Jumping the gap from Wall Street bonuses to cornbread mix

August 17th, 2010 by Mike Hinshaw

That recovery we keep hearing so much about?

Seems to be going be well–if you work in the neighborhood where the Great Recession was engineered.

According to an Aug. 13 article in MarketWatch, “Bonuses in the financial services industry will increase slightly this year as the sector outpaces the recovery of the broader economy, according to a forecast published by Johnson Associates Inc. Thursday.”

Supposedly, it’s a big deal among legislators, too. Apparently some of them see problems with bonuses for those in the sector that caused the problems that nearly drove the economy off the cliff.

“The increase in bonuses would come at a time when rising compensation in the sector has become a hot issue for lawmakers in the wake of the financial crisis.”

Of course, bonuses were off the charts during the boom leading up to the crisis. Trouble is, nothing changed during

Cuomo’s report

“But when the financial crisis hit in 2008, compensation stayed at these levels even as bank earnings plummeted. According to an investigation by Attorney General Andrew Cuomo’s office, at Bank of America net income fell to $4 billion from $14 billion, but total payouts still remained at $18 billion. Citigroup and Merrill Lynch, now owned by Bank of America, lost $54 billion in 2008, but still paid out about $9 billion in bonuses. Read more about Cuomo’s [2009] report here. [" According to the 2009 article, "Attorney General Andrew Cuomo's office analyzed 2008 bonuses and earnings at the nine financial institutions that were the first to receive government money from the Troubled Asset Relief Program, or TARP."

Another bailout beneficiary, GM is doing pretty well, although fellow bailee Chrysler is still struggling. Ford, not a bailee, is doing OK, too. Other big corps are reeling in the dough, like say, Disney (riding blockbusters Toy Story 2; Alice in Wonderland; and Iron Man 2).

The 'new abnormal'

And people aren't just buying downsized cars and going to the movies. Describing a "bifurcated market," this July 29 BusinessWeek article says bewildered-and-bewildering consumers are scrimping on soap and other basics in order to blow money on luxuries.

"The new abnormal has given rise to a nation of schizophrenic consumers. They splurge on high-end discretionary items and cut back on brand-name toothpaste and shampoo. Companies such as Cupertino, California-based Apple, whose net income jumped 94 percent in its last quarter, and Starbucks Corp., which saw a 61 percent increase in operating income over the same time frame, are thriving.

"Mercedes-Benz is having a record sales year; deliveries of new vehicles in the U.S. rose 25 percent in the first six months of 2010. Lexus and BMW were also up. Though luxury-goods manufacturers such as Hermes International SCA and Burberry Group Plc are looking primarily to Asia for growth, their recent earnings reports suggest stabilization and even modest improvement in the U.S."

Well, who can blame the American consumer for being at least a little crazy?

As the Aug. 17 Detroit Free-Press says, "The U.S. lost nearly 3 million jobs in the second half of 2008.

A 'deep hole'

"The hole was so deep that even with the 620,000 private-sector jobs that the Economic Policy Institute reports were added over the last seven months, it doesn't feel like a recovery to many.

"Charles Ballard, a Michigan State University economist, agrees that the recovery is very slow, but not ending.

" 'We're coming out of the worst economic downturn in our lifetimes,' Ballard said. 'Given that a sledge hammer was taken to the economy when Lehman Brothers failed, we're lucky the damage hasn't been worse.' "

Earlier in the year, some encouraging reports were noted, hinting that unemployment, foreclosures and bankruptcies had bottomed out. More recent reports say no.

Foreclosures still raging

From an Aug. 13 ABC News report: "In July, banks repossessed the second highest monthly number of homes ever, according to the California-based foreclosure listing firm RealtyTrac, Inc. There were 92,858 properties taken over by banks in July, an increase of nine percent in the month and six percent for the year.

