The big news Feb. 25, as The Washington Post put it, was that the Senate easily passed a $15 billion jobs bill. Some outlets were even calling it a “bipartisan” bill, given that 13 Repubs joined 57 Dems to pass the measure 70-28.

Just shows to go ya–how some pols will vote differently, once the threat of a filibuster is removed (as we discussed here and in Part I of  a two-part piece on the “stealth filibuster”). In fact, the jobs bill might have been scuttled–or “shelved”–had not newly-seated Scott Brown (R-MA) and four other Republican Senators voted against a filibuster on Feb. 23: even with those five votes, the filibuster was avoided by only two votes, clearing that hurdle 62-30 (60 votes are required).

Filibuster affects voting strategy

Yet, when the jobs measure itself came to a vote, eight more Republicans crossed the aisle, which sent it back to the House, where a much larger jobs measure had passed in December.  Also from The Washington Post: “The House voted 217 to 201 to approve a $15 billion measure that would give tax breaks to companies for hiring new employees. Six Republicans joined the vast majority of Democrats in supporting the bill, which also includes a one-year reauthorization of the law governing federal highway funding, as well as an expansion of the Build America Bonds program and a provision allowing companies to write off equipment purchases.”

Unfortunately, the measure (which still must clear the Senate again, due to House revisions) is not expected to have a major impact on unemployment and almost certainly will not help consumers who right-now-today are staring at foreclosure or bankruptcy.

‘Stop calling this a jobs bill’

Among the pols who voiced disappointment by the 10-fold reduction, a shared sentiment immediately following the Senate vote seemed to be to drop the euphemism “jobs bill” –that is, to simply concede that it’s a tax-credit bill that might indirectly spur businesses to hire people who have been out of work more than 60 days.

For example, quoted in the “Political Blotter” at ContraCostaTimes.com, Congressional Black Caucus Chairwoman Barbara Lee (D-Oakland) said, ““When presented with a powerful opportunity to create jobs and address the growing unemployment rates among the chronically unemployed, the Senate responded with a whimper. A ‘go slow’, piecemeal approach will do little to address our nation’s need for employment.

“It is critical that policy solutions include not only small business relief but worker training, the use of existing federal programs and targeted job creation to those communities with the highest rates and longest history of unemployment. Until the needs of the chronically unemployed are met, we implore leadership to stop calling this ‘the jobs bill.’ ”

Despite her confusing syntax, we get Ms. Lee’s point: seems like a “jobs bill” should, in fact, create jobs.

Although some tiny gains are trickling, the national jobs picture remains grim.

Job losses, job gains

One Wall Street Journal blog is reporting “a sign the job market is inching toward recovery [because] 31 states added jobs in the first month of the year.”

Using Labor Department data regarding  the official unemployment rate, the piece continues: “In January, the overall U.S. unemployment rate fell to 9.7% from 10% a month earlier, while the nation’s economy shed 26,000 jobs. The job losses continued in February amid strong weather effects, but the jobless rate remained at 9.7%.” (By the way, that blog also has jobless rates for each state.)

But remember, the “official rate” is not the real rate, which includes those who have given up looking for work as well as those who can’t find full time work. That rate, the “total unemployment” rate, peaked at 17.4 per cent in October 2009. Sometimes referred to as the “U-6″ category, this rate is important for two reasons. First, of course, it shows the number of U.S. unemployed is actually closer to 20 per cent than it is to 10 per cent. Why the media continues to buy in to the Labor Department’s lower number–the “U-3 category, now at 9.7 per cent and holding–is simply confounding.

Second, the U-6 category is telling in that gains in the  U-3 category should parallel gains in the U-6–but that isn’t happening. As pointed out in another WSJ blog: “The U.S. jobless rate was unchanged at 9.7% in February, following a decline the previous month, but the government’s broader measure of unemployment ticked up 0.3 percentage point to 16.8%.”

So what’s that mean? Well, here’s the conclusion from that piece: “A U-6 figure that converges toward the official rate could indicate improving confidence in the labor market and the overall economy. This month pushes convergence even further away.”

Unemployment extension passes ‘no debate” hurdle in Senate

the Senate. A larger measure, described today in The  Washington Post, moved forward when eight Repubs joined 58 Dems to limit debate: “The bill includes one-year extensions of unemployment insurance and COBRA health benefits, as well as money to help states pay for Medicaid and private pension funds that have taken a big hit during the recession.”
According to the Post, how the House is expected to act on the larger measure is not known.

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If you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”),  bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, please know the laws have changed recently. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

The rise in "cloture votes" since the 1950s, spiking in the 110th Congress (from "Our Broken Senate," The Journal of the American Enterprise Institute).

Editor’s note: This is the second of a two-part discussion of how one recent election has topsy-turvied Team Obama’s legislative advantage. Taking the seat of longtime Democrat Teddy Kennedy a day after Part I posted, Scott Brown (R-MA) provides the GOP with the critical 41st vote that ends the Dems’ so-called “super-majority.” By the 1970s, Mike Mansfield (D-Mont.), the senate’s longest serving majority leader, recognized the filibuster and other delaying tactics as serious roadblocks to conducting Senate business. Cited in Sen. Bayh’s Feb. 20 op-ed in The New York Times as an “abusive practice,” it is a topic for today’s beleaguered consumers, who wonder what’s wrong in Washington, D.C.

The problem is the modern filibuster has morphed into a much different procedure than the one originally envisioned, which was a method to ensure the potential for debate against hasty, ill-conceived measures and a way to prevent an overzealous majority from trampling roughshod over a hapless minority. Delaying tactics have been used in legislative bodies at least since ancient Rome, notably in Parliamentary procedure in Great Britain and again in defiance of Woodrow Wilson’s effort to arm merchant marine ships before World War I. The most famous “talk ‘em to death” filibuster may be Strom Thurmond’s record setting 24-hour, 18-minute opposition to a 1957 civil rights bill.

But when we commonly speak of such tactics–notably Thurmond’s marathon, or, say, Huey Long’s recipe-infused “pot-likker” rants in reaction to bills he regarded as bad for “the little guy”–we’re talking about (1) often passionate but always tiring and tiresome efforts for everyone involved and (2) more important, efforts that were very much out in the open. Back then, everyone in the Senate could see (and, of course, hear) who was holding the floor. And when “tag-team” efforts (such as the 57-day unsuccessful battle against the 1964 Civil Rights Act) were mounted, they took on the logistics and personnel requirements of a Broadway production.

Costless, painless–anonymous

But not so today, hence the term “stealth filibuster.” When Mansfield resolved to streamline the process, what resulted was a method to let filibusters occupy morning sessions but to reserve afternoons for “pressing business.” But as Roy Ulrich explains, Mansfield’s two-track system may have been expedient in the short term, but “over the long term it has proved to be disastrous.”

Why? Not only has the use of the filibuster increased alarmingly but also it increasingly is used as a tool for gridlock–and it can effectively be employed anonymously.

Too often it is now used as a dry, routine block of anything the “other side” wants.

Ulrich writes: “Boston College historian Julian Zeliger puts it this way: ‘Mansfield’s measure, which was intended to promote efficiency, inadvertently encouraged filibusters by making them politically costless and painless.’

“One way for a senator to let her colleagues know that she intends to pursue a filibuster is to place a ‘hold’ on a bill, thereby letting her colleagues know she will not accede to unanimous consent. Congressional scholar Norman Ornstein has noted that in the modern Senate holds ‘are routinely employed–often anonymously–against bills or people the senator has nothing against, but wants to take as hostages for leverage on something utterly unrelated to the hold itself.’

“If members actually had to hold the floor as in the days of Senators Long and Thurmond, most filibusters would end quickly. The reason is that we live in an age where this public disgust over partisan gridlock. Public airing of the old-fashioned filibuster on C-Span and elsewhere would not be something most Senators would want the public to see. In the current climate, it would be sound political strategy for Senate Majority leader Harry Reid to force the Republicans to engage in extended debate on a major issue such as health care reform. Best of all, no change in Senate rules would be required.”

Options for reform

Remedies exist, including the so-called “nuclear option,” which, according to a Feb. 10 piece in “Political Animal,” would require in today’s Senate that VP Joe Biden (as Senate President) declare current rules unconstitutional and, in effect, craft an on-the-fly workaround of Senate Rule 22. The “Political Animal” piece points out that this is not the brainchild of frustrated Democrats–the GOP (namely Trent Lott [R-Miss.] ) thought it up back in 2005, when they were fed up with Dems blocking judicial nominees.

