Remember When Senate Conservatives Tanked Cramdown Legislation?

On Thursday, April 29, 2009, the Senate defeated, 45-51, Brad Miller's Cramdown legislation, which had already passed the House (234-191), dooming the country to the financial and economic catastrophe we're suffering through now. Not a single Republican voted for it-- and 11 conservative Democrats crossed the aisle to vote with the GOP, including three who are up for reelection next year: Ben Nelson (NE), Jon Tester (MT), and Tom Carper (DE). Just thought I'd mention it. I'll also mention that almost all two dozen Democrats in the House who voted with the GOP on this were subsequently defeated for reelection, although Jim Matheson (Blue Dog-UT), Ron Kind (WI), Larry Kissell (NC), and Dan Boren (Blue Dog-OK) managed to survive... so far.

Saturday AlterNet made the best attempt to date to get out the real story of OccupyTheBoardroom, reprinting 9 Angry, Heart-Breaking Messages to Wall Street's Elites From the 99%. Joshua Holland's compendium begins with a photograph of half a dozen well-heeled securities traders sipping champagne on a balcony high over Zuccotti Park as they look down on the Occupation below, "capturing," he writes, "the haughty detachment with which Big Finance has received this rapidly spreading expression of popular outrage."

Charlotte, North Carolina is the second largest banking center in the United States after NYC, home to Bank of America and East Coast headquarters for Wells Fargo. It was also the home of Wachovia before they went belly up in 2008. One of the most poignant letters AlterNet published, "My Father's Hands," was written by a woman in North Carolina named Liza.

Like you I’m from the Tar Heel state so I thought I’d tell you my story. A couple of years ago my father died waiting for a liver transplant. It was an ugly, horrible death and left me parentless while still in my 20s. My brother and I inherited the small ranch-style house my father worked his whole life to pay off. (Our mother died during our childhoods.) I wanted to take care of my father’s money so I invested it. Six months later I had lost over half of it when the crash happened. I lost half of my father’s life savings because of the corrupt practices of Wall Street. My father worked his whole life. He was the 11th child of a sharecropping family and was sent to the cotton fields before he was ten. He completed high school but there was no money for college so he went to work at blue-collar jobs which he used to support us his whole life. 

When I think of the money I lost, I think of my father’s hands. I think of his broken, scarred hands that built a home and future for me. It wasn’t just money that Wall Street stole. Futures, trust, hard work and respect-- those are the things Wall Street corruption has stolen from the American People, not just money. I don’t think everyone on Wall Street is corrupt, but the system is, and I want to do my part to correct it, even if it’s just writing a letter like this. I owe my father that. Mr. Bowles, I hope you do your part too. Because of your position, you are a powerful person in our society. So I ask you, how will you use your power? What will your legacy be?

Brad Miller is North Carolina's best Member of Congress. Respected on both sides of the aisle, his gentlemanly demeanor makes his relentless battle on behalf of ordinary American families seem more palatable to his more conservative colleagues. A senior member of the House Financial Services Committee, it is Brad who leads the charge on half of consumers, small businesses and those the banksters see as prey. Brad is one of only 3 House incumbents endorsed by Blue America this year. He was a guest at Crooks and Liars earlier this month and you can read the Cliff Notes version here. Yesterday Brad sent me an interview he had done with Alex Ulam at The Nation, Why a Mortgage Cramdown Bill Is Still the Best Bet to Save the Economy.

Ulam isn't of the school that puts the whole blame for our financial mess on George Bush and the Republican policies Congress was able to enact before 2008. "Much of the blame for the country’s current economic woes," he wrote, "lies with the Obama administration’s failure to forcefully tackle the biggest threat to the American economy today: the housing crisis." The power of the Wall Street (and Charlotte) banksters over Washington is prohibitive, or, as Congressman puts it, "There seems to be an unstated but perhaps conscious policy of not forcing them [banks] to recognize losses. And almost everything that we can do to help the balance sheet problems for households-- to help reduce household debt-- would require the banks to recognize losses.”

When Senator Barack Obama was running for president he told voters that he would support legislation to allow homeowners to get relief in bankruptcy court. The legislation would have repealed a bankruptcy provision that prohibits modifications of mortgages on a primary residence. “I will change our bankruptcy laws to make it easier for families to stay in their homes,” he told voters at a campaign rally in September 2008, describing the bankruptcy exemption for mortgages as “the kind of out-of-touch Washington loophole that makes no sense.”

Today cram-downs make even more sense than they did in 2009. The various bank proprietary loan modification programs and the government-sponsored loan modification programs are widely acknowledged to be failures for not helping enough homeowners and also for having high re-default rates. But one of the biggest unmitigated disasters about these programs is that homeowners who have succeeded in obtaining loan modifications actually have become mired in more debt. That is because instead of reducing homeowners overall debt, these loan modification programs have focused on lowering monthly payments on a homeowner’s primary mortgage by reducing interest rates and extending the term of the loan. In 2010, nearly 95 percent of active, permanent loan modifications resulted in homeowners’ actually owing more debt on their homes than before the modification according to a Congressional Oversight Panel report.

