Thursday, November 08, 2007

Going Once, Going Twice...

Lots of houses and condominiums are being repossessed these days. Atrios links to an interesting article on how the current situation relates to the changes in bankruptcy laws that the Congress approved only a short time ago:

Washington Mutual Inc. got what it wanted in 2005: A revised bankruptcy code that no longer lets people walk away from credit card bills.

The largest U.S. savings and loan didn't count on a housing recession. 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.

You may remember that the changed bankruptcy law still allowed for tidy little loopholes for the wealthy. But those were not enough. Karma can be a bitch.

All these political stories can be told on several levels. Take the bankruptcy story as an example. On one level the story was all about careless, shiftless and greedy Americans spending, spending, spending. Not saving. And then crying and whining when the day of payments came. Except that the old bankruptcy laws just allowed them to say they were sorry and start again with a blank slate. Now, this was wrong. Hence the new laws which reward those who work hard and put money away for the rainy day.

A different version of that story talks about stressed and overworked Americans, daily being bombarded with the messages to buy, buy and buy. When they finally do buy, say, a house, something awful happens to them: a divorce, a serious illness a criminal business partner. Bankruptcy follows, and under the new laws they are done for. The end. No second chances here. But the rich don't have to lose their second houses in the same circumstances in certain states.

A third story about the same law has to do with the credit card companies. They didn't like the loss of revenues those bankruptcies caused. And they put money into some serious lobbying to get the laws changed. Success!

The third story actually explains how various politicians voted the best. But all those stories are true on some levels. People do overspend, the advertisers urge them to do so and the financial industries have a stake in that overspending.

What is done less often is a clear tying-together of these disparate stories. The article I link to is a nice example of how it could be done.