The piece also quotes a few lines from Tim Noah, writing Jan. 25 at slate.com, but we’ve included a few more lines: “The first step in exercising the nuclear option, then, is for the president of the Senate (i.e., Vice President Joe Biden) to state, in effect, ‘Previous Congresses can’t tell this Congress what to do. Senate Rule 22 has no force because it was never agreed to by the current Senate.’ Biden would then state, ‘Under Article I, Section 5 of the Constitution, this current Senate may “determine the rules of its proceedings.” I say we change Rule 22 to eliminate the filibuster.’ Or modify it, if he wanted to opt for an intermediate reform such as a proposal by Sen. Tom Harkin, D-Iowa, to subject filibusters to a series of cloture votes that begin with a 60-vote requirement and gradually work their way down to a 51-vote requirement. Biden would then put the new rule to a simple-majority vote. After that passed, he would put the health reform conference report (or any number of other Obama initiatives currently stalled in the Senate) to a simple-majority vote.

In other words, the Senate got itself into this mess, and by the Constitution, it can take internal, procedural steps to get itself out. (For instance, the House–with so many more members–long ago dropped the filibuster.) Or the Senate could act on Harkin’s bill.

Whatever the Senators decide, clearly this gridlock begs for remedy. Here’s a quick snapshot of the increase of “cloture votes” since the 1970s, from a 2008 piece called “Our Broken Senate”: “In the 1970s, the average number of cloture motions filed in a given month was less than two; it moved to around three a month in the 1990s. This Congress, we are on track for two or more a week. The number of cloture motions filed in 1993, the first year of the Clinton presidency, was 20. It was 21 in 1995, the first year of the newly Republican Senate. As of the end of the first session of the 110th Congress, there were 60 cloture motions, nearing an all-time record.”

Implications for those facing unemployment, bankruptcy, foreclsoure

Now, why do we as consumer-members of a hard-pressed, foreclosure-riddled, unemployment-shackled economy care about stealth filibusters?

Although an argument might be made that the current GOP minority has taken obstructionist cloture/filibuster methods to unprecedented, Draconian levels, the truth is that both sides have used the tactic, and it’s evolved into a kind of arms race. And it’s become one of the chief methods to simply cut off any chance for meaningful progress during this financial crisis. It’s a quandary that Obama alluded to in his recent State of the Union address. On the one hand, why didn’t the Democrats’ “super-majority” get more done before losing Teddy’s seat to Scott Brown? (”But, [Obama] also chastised Congressional Democrats, saying, ‘I would remind you that we still have the largest majority in decades, and the people expect us to solve some problems, not run for the hills.’ “)

And in what appears to be a direct reference to heavy-handed stealth filibustering, he chided the GOP for “incessant opposition” and said “Saying ‘no’ to everything may be good short-term politics, but it’s not leadership…. We were sent here to serve our citizens, not our ambitions. Let’s show the American people that we can do it together.”

Sounds good–let’s hope he gets that “jobs on his desk” that he demanded. Otherwise, doesn’t it sound hollow to hear reports that recession is over?

OK, true: the economy is finally showing some growth. In fact, Reuters reported on Oct. 12 that the National Association for Business Economics took “a survey” and quoted NABE President-Elect Lynn Reaser: “The great recession is over.”

Which is weird, because it’s actually the similarly sounding National Bureau of Economic Research who is charged with designating the officially recognized beginning and ending of economic dowturns. Yet, as of this posting, the NBER still has question mark on its Web site, indicating the end of this recession remains unknown. See the right-hand column, second hed. To be fair, the Reuters report also says that the NBER, “which does not define a recession as two consecutive quarters of decline in real gross domestic product, often takes months to make determinations.” So maybe Reuter’s stance is that NABE “scooped” the NBER and some day we’ll wake up and read that NBER has decided the Fat Lady of the Recession bowed out months ago and we simply missed it

Regardless of any official word, though, we know the Phat Lady of the Recovery hasn’t even begun warming up.

Obama knows that, too. He said in August that “we will not have a recovery as long as we keep losing jobs,” and reiterated that message in the State of the Union address and again Feb. 11.

But the jobs bill is not on Obama’s desk, and given the current Congress, no meaningful jobs bill is likely any time soon. Neither is a bankruptcy reform bill, which was killed by the Senate in April 2009, then snubbed again by the House, when it was omitted from a larger financial reform measure that passed in December.  On the stump in Nevada for Harry Reid on Friday, Obama unveiled a $1.5 billion plan to help with foreclosures in five of the hardest hit states, but when will Congress follow his lead with programs for the rest of the country?

Senator Bayh’s insights: ‘Congress must be reformed.’

The back-biting and divisiveness is so bad in Congress that Senator Evan (D-Ind.), well-known son of famous Senator Birch Bayh, recently announced he’s resigning at the end of his term next fall because he simply can’t take it anymore. He told Charlie Rose that he believes he can serve the nation better “by being in the private sector, either with a university, a philanthropy, or helping to create jobs by expanding a business.”

In an op-ed at The New York Times published Saturday, Bayh flat out says, “Action on the deficit, economy, energy, health care and much more is imperative, yet our legislative institutions fail to act. Congress must be reformed.”

He says there are “many causes for the dysfunction” on Capitol Hill: “strident partisanship, unyielding ideology, a corrosive system of campaign financing, gerrymandering of House districts, endless filibusters, holds on executive appointees in the Senate, dwindling social interaction between senators of opposing parties and a caucus system that promotes party unity at the expense of bipartisan consensus.”

What’s really telling is his disgust with the filibuster, as misused today: In a nearly 1,800-word piece, Bayh devotes almost 400 words specifically to the filibuster, calling it “a practice increasingly abused by both parties . . . ”

The full piece is well worth the read, given the insight from someone with such a rich family history in U.S. politics, but here’s some of the highlights from his section on the filibuster:

• “Historically, the filibuster was employed to ensure that momentous issues receive a full and fair hearing. Instead, it has come to serve the exact opposite purpose — to prevent the Senate from even conducting routine business.”
• “Last fall, the Senate had to overcome two successive filibusters to pass a bill to provide millions of Americans with extended unemployment insurance. There was no opposition to the bill; it passed on a 98-0 vote. But some senators saw political advantage in drawing out debate, thus preventing the Senate from addressing other pressing matters.”
• “The minority has a right to voice legitimate concerns, but it must not employ this tactic to prevent progress on everything at a critical juncture for our country.”
• “. . . under current rules just one or two determined senators can stop the Senate from functioning. Today, the mere threat of a filibuster is enough to stop a vote. . . .”

Critics are sure to chime in with remarks about “quitting on the job” or “giving up and giving in,” but maybe he just gave out. One thing’s for sure: when somebody like Bayh packs it in, it’s a sure sign that dysfunction reigns, and those of us huddled down in trenches are gonna have to make some tough decisions on our own.

We can hope, of course–but evidently we can’t wait on Congress.

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If you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”),  bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, please know the laws have changed recently. Whatever you do, before making major, life-changing  financial decisions, please consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

The rise in "cloture votes" since the 1950s (from "Our Broken Senate," The Journal of the American Enterprise Institute).

Even though bankruptcy in Canada is a different animal than what we’re used to in the states, some parallels apply.

During the holiday season, for example, one parallel is hugely important, namely, the pressure to buy largely…

But it’s a big mistake to let meager finances get overwhelmed by holiday pressure to buy gifts and decorations and–well, all that stuff.

Canadian bankruptcy trustee Doug Hoyes posted December 4, saying that “one of our busiest phone days of the year is the first Monday back after the Christmas holidays. I assume that January 4, 2010 will be no different: the phones will be ringing off the hook.

“Why? Because we all tend to spend too much at Christmas on our credit cards, and as the bills start to arrive in January we realize that we have a serious problem. But it’s not just the bills that cause us to worry.”

As C-day approaches, the pressure may intensify. That is, you may have resisted so far, but visions of an empty area beneath the tree can make people cave in the last few days leading up to Christmas Eve and morning.

But, remember, it’s important to resist the urge to splurge.

As Hoyes says, “If you only have $50 to spend, that’s all you have, so that’s all you can spend.”

He recommends making a plan, first recognizing that, “When you had money in the past you could spend a lot on Christmas
presents. This year that may not be possible. So be realistic.”

In that regard, the most direct and easiest thing to do is simply explain the situation to your family–perhaps briefly–but certainly letting them know that the financial crisis has hit you, too, and so Christmas is being pared back this year.

Other tips from Hoyes include enjoying the spirit of giving, without resorting to credit cards or loans. Be creative: perhaps you can make gifts from inexpensive materials already on hand. Or you give coupons redeemable for shoveling a snow-filled driveway or babysitting for a harried friend or relative. “Being there” and giving of your presence and time is often more valuable than anystore-bought gift.

