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Bankruptcy Modification and the Emperor's New Clothes

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Joanne98 Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Jan-24-09 01:25 PM
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Bankruptcy Modification and the Emperor's New Clothes

A new argument being advanced against bankruptcy modification is that it will result in trillions of dollars of losses and the collapse of the financial system. This is the "the sky will fall" argument.

Leaving aside the grossly inflated numbers, let's be really clear that these are not losses that would be caused by bankruptcy modification. These losses exist with or without bankruptcy modification. All bankruptcy modification does is force these losses to be recognized now, rather than at some point down the road. Bankruptcy modification doesn't change the underlying insolvency of many financial institutions. One way or another, there are a lot of financial institutions that have to be recapitalized.

Financial institutions want to delay loss recognition as long as possible. Maybe they're hoping that the market will magically rebound. Maybe they think that 2006 prices are the "real" prices and "2009" prices are a very short-lived aberration. But here's the crucial point: homeowners bear the cost of delayed loss recognition by financial institutions. Delayed loss recognition means homeowners floundering in unrealistic repayment plans and then losing their homes in foreclosure. Delayed loss recognition means frozen credit markets because no one trusts financial institutions' balance sheets. Delayed loss recognition means magnifying, shifting, and socializing losses. We only make matters worse when we try to pretend that these losses don't exist.
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DCKit Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Jan-24-09 01:53 PM
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1. How many fewer foreclosures would there have been under the "old" bankruptcy law?
The bitches set us up.
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Riley18 Donating Member (883 posts) Send PM | Profile | Ignore Sat Jan-24-09 03:14 PM
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2. Bush allowed the credit card companies and banks to rewrite the laws in 2005.
Let's see if the bankruptcy laws are changed the way many of the other bush policies are being corrected. I have not heard anything about changing the laws back to the way they were. It makes no sense to my why I would pay to declare bankruptcy only to ruin my credit rating and still have to pay the credit card companies anyway.
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