Remember the 2005 Bankruptcy Law that the nation's credit card pushers forced through Congress?
It appears that this law is going to fall under the category of Greed Creating Unintended Consequences.
The new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages and struggle to pay credit card debts that might have been wiped out under the old code, said Jay Westbrook, a professor of business law at the University of Texas Law School in Austin and a former adviser to the International Monetary Fund and the World Bank.
"Be careful what you wish for," Westbrook said. "They wanted to make sure that people kept paying their credit cards, and what they're getting is more foreclosures."
Washington Mutual, Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. spent $25 million in 2004 and 2005 lobbying for a legislative agenda that included changes in bankruptcy laws to protect credit card profits, according to the Center for Responsive Politics, a non-partisan Washington group that tracks political donations.
The banks are still paying for that decision. The surge in foreclosures has cut the value of securities backed by mortgages and led to more than $40 billion of writedowns for U.S. financial institutions. It also reached to the top echelons of the financial services industry.
[...]
Financial companies began a coordinated lobbying campaign for bankruptcy reform in 1998 when the American Financial Services Association, a trade group representing credit card companies, joined the American Bankers Association to form the National Consumer Bankruptcy Coalition.
Campaign contributions from the coalition and its members totaled more than $8.2 million during the 2004 election that gave Bush his second term in office. Two-thirds of the donations were given to Republicans who supported the bankruptcy changes, according to the Center for Responsive Politics.
The group, later renamed the Coalition for Responsible Bankruptcy Laws, has since disbanded. Its members included Washington Mutual, JPMorgan, Bank of America, Citigroup, MasterCard Inc., and Morgan Stanley.
Ford Motor Co., General Motors and DaimlerChrysler also were members. They won provisions in the new code that changed the way car loans are treated in bankruptcy.
WaMu, BofA, JPM, GM and Citi bought off our corrupt Congress and pushed through that horrendous law. They also gave out mortgages to millions of people who couldn't afford them. Given that, let's take a look at how that has played out:
- Citigroup Inc. CEO Charles Price:
Citigroup Inc. said today that Chairman and Chief Executive Charles Prince, beset by the company's billions of dollars in losses from investing in bad debt, has retired...
Citi had $6 Billion in writedowns in the 3rd quarter, and just announced another $11 Billion.
- CEO of Merrill Lynch & Co. Stan O’Neal:
The announcement Tuesday that O’Neal is retiring immediately came after the world’s largest brokerage posted a $2.24 billion quarterly loss, its biggest since being founded 93 years ago.
- Morgan Stanley, the second-biggest securities firm, said in a statement today that subprime losses will cut fourth-quarter earnings by $2.5 billion. The New York-based bank said it lost $3.7 billion in the two months through Oct. 31 as prices for securities linked with home loans to risky borrowers sank further than traders expected.
- Washington Mutual, one of the largest U.S. mortgage lenders, said yesterday it expects a 75 per cent drop in quarterly income on losses and writedowns on mortgage loans and securities.
- GM
Fresh concerns about General Motors' recovery surfaced on Wednesday after the Detroit-based carmaker reported a $39bn third-quarter loss and a sizeable cash drain.
The setback was due largely to a non-cash charge against future tax benefits and hefty mortgage-related losses sustained by GMAC, the financial services group in which GM owns a 49 per cent stake.
Countrywide Inc. Foreclosures
The connection between these four banks and the bankruptcy law is rather obvious. But why would that have anything to do with the massive losses that they've been taking?
People are putting their credit card payments ahead of their mortgages, said Richard Fairbank, chief executive officer of Capital One Financial Corp., the largest independent U.S. credit card issuer. Of customers who are at least three months late on their mortgage payments, 70 percent are current on their credit cards, he said.
"What we conclude is that people are saying, `Honey, let the house go,'" but keep the cards, Fairbank said Nov. 5 at a conference in New York sponsored by Lehman Brothers Holdings Inc.
That seems pretty amazing that people would let themselves lose the house, but keep the credit cards...until you factor in that many people have withdrawn most or all of their home equity. There is also another even more important reason.
The court-ordered payment plans fail to account for subprime loans with adjustable rates that can reset as often as every six months, said Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys. Two-thirds of debtors won't be able to complete their payback plans, according to the Center for Responsible Lending.
"We have people walking away from homes because they can't afford them even post bankruptcy,'' said Sommer, a Philadelphia- based bankruptcy attorney. ``Their mortgage rates are resetting at levels that are completely unaffordable, and there's nothing the bankruptcy process can do for them as it now stands."
Of course that isn't stopping the rise in bankruptcies. Personal bankruptcies is up 48% from last year.
"The law had an unintended consequence of taking away a relief valve that mortgage borrowers used to have,'' said Rod Dubitsky, head of asset-backed research for Credit Suisse Holdings USA Inc. in New York. "It's bad for the mortgage borrowers and bad for subprime investors because it means more losses."
I guess they should have thought of that before they got greedy and decided to screw the consumer. Now we are all screwed together.