And by refusing to dig a deeper financial hole, you’ll be in better shape to start the new year.

Speaking of the new year, there’s encouraging news shaping up on the home-loan modification front. One of the founding
architects of the “financial engineering” that created mortgage-backed securities is taking the lead in what we think is the first
meaningful approach to helping mortgage-crushed homeowners.

According to a December 9 Fortune piece on money/cnn.com, Lewis Ranieri is “arguably the most important figure in the creation of the modern mortgage industry that he now seeks to repair.

“At Salomon Brothers in the 1980s, Ranieri virtually invented mortgage-backed securities, the innovation that more than any other led to the explosive growth in homeownership by expanding the pool of money available for lending to buyers. As the head of the mortgage desk, Ranieri assembled a storied band of overweight, uncouth traders whose exploits were immortalized in Michael Lewis’s book ‘Liar’s Poker.’ ”

That the current relief programs are lacking is evident; so far, no program is boasting great numbers, neither the Team Obama plan, nor private lending, in general.

Maybe Ranieri feels the need to lead the cleanup of a mess he helped create: “Since his Salomon days, Ranieri has largely shunned the limelight while pursuing a variety of ventures in the mortgage business. At least until recently, when America’s real-estate-based prosperity crumbled and he went from being venerated as a legendary pioneer to being vilified for fathering the multitrillion-dollar market that went stark raving mad and sank the economy along with it.”

Regardless of the motivation, he seems pretty serious–he’s “raised $825 million from 31 foundations and corporate and public pension funds, including the South Carolina Retirement Systems, to form the Selene Residential Mortgage Opportunity Fund.”

The idea seems simplistic–and he’s not the first to think of this–”to buy delinquent mortgages at a deep discount, work with homeowners to get them paying again, and resell the now stable loans for profit.”

What is new, however, is his willingness to get off the “high center” of merely tinkering with late payments and reduced interest rates.

“To get homeowners to do their part, Ranieri is taking the radical step of substantially lowering their mortgage balances.”

The description of the team he’s assembled–as well as its goals and scope–sound even more encouraging: “The members of his team act as credit counselors, advising spendthrift borrowers to sell a second car or to change the weekly dinners at Outback Steakhouse to monthly. Selene will even pay off their credit card balances or fix the garage if it helps them pay the mortgage and keep their house.”

While Congress continues to drag its feet on reform of the Bankruptcy Reform Act, this is welcome news, indeed.

Maybe other like-minded leaders will step into the breach.

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If waiting for the various mortgage-relief programs is no longer an option, start here to read about the potential benefits of filing for bankruptcy protection.

In his most public acknowledgment of the true depths of unemployment, President Obama today said in a speech to the Brookings Institution that  he wants to use unexpected fiscal headroom in recovery-stimulus funds to create jobs.

As reported by CNN Obama said “he wants to give small businesses tax breaks for new hires and equipment purchases. He also wants to expand American Recovery and Reinvestment Act programs and spend some $50 billion more on roads, bridges, aviation and water projects.

“Obama did not give a price tag for his proposals but pointed out that there is more wiggle room in the federal budget since the 2008 financial system bailout program will cost $200 billion less than expected.”

Perhaps to be expected, some top Republicans are resistant to the idea–remember, it was the Senate where the bankruptcy “cram-down” provisions stalled after intense lobbying by the lending industry–saying any extra room in the recovery-stimulus funds should go toward the national deficit. To that, Obama responded, “”There are those who claim we have to choose between paying down our deficits on the one hand, and investing in job creation and economic growth on the other–but this is a false choice.”

The timing could not be better–with all the gushing over the November jobs data, you’d think the jobless crisis has passed.

But, no, until major change takes hold, it’s still a matter of the same ol’, same ol’: We’ve merely been shedding jobs more slowly than we were.

But you wouldn’t know it by following  the mainstream media; here’s how The New York Times reported the data on December 5: “In the strongest jobs report since the recession began two years ago, the nation’s employers all but stopped shedding jobs in November, the government reported on Friday, and they appeared to be on the verge of finally rebuilding the work force.

“The sudden and unexpected improvement surprised even the most optimistic forecasters. Instead of yet another six-figure job loss, only 11,000 jobs disappeared last month and instead of another rise in the unemployment rate, it went down, to 10 percent from 10.2 percent in October.”

Of course, it is nice that the nation’s job loss is slowing down.

The bad news is that “official” unemployment’s going to 10 percent really means the “total” unemployment rate is 17.2 percent.

Yup, as it turns out, when unemployment was reported to have reached double-digits, at 10.2 percent, that figure applied only to out-of-work folks who are actively looking for jobs.

As explained December 1 at MoneyNews.com, ” It’s bad enough that the official unemployment rate hit a 26-year high of 10.2 percent in October.

“But if you count people who have given up looking for a job – those who are really the most unemployed – and those who are working fewer hours than they would like, the jobless rate registers 17.5 percent.”

“That’s a record since the government began tabulating the statistic in 1994.”

This all comes from a table maintained by the Bureau of Labor Statistics, right there in row “U-6,” in two data sets, four columns each, showing the grim rise, in data “Not seasonaly adjusted,” and four more columns of data that has been “seasonally adjusted,” the numerals just sort of laying there like shameful secrets in an unlocked but forgotten diary–row U-6 which is labeled, “Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.”

There it is, with one row of seasonally adjusted data (mislabeled as “Nov. 2008,” when it should be “Oct. 2008″), when total unemployment was 12.2 percent, having risen to 12.6 percent a month later. By Oct. 2009, it was 16.3 percent and by last month, up again to 16.4 percent.

The seasonally adjusted data look even worse, rising monthly from July through October: 16.3, 16.8, 17.0, to 17.5 percent; then it fell in Novemeber to 17.2 percent.

Perhaps the best signal of all was discussed in another piece from The Times, a December 4 “Economy” post that discusses an un-named indicator that “is part of the monthly survey done by the Institute for Supply Management, in which manufacturing companies are asked if their business is getting better or worse.”

Described as having proven “reliable in all 10 previous recessions since World War II,” the indicator is part of the I.S.M.’s “November results, showing that for the fourth consecutive month, more companies thought business was getting better than believed it was getting worse.

“A part of that survey asks whether companies are adding or subtracting workers. It showed more companies hiring than firing in both October and November,” so if “the I.S.M. indicator is right, that means that the 10.2 percent rate in October was the cyclical high.”

So that is good, right? Finally a drop in the rate…whew.

Still it’s staggering to learn that instead of the improvement from 10.2 to 10 percent, in fact total unemployment is actually closer to 20 percent…

Some newspapers have caught onto this, but don’t seem to be bothered, as evidenced by the many headlines like this one in the Fort Worth Star-Telegram, by two AP reporters:  “Unexpected drop in jobless rate sparks optimism.” From there, it’s pretty much the same info that The Times’ would detail the next day.

For some, the route to a new job may very well entail a move to a different part of the country, as some areas, in various sectors, are coming back more quickly than others. At cnbc.com, you can watch a slideshow of the “Best U.S. Cities to Find a Job,” which not only lists the metro area but also includes the best sectors for each city.

For job stability, it looks like automobile repo work may be doing OK.  According to a December 7 Daily Finance report, “The ratio of U.S. auto loan borrowers who were 60 or more days past due on their payments increased in the third quarter over the second quarter from from 0.73% to 0.81%, according to Trans Union. The year-over-year delinquency rate at the national level increased by 1.25% in the third quarter.”

Although TransUnion expects the default rate to continue rising–projecting 0.9 percent by end of the year–to a 7.5 percent increase over the past year,  some data suggest that seeing a silver lining even here is warranted.

“Peter Turek, automotive vice president in TransUnion’s financial services group, believes the increased delinquency rate is indicative of a cyclical pattern. The good news is that seven states experienced a drop in their quarter-to-quarter delinquency rates while 22 showed a drop on a year-over-year basis. ‘The drop in delinquency is an indicator that some states could emerge from the recession sooner than others,’ Turek said in a statement released with the report.”

What it really sounds like is that the hard hit areas have been really, really hit hard, because nearly half the states have shown improvement: “So essentially, the market is shifting back to a pattern dependent on local economic conditions, with some states faring better than others. At least with 22 states seeing a drop in delinquencies over last year we can see there is some economic improvement in almost half the states.”

