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

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).

As recession hangs on, lack of homeowner-loan workouts may bring bankruptcy reform back to a more willing Congress

September 11th, 2009 by Mike Hinshaw

Well, I’m starting to like Diana Olick.

The preceding post discusses why news of the recovery may be premature.

In Thursday’s “Realty Check,” Olick paraphrases a radio news item as saying, “Good news on the housing front! Foreclosures are moderating, potentially signaling an end to the housing crisis.”

Says Olick, “This is why people don’t trust the news.”


Here’s a summary from another CNBC post on Thursday: “Home foreclosures in August jumped 18 percent from a year ago, but decreased 0.47 from the previous month, according to a new report by RealtyTrac, an online marketplace for foreclosure properties.”

So, yeah, as Olick points out, we saw a .47 per cent decrease from the record high set in July, but the August rate is still nearly 20 per cent higher than a year ago.

Of course, that is better news than yet another record month–but no reason to get giddy. There’s still plenty to come, and there’s still many people who face some tough, tough decisions about dealing with foreclosure, addressing medical debt, looking for work, and whether to file for bankruptcy protection.

In fact, as posted Wednesday at USAToday.com, nationwide bankruptcy filings in August were 22 per cent higher than in the same month a year ago: “From January to August, national bankruptcy filings reached 954,911, up from 703,732 in the same period of 2008, according to Automated Access to Court Electronic Records.”

Now, there’s a few crucially interesting items showing up in light of these data.

One is hinted at the sheer number of projected bankruptcy filings by year’s end, now expected by some experts to reach 1.45 million–which would put us near the record levels established in the period leading up to the so-called Bankruptcy Reform Act of 2005, when the credit-card lobby rammed through changes designed to make it tougher for consumers to file bankruptcy. As the USA Today post continues, “After the bankruptcy law changed in 2005, filings had slowed.

” ‘But we’re now heading back close to where they were before the law was enacted,’ Lawless says. ‘It’s not surprising, because the 2005 law did nothing to change the underlying economic reality of why people file for bankruptcy.’ ”

That’s important enough to repeat:  “. . . the 2005 law did nothing to change the underlying economic reality of why people file for bankruptcy.”

For point two, we’re back to Olick and a post from Wednesday: “The House passed it, the Senate defeated it, but you had to know the idea of bankruptcy judges getting into the business of mortgage modifications would not go gently into that good night. Today the Treasury Department released its latest progress report for the Home Affordable Modification Program (a.k.a. the housing bailout).”

Previously Olick has come out against new legislation that would allow bankruptcy judges to modify terms of a loan for a primary residence, perhaps most noticeably here, where she writes what I consider the takeaway: “Personal bankruptcy is really no better, which is why I have trouble understanding why lawmakers are pushing for bankruptcy judges to modify loans. That would just give borrowers more incentive to file for bankruptcy. I guess the argument is that they have no choice, and at least bankruptcy could keep them in their homes.”

But in Wednesday’s piece, she follows the mention of Treasury’s report with a table showing results of major lenders’ modification efforts as relevant to Team Obama’s Home Mod plan. Following the table, Olick summarizes thusly, “Some of the results are pretty abhorrent, like Bank of America, the lender with the largest number of eligible delinquent loans, starting modifications for just 7% of those loans.”

She ameliorates BoA’s numbers a bit, but then quotes Congressional testimony from Asst. Secretary for Financial Institutions Michael Barr that ends, “There is unevenness in performance as you can see from our public reports, unevenness in performance among and between the servicers involved. We think all the servicers could do more than they are doing now.”

Olick also quotes House Financial Services Committee Chairman Barney Frank as saying, “The best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a very good job of modifying mortgages. If they do not improve their performance, then they improve the chances of that legislation.”

So, point two is that that dragging out the loan modification process may well enable Congress to re-address real bankruptcy reform, in a meaningful way. As we’ve stated repeatedly, it simply makes no sense to allow judges to modify terms of loans on vacation homes and other luxury items while preventing the same judges from modifying terms on primary residences.

This also brings up another point. As discussed here, the companies who actually service mortgage loans might prefer to foreclose rather than modify loans, because the loan servicer has “perverse incentives” to collect more fees by handling the foreclosure rather handling the loan modification.

And as discussed here, loan servicers can actually face lawsuits from investors if the loan servicer agrees to modify a home loan.

So, for point three, let’s just say it’s abominably astounding that no official program addresses these two concerns.


  • If mortgage-loan servicers really do have perverse incentives to foreclose rather than modify, then we need to get that fixed.
  • If mortgage-loan servicers really are subject to bona fide lawsuits from downstream investors, then we need market-reform legislation to address that, too.

And that brings us full circle on the bankruptcy issue: Maybe the simplest answer after all is to simply grant the loan-mod powers to bankruptcy judges that they should already have.


You may be facing extended unemployment, imminent foreclosure, overwhelming medical bills or unworkable credit-card debt–or a combination of all these. Regardless of your situation, filing personal bankruptcy can offer you legal protection and relief from stress while also providing a way to better credit in the future. Whatever your circumstance, the sooner you get advice from a competent, experienced bankruptcy attorney, the sooner you will have facts to help you decide what’s best for you and your family. Here’s some links to get started.

Bankruptcy questions

Bankruptcy principles

Bankruptcy Act of 2005

Bankruptcy exemptions

Bankruptcy laws in your state

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.


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