"A sagging job market is the likely culprit. The silver lining: Overall foreclosure activity in July did drop about 10 percent from a year ago. But it was the 17th straight month of foreclosure actions on more than 300,000 properties, according to RealtyTrac."

Apple cakes and cornbread

That report also describes a consumer pushback of sorts, as people sick and tired of waiting for help are increasingly taking matters into their own hands--even if their plans are, let's say, fanciful. Efforts range from representing themselves in court--as more judges are  getting savvy to lender tricks--to having large-scale "bake sales."

One woman who lost her house after losing her job has been inspired by "Teaneck, N.J., homeowner Angela Logan [who] sold enough of her $40 apple cakes to qualify for a loan modification that allowed her to save her home. She dubbed her venture Mortgage Apple Cakes.”

Fueled by visions of Logan’s success, Beverly Davis decided to sell her grandmother’s cornbread recipe (10 bucks for the dry mix or the mix plus a cast-iron skillet for $40; see cornbreadmillionaire.com)–in hopes of raising  80 grand in order to buy her house back. On August 13, the ABC report said she had 21 days left. A quick check at her site shows an Aug. 4 post indicating that the bank told her the house will not be auctioned but instead will go on the market with a “firm price”–but (of course!) they can’t reveal to her any advance info…

No, that would make too much sense–to give out information to the most motivated buyer for the house, somebody who already thinks of it as home.


The bankruptcy reform act of 2005 increased the complexity of the law, but 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, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, 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

Life after bankruptcy: misconceptions can cause confusion

May 4th, 2010 by Mike Hinshaw

Last time we looked at reaction to the “moral failings” argument of critics opposed to people filing for bankruptcy protection. Besides the idea that bankruptcy is how deadbeats game the system, we often hear dire warnings such as, “You’ll ruin your credit score,” or “Bankruptcy stays on your record for ten years,” or “You’ll never get a decent job again.”

Quite often, the people or companies using these scare tactics are pitching products or programs of their own. If you read something along the lines of bankruptcy will “ruin your life,” be sure to investigate what course of action or product is being offered as an alternative to bankruptcy. (As we’ve noted before, be particularly wary of so-called “debt settlement” companies that offer the moon while demonizing the bankruptcy process–more about this in Part 2.)

FTC and credit counseling

For instance, legit credit counseling agencies do exist. Here’s the Federal Trade Commission’s page called “Information About Credit Counseling and Debtor Education,” a thorough overview of the credit-counseling aspect of bankruptcy that also includes a link to “list of approved debtor education providers at www.usdoj.gov/ust/eo/bapcpa/ccde/de_approved.htm or at the bankruptcy clerk’s office in your district.” The page also features a good list of crucial questions to ask of any debt counseling agency or service.

One thing that pops out, though, concerns fees and up-front costs: The FTC says the cost for the initial session should “generally be about $50, depending on where you live, the types of services you receive, and other factors.” Furthermore, “If you cannot afford to pay a fee for credit counseling, you should request a fee waiver from the counseling organization before the session begins.”

Now, if counseling or other research indicates that bankruptcy protection is not for you, then don’t pursue it–and certainly don’t use the protection frivolously.

Bankruptcy ruins credit-rating?

That being said, however, many of the horror stories are just that, scary stories that don’t bear up under research. For example, will bankruptcy ruin your credit rating? Unfortunately, that’s not a yes-or-no answer. True, bankruptcy is the single largest hit a credit score can take. Here’s a recent comparison  (not exact, due to the vagaries if the FICO equations) from CNN.Money.com, showing various effects of mortgage delinquency, foreclosure and bankruptcy: clearly, at a range of 130 to 240 points, bankruptcy is a huge hit.

If you’re 30 days late, expect your rating to drop 40 to 110 points; 90 days late, 70 to 135 points–but if you lose your home, it’s somewhere in the 85 to 160 range. And that’s regardless of whether the loss is through foreclosure, short sale or deed-in-lieu.