Still, the most encouraging sign amid all the bad news/good news is Obama’s public recognition: “Even though we have reduced the deluge of job losses to a relative trickle, we are not yet creating jobs at a pace to help all those families who have been swept up in the flood,” Obama said. “And it speaks to an urgent need to accelerate job growth in the short term while laying a new foundation for lasting economic growth.”

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In this tough economy, sometimes filing for protection under the federal bankruptcy code is a consumer’s last, best defense from creditor harassment and a chance to start over with a clean slate.  If you don’t have enough income to make payments under Chapter 13 protection, the relief offered by Chapter 7 may be your best bet–and may protect more assets than is commonly perceived.

Here’s a starting point for the basics of bankruptcy.

If you’d like to schedule a free appointment to evaluate your situation, click here.

For those who are considering selling their homes as a way to avoid bankruptcy, two recent reports are contradictory–except for a few, select markets. One Oct. 19 account at CNBC mentions renewed confidence in the housing market, including data from “the Case-Shiller Home Price Index showing an unprecedented reversal from negative to positive growth in the summer months.” But a CNNMoney piece finds otherwise, in fact singling out the Case-Shiller data as too optimistic.

Of course, to paraphrase the cliche, all real estate is local. Still, unprecedented reversal sounds pretty good. But the CNBC piece also mentions observers who sense another housing bubble already forming.

In a decidely “definite-maybe” passage of the “Investor Agenda” piece, Robert Shiller (” . . . Professor of Economics at Yale University and Chief Economist and Co-founder of MacroMarkets LLC ” who is also “the other half behind the Case-Shiller U.S. Home Price Indices”),  was asked whether “this uptick was a result of the first time home buyer credit.”

Shiller said he couldn’t be sure “given that ‘we’re seeing other signs around the same time.’ ”

That sure doesn’t sound like unprecedented confidence. I’m taking that to mean he’s not hearing the Phat Lady of the Turnaround warming up.

Asked about his response to concerns of another bubble in the making, Shiller’s response is classic CYA:

“I look at the data and think it might be happening because it’s such a sudden turnaround. But my instincts say no.”

Shiller also noted that cities in the frothiest part of the bubble have yet to show any sign of a turnaround, presumably a good thing in that we might be more suspect if those areas suddenly got fired up.

The most concrete response is saved for the end of the piece: “Finally on the important question on mortgage rates and how much longer they can remain this low . . . Shiller ended by saying that ‘Fed is still buying up mortgage… and they said they’ll extend that into next year, but when that stops, if it does stop, that’s when we might see a major change in the market.’ ”

An Oct. 20 report from CNNMoney escorts the Phat Lady back to her dressing room, no need to warm up.

The sub-hed doesn’t seem so bad: “National home prices are forecast to shrink another 11%. Miami, Las Vegas and Phoenix will record steep declines, but a few cities will actually post gains.”

But the main deck is chilling: “Home prices: About to get much cheaper.”

CNNMoney says the report it cites (from “Fiserv, a financial information and analysis firm”) is “at odds with the past few months of the S&P/Case-Shiller Home Price index.

“That report,” CNNMoney says of Case-Shiller, “has given hope that most housing markets may have already stabilized because the composite index of 20 cities rose in May, June and July. Nationally, it found that home prices have gained 3.6%.”

Other economists also dispute the Case-Shiller findings.

“Brad Hunter, chief economist for Metrostudy, which provides housing market information to the industry, is quoted as saying, ‘I’m afraid Case-Shiller may be just a temporary reprieve.’

“He pointed out that the tax credit for first-time home buyers helped support prices during the three months of Case-Shiller gains. By the end of November, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, according to estimates by the National Association of Realtors. But the market assistance ends when the credit expires on Dec. 1.”

Fiserv projects that “a plunge” in home values “in 342 out of 381 markets during the next year,” and that “[o]verall, the national median home price is predicted to drop 11.3% by June 30, 2010 . . . For the following year, the firm anticipates some stabilization with prices rising 3.6%.”

CNNMoney also quotes Mark Zandi, chief economist with Moody’s Economy.com:  “I think more price declines are coming because the foreclosure crisis is not over.”

Hunter, the Metrostudy economist, “also sees a new wave of foreclosure problems coming from higher priced loans and prime mortgages. He expects a high failure rate for option ARM loans that were issued to prime customers so they could buy homes in bubble markets, such as California and Florida. In those areas, prices for even modest homes had skyrocketed.”

Fiserv has good news for a “handful of metro areas [that] will buck the trend . . . . Six markets will remain flat, and 33 will actually post gains. The biggest winner will be the Kennewick, Wash., metro area, where home prices have ramped up 8.9% over the past three years and are expected to increase another 3.4% by June 2010.

“Fairbanks, Alaska, prices are anticipated to rise 2.5%, while Anchorage will climb 2.1%. Elmira, N.Y., prices may inch up 1.8%.”

Fiserv also reports here the results of a consumer survey that asked respondents how “financial activities have been impacted by the prolonged recession, and how financial institutions can help them gain a greater sense of control of their finances.”

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If you’re wondering whether bankruptcy is a viable alternative to protect assets or stop harassment or get 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.

If you’re trying to save your home, you should realize that you might qualify for bankruptcy protection. If this applies to you, you really, really need to read this–and I mean all the way through. We’ve covered several of these topics before, but spread over several posts. Today we’re going to gather in one post some very specific points from an April 2009 paper by Adam J. Levitin, titled “Resolving The Foreclosure Crisis: Modification of Mortgages in Bankruptcy.”

Basically, Levitin challenges “the economic assumption underlying the policy against bankruptcy modification of home-mortgage debt.” The law that keeps bankruptcy judges from being able to modify loans on primary residences is based on the idea “that protecting lenders from losses in bankruptcy encourages them to lend more and at lower rates, and thus encourages homeownership.”

Here’s the first thing wrong with that picture: the U.S. bankruptcy code is not supposed to be used to protect lenders. As Levitin says, “Traditionally, bankruptcy is one of the major mechanisms for resolving financing distress.” Now, don’t take that to mean that simply because you’ve got debt is an excuse to game the system, to abuse the bankruptcy laws. But U.S.-style bankruptcy is our society’s way to allow, as Levitin writes,  for working out “the problems created when parties end up with unmanageable debt burdens. Although the process can be a painful one for all parties involved, bankruptcy allows an orderly forum for creditors to sort out their share of losses and return the deleveraged debtor to productivity; a debtor hopelessly mired in debt has little incentive to be economically productive because all of the gain will go to creditors. Moreover, the existence of the bankruptcy system provides a baseline against which consensual debt restructurings can occur. Thus, for over a century bankruptcy has been the social safety net for the middle class, joined later by Social Security and unemployment benefits.”

In other words, in this country, we have recognized that sometimes people just simply need help, instead of being sent to debtor’s prison–where it’s impossible to be a functioning, tax-paying member of society. We recognize that debtor’s prison (and other Draconian methods of punishment, still embedded in other countries) is outmoded, impractical and inefficiently costly in the long run.

But here’s the problem: “The bankruptcy system, however, is incapable of handling the current home-foreclosure crisis because of the special protection it gives to most residential-mortgage claims. While debtors may generally modify all types of debts in bankruptcy—reducing interest rates, stretching out loan tenors, changing amortization schedules, and limiting secured claims to the value of collateral—the Bankruptcy Code forbids any modification of mortgage loans secured solely by the debtor’s principal residence. Defaults on such mortgage loans must be cured and the loans then paid off according to their original terms, including all fees that have been levied since default, or else the bankruptcy stay on collection actions will be lifted, permitting the mortgagee to foreclose on the property. As a result, if a debtor’s financial distress stems from a home mortgage, bankruptcy is unable to help the debtor retain her home, and foreclosure will occur. The absence of a bankruptcy-modification option also reduces the incentive for creditors to engage in consensual nonbankruptcy debt restructuring. Because of bankruptcy’s special treatment of principal residential mortgages, the legal mechanism on which the market depends for sorting through debt problems cannot function properly,and this is exacerbating the impact of the mortgage crisis.”

In other words, let’s say a person has become wealthy by devising a viable business plan and growing a successful company. Along the way, this business person has maintained a healthy FICO score and thereby has been able to amass quite an estate, plus the income that keeps all notes current on two vacation homes, one on the coast with a yacht moored nearby, and another in the mountains, complete with ski equipment and four snowmobiles.

But then some economic event occurs that requires both 1) the company and 2) the business owner to seek Chapter 11 protection (beyond a certain asset level, Chapter 13 is not an option). That way the company gets time to restructure, work with creditors in an orderly manner and to keep employees on the payroll, thereby limiting further damage to society and the economy.

