Bernanke glad that job loss ‘getting worse more slowly’ while Senator Whitehouse pursues medical-debt bankruptcy relief

November 20th, 2009 by Mike Hinshaw

With mixed-news noise dominating any clear signal of a consumer-level recovery from The Great Recession, at least one Senator is still hoping to make the bankruptcy code more useful to individuals filers.

On the slightly brighter side of recent announcements, the big consumer-credit players are saying that even though credit-card delinquencies rose in October, out and out defaults fell more than expected–which is a good sign.

And as Bloomberg reported Nov. 17, “Wholesale prices in the U.S. increased in October for just the second time in the past four months, indicating inflation will not be a concern for the Federal Reserve.”

(Of course, although that’s another good sign, one presumes that the inflation news applies to only the  near future: who knows what inflationary surprises lurk in the long haul?)

“The decrease in prices excluding food and energy last month was the biggest since July 2006. The core measure was forecast to rise 0.1 percent after a 0.1 percent drop a month earlier, according to the Bloomberg News survey.

“Compared with a year earlier, companies paid 1.9 percent less for goods today’s report showed. Core costs were up 0.7 percent from a year earlier, the smallest 12-month gain since March 2004.”

And for families who are planning menus for the festivities later this month,  CNBC reports good news re: the “Turkey Price Index,” in a slide show called “The Cost of Thanksgiving Dinner 2009,” with the conclusion that “the average cost of this year’s turkey dinner and all the fixings will take a smaller bite out of your wallet.” Despite CNBC’s humor–and the fact that the savings aren’t huge–it’s nice to see that not all food costs are going up.

Back at the Team Obama ranch house, meanwhile, unemployment news remains grim. Traveling in Asia, the president announced via the White House that he “will hold a forum on job creation with U.S. business leaders on December 3 and then embark on a cross-country tour to discuss economic recovery,” according to a Reuter’s Nov. 17 report.

With the national unemployment rate now in double digits, Reuters said, the “conference aims to bring chief executives, small business owners and financial experts to the White House to exchange ideas on putting unemployed Americans back to work.

” ‘We have a responsibility to consider all good ideas to encourage and accelerate job creation in this country,” Obama said in a statement.’ ”

On Nov. 16, Fed boss Ben Bernanke “predicted that the unemployment rate will get worse before it gets better,” according to the Huffington Post.

“Bernanke on Monday blamed banks for slowing the recovery and keeping unemployment high,” according to HP, quoting the chairman as saying, ‘Banks’ reluctance to lend will limit the ability of some businesses to expand and hire. Because smaller businesses account for a significant portion of net employment gains during recoveries, limited credit could hinder job growth.’ ”

One hates to wax sarcastic, but, dang, Mr. Bernanke–it sure does seem like widespread, restricted credit could hurt job growth, especially given CIT’s troubles and that lender’s importance to small business.

Bernanke managed to find one glimmer of hope: “The best thing we can say about the labor market right now is that it may be getting worse more slowly.”

Echoing the labor market, the housing market has shown improvement, but the number of “underwater mortgages” is hardly cause for holiday cheer. According to Diana Olick,“Home prices are improving, but there is a lot of government stimulus behind that improvement. The extension and expansion of the home buyer tax credit, as well as artificially low mortgage rates backed by the Federal Reserve’s purchase of GSE loans and securities, will all expire by the middle of 2010, so it remains to be seen whether the very tenuous recovery we are now seeing in housing can endure on its own.”

Quoting a recent survey from, Olick says that “even in those markets where investor competition has returned and prices on the low end are beginning to stabilize, homeowners still owe far more on their mortgages than their homes are currently worth.”

The most troubled states (click here for a slideshow showing the worst cities) include California, Arizona, Florida and Nevada–a staggering piece of data, according to Olick, is that “Las Vegas leads the way with 81.8 percent of borrowers underwater on their loans in the third quarter of this year, down barely one percent from the second quarter but still up 10 percent from the first quarter.”

Olick reminds us that various government programs “do allow for modifications and refinances on homes with up to 25 percent negative equity. . . “  and that some market observers “argue that ‘underwater’ borrowers are no different than any other borrowers, as long as they continue to make their monthly mortgage payments, and as long as they continue to want to live in their homes, knowing they will have to wait out the market for home equity to gradually return.”

“But,” says Olick, “the danger is for those that need to sell, or for those who can no longer afford their monthly payments and don’t qualify for a loan modification.”

Olick also pints out that “. . . many homeowners, especially in the hardest hit regions, don’t think they will ever see equity again, and therefore see no reason to continue making payments on their loans, whether they are able to or not.

“Many are simply sitting in their homes, rent-free, as banks struggle to catch up and contact them. Others are vacating the homes, mailing in the keys, and choosing a credit hit, rather than be strapped to a home that will only ever be a liability.”

Of course, we’ve shown that granting “cramdown” powers to federal bankruptcy judges would be the most efficient method for dealing with the housing crisis. But the banks and mortgage-lending lobbies have so far been able to stymie such commonsense legislation.

But in lieu of being able to address the housing crisis, at least one Senator is challenging his cohorts to play fair with consumers who need bankruptcy protection because of catastrophic medical bills.

As reported in the Providence Journal on Oct. 21, a subcommittee of the Senate Judiciary Committee, led by Senator Sheldon Whitehouse (D-RI), convened Oct. 20 “to consider his legislation to make it easier for those burdened with medical bills to go into bankruptcy.”

Whitehouse indicated he may pursue a different tack than the preceding efforts on cramdown legislation, by working the medical-debt relief into pending health-care legislation. His main idea is that “bankruptcy filing would be permitted for anybody who owes more than $10,000 or 10 percent of his or her income in medical bills.

“Whitehouse would also exempt those with high medical debt from meeting the income tests required of other debtors seeking bankruptcy protection.”

Testimony included remarks concerning a couple, Patrick and Kerry Burns, whose 4-year-old son died in March following a long illness.

Even though the couple had insurance, they could not cover their portions of the medical expense and wound up in “financial ruin,” losing their home in the process.

Another highlight of the testimony was an interchange between recent Senate addition Al Franken (D-MN) and Hudson Institute Senior Fellow Diana Furchtgott-Roth, who wrote a commentary piece for Forbes about the incident, saying that “At a recent Senate Judiciary Committee hearing, where I was a witness, Sen. Franken disagreed with my testimony that pending health care ‘reform’ bills would lead to more bankruptcies, because higher taxes and health insurance premiums would cause more job loss, a major cause of bankruptcy.”

In tart response, Franken asked  Furchtgott-Roth about the number of medical bankruptcies last year in Switzerland, France and Germany. Forchtgott-Roth, a former chief economist at the Department of Labor, said she didn’t know but could find out and get back to Franken. He told her in each case the number is zero, then said, “The point is, I think we need to go in that direction, not the opposite direction.” A piece of the interchange is available here as well as video clip.


Even though legislation may bring needed change to the bankruptcy code–such as the so-called “cramdown powers,” and catastrophic medical-cost relief–the laws already in place do provide strong protection for hard-pressed Americans.  To learn more about getting a new start in your financial situation, read more about “Bankruptcy Basics,” or Chapter 7 or Chapter 13 filings. If you’d like to schedule a free consultation or evaluation of your situation, click here.