The Durbin anti-bankruptcy bill, and why the Austrians are so often right
The bastards. Busy, lately. Marking exams (first one on the pile: didn’t know a supply curve from a demand curve; second one spoiled by my tears).
Via the blog Calculated Risk, comes the news that the government is legislating kindnesses to make-up for all the dicky, cruel, shit-headed elements of the Bankruptcy Bill – now that the consequences of whoring out legislation to asshole creditors has become apparent even to politicians, generally the most stupid of the dinosaurs.
Among them, Dick Durbin’s contribution:
To help families save their homes, the Durbin bill would:
- Eliminate a provision of the bankruptcy law that prohibits modifications to mortgage loans on the debtor’s primary residence, so that primary mortgages are treated the same as vacation homes and family farms.
- Extend the time frame debtors are allowed for repayment, to support long-term mortgage restructuring.
- Waive the bankruptcy counseling requirement for families whose houses are already scheduled for foreclosure sale, so that precious time is not lost as families fight to save their homes.
To further help families get back on their feet financially as they go through bankruptcy, the bill would also:
- Combat excessive fees that are sometimes charged to debtors in bankruptcy.
- Maintain debtors’ legal claims against predatory lenders while in bankruptcy.
- Reinforce that bankruptcy judges can rule on core issues rather than deferring to arbitration.
- Enact a higher homestead floor for homeowners over the age of 55, to help older homeowners who are fighting to keep their homes as they go through bankruptcy but live in states with low homestead floors.
- Reinforce that consumer protection claims are still available in bankruptcy.
How ’bout legislation promising that legislators will fucking pay attention, next time they pass legislation like this? No? Okay.
Arlen Specter has some plan, someone else has some plan. Yes, our governments are always helpful when their cures start causing new cancers (yes, I’m aware Senator Specter has a health problem. No, I don’t accept that I should avoid mentioning sensitive things – my brain can handle the difference). Like I said. The Austrians are so often proved right.
The Austrian school, by the by, basically holds that governments should not intervene in markets, because every time they do that cock something up. Then they need to intervene again. Then again, etc. In the end, they run/ruin the entire economy.
Meanwhile, over at the Financial Times, I read this one:
Investment banks are offering finance to “vulture funds” on improved terms if the money is used to buy debt from them, according to bankers and managers of the funds.
Banks keen to shift a backlog of well over $200bn of leveraged buy-out debt are tying leverage for recovery, or vulture, funds run by hedge funds and private equity to the sale of the debt.
The financing amounts to a hidden discount, allowing the banks to minimise public discounts on LBO debt they are having to sell at below face value.
But it could help to accelerate the clearing of the debt hangover, which has added to the credit squeeze by limiting bank willingness to make new loans.
It reminded me almost immediately of that neat Google Video clip I posted yesterday, about the fundamental dodginess of this thing we call ‘money’. It seems to me that there is something very wrong, here. If this isn’t borrowing from Peter to pay Paul, I just don’t know what is. Just how is this supposed to help matters?
‘Bankers’, apparently, have an answer:
Bankers said there was nothing wrong with offering cheaper or longer-dated finance tied to LBO debt, with one comparing it to branded car loans.
“Buyers have to look at the all-in costs of the package, the finance and sale price together,” he said.
Banks tying finance to the sale of such loans will remain exposed to potential defaults by borrowers, shifting from direct exposure to a company to exposure to a fund itself exposed to the company.
Yeah – no, I don’t think it is. Nor do I think Bankers get to be the ones to tell me whether their banking practices are good for the economy. I think they’ve kind of demonstrated that they don’t get to have the T-bird for a long, long time. To us, at least. Clearly not to, say, the head of the Federal Bloody Reserve.
At least the Financial Times writer was decent enough (you reading this, mainstream newspapers?) to add in the afterthought of something resembling reality: that the exposure to the debt doesn’t go away – it does sits with another money-making, yield-chasing middle-man. Meanwhile the stock market charges ahead as we all picture rate cuts and throw our rapidly-depreciating dollars at Bear Sterns stocks.