Under bankruptcy protection, the stay order stops foreclosure on the main home is stopped, as well as all the harrasing phone calls and demands from credit card companies and other creditors. Additionally, the bankruptcy judge can modify terms of the loans on most of the “goodies,” including both vacation homes, the yacht, and all the snowmobiles.

Working from the data collected by the business owner’s bankruptcy attorney, the bankruptcy trustee, and the creditors, the judge can order “cram down” or “strip down” arrangements that modify the loans on all that stuff–what many of us would call luxury items–so that the business owner gets to keep everything as long as the monthly payments are made.

The creditors may not like it, but still they’re getting a better return than they would if all the stuff were disposed of in a
fire sale. Meanwhile, the company recovers, the employees don’t have to lose their jobs, and the yachts and snowmobiles and vacation homes are still in the family.

Now, our erstwhile business owner is no different than Joe Schmoe as far as the main house goes. That loan can’t be
modified. But our  business owner at least has a shot at keeping the luxury items, which are now being paid off at better terms than the original loans called for.

Contrast that scenario with all the Joe Schmoes, who have no vacation homes or yachts. They simply want to keep the one house, the family home–which is really all they’ve got, except for maybe a bass boat and *maybe* some kind of RV. But in the main, when wage-earner Schmoe winds up in tight straits, the chief concern is hanging on to the one home, the only home.

In those cases, when bankruptcy is the answer, then bankruptcy provides a great deal of protection. For instance, in certain cases, you can file Chapter 7 and still keep your home. Chapter 11 is a legal possibility for less well-heeled consumers, but the creditors have a bigger say than they would under Chapter 13, which will stop foreclosure.

And foreclosure is a huge problem. As Levitin says, “At no time since the Great Depression have so many
Americans lost their homes, and many millions more are in jeopardy of foreclosure. Nearly 1.7 million homes entered foreclosure in 2007, and another 2.2 million entered in the first three quarters of 2008. Over half a million homes were actually sold in foreclosure or otherwise surrendered to lenders in 2007, and over 900,000 were sold in foreclosure in 2008.  At the end of 2008, more than one in ten homeowners were either past due or in foreclosure, the highest levels on record. By 2012, Credit Suisse predicts around 8.1 million homes, or 16 percent of all residential borrowers, could go through foreclosure. Expressed differently, one in every nine homeowners—and one in six households that have a mortgage—will lose their home[s] to foreclosure.”

In fact, it could be worse: one of the sources for Levitin’s numbers is a study published by Credit Suisse, which Levitin
quoted only partially in his footnotes. The full quote from the December 2008 Credit Suisse report goes thus: “At the time, most viewed our [April 2008] forecast as being overly gloomy. However, based on the trends in delinquencies we were observing, the growing negative equity and our home price forecast, the forecast seemed reasonable. In this report, we update our forecast to 8.1M, or 1.5 million foreclosures greater than our earlier forecast. Further, this forecast doesn’t fully take into account the consensus increase in the unemployment rate to 8%. Adjusting our forecast for the rising unemployment rate, results in an increase to 9.0M.”

(It’s worth mentioning that Credit Suisse was also too optimistic in assuming that unemployment would top out at 8 per cent.)

Now it’s bad enough from the individual perspective that millions of individuals get forced into foreclosure, but perhaps even more dangerous is the toll on society. Levitin uses academic terms to talk about the ripple effects: “Both the increase in, and the sheer number of, foreclosures should be alarming, because foreclosures create significant deadweight loss and have major third-party externalities. Historically, lenders are estimated to lose from 40 to 50 percent of their investment in a foreclosure situation, and in the current market, even greater losses are expected. Borrowers lose their homes and are forced to relocate, often to new communities, a move that can place extreme stress on borrowers and their families. Foreclosure is an undesirable outcome for borrowers and lenders.”

But the damage is not limited to borrowers and lenders. “Foreclosures also impose costs on third parties. When families
have to move to new homes, community ties are rent asunder. Friendships, religious congregations, schooling, childcare, medical care, transportation, and even employment often depend on geography. Foreclosures also depress housing and commercial-real estate prices throughout entire neighborhoods. For example, a study on foreclosures in Chicago in the late 1990s concluded that a single foreclosure depressed neighboring properties’ values between $159,000 and $371,000, or between 0.9% and 1.136% of the property value of all the houses within an eighth of a mile. For Chicago, which has a housing density of 5,076 houses per square mile, or around 79 per square eighth of a mile, this translates into a single foreclosure costing each of 79 neighbors between $2,012 and $4,696.

“The property-value declines caused by foreclosure hurt local businesses and erode state and local government tax bases. Condominium and homeowner associations likewise find their assessment base reduced by foreclosures, leaving the remaining homeowners with higher assessments. Foreclosed properties also impose significant direct costs on local governments and foster crime. A single foreclosure can cost the city of Chicago over $30,000. Moreover, foreclosures have a racially disparate impact because African-Americans invest a higher share of their wealth in their homes and are also more likely than financially similar whites to have subprime loans. In short, foreclosure is an inefficient outcome that is bad not only for lenders and borrowers, but for society at large.”

So the question becomes: Given all the disadvantages of foreclosure, why in the world does the bankruptcy code provide special treatment for mortgage lenders? The question becomes even more pressing in light of today’s “securitized” loans, in which “mortgage servicers” either can not or will not renegotiate terms, and all too often the actual owner(s) of the note can not be determined.

“The Bankruptcy Code’s special protection for home-mortgage lenders reflects a hitherto unexamined economic assumption. The assumption is that preventing modification of home-mortgage loans in bankruptcy limits lenders’ losses and thereby encourages greater mortgage credit availability and lower mortgage credit costs, in turn encouraging the homeownership that has been a major goal of federal economic policy for the past half century. As Justice John Paul Stevens noted when the Supreme Court of the United States addressed the Bankruptcy Code’s antimodification provision in 1993: ‘At first blush it seems somewhat strange that the Bankruptcy Code should provide less protection to an individual’s interest in retaining possession of his or her home than of other assets. The anomaly is, however, explained by the legislative history indicating that favorable treatment of residential mortgagees was intended to encourage the flow of capital into the home lending market.’

“According to Justice Stevens, Congress intended to promote mortgage lending by limiting lender losses in bankruptcy. Justice Stevens’s assertion has scant support in the legislative history, but has nonetheless become the dominant explanation for the Bankruptcy Code’s mortgage antimodification provision. Underlying the economic assumption embedded in the Bankruptcy Code’s antimodification provision is another assumption—that mortgage markets are sensitive to bankruptcy-modification risk. This Article empirically tests the policy assumption behind the Bankruptcy Code’s prohibition on the modification of single-family primary-residence mortgages. It marshals a variety of original empirical evidence from mortgage origination, insurance, and resale markets to show that mortgage markets are indifferent to bankruptcy-modification risk.”

In other words, the “official view” is, yes, it’s strange to not protect people’s homes, but that’s the way it has to be keep mortgage lenders happily making loans: Allowing bankruptcy judges to modify loans on primary residences would make mortgage rates go up to offset the risk of potential bankruptcy modifications.

But, wait, says Levitin. Proving once again the brilliance of simplicity, he realized that if the official view were true, then lending rates should be higher for properties with loans that can be modified. But in the main that’s simply not the case.

Levitin  constructed an elaborate test (he thoroughly explains his methodology) that involved comparing rates in a variety of states; using various credit scores from low to high; for single-family homes through four-family, owner-occupied units, vacation homes and investor-owned propoerties. The results? For conforming loans with 20 per cent down,  [i]nterest rates, points, and APRs were identical for these property types, despite the variation in bankruptcy-modification risk. Uniformly, however, investor properties had higher interest rates and points.”

The higher rates for investor property is not surprising, says Levitin, because they come with risks that single-family and vacation homes don’t have–but those risks have nothing to do with the potential for bankruptcy. He also made comparisons among the various scenarios but with only 10 per cent down. He also examined Private Mortgage Insurance rates for sensitivity to risk of bankruptcy. He noticed a slightly different pattern but still found that “[c]urrent mortgage-origination rates indicate that mortgage-lending markets are indifferent to bankruptcy-modification risk, a conclusion confirmed by PMI pricing.”

Levitin also looked at historical data (mostly pre-securitization), and there he found some differences, but concludes that even though are minor to the overall market, the higher rates suggested might also provide answers to the rampaging predatory lending that helped fuel the current crisis: “Taken together, the historical data and current market-pricing data indicate that mortgage markets are largely indifferent to bankruptcy modification outcomes. The current market data suggest almost complete indifference, whereas the historical data [from a time when far fewer mortgages were securitized] show some sensitivity, particularly for higher-price and higher-LTV (i.e., riskier) borrowers. These findings indicate that permitting strip-down or other forms of modification for all mortgages would be unlikely to have anything more than a small impact on interest rates or on mortgage-credit availability.