For a homeowner, the primary concern often becomes the tradeoff between saving the home (usually through Chapter 13 protection) and the lowered credit rating: If losing the home results in major credit-rating downgrade, what’s been accomplished?

Another consideration involves the “weighting” of the FICO analysis. The way it works is someone with a high credit rating has more to lose, according to the CNN piece:

“Some borrowers will fall much more steeply than others for the same payment problem, according to Maxine Sweet, vice president for public education at Experian, one of the nation’s main credit bureaus.

” ‘If you picture someone who has just one mortgage and one other credit account versus a mature credit user like me with 15 accounts, if they miss one payment that would impact their scores a lot more,’ she said. ‘For me, one missed payment would just be a blip.’

“The point loss also depends on the borrower’s starting point: People with very high credit scores have more to lose than low-score borrowers; the impact of a single blemish on an 800 score is more than on a 500.”

This comes into play for many who have been struggling for a long time; that is, their credit ratings may already be in tatters.

Making a business decision

The cold, hard business decision, then, becomes “What’s the best way to start over, and begin rebuilding?”

Again from the CNN article: “Despite the problems a poor credit score can cause, Experian’s Sweet recommends that people who are in financial dead ends, like totally unaffordable mortgages, it’s better to recognize that and cut your losses quickly; don’t prolong the problem.

” ‘You need to do what you need to do to get your finances back in order,’ she said. “Don’t worry about your credit score.”

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

Vermont bill would force lender mediation before foreclosure; many in California on hook for income tax from “short sales”

March 21st, 2010 by Mike Hinshaw

Two states on opposite coasts also are on opposite sides of the fence in helping economy-jammed homeowners.

With a new bill passing in the state House on March 18, Vermont may be late to the party for many homeowners, but it’s coming off as the voice of reason in comparison to California.

The measure in Vermont proposes that lenders must meet in mediation with affected homeowners before foreclosure can proceed. You can easily appreciate this proposal if you’re one of the millions whose family, friends or neighbors has spent untold hours trying to get a straight answer–or even speak with the same person, two months in a row–from mortgage lenders or loan servicers. Isn’t it almost as if their organizations were designed to cause confusion, rather than alleviate it?

Of course, it’s one thing to deal with predatory lenders tied into Wall Street arrangements. But it’s quite another to have your state government leave you hanging out to dry, and that’s whats happening in California, at least until the Governator gets squared away with a wayward clause or three.

U.S. Congress addressed the issue in 2007

The issue on left coast concerns what is known as “short sales” of homes and the result such a sale has on the seller’s income tax. Traditionally, when a lender OK’d a short sale , the IRS (or the state, if it has an income tax) would consider the forgiven amount as income. Apparently, the reasoning there is that “you got away with something” so we have to tax it. However, what in retrospect seems like a lightning-quick response, the U.S. Congress moved in 2007 to redress that wrong.

And California addressed its own state situation, but then the coverage ran out.  For a snapshot, here’s the opening grafs from a March 15 San Francisco Chronicle report:

“Tara Blackwell and her husband sold their Fairfield house in December for about half of its original $825,000 price as a short sale, in which the bank agrees to accept less than is owed on the mortgage.

“The couple and their two children moved in with Blackwell’s parents and thought the situation was behind them. Then it came time to pay their 2009 taxes.

“To their dismay, they discovered that California would count the $412,000 difference between their original price and the sale price as part of their income, resulting in a hefty state income tax bill.

” ‘We lost our down payment of $70,000, we lost our home and now California wants $38,000 (in extra taxes) from us,’ Tara Blackwell said. ‘It’s like kicking you when you’re down.’ ”

Apparently, it all boils down to a head-butting contest between the governor and the state legislature.

Californians were protected until 2009

From an account at huliq.com: “In California, however, the laws on mortgage debt relief fall under state provision. Debt forgiveness occurring on or after January 01, 2009, no longer conforms to federal provision as non-taxable. Instead, the amount of debt released is considered taxable to the state of California.

