Ann Pettifor. Huffington Post. May 2nd, 2009
In my last post, I argued that the United States is now a bank-owned state. As if to prove my point, the banks used their power over 12 Democratic members of the Senate to defeat Senator Durbin’s “Helping Families Save Their Homes in Bankruptcy” amendment. And they financed the lobbying of taxpayer representatives with some of the billions of bail-out dollars provided by – taxpayers.
This was a defeat for American democracy. It represented a failure of senators to represent their constituents, honor the constitution and ‘establish justice, insure domestic tranquility and promote the general welfare of the American people. But while it was a defeat for democracy, it was a Pyrrhic victory for the bankers. One more such victory over Congress and the White House, and the bankers will be facing ruin.
Why? Property makes up most of the collateral backing up toxic assets owned by bankers. The upward spiral of foreclosures places downward pressure on property prices – the banks’ collateral. With falling collateral values, bank debts rise and become unpayable – forcing even more financial institutions into bankruptcy.
American homeowners – both those facing foreclosure and their neighbors – need a floor to be placed under falling house prices, for obvious reasons. Realty companies need a floor to be placed under falling house prices. The economy needs a floor to be placed under falling house prices. Above all bankers need a floor to be placed under their most important collateral – house prices.
The market will not stop house prices falling. So government has to intervene. Not just to save the homeowners, but also to save banks, because the banking system is still at risk of systemic failure.
The best way to protect the banks is via the route proposed by Senator Durbin. By managing bankruptcy law in such a way as to keep homeowners from forced sales of their homes, or from defaulting on their mortgages. In other words, by using bankruptcy law to place a floor under falling house prices.
Be sure, this route will cost American taxpayers a lot less than another bailout of the banks.
The bankers and their lobbyists on the Hill just did not get this. They may be voraciously greedy and anti-democratic, but, ironically, they are not pursuing their own best interests. By defeating Senator Durbin’s amendment, they are voting for more foreclosures, more bankruptcies and more bank failures.
In other words, they are like turkeys voting for Thanksgiving.