“The impact, if any, would be primarily on marginal borrowers, which might be a good thing because, prospectively, it would help discourage the aggressive lending (such as nodocumentation and low-documentation loans, and high LTV ratios) and irresponsible borrowing (such as borrowing based on an assumption of refinancing before teaser rates expired) that is at the root of the current mortgage crisis.”

The next section of the paper looks at the staggering costs of foreclosure and attendant damage to neighborhoods, not only physically but fiscally. He cites one case of a lender recovering only about $100 thousand on a home that sold for $300 thousand–and says that some data suggest there might be another $50 thousand tacked onto the average foreclosure in various fees. Levitin believes that consumer finance legislation in general has been outstripped by the evolving, ever-more-innovative products from the consumer finance industry: “. . .because of diversification among millions of borrowers, risk-spreading through securitization and insurance, and fee-based profit models, the scope of the bankruptcy discharge has very little impact on the price or availability of credit except at the margins. If this theory is correct, then we must both update our thinking about the effect of bankruptcy law on consumer finance and rethink consumer-bankruptcy policy from the ground up, with an eye to expanding the scope of the discharge. As consumer finance becomes more complex, it is time to update the model of the effect of bankruptcy law on consumer finance. The theory and modeling of consumer finance can serve as a meaningful policy guide, but to do so, it must account for the actual structure of the evolving consumer-finance industry.”

The bottom line is that bankruptcy modification is much better than foreclosure, not only for homeowners and lenders but also for society. In fact, says Levitin, “permitting modification of all home mortgages in bankruptcy stands out as the best of all possible solutions proposed to the mortgage crisis. Unlike any other proposed response, bankruptcy modification offers immediate relief, solves the market problems created by securitization, addresses both problems of payment-reset shock and negative equity, screens out speculators, spreads burdens between borrowers and lenders, and avoids both the costs and moral hazard of a government bailout. As the foreclosure crisis deepens, bankruptcy modification presents the best and least invasive method of stabilizing the housing market.”

Levitin does his homework, and this paper should be required reading for every U.S. Representative and Senator–and every member of Team Obama, too.

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Bankruptcy protection might your best route, not only to protect your home and assets needed to make a living (as well as many personal effects) but also for a legitimate chance at new beginning. Here’s a good place to start reading. If you’re ready to schedule a free consultation with a trained, experienced bankruptcy attorney, click here.

Fibs, lies, and statistics: the old saw popularized by Mark Twain, and said to trace to Disraeli, is certainly a jumping-off point for recent news and discussions.

Case in point–are we turning around the financial crisis? Or not?

Recapping a Reuters Television appearance today of the outgoing Morgan Stanley John Mack, CNBC posted the headline, “Worst Over for World Economy: Morgan Stanley CEO.” And here’s a Sept. 15 clip of Fed Reserve Chairman Ben Bernanke saying he thinks the recession “has very likely” bottomed out. More optimism is borne out in the equities market, with one CNBC account mentioning “the meteoric run-up” of the current stock rally while a CNN piece says “Stocks flirt with new highs.”

But more headlines today paint a darker picture for folks needing jobs, with Bloomberg’s saying two states hit record levels of unemployment, CNBC’s saying three hit record levels and CNN’s take that five states breached the 12 per cent mark.

Bloomberg says: “Unemployment rose in 27 U.S. states in August, with California and Nevada reaching record levels of joblessness.

“Rhode Island rounded out the list of states with the highest level of unemployment since data began in 1976, the Labor Department reported today in Washington.

“California’s unemployment rate reached 12.2 percent and Nevada’s climbed to 13.2 percent.”

Despite their differing headlines, the CNBC report pretty much agrees with the Bloomberg view, adding that overall the rate “. . . rose from July in 27 states and the District of Columbia, declined in 16 states and was unchanged in seven others, according to the Labor Department.” CNN agreed with CNBC about the record levels in three states, chipped in that five states “posted jobless rates above 12% in August,” and summarized the states with best unemployment news: “North Dakota posted the lowest jobless rate in August, at 4.3%. It was followed by South Dakota, at 4.9%; Nebraska, with 5%; Utah, at 6%, and Virginia, at 6.5%.”

CNN also included an explanation by way of an econmist at Wachovia. “The losses tend to be heavy in states that have a high concentration of manufacturing jobs or were hit hard by the housing bust,” said Mark Vitner, economist at Wachovia. “The states with the lowest rates tend to have fewer metropolitan areas,” . . . Vitner said.

“When you consider how a city like Las Vegas dominates Nevada’s economy, you can see how that weakness could devastate a state.”

So all that kinda makes sense. To be fair, when Bernanke told the Brookings Institution, “From a technical perspective, the recession is very likely over at this point,” he also cautioned that new economic growth will not keep unemployment from rising.

And when Mack said in Russia that “The good news is that I believe the economic fear, the crisis is over,” he also was paraphrased by CNBC as saying “the capital markets [are] open and all asset classes now [have] liquid markets except for securities backed by commercial real estate assets and residential mortgage-backed securities.”

It does seem a little odd that lack of liquidity for the latter two asset groups is not so much a problem, given the blame laid directly on the hearths of millions of troubled households that got swept up into dizzying arrays of securitized “tranches.” But I suppose they’re both saying Our Fat Lady of  the Crisis has sung, so now we wait and wade through the aftermath of the lag-effect and hope that our clients and bosses and contractors start hiring again.

What I still don’t get is the myriad views of how we got here and why U.S. consumers don’t have some legal whiz cueing up for a class-action lawsuit to the tune of Big Tobacco Got Slammed–Why Can’t We do Some Slamming, Too?.

For example, I read “The Failure of Bankruptcy Reform” in a Sept. 15 “Business” post at The Atlantic and wonder how on Earth the U.S. screwball Senate gets away with refusing to go along with the move to fix the Bankruptcy reform act of 2005.

As  Mike Konczal writes: “The goals of the controversial 2005 Bankruptcy Reform were to both lower the number of those filing bankruptcy and also to increase the amount recovered post bankruptcy by forcing consumers into Chapter 13 bankruptcies. Seeing the latest data, it is clear that both of these goals have been failures–however the unique way in which they have failed is worth investigating.”

Part of the credit-card industry’s message was that w-a-a-y too many shiftless plebes were abusing the Bankruptcy Code by filing Chapter 7 petitions and thereby skipping merrily lah-de-dah into the guilt-free twilight for yet another round of consumer excess–oh, and, uh…also stiffing the erstwhile credit card companies who were simply doing their patriotic best to provide retail-level liquidity. How do we spell “moral hazard”?

As Bankruptcy Corner readers know, the number of recent Chapter 7 filings has astounded and confounded experts. But what I’m only now learning is the stated goals of the act may not have been the actual goals. (I know–dumbfounding, right?)

As Konczal explains, if the metrics were such that the credit-card industry were paying its lobbyists to reduce bankruptcy filings overall and to steer the remainder toward Chapter 13 filings, why then it’s pretty obvious that it’s been a dismal failure. In that light, he asks, “Since lobbying is costly, if you were the CEO of a credit card or financial company, would you have fired the team responsible for writing this bill for Congress?”

And the surprsing answer?

“Actually no,” writes Konczal, “you’d give that team a giant raise.”

Huh?

Well, it turns out that actual goal may have simply been to string out consumers, to put hurdles in the bankruptcy filing process.

Again, Konczal: “Many of the features of the bill–including ‘credit counseling’, raising filing fees, debt-relief agencies, etc.–are designed to raise the time barrier between financial distress and the act of filing a bankruptcy. And what happens during that time? The person in question is paying triggered high-interest rates on credit card loans.”

And where is Konczal coming up with these crazy notions? From Ronald J. Mann, an award-winning author, scholar and professor of law, who wrote a little essay back in 2006 called “Bankruptcy Reform and the ‘Sweat Box’ of Credit Card Debt,” which you can read here or here.

Now, just to be clear, Mann does not seem anti-credit card, at least not in a Dave Ramsey sort of way. Indeed, in Mann’s conclusion, he says straight up: “The credit card is perhaps the most important financial innovation of the twentieth century; it introduced substantial efficiencies in both payment and borrowing markets.”

