The United States Senate, of all august legislative bodies, recognized the importance of the rule of law to the business community. Today, in a shocking display of level-headedness, the Senate voted down President Obama’s pet project to permit bankruptcy courts to cram down existing residential mortgages.
Permitting courts to cram down residential mortgage debt would have further exacerbated the current crisis. If we believe the Obama Administration, tight credit is prolonging this downturn. However, if President Obama’s proposal had passed, banks would be even less likely to lend. Banks already risked (and got burned by) declining housing values turning loan to value ratios upside down. Banks did not, however, risk courts arbitrarily resetting terms and conditions in residential mortgages. Increasing uncertainty as to the value of a bank’s mortgage portfolio is no way to build investor confidence in the financial sector.
If President Obama’s scheme had become law, banks would have rationally lent only to high credit score borrowers in areas with stable property values. Millions of people would be shut out of the housing market, unable to borrow money, particularly folks in locales where property values rise (or fall) precipitously. ‘Puter’s looking at you California, Florida, Las Vegas and Michigan.
So, ‘Puter must say thanks to the United States Senate for doing its job, preserving the rule of law.
*Above, even a former Klan member and current Democrat Senator like Robert Byrd knows a bad law when he sees it.