“The state treats home loans as non-recourse debt, that is, if the home is foreclosed upon, the homeowner is seen as having sold the home for the amount of outstanding debt. Whatever the difference in the mortgage debt and the homeowner’s basis in the house counts as the gain or loss in actual sale.

“If there is a ‘profit’ from the foreclosure, and the property is the principal residence for at least two of the past five years, than the gain may be eligible for gain exclusion on the sale. Conversely, if there is a loss, it may not be taken because it is a person’s primary residence.

“The issue is a pressing one for Californians. Because the debt remaining on a short sale or foreclosure is taxable to the state, many Californians are faced with huge tax bills on top of losing their homes. Currently, Governor Schwarzenegger has threatened to veto the tax forgiveness bill because of a provision in the bill relating to tax fraud penalties for businesses.

“Schwarzenegger wants that provision to be excluded from the bill or wants a separate bill drafted altogether which deals exclusively with the mortgage legislation. Democrats, however are dragging their feet on the issue.”

Diana Olick, in a March 16 “Realty Check,” mentions that California has the nation’s highest foreclosure rate ( “. . . 68,562 properties received a foreclosure filing in February alone . . .”) ends her piece on an alarming note: “The government’s short sale program is designed specifically to lower the number of foreclosures by getting these homes sold quickly to financially able buyers.

“Oh, and remember the $1.5 billion that the Feds also just gave to the five hardest hit states (that would be CA) to do stuff including principal write-down on loans?

“If all these troubled borrowers are going to be hit with a massive tax bill after the fact, then guess what?

“They’re not going to do it.

“Foreclosure city!”

Experts advise filing for tax extension

Californians on the hook have to wait a few more days, until March 23, the deadline for Schwarzenegger to sign the bill.

The Chronicle’s post says, “Several other pending bills would align the state with federal tax law, and Schwarzenegger has indicated that he would sign a bill that focuses only on this issue,” and that, in the meantime, tax “experts advise people who lost their homes in 2009 to file for an extension in hopes that California will rectify matters.”


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.

New chapter in bankruptcy? Not by a long shot…

March 16th, 2010 by Mike Hinshaw

Here’s something different.

Ran across this from the Philadelphia Business Journal, headline “A New Chapter in Bankruptcy.”

The thrust of the piece is that the personal bankruptcy rate is not so bad, given the state of the economy.

Jeff Blumenthal writes in his lede: “With the U.S. economy experiencing its worst downturn in more than half a century, one would think that personal bankruptcy filings would be through the roof. But that has not been the case.”

Good grief. Can we beg to differ?

Bankruptcy filings directly reflect the economic pain 0f  any given region, allowing for regional/cultural differences.

If you’re not following bankruptcies, foreclosures, or credit default swaps, it might be easy to buy into Blumenthal’s thesis.

Here’s some more from Blumenthal:

‘Filings have not skyrocketed’

“Local consumer bankruptcy lawyers said filings have not skyrocketed — though they have increased in each of the past three years — because of a combination of factors. Chief among them are the more stringent law, which makes it harder to file, and new mortgage remodification programs introduced in response to the recession, which have given many would-be filers a reprieve.”

Maybe it’s simply a matter of which end of the telescope you’re using, but looking at some recent headlines from press releases of  the American Bankruptcy Institute, one wonders what it would take for Blumenthal to detect a skyrocket:

Bankruptcy rates about the same as before reform act

Blumenthal seems to hang his argument on the rate of bankruptcy filings before the so-called reform act of 2005. He writes:

“In the decade leading up to the 2005 law’s enactment, annual U.S. consumer bankruptcies hovered between 1.1 million and 1.6 million filings. Those numbers rose to 2 million in 2005 as people rushed to file before the law was enacted that fall. With so many people having already filed, there was a 70 percent drop off in 2006 consumer filings (597,965). Then, with the mortgage crisis hitting in 2007 followed by the 2008 stock market collapse, filings began to jump again — by 40 percent in 2007, 33 percent in 2008 and 32 percent last year. But the 1.4 million filings in 2009 was still only on par with the numbers prior to the law’s enactment.”


