Senator Dick Durbin, Democrat, has introduced the inevitable bill designed to "help nearly 638,000 families – a quarter of the 2.2 million people at risk of foreclosure – keep their homes by allowing them to modify the terms of their loan in bankruptcy proceedings." It sounds like a blow struck for the little guy against the big mortgage companies, but I'm more cynical than I used to be. A press release can say anything.
First of all, no matter who it benefits, this amounts to a kind of bailout. Bad financial decisions need to have predictable consequences, because that prevents bad financial decisions in the future. If an offer seems too good to be true it damn well better play out that way.
And free-market capitalism being what it is, big mortgage companies are already motivated to restructure debts, because the last thing they need is to foreclose on hundreds of thousands of houses at once. The paperwork overhead of turning those things over, added to a glut of fire-sale-priced residences, has got to be a worse headache than simply renegotiating with the current owners.
What worries me about this bill is that I suspect that Durbin isn't pushing it to help the little guy; he's giving the mortgage companies a face-saving way out. I mean come on, in a match between huge money and the common man, who do you think will get to a politician first? On the other hand, it pleases me to see a Democrat behind this. Sleazy? Yes. But two or three years ago it would have been a Republican with an identical bill, but they would have sold it as a means of sustaining jobs and keeping the economy afloat. The fact that the banks let a Democrat carry their water means it's going to be a mighty rough election year for Republicans.
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