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Saturday, April 24, 2010

Don't Forget Joe Biden's Role in the Banking Crisis

The administration is running around blaming Wall Street for everything from the banking crisis to the NY Jets' collapse in last year's AFC Championship Game.Obama is is portraying big banking as evil people whose primary purpose in life is to screw the average American take away people's homes. Like much of the propaganda coming out of the White House this is just political nonsense. While the banks share a piece of the blame for the economic downturn we are still suffering through,  there are many midwives of the crises.

Usually the crisis has been attributed to things like balloon mortgages, the falling dollar, high oil prices etc. Never mentioned is a misuse of government regulation. The regulation that never happened that should have like the refusal of banking's best friends, Barney Frank and Chris Dodd to allow regulation of Fannie and Freddie. There was also the regulation that happened but shouldn't have.  According two studies, an important factor in the origins of the crisis was the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. BAPCPA had a huge role in "bursting" the housing bubble.

BAPCPA was a bi-partisan bill, supported by Republicans AND Democrats. Leading the way on the Democratic side was Senator Biden (now the SCHMOTUS-the Schmo of the United States), who over the course of his senate career received almost $600,000 from commercial banks and other lending institutions (and another $900,000 from investment and security companies):
Biden's early and vocal support was "essential" to the bill's passage, said Travis Plunkett of the Washington D.C.-based advocacy group Consumer Federation, which opposed the measure. Biden "went out of his way to undermine criticism of the legislation," and his efforts helped convince other Democrats to support the bill.

"Biden was a fairly strong proponent of that bankruptcy bill," said Philip Corwin, a consultant for the American Bankers Association, which represents banks and lenders. However, Biden was "not in our pocket in any way," he added.
Of course he wasn't in their pockets (like he would say anything else).
BAPCPA "is directly responsible for the rising foreclosure rate since the end of 2005," concluded a 2007 study by Credit Suisse. The law "increased foreclosures and the number of homes for sale," echoed a July 2008 study by U.S. Treasury researcher David Bernstein. That study estimated the law had pushed foreclosures or forced sales on 200,000 homeowners since it went into effect, but noted that was a rough, "back-of-the-envelope" calculation.
...The head author of the 2007 Credit Suisse report clarified his earlier findings in an email Wednesday. "The law likely contributed to increased foreclosures early on," said researcher Don Ravitsky, but combined with other key factors, including subprime lending practices, to create the current crisis. Bernstein did not respond to a request for an interview.

The bill was backed by banks and credit card companies including MBNA, which is headquartered in Delaware, Biden's home state. They wanted the bill because it would make it harder for Americans to use bankruptcy to avoid repaying credit card debt. MBNA executives had been Biden's single largest source of campaign donations, and MBNA has employed Biden's son Hunter as a company executive, lobbyist and consultant. The Obama campaign has said Hunter Biden did no work for MBNA on the bankruptcy bill. MBNA has since been bought by Bank of America.
Over the past two years, sub-prime mortgage borrowing and a weakening economy have pushed increasing numbers of Americans into dire financial straits. Under the old rules, many could have declared bankruptcy, shed much of their debt, restructured their mortgages and held onto their homes, according to experts and the two reports.

But the 2005 law Biden championed made it more expensive and more difficult to declare bankruptcy, experts conclude. That forced hundreds of thousands of distressed homeowners to sell their homes, or default on their mortgages, after which the bank would sell their former home, according to the studies. That flood of homes going up for sale in an already-weakening market further depressed home prices, according to the two reports, snowballing into the current crisis.
BAPCPA "increased home foreclosures, increased the dollar value of financial assets in default, and put additional downward price pressure on real estate markets," concluded the Bernstein report. Bernstein conducted the report as an individual, not as a representative the Treasury Department.
Instead of finding a scapegoat for each of the items on his political may our president should try to come up with real solutions on a bi-partisan basis, because many of the "villains" are on his side of the aisle and even in the SCHMOTUS in his own administration.

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