Rates dropped 70 per cent after law changed

Let’s get this straight. After the credit card lobbyists succeeded in making it tougher for people to file for bankruptcy protection (and a rush to beat the new law’s deadline), “there was a 70 percent drop off in 2006 consumer filings. . . .” OK, so isn’t that the new baseline?

In other words, the lobbyists won. Which gave us a new landscape, which even Blumenthal seems to concede is a harsh environment for those who most need protection. Here he mentions an authority on bankruptcy law in Pennsylvania (emphasis added): “Henry Sommer, the dean of the Pennsylvania consumer bankruptcy bar, estimated total costs of filing have gone up from about $900 or $1,000 to about $2,000, which he said is too big of a burden for many low-income people. He said lawyer fees are also higher because more paperwork is required. Debtors must provide salary history and bank and tax statements. Sommer said some people who used to be able to tap into more equity or 401(k) plans to stave off filings can no longer because those funds have been eaten away by the recession.

“It used to be simple to prepare,” Sommer said. “Now, it’s a lot more complex.”

Recession-era rates soar to pre-reform levels

So really what we’re seeing is that despite the stricter requirements, higher fees, built-in delays and increased complexity of the “reform,” the number of people seeking bankruptcy protection rose “40 percent in 2007,” another “33 percent in 2008″ and then another “32 percent last year.”

Perhaps the March 2 PR from ABI says it best: “While Congress and the Obama administration continue to consider measures to reduce high unemployment and mortgage burdens, families with increasing debt loads have little choice but to continue to turn to bankruptcy for financial relief,” said ABI Executive Director Samuel J. Gerdano. “Consumer filings this year will likely surpass 1.5 million filings, or the same number of annual filings averaged in the years leading up to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.”

In other words, the Great Recession is so bad that the consumer bankruptcy rate has soared back to pre-reform levels, and now there’s more people who need the relief but can’t afford it.

Not much of a “new chapter,” is it?


The bankruptcy reform act of 2005 increased the complexity of the law, but 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, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing  financial decisions, 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

Calling it quits, Bayh says Congress must change in order to fix the crisis–cites ‘filibuster abuse’ as key to dysfunction

February 21st, 2010 by Mike Hinshaw
The rise in "cloture votes" since the 1950s (from "Our Broken Senate," The Journal of the American Enterprise Institute).

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.


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).

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

Dems’ election loss illuminates the modern filibuster system: How can hard-hit consumers survive this stacked deck?

February 3rd, 2010 by Mike Hinshaw

Who knew a relatively unknown state senator could have such far-ranging implications for jammed-up consumers scurrying to deal with over-the-levee unemployment rates, health-care costs and home-foreclosure levels–as well as credit-card company shenanigans?

Scott Brown (R-MA)  hasn’t been seated in Teddy’s 50-year-old chair, yet–but already he has an action figure. And some reports–notably, this one in the Christian Science Monitor– say his Republican victory in the Massachusetts race for Kennedy’s vacancy has “sent tremors” not only within the Team Obama reform effort but also “throughout the United States.” Beyond the five states the Monitor cites as candidates to follow the Massachusetts’ example, the spillover has also reached the Illinois primary–yes, a primary–in which Reuters points out “Five things to watch in Illinois” and at least one GOP-leaning blogger quotes the Reuters report then goes on to say: “The White House is paying close attention today. It’s a primary close to Obama’s heart, as it’s his former Senate seat that’s up for grabs.”

One thing for certain–any leader who can even partially help us to hack our way out of this mess deserves an action figure.

