[Congressional Record (Bound Edition), Volume 157 (2011), Part 15]
[House]
[Page 20253]
[From the U.S. Government Publishing Office, www.gpo.gov]




                        UNEQUAL BANKRUPTCY LAWS

  The SPEAKER pro tempore. The Chair recognizes the gentleman from 
Oregon (Mr. Blumenauer) for 5 minutes.
  Mr. BLUMENAUER. Madam Speaker, James Surowiecki outdid himself in the 
current issue of The New Yorker's financial page as he contrasted the 
decision of American Airlines to take bankruptcy versus the expectation 
of American business for how homeowners should behave. It wasn't that 
American Airlines couldn't pay its bills with its $4 billion in cash. 
It's just that it would be in a stronger position if it took advantage 
of the bankruptcy laws, where working with a bankruptcy judge, it could 
restructure union contracts, pension plans, and bank loans to its 
advantage.
  For example, it's perfectly acceptable and legal for a judge to reset 
the current value of an asset and to permit loans with higher interest 
rates to be set at lower current market rate. Unfair as it may seem to 
people who made the loans, it was part of the principle of bankruptcy, 
to allow people to not be mired hopelessly in debt but to start again 
under existing market conditions. It's part of what keeps our economy 
vital, keeping people not tethered to mistakes of the past or bad luck, 
even if those mistakes were self-inflicted.
  Contrast this with what business expects from the 25 percent of 
homeowners whose mortgages are underwater, where the financial 
institutions have argued about the responsibility of homeowners to 
avoid the stigma of defaulting, that it was their duty and obligation 
to pay, even if it was financially irrational and extraordinarily 
difficult. He pointed out that the Mortgage Bankers Association, at the 
same time it was exhorting homeowners to hang in there and keep paying 
their loans even if their mortgage was underwater, that it walked away 
from a loan on its headquarters, sticking the lender with a $34 million 
loss on a short sale.
  But he missed the real outrage: The expectation where homeowners, 
under bankruptcy, simply cannot do what American Airlines and other 
American businesses can do. Homeowners under law cannot take bankruptcy 
and have a judge reset the loan value of their residence to conform to 
what the current value is and to reduce the interest rates to reflect 
today's record low rates. That would have been the onerous ``cram-down 
provision'' so vigorously resisted by banks and financial institutions 
when we were discussing bankruptcy reform. Do as we say, not as we do.
  As a result, we have what I think is truly an insane situation where 
a speculator could buy six units in a condominium building and have a 
bankruptcy judge reduce the loan's amount and interest rate on each one 
of the speculator's six units, but the poor soul who bought his unit 
just to live in it cannot have that same privilege.
  If there was bankruptcy equality for homeowners, I don't think we 
ever would have had the financial bubble in the first place. You can 
bet that the masters of the universe that poured billions of dollars 
into securitized mortgage instruments would have been more careful if 
they knew that homeowners would have been treated the same way as 
businesses and could have had onerous provisions modified under 
bankruptcy.
  This is one of the reasons why the Occupy Wall Street people are so 
outraged, this dual standard, telling homeowners to stay the course 
while large businesses don't, fighting for change of the law under the 
guise of reform which made it impossible for homeowners to be treated 
as well as speculators.
  If some of our friends on Wall Street are perplexed about the 
frustration and the outrage, they might look in the mirror. Maybe, just 
maybe, this is something that the Occupy Wall Street and Tea Party 
advocates can agree upon.

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