However, that insight is immediately followed by this (numerals indicate his footnotes): “The credit card, however, is associated with increases in spending, borrowing, and financial distress.117 It is not clear why that is the case, although academics have suggested it may be due to cognitive impairments, compulsive behavior, unfair advertising, or fraudulent contracting practices. Reform-minded governments around the world currently are struggling with how to respond to the problems with credit cards without undermining the efficiency of payment and lending markets.119″ Some responses focus on the payment functionality. Because credit cards might encourage consumers to spend too much, and perhaps more than they can repay out of monthly incomes, credit card use can lead to unplanned debt.”

A few lines following he writes, “Because the credit card is so easy to use (that is, the transaction costs of credit card lending are so low), borrowers underestimate the risks associated with future revenue streams. The response is to intervene in the market for consumer lending or adjust the types of relief available in bankruptcy.121

Although policymakers around the world are loosening the rigor of their consumer bankruptcy systems—in large part due to the introduction of American-style consumer credit—the legislative desire to protect the credit card’s unique place in the U.S. economy was one of the most important motivations for the bankruptcy reform statute. Oddly enough, the credit card industry successfully convinced bipartisan majorities in both the House and Senate that there were serious deficiencies in the American bankruptcy system within which the card has had its phenomenal success. Thus, the central idea behind the ‘fresh start’—the complete liquidation of all debts—has shifted towards a presumption in favor of repayment.”

Now here’s Konczal’s take on the Mann essay: “I’ve written about how the extremely high interest rates can’t be justified on financial engineering risk-measurement quantifications, and are more likely either a way to force consumers to pay off their loans immediately or soak them for what they are worth. Mann runs a quick number experiment (p. 18): Picture a distressed consumer with $2,000 in a credit card. If the cost of funds is 3%/year, interest is 18% for the first 3 months, 24% next three months, and 30% onward, minimum monthly payment is 2%, 2%+$50, and 2.5%+$50, for those time periods, and the borrower has a $40 fee every other month for whatever reason starting in the seventh month. Typical right? If the consumer pays this off for 2 years, the balance on the credit card is still $1,270, but if you look at the economic total (from the cost of capital) the loan has been paid off with $6 to spare. I replicate this in a google spreadsheet here.

“This is why keeping consumers paying off high fees and high interest for an extra year or two can be so profitable, and why it is worth all the lobbyist money even though the stated goals got lost in the shuffle somewhere. Stringing consumers along for another 2 years+ is a great business improvement, even if it doesn’t change a single other thing under equilibrium. And sure enough, it looks like the two years it has taken to get back to the previous numbers is reflective of this newfound, incredibly profitable, lag.”

In our various explorations concerning how we got in this mess, we’ ve learned that mortgage companies have plenty to answer for, especially why they seem so balky-mule resistant to renegotiating outrageous loan terms when–yet the mortgage industry is rabidly opposed to new legislation that would allow bankruptcy judges to modify loans for primary residences. Now we see that the credit-card industry may also be using the new bankruptcy act to soak its least fiscally able customers.

If Our Fat Lady of the Crisis has finished her aria, when do we get to hear the Phat Lady warming up?

[Editor's Note: Next installment of Mike Hinshaw's coverage will return to Adam Levitin's work, first posted here, expounded upon here and revisited here.]

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It’s true that the bankruptcy reform act of 2005 changed many aspects of the law for those needing protection and also for attorneys who practice bankruptcy law. If you’re considering filing for bankruptcy, it’s important to receive counsel from not only trained bankruptcy attorneys but also from experienced bankruptcy attorneys. Bankruptcy offers many consumers powerful tools for starting over, but it can be a complex process–and timing the submission of your petition can be crucial to your ongoing success, for years to come. We have background information available as well as a simple form that will get you started today. Please notice some terms seem similar on your first reading, so don’t hesitate to click back and forth to get a feel for the terminology and the distinctions between different programs.

Perhaps debt elimination is best for you. Start here.

Maybe debt consolidation is better for you: In that case, start here.

If you already have exhausted the preceding information, you may be ready to consider invoking protection from the bankruptcy code–if so, read here.

If you need immediate help, you can complete a short form here.

The entertainment industry in Las Vegas has not been immune to the impact of the recession. Las Vegas bankruptcy case filings in July increased by 54% compared with the previous year.

In a metropolitan area where one industry is the focal point for the local economy, businesses that plan for an economic storm are the ones that survive.

Casino operators like Station Casinos, which filed for bankruptcy protection in July, are committed to keeping their business alive. They turn to bankruptcy as a method to achieve financial stability during a difficult economy, betting that the market and their customer base will eventually return.

You should approach your personal finances like savvy businesses; protect your core assets and plan for the future by partnering with an experienced bankruptcy attorney. You want the assurance that your financial decisions are grounded by lawyers who are experts in bankruptcy protection, including both federal and local regulations.

What rights does a debtor have to assume a contract after the estate rejects it? Under what circumstances would an appeal be dismissed? Selecting the bankruptcy law firm that is familiar with all regulations is a determining factor to the success of your finances.

In this economy, survival requires tough choices and a commitment to do whatever it takes. With the right guidance, bankruptcy can be the tool that protects your assets during the difficult economic road ahead. Partner with a bankruptcy attorney who places your financial recovery above all other goals.

[Editor's note: Part One of  "The Week that was is here; Part Two is here.]

On August 21, Bloomberg ran a piece with the encouraging headline “Bernanke Says Global Economy Emerging From Recession,” echoing Web-wide reports suggesting the economy had turned the corner.

Citing “aggressive” action by big banks and governments, the Fed chairman said in a speech to bankers and academics at an annual symposium, “Economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good.”

Deeper in the story, we get this: ” ‘The worst of the credit crisis probably ended in March and the recession probably ended in the current quarter,’ economist David Jones, president of DMJ Advisors LLC in Denver, said today in an interview on Bloomberg Radio.”

Many other reports that week mentioned drops in unemployment, rising stocks, and improvements in the housing sector. One of the most widely published figures reflected this CNN report, showing that the “national unemployment rate fell to 9.4% from 9.5% in June, the first decline in that closely watched reading since April 2008.” Indeed the hed on that report was “State unemployment shows improvement.”

Reading more closely, we have to wonder whether some headline writers are reading the full stories–or are they simply trying to do their parts to bolster public confidence?

For instance, deeper in the CNN account, we get these two grafs:

“While the report showed improvement for the battered labor market, the changes in unemployment rates were very modest across the board: overall, unemployment rates didn’t change much from June to July.

Only two states, Vermont, at 0.5 percentage point, and Minnesota, at 0.3 point, showed what were considered significant decreases in unemployment rates.”

Then, after citing some of the states with the worst unemployment figures, here’s the takeaway: “Compared to the same time last year, all 50 states and the District of Columbia posted higher unemployment rates, with 15 states having double-digit unemployment percentages.”

The housing story seems very similar. Here’s a hed from a Reuters analysis by Julie Haviv, also posted August 21: “Housing’s solid spring, hotter summer.”

Haviv leads off with this gushy take: “What some expected to be a spring fling for the U.S. housing market turned into a white-hot summer.

“The typical spring fling for the U.S. housing market is turning into a hotter summer, as home buyers return to the market with help from foreclosures, tax incentives and abundant supply.”

Then Haviv says, “Improvement in this market bodes well for the U.S. economy, as it points to better demand in the sector where the first signs of the recession took root,” and goes on to quote a real estate professor:  ” ‘Seasonality no doubt helped improve housing sales in the spring, but I still think the worst is behind us,’ said Jeffrey Fisher, professor of real estate and director of the Benecki Center for Real Estate Studies at the Indiana University Kelley School of Business.”

Once again, though, the takeaway is deeper, in the graf where Haviv says: “But with the tax credit set to expire in several months and distressed properties making up a high proportion of sales, the recent flurry of activity masks uncertainty about the long-term outlook.”

Distressed property sales–what’s that about?

Well, although we’ve had plenty of occasion to disagree with Diana Olick, of CNBC’s “Realty Check,” she certainly dug up some interesting numbers here, in a piece labeled “Existing Homes: What’s Really Selling.”

“Existing home sales rose for the fourth straight month in a row,” writes Olick, “now to the highest pace in two years.”

But she quickly qualifies that with strongly bridled optimism: “Excellent news that buyers are getting off the fence, but they’re only getting off at a certain price point.”

Comparing housing sales to the gains of big box retail gains, she points out that “only the low end of the housing market is moving.” Then she supplies a table with data from the National Association of Realtors (NAR) showing that, categorized by price, only two sectors of existing housing were showing gains. Homes selling under $100,000 were up 38.8 per cent, while those priced $100,000 to $250,000 were up 8.7 per cent.