The serious, sobering certainty is that one election cost the Democrats their Senate “supermajority” of 60 votes, the implications of which are detailed in this CBSnews.com piece.

Here’s the highlights: “Basically, without 60 votes, under Senate rules, debate could go on forever and ever. This is called the filibuster. So basically, [because Brown won] . . . , the Republicans, with 41 votes, . . . have enough votes as the minority to prevent the Democrats, the majority with 59 votes, from ever bringing a final vote on health care reform or any other legislative priority to the floor. The minority [does] . . . basically control the Senate.”

Senate tactic not mentioned in Constitution

Ok, well, maybe that’s not quite true, but the point about the filibuster is accurate; and if all this self-focused in-fighting is not enough, turns out that cloture, the “procedure” that kills a filibuster, is not even a Constitutional device–in other words, even though its effects are very important to legislation that affects us all, it’s merely a procedural tactic–and limited to the Senate, at that. (For comparison, read about the Electoral College, which is in the Constitution.) This won’t be “the first time that the filibuster has been used to stop major pieces of legislation,” Fisk and Chemerinsky write, “and it’s definitely not a partisan idea–both parties, when in the minority, have used the filibuster to prevent the majority from passing everything they wanted to.

“According to law professors [Fisk and Chemerinsky] in their Stanford Law Review article from 1997, ‘The Filibuster,’ the technique was used not only to prevent civil rights legislation from passing for years in the last century, but more recently during the Clinton administration. Senate Republicans, then as now in the minority, used the filibuster to stop economic stimulus, campaign finance reform, lobbying reform and the [previous] attempt at health care reform. When the Democrats were the minority party in the Senate, they used the filibuster to stop much of the GOP’s Contract with America.

” ‘Filibusters are so ubiquitous in the contemporary Senate that it is now commonly said that sixty votes in the Senate, rather than a simple majority, are necessary to pass legislation and confirm nominations,’ wrote Fisk and Chemerinsky. “In fact, during the presidency of George W. Bush, Democrats, with Biden in their ranks, frequently filibustered some of the president’s judicial nominees for the federal courts.”

It gets worse.

Evolution of the ‘painless’ filibuster

When you think of a real-life filibuster, aren’t you getting an image at least somewhat informed by movie life? Namely, Jimmy Stewart’s “Mr. Smith” in Mr. Smith Goes to Washington. Anyone who’s ever seen the movie remembers the agonizing filibuster reel, watching the hero struggle to learn the tricks of the rulebook, while the other senators take turns dozing, coming and going in shifts.

Well, it turns out things have changed quite a bit since Capra made that 1939 movie.

The filibuster tactic nowadays is known as the “stealth filibuster.”

From the abstract of the Fisk and Chemerinsky paper: “Filibusters are ubiquitous but virtually invisible, for the contemporary Senate practice does not require a senator to hold the floor to filibuster; senators filibuster simply by indication to the Senate leadership that they intend to do so.”

In other words, a senator merely indicates that “I would filibuster, if I had to” and that takes the place of the real thing: no parched lips, no pleading bladder. *Poof* Instant roadblock, and the bill is tabled–Next!

From a May 5 piece at Huffington Post, “The Electoral College is provided for in the United States Constitution. The filibuster is not. In fact, the word doesn’t appear in any of our founding documents. Its derivation is from the Spanish filibustero, meaning ‘pirate’ or ‘freebooter.’ “

History of the tactic’s development traces to 1789, according to the Huffington piece, but for this discussion, the first important change came in 1917, when “the Senate developed a way of shutting down dilatory tactics of an obstreperous minority. It is called the cloture rule. During the closing days of the session that year, a group of isolationist senators who opposed the entry of the United States into World War I filibustered a bill which would have allowed President Wilson to arm U.S. merchant ships. The President denounced them as a ‘little group of willful men’ and called on the Senate to change its rules.”

