Friday, October 03, 2008

Vice-Presidential Candidates Debate Bankruptcy Reform

Bankruptcy reform received attention at the Vice-Presidential debate last night as viewers witnessed a gaffe from the moderator and Sen. Biden staked out a bold position on modifying home mortgages.

Moderator Gwen Ifill asked Gov. Palin about bankruptcy reform, but managed to muddle her question:

IFILL: Next question, Governor Palin, still on the economy. Last year, Congress passed a bill that would make it more difficult for debt-strapped mortgage-holders to declare bankruptcy, to get out from under that debt. This is something that John McCain supported. Would you have?

Of course, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was not passed "last year." Also, while the legislation made it more difficult to file bankruptcy in general, it did not make any substantive changes to home mortgages. It just goes to show that even smart people from PBS can get their facts wrong.

Initially both candidates dodged the question. Gov. Palin said that she would have supported the legislation at the time, but intimated that she would not support it today--and then changed the subject.

PALIN: Yes, I would have. But here, again, there have -- there have been so many changes in the conditions of our economy in just even these past weeks that there has been more and more revelation made aware now to Americans about the corruption and the greed on Wall Street.

We need to look back, even two years ago, and we need to be appreciative of John McCain's call for reform with Fannie Mae, with Freddie Mac, with the mortgage-lenders, too, who were starting to really kind of rear that head of abuse.

And the colleagues in the Senate weren't going to go there with him. So we have John McCain to thank for at least warning people. And we also have John McCain to thank for bringing in a bipartisan effort people to the table so that we can start putting politics aside, even putting a campaign aside, and just do what's right to fix this economic problem that we are in.

It is a crisis. It's a toxic mess, really, on Main Street that's affecting Wall Street. And now we have to be ever vigilant and also making sure that credit markets don't seize up. That's where the Main Streeters like me, that's where we would really feel the effects.
When Sen. Biden was asked about his support for BAPCPA, he initially gave a disjointed answer, but then dropped a bombshell.

IFILL: Senator Biden, you voted for this bankruptcy bill. Senator Obama voted against it. Some people have said that mortgage- holders really paid the price.

BIDEN: Well, mortgage-holders didn't pay the price. Only 10 percent of the people who are -- have been affected by this whole switch from Chapter 7 to Chapter 13 -- it gets complicated.

But the point of this -- Barack Obama saw the glass as half- empty. I saw it as half-full. We disagreed on that, and 85 senators voted one way, and 15 voted the other way.

But here's the deal. Barack Obama pointed out two years ago that there was a subprime mortgage crisis and wrote to the secretary of Treasury. And he said, "You'd better get on the stick here. You'd better look at it."

John McCain said as early as last December, quote -- I'm paraphrasing -- "I'm surprised about this subprime mortgage crisis," number one.

Number two, with regard to bankruptcy now, Gwen, what we should be doing now -- and Barack Obama and I support it -- we should be allowing bankruptcy courts to be able to re-adjust not just the interest rate you're paying on your mortgage to be able to stay in your home, but be able to adjust the principal that you owe, the principal that you owe. (emphasis added). That would keep people in their homes, actually help banks by keeping it from going under. But John McCain, as I understand it -- I'm not sure of this, but I believe John McCain and the governor don't support that. There are ways to help people now. And there -- ways that we're offering are not being supported by -- by the Bush administration nor do I believe by John McCain and Governor Palin.
Until recently, the Obama-Biden ticket's support for bankruptcy reform has been somewhat tepid. Earlier this year, both Sens. Obama and Biden voted for a proposal to allow bankruptcy judges to modify home mortgages, although that proposal was defeated. The Obama-Biden campaign's website, which is laden in detailed proposals does not mention modifying home mortgages in its section on Bankruptcy Reform. However, it does contain this proposal within its section titled Protect Home Ownership and Crack Down on Mortgage Fraud. No doubt this is a case of poor editing and not an attempt to confuse bankruptcy junkies.

In published accounts, Sen. Obama has championed incremental change, such as exempting military families, senior citizens, victims of national disasters and persons filing due to medical bills from credit counseling and means testing, supporting a minimum national homestead exemption for senior citizens and proposing a 120 day moratorium on foreclosures and credit reporting (although some reports have also mentioned modifying home mortgages in passing). In his acceptance speech in August, Sen. Obama mentioned reforming bankruptcy laws to protect people's pensions. Finally, just last week, Sen. Obama opposed adding bankruptcy reform to the Wall Street rescue plan.

Now that Sen. Biden stressed modifying home in the debate, the issue is likely to take on a higher profile. Thus far, the McCain-Palin ticket has railed against Wall Street greed, but has not taken a stand on bankruptcy reform (at least not that I have been able to find). It will be interesting to see whether this issue is addressed further in the upcoming debates between the presidential candidates.


Siobhan said...

At least we know that somebody was listening to Westerbrook...

Siobhan said...

At least we know that somebody was listening to Westerbrook...

Patches said...

It will be so much cheaper if BK judges could re-write just the "toxic" Mortgages. ie. ARMS, Teaser Rate ARMS, the 80/20s. Now John McCain has the 300 Billion dollar plan to buy the mortgages.!!! Great blog BTW. Adam Levitin did some great work on the subject @ Worth a read.