost his
house, is precluded from filing for bankruptcy
then he must carry the debt from the mortgage
forward, through life, perhaps to death and
beyond, at the settling of his estate. If Bleak
House was Charles Dickens’ way to describe
what he saw as the dysfunctional probate courts of
his day, then, for current borrowers hoping for
perhaps just a touch of the discharging of debts
promised every seven years in the Bible, today’s
bankruptcy courts are a very bleak house indeed -
just like the property that led them to their
sorry end in the first place.
As the
foreclosure and bankruptcy wave gathered force
this winter, some ideologues, generally on the
left side of the political spectrum, had an idea
that might have at least partially ameliorated the
borrowers’ pain.
Since the Bankruptcy
Abuse Prevention and Consumer Protection Act
limited the judges’ statutory authority to provide
the total eradication of debts through bankruptcy,
couldn’t the judges provide some partial relief to
the borrowers, perhaps through altering the
mortgage terms to take into account mortgages that
had been peddled to borrowers under deceptive,
predatory, or just plain false terms?
Even
though this would involve a third party, the
bankruptcy judge, altering the terms of the
contract, the mortgage, between borrower and
lender, it is not as revolutionary a concept as it
sounds. Bankruptcy judges already have the power
to do so in the cases of defaults on second or
third homes, yachts and investment properties,
even if those petitioners who come to the court
seeking such relief are obviously usually more
heavily resourced, more "lawyered up" as they put
it on the US TV crime shows, than a poor subprime
borrower just trying to save his only home.
Also, the principle of a bankruptcy judge
altering terms between parties is quite common in
corporate law; it is illustrated by the tactic,
called a "cramdown", in which a company declares
bankruptcy so it can then petition the court to
order the abrogation of previously agreed to
contract provisions with unions over salaries,
benefits, and pension payments.
Also,
altering mortgage terms was at the heart of the
Bush Administration’s highly publicized "Hope Now"
initiative from early December (see Hope now - Sorry, wrong
number, Asia Times Online, December 12,
2007). Hope Now urged, but did not mandate,
mortgage servicers to alter mortgage terms so as
to assist troubled borrowers in their effort to
avoid foreclosure. In recommending, but not
ordering, the servicers to provide assistance, the
explanation can be seen for Hope Now’s failure. In
contrast to what the servicers said they would do,
when the klieg lights came down and the pancake
makeup came off, when it
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