Which it did, resulting in “a cloture rule which was embodied in Rule XXII of the Standing Rules of the Senate” . . . providing for “a 2/3 vote of all senators” that “could cut off debate.”

Whether Jimmy Stewart’s character had a problem taking a bathroom break is a question for fans of movie trivia, but the longest. actual-factual real-life filibuster on record–Strom Thurmond’s 24-hour, 18-minute ramble-thon against the Civil Rights Act of 1957–“would have gone on longer had Thurmond’s doctors not forced him to quit out of concern for kidney damage.”

More important was a deal brokered by LBJ (big surprise, right?) that resulted in a couple of new wrinkles, which in turn paved the way for a post-Watergate rule change that, among other things changed the majority requirement to a 3/5 vote and resulted in the the 60-vote supermajority requirement of today.

Inadvertent creation

Sadly, there’s more…which brings us back to Fisk and Chemerinsky, as described in the Huffington piece: “The story took a turn for the worse when, in the early 1970s, Senate majority leader Mike Mansfield — intending to dilute the power of the minority –inadvertently made filibustering easier.

“The extended speechifying made famous by Strom Thurmond and Huey Long before him has been replaced by what legal scholars Erwin Chemerinsky and Catherine Fisk have dubbed the ‘stealth’ filibuster. Its genesis was the early 1970s, when it became apparent to then majority leader Mike Mansfield (D-MT) that delaying tactics such as objections to unanimous consent motions; forcing the previous day’s journal to be read aloud in its entirety; suggesting the absence of a quorum; and — of course — extended periods of time holding the floor were causing the Senate to fall behind in doing the people’s business.”

An idea emerged to let filibusters occupy morning sessions, but to reserve afternoons for “pressing business.”

Perversely, what actually developed from Mansfield’s dual-track system “has proved to be disastrous.”

——————-Next, in Part 2—————

What we have now is a system in which “the Senate has come to a point in time where it seldom takes up legislation unless the majority leadership has counted sixty votes. In other words, a credible threat that 41 senators won’t vote for cloture is enough to keep a bill off the floor on most occasions. 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.’ ”


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

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 Zillow.com, 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.

Case-Shiller outlook on housing recovery too optimistic, says Fiserv, which sees more price drops ahead in 342 markets

October 21st, 2009 by Mike Hinshaw

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.”


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.

Week that was: Housing, unemployment data show recession may be slowing, but far from over–better regulation needed

September 1st, 2009 by Mike Hinshaw

[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.


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

Summer 2009 review: Foreclosure relief still sorely lacking while other concerns jostle onto stage of national debate

July 20th, 2009 by Mike Hinshaw

[Editor's Note: This is the first of a three-part series focusing on domestic bankruptcy for summer 2009.]

Foreclosure of primary residences remains in the forefront of topics concerning consumer bankruptcy filings, but the spotlight is increasingly being shared with debates about overwhelming medical costs, rising unemployment and commercial bankruptcies that can ripple through the economy.

According to July 2 press release from the American Bankruptcy Institute (ABI), personal bankruptcy filings in the U.S. during the first half of 2009 climbed 36.5 per cent higher than the number of filings in the first half of 2008. Relying on data from “the National Bankruptcy Research Center (NBKRC),” ABI says that “[t]he overall June consumer filing total of 116,365 was 40.6 percent more than the 82,770 consumer filings recorded in June 2008″ and also points out a minor note of encouragement: Although “the June total represented an increase over the previous year, it was a 6.8 percent decrease from the May 2009 total of 124,838 consumer filings.”

However, “Chapter 13 filings constituted 27.7 percent of all consumer cases in June, a slight increase from May.” The dark side of that coin is, presumably, perhaps nearly 70 per cent of filings may be Chapter 7 cases–which means more folks are liquidating rather than working out payment plans.

“As unemployment, foreclosures rates and health care costs continue to rise, more consumers are turning to bankruptcy as a last financial resort,” said ABI Executive Director Samuel J. Gerdano. “We expect that there will be more than 1.4 million new bankruptcy filings by year end.”