All the rest showed losses–the higher the price, the bigger the losses: houses from $250,000 to $500,000 were down 6.2 per cent; $500,000 to $750,000 were down 8.9 per cent; $750,000 to $1 million down 10.6 per cent; $1 million to $2 million down 23.3 per cent; and more than $2 million down 32.4 per cent.

Then here’s Olick’s cognizant takeaway: “A full one third of all sales in July were of foreclosed properties, and as more foreclosures hit the market, you can only expect more downward pressure on prices.  I spoke with Spencer Rascoff of Zillow.com today, who claims, ‘this is not a real recovery.’ Higher sales on one end of the market do not a full recovery make.  Until foreclosures peak and prices bottom, we can’t say housing is on its way back up.”

Now, that makes sense. But the following is even more encouraging, coming from such a big-time opinion influencer as Olick–who was four-square against legislation that would have allowed bankruptcy judges to modify loan terms on primary residences.  Noting that “. . . anyone who reads my blog regularly knows I am not a big fan of government bailouts in the housing market” she also argues for more help for home buyers.

Referring to the NAR data, she writes, “This pricing scenario seems like a no-brainer argument for extending the first time homebuyer tax credit . . . .  if something’s working, which this credit clearly is (30 percent of buyers in July were first timers), then we should give it a little more time.  Foreclosures are only increasing, as we saw from yesterday’s Mortgage Bankers Association report, and that will mean more inventory at the low end.”

Even more encouraging is the emerging awareness of the need to regulate derivatives trading, particularly credit default swaps. In short, the so-called “securitization” of mortgages has clearly been a major hurdle in the effort to help homeowners renegotiate bad home loans (see Part One of this series), and credit default swaps are so hard to understand that they nearly brought the global economy down. As discussed at an options trading site, the legal/regulatory system is simply too far behind the complicated deals that Wall Street trading institutions can dream up:

“Attempting to explain the inner workings of the U.S. derivatives market is akin to trying to explain a complicated mosaic from only a few feet away. The closer you get, the less sense it makes. The regulatory structure of the U.S. derivatives market stems from legislation that was written when our grandparents were in diapers. The enduring legacy of this antiquated legislation is an oversight system that is woefully inadequate for today’s complicated marketplace.”

Further into the argument, we get this: “The problems become even worse when the oversight function falls victim to our antiquated system. The world witnessed this firsthand when AIG imploded under the weight of poor derivatives risk management. AIG fell into the same premium writing trap that destroyed Barings PLC and caused many other infamous derivatives disasters. The steady stream of income generated by repeatedly selling derivatives contracts (in this case credit default contracts) quickly overcame any sense of proper risk management.

In a perfect world, AIG would never have been allowed to risk so much on one roll of the dice. But the critical function of oversight fell through the cracks of the great schism, this time with disastrous consequences.”

Indeed, the piece quotes the now famous analogy from George Soros, published among his other remarks in a June 12 Reuters account: “In both cases, some bondholders owned CDS and they stood to gain more by bankruptcy than by reorganisation.

“It’s like buying life insurance on someone else’s life and owning a license to kill,” he concluded.

Yup. Same dynamic as the foreclosure crisis: when the big boys stand to gain more by letting homeowners go into default rather than working out better loan terms, the whole country is in danger.

And we still are. We may be out of freefall, but that doesn’t mean we’ve hit bottom yet.

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If the economy has you and your household in  a tailspin, filing for bankruptcy protection may be the most logical, efficient route for you. Here’s some online resources:

U.S. courts

U.S. courts, bankruptcy basics

Bankruptcy principles

Free bankruptcy evaluation

[Editor's note: This is the follow-up to a "week that was" review of several consumer-debt issues that  were in the news from August 15 to August 21, 2009.]

In the preceding post, we looked at a “debt-relief” company that is getting sued by the Texas Attorney General, in an attempt to get back more than $4 million for more than 2,500 customers who got hung out on the line when the company shut down and filed for bankruptcy. What really stinks about that can be found in the AG’s petition, describing the “aggressive practices” of the so-called debt-relief industry in general: “Consumers interested in debt settlement likely are also considering options such as traditional credit counseling, debt management plans, debt consolidation loans, and possibly bankruptcy.”

Imagine that: bankruptcy was absolutely not a good idea for its customers but was a nifty-good idea for itself.

The petition goes on to spell out the dangers of dealing with companies like Debt Relief USA. Repeating that such companies “may also disparage” other, better methods, the petition continues: “In reality, the debt settlement company has no interest or ability to advise consumers on the best option for them, rather they are selling their program.” Then it lists “inherent risks” with the practice, risks “that can have catastrophic effects to the consumer.”

Here’s an amended list of some of those risks:

• additional interest, late fees, over-limit charges and assorted, hard-to-predict other fees;
• stuck with a much higher balance than before, consumers can “end up in a far worse financial situation than when they entered the program”;
• ramped-up, harrasing collection efforts;
• creditors may file lawsuits, which most “debt-settlement” companies can not help with, perhaps resulting in numerous judgments;
• the consumer’s credit report will likely take severe hickies, making it tough to get a car, a house–or even a job;
• if the company is actually able to secure a settlement, by the time all the fees are aggregated, it’s likely that any realized will be far less than promised;
• finally, if a settlement is reached, whatever debt forgiveness that does occur will be treated as taxable income.

Also last week, the first of Team Obama’s credit card reforms kicked in, on August 20, when millions across the U.S. were to begin seeing “a host of improvements on their accounts,” according to Daily Finance. Unfortunately, the account continues, “many have already begun to see higher interest rates. Anticipating the changes, many credit card companies have spent the last few months rushing to raise raise rates before the first changes take effect.

“In the past few months, credit card companies have been racing to raise interest rates on millions of credit card holders. People with cards from American Express (AXP), JP Morgan Chase (JPM), Citigroup (C), Discover (DFS), Capital One (COF) and others have been reporting increases even if they’ve never made a late payment and have excellent credit scores. At this point, it looks like all cardholders who carry balances from month to month will see their credit card costs increase.”

According to Jane J. Kim of  The Wall Street Journal, the new rules are “the first of a series of federal actions that constrain card issuers from changing terms on customers.”

Kim summarizes this set of changes by saying that “banks must comply with parts of the recently passed Credit Card Act of 2009 by mailing bills at least 21 days before their due dates and providing at least 45 days’ notice before making a significant change to their rates or fees. Currently, banks are generally required to mail billing statements at least 14 days in advance and provide a 15-day notice of altered fees or rates. The new rules also will bar banks from increasing fees and rates without warning when a consumer misses a payment or exceeds a credit limit.

“Consumers also will be allowed to avoid future interest-rate increases and pay off any outstanding balance over time under the original rate terms. Currently, if a consumer gets hit with a penalty rate, for example, they aren’t given the option to reject the rates.”

“In the past,” writes Lita Epstein at Daily Finance, “by the time cardholders learned of a rate increase, there often wasn’t much time to protest. Even if they chose to do so, they only had two options: paying off the account or locking in the current rate by agreeing to close the account. For many struggling to meet bills after a job loss or other emergency, neither of these options were viable.”

But is anybody surprised that the big banks have already found loopholes? For example, writes Epstein, “Many credit card issuers are getting rid of fixed rate cards completely and instead offering variable rate cards set to an index. That way they don’t have to send notices at all. As the index rate goes up, so does the credit card rate. This method enables them to avoid the protections in the new law.”

Giving the credit card industry so much lead time to plan for the law’s phased in approach is already hurting consumers. Again from Epstein, “Unsurprisingly, these credit card changes have accelerated cardholder default rates,” and “For people who have lost their jobs, rapid interest rate increases and minimum payment changes put even more strain on their budget and will push them even faster toward bankruptcy.”

Indeed, concludes Epstein, although the new legislation may be good for “some consumers, it would have been far more useful if its provisions were enforced immediately upon passage. When it gave the credit card companies so much lead time, Congress also gave them the opportunity to figure out ways around the changes before the bill took effect. Ultimately, with higher fees and interest rates pushing more customers in default, everyone loses — including the credit companies.”

That’s not a bad take. On the other hand, given what we know about “perverse incentives” for the mortgage industry to deny help for hard-pressed homeowners, it kinda sorta makes one wonder whether credit card companies have found a way to securitize credit-card debt in such a way that they come out ahead if consumers default and declare bankruptcy.

Next in “The week that was, Part 3″: housing sales versus housing starts and auctions; obsolete regulation of credit derivatives.

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Related resources for personal bankruptcy:

Overview of the bankruptcy process, with links to Chapters 7 and 13.