Free Markets, Free People

“Cram Down” Bill Defeated By Senate

An moment of sanity prevailed in the Senate today:

For the second time in two years, a provision to allow bankruptcy judges to modify mortgages died in the Senate today, handing the Obama administration a significant defeat in its plans for arresting the foreclosure crisis.

Supporters argued the measure would keep 1.7 million borrowers in their homes, but it ultimately foundered in the face of fierce financial industry and Republican opposition. The bankruptcy modification provision, which was offered an amendment to a broader housing bill, failed by a vote of 45 to 51.

I love how this is reported by the WaPo. The measure failed because of ‘fierce financial industry and Republican opposition?”

Apparently it failed because 14 Democratic Senators said “no”.

Of course, passage of such a measure would make legal contracts in this country subject to review by the courts and arbitrarily changed based on political concerns. Certainly, in this case, such power is only being given for changing mortgage amounts – but as we all know, precedent is what courts operate under, and such a precedent would just as certainly be used to attempt to give the court similar power with other types of contracts.

It’s a phenomenally bad idea, but one you can expect to see attempted again and again, as promised by Dick Durbin:

“I’ll be back. I’m not going to quit on this,” said Senate Majority Whip Richard J. Durbin (D-Ill.), who sponsored the measure.


“At some point the Senators in this chamber will decide the bankers shouldn’t write the agenda for the United States Senate. At some point the people in this chamber will decide the people we represent are not the folks working in the big banks, but the folks struggling to make a living and struggling to keep a decent home.”

You’ve got to love the populist rhetoric and the absolute misrepresentation of what he and those that were trying to get this monstrosity passed were attempting. A fundamental change in how this country has operated since its inception. If courts can arbitrarily change the terms of a contract for social/political reasons, we’re doomed. And that’s precisely what Durbin and his ilk are proposing.

Unfortunately I have no confidence that he won’t manage, at some future time, to push this piece of legislation through. But at the moment, it’s where it needs to be – in the virtual garbage heap of bad legislation.


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13 Responses to “Cram Down” Bill Defeated By Senate

  • The economic idiocy pushing this is astounding.

  • Damn those Republicans!  Their power…it’s….it’s amazing!

  • “the people we represent are not the folks working in the big banks”

    Who the hell do you support you tool? Who says you are allowed to decide who you do and don’t work for? Don’t you work for all Americans? What a dunce, i would take him to task fiercely for such a ridiculous and disgraceful comment if ever it be uttered in my presence. Apparently the cashiers at Bank of America are not worthy of his highness and thus subject to be trounced on at his whim.

    This kind of idiocy truly infuriates me, if he feels that somehow bankers have committed criminal acts than i say he should try them for a crime, but to denounce them and claim them to be outside of governmental representation proves his elitists viewpoint toward the regular people whom he obviously takes as fools while he tries to rile them up against his political foes who have committed no crime except being successful and if financial success is criminal, i submit we charge most of congress.

  • When that guy showed those video interviews of Obama supporters who thought the GOP controlled Congress, I thought he must have cherry picked the dumbest people he could find.

    When I saw the Pew numbers that 30% of respondents were incorrect about which party was in control of Congress, I thought, well, some people don’t pay attention to the news.

    Now, I realize, they do pay attention to the news. The news simply lies to them.

    I guess the GOP must feel flattered, though.

    • I’m waiting for Erb or TomD or some of the others to come in and gloat about how the Republicans have lost all power and will soon cease to exist as a party.

      Don’t suppose it will happen on this post though.

  • I agree with the action taken (not taken?) by the Senate, but since the bankruptcy code already allows a debtor to propose the reduction of lien amounts on basically all property except their principal residence, some of the argument in the post is a little overblown.  Bankruptcy courts have had the power for at least 5 years to “cram down” loan contracts and have continually refused to extend that power to primary residences.

  • The defeat of this bill means that smaller banks and credit unions, along with the people they employ, will not suddenly find themselves on the streets due to bankruptcy judges forcing immediate write-downs of assets and thus throwing-off capital ratios.

  • Who voted against it?

  • I am still of the opinion that the whole mortgage crisis thing is overblown. I read an interesting article last week that stated that 40% of new home sales in 2005 were second (vacation or investment) homes. By 2007 that had sunk to 30%.  To me that is a rather amazing percentage, and indicates that there are not a whole lot of people being thrown out on the street by these foreclosures, ACORN et al. to the contrary not withstanding. Add to this the fact that the vast majority of mortgage defaults are occurring in a fairly limited geographic area (Florida, California, Arizona, Nevada) with some obvious similarities and the situation looks a bit less tragic.

    I have not checked lately, but I am assuming that the % of mortgages in default is still less than 10%.

    • But it’s a CRISIS, I tell you!  A CRISIS!  And WE’VE GOT TO DO SOMETHING!

      / sarc

      It occurs to me that we’ve had it so soft for so long in our country that we have no idea what true adversity even looks like, so it’s easy to cause us to panic when anything more than a minor inconvenience in our lives comes along.  Politicians love to exploit this sort of thing: “Give me more power and I’ll make the bad things go away.”

      Never mind that their meddling usually causes MORE bad things eventually…

  • Loans are contracts.  Contracts make the world go around.

    Depositors have given the bank their money at an agreed interest rate.  Lenders have a responsibility to make loans which will be repaid with interest.  Borrowers have a responsibility to pay their mortgages on time.  If they do not, the lender has not only the legal right but the obligation to foreclose.  Banks do not “own” the money.  Their depositors do.

    The Senate has no authority to modify lawful contracts selectively and after the fact. 

  • We ought to modify the election after the fact, because I don’t like the result.  I suspect Durbin disagrees,  but he has no principle from which to argue.

  • I believe BUSH modified TWO elections!!!