Meanwhile Team Obama’s plan to help homeowners stay put has helped a few–but the initiative has had a tough time gaining significant traction. As the San Jose Mercury News reports July 16, “Banks say they’re swamped with inquiries and are just now completing the first mortgage ‘loan modifications’ under the Obama administration’s Making Home Affordable plan, the program begun in April requiring borrowers to make three months of renegotiated payments before securing new loan terms.”

But the hideous reality is that “frustrated borrowers are still battling red tape and delays in their attempts to negotiate lower payments, even as hundreds of thousands of them lose their homes every month.”

One San Jose homeowner described in the piece sounds like a poster boy for Those Who Deal with Mortgage Companies: “Angelo Gallo, 46, of San Jose, sought help from his bank lowering his monthly payments in January, before the Obama plan was announced. He said he and his wife, Mary, worked with their lender for five months, fulfilling numerous requests for more documents, but recently they were told they had to start over. ‘I was so frustrated,’ Gallo said. ‘Every time you call it’s a different person, and it seems like the files are all over the place.’ “

Anyone who’s tried to deal with mortgage problems in the years since lenders began shuffling loan packages off to Wall Street–rather than keeping their loans in-house–can relate to Gallo’s bewilderment. Perhaps among the reforms Team Obama is pursuing there should be a requirement for the servicers of home-mortgage loans to assign a project manager to a bloc of loans, such that one person somewhere in the bureaucracy can be at least somewhat familiar with the background of the case. Certainly the present system is utter chaos.

“There is an amazing lack of staffing to support the flood of modification requests the banks are getting,” said San Jose bankruptcy lawyer Norma Hammes, past president of the National Association of Consumer Bankruptcy Attorneys. “Lenders lose stuff all the time, and they ask for stuff they don’t need. We have to jump over hurdles and through hoops.”

Bankruptcy lawyers, the article says, “are particularly critical of the banks. The banks’ current efforts are ‘largely a farce,’ according to Cathy Moran, a bankruptcy lawyer in Mountain View, CA. She said most of her clients have been unable to modify their home loans.

‘I don’t think the people in the loan modification departments at banks are empowered to make deals,’ Moran said.”

That may well be the case–as outlined here, many loan servicers may not be willing (or able) to modify loans because of downstream contracts with investors who bought into the so-called securitized tranches that help fueled the economic meltdown in the first place. Indeed, San Jose bankruptcy lawyer James “Ike” Shulman is quoted thusly: “I’m seeing several people each week with the same hard-luck story of how mortgage lenders have led them on for months, lose the paperwork and then find one excuse or another to turn them down.”

Of course, bank reps say they’re doing as well as can be expected. One spokesperson for Bank of America said it has  “7,400 ‘home-retention specialists’ [who] are taking about 80,000 calls a day. The bank has made more than 48,000 offers through the federal program and now has 18,000 people making payments in their trial modification period.

“Chase is moving through a backlog of 155,000 loans ‘as fast as we can, having hired nearly 3,000 people to help in the process, including 950 loan counselors,’ spokesman Thomas Kelly said. The bank, which took over failed subprime lender Washington Mutual, has approved 87,100 trial loan modifications under the federal plan, Kelly said, and an additional 50,900 under the bank’s own program.”

But the Mercury’s reporter, Pete Carey, apparently remains unconvinced: “Though the reasons are many,” he writes,  “the problem is simple: Banks aren’t renegotiating enough loans to stem the rising tide of foreclosures, either through the federal program or on their own.

‘If the banks wanted it to work, it would work,’ said Fred W. Schwinn of the Consumer Law Center in San Jose.”

Next in series: Health care, medical bills and bankruptcy: contradictory studies.

Online resources: intro to Chapter 7, click here; intro to Chapter 13, click here; refinancing and loan modification, click here.