The reason that we don’t have cram-downs is that the banks lobbied heavily against the 2009 bill. They said it would further destabilize home prices and that they would have to raise interest rates to account for the risk of underwater homeowners’ having their mortgages modified in a bankruptcy. They also argued that bankruptcy reform would create a “moral hazard” by rewarding irresponsible borrowers who took out mortgages that they couldn’t afford.

The misleading message on cram-downs that stuck in the minds of many voters came from CNBC host Rick Santelli. It was Santelli’s 2009 rant about cram-downs that launched the Tea Party. “This is America!” Santelli told cheering traders on the floor of the Chicago Mercantile Exchange, “How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills?”

In contrast to candidate Obama, President Obama was conspicuously silent on cram-downs. According to ProPublica, Treasury Department staffers actually cautioned lawmakers against the bankruptcy reform legislation. Unfortunately for underwater homeowners, although the cramdown legislation passed Congress in March 2009, it was defeated the following month in the Senate by a vote of 45 to 51. Georgetown Law School professor Adam Levitin, who has written extensively on cram-down legislation, says that Obama’s lack of support doomed the bill. “Had Obama put his weight into it, it would have passed,” says Levitin, “It would have been a fight, but he was too chicken to have the fight.”

“The principal objective of the Obama administration and the Bush administration before that was to let the banks avoid taking immediate losses,” says Democratic Representative Brad Miller of North Carolina, who sponsored the cram-down bill, “The bankruptcy law change was incompatible with that, it would have required the banks to recognize a lot of losses immediately and might very well have revealed some of them to be very nearly insolvent or actually insolvent.”

...Aside from propping up the country’s largest banks, there’s very little reason not to pass bankruptcy reform. In contrast to the Obama administration’s Home Affordable Modification Program, under which the taxpayer is partially footing the bill, court ordered mortgage cram-downs would cost the federal government nothing. Indeed, cram-down legislation requires no government bailouts or financial incentives for lenders or for borrowers. The 2009 CBO cost estimate of the proposed cram-down legislation shows that the federal government actually would have made money on the bill through the increase in bankruptcy filing fees.

...The argument that cram-downs would have rewarded irresponsible borrowers is also misleading. Chapter 13 Bankruptcy is not a get-out-of-debt-free option. It requires borrowers to live on a court-monitored budget for three to five years. Further, in many parts of the country, there are Americans who owe more than twice as much on their mortgages as their homes are worth. Many of these people are victims of predatory lending and appraisal fraud. The most authoritative official report that we have on the events that led to the 2007 meltdown, the Financial Crisis Inquiry Commission’s final report cites widespread instances of predatory lending during the housing bubble. For example, the commission’s report discusses how the quality assurance department of New Century, once the nation’s second-largest subprime lender, found evidence of predatory lending, legal and state violations and credit issues in 25 percent of the mortgages that they audited. Yet instead of reforming the company’s business practices, New Century executives dissolved their quality assurance department and terminated its personnel.

In addition to potentially helping millions of Americans get back on track, bankruptcy reform actually would have benefited the entities that own most of the outstanding secured mortgage debt in this country-- Fannie Mae, Freddie Mac, pension funds and private investors. “Investors recognize that a 20 or 30 percent principal write down creates re-performance,” says Joshua Rosner, managing director at Graham Fisher & Co, a company that advises investors, “and it beats absolutely a 70 percent plus loss in a default.”

Even one of the major unstated reasons for not passing the bankruptcy reform bill, protecting the nation’s largest banks, no longer holds water. Failure to pass the cram-down legislation has not in fact saved the banks from their travails. Bank of America, the nation’s largest bank, is going wobbly due in large part to its continuing problems with mortgage meltdown. If the cram-down legislation had passed and BoA had failed as a result, then so be it. Millions of Americans facing foreclosure would have had a much better shot at saving their homes, and that would have been a much bigger boon to the overall economy than bailing out the banks.

Congressman Miller participated in the early planning stages of OccupyRaleigh. You'd expect that from someone who told us that "the Obama Administration faced a choice between helping homeowners who could afford a mortgage on their home, but not the one they had, and helping the biggest banks pretend to be solvent until they could earn their way back in the game. The two were incompatible: an effective response to the foreclosure crisis would require the banks to recognize losses on their mortgage assets, especially second liens at the biggest banks. I think we took the wrong road, and that has made all the difference."

And when asked about Obama's strange statement last month that there were no laws broken and no crimes committed by the banksters, Brad didn't hesitate to politely disagree with the President:

The allegations in civil lawsuits by private mortgage investors and insurance companies, if true, appears pretty clearly to be of criminal conduct. I've struggled with the issue of politics and criminal prosecutions. I think calls for "perp walks" can sound like an appeal to mob rule, but not prosecuting powerful people in the face of clear evidence of criminal conduct is a real problem for democracy. I think some may have discouraged prosecutions because they feared for our fragile banking system, but I fear for our fragile democracy if people believe that the powerful are immune. I think the lack of criminal prosecutions or even aggressive civil lawsuits has offended the sense of justice of many Americans, including me.

If you'd like to help Brad stay in Congress, you can do that here at a special Blue America page dedicated to incumbents worth holding onto. The GOP-controlled North Carolina legislature gerrymandered his district to try to make sure the banksters would have one less watchdog to contend with. Brad intends to thwart their plans.