http://www.guardian.co.uk/commentisfree/cifamerica/2010/nov/05/banking-mortgage-arrears
America no longer has a "rule of law"
If it actually did the major investment banks would no longer be in business.
Rewritten bankruptcy provisions reduce indebted homeowners to servitude. What has become of the rule of law in the US?
The mortgage debacle in the United States has raised deep questions about "the rule of law", the universally accepted hallmark of an advanced, civilised society. The rule of law is supposed to protect the weak against the strong, and ensure that everyone is treated fairly. In America, in the wake of the subprime mortgage crisis, it has done neither.
To some, all of this is reminiscent of what happened in Russia, where the rule of law – bankruptcy legislation, in particular – was used as a legal mechanism to replace one group of owners with another. Courts were bought, documents forged, and the process went smoothly. In America, the venality is at a higher level. It is not particular judges that are bought, but the laws themselves, through campaign contributions and lobbying, in what has come to be called "corruption, American-style".
When it became clear that people could not pay back what was owed, the rules of the game changed. Bankruptcy laws were amended to introduce a system of "partial indentured servitude". An individual with, say, debts equal to 100% of his income could be forced to hand over to the bank 25% of his gross, pre-tax income for the rest of his life, because the bank could add on, say, 30% interest each year to what a person owed. In the end, a mortgage holder would owe far more than the bank ever received
Showing posts with label bankruptcy. Show all posts
Showing posts with label bankruptcy. Show all posts
Friday, November 5, 2010
Thursday, February 18, 2010
Muni Threat: Cities Weigh Chapter 9
http://finance.yahoo.com/taxes/article/108866/muni-threat-cities-weigh-chapter-9?sec=topStories&pos=4&asset=&ccode=
A DEFINITE REALITY TO HAVE TO DEAL WITH, and it's only going to get worse from here.
Just days after becoming controller of financially strapped Harrisburg, Pa., in January, Daniel Miller began uttering an obscure term that baffled most people who had never heard it and chilled those who had: Chapter 9.
The seldom-used part of U.S. bankruptcy law gives municipalities protection from creditors while developing a plan to pay off debts. Created in the wake of the Great Depression, Chapter 9 is widely considered a last resort and filings under it are more taboo than other parts of bankruptcy code because of the resulting uncertainty for everyone from municipal employees to bondholders.
The economic slump, however, is forcing debt-laden cities, towns and smaller taxing districts throughout the U.S. to consider using Chapter 9. As their revenue declines faster than expenses, some public entities are scrambling to keep making payments on municipal bonds. And that is causing experts to worry about the safety of securities traditionally considered low risk.
"People believe that municipal debt is safe based on assumptions that are no longer true," says Kenneth Buckfire, managing director and chief executive of Miller Buckfire & Co., an investment bank that has worked with corporations on restructurings and now is advising municipalities. For example, it isn't safe to assume that governments can raise taxes to cover shortfalls, he says.
A DEFINITE REALITY TO HAVE TO DEAL WITH, and it's only going to get worse from here.
Just days after becoming controller of financially strapped Harrisburg, Pa., in January, Daniel Miller began uttering an obscure term that baffled most people who had never heard it and chilled those who had: Chapter 9.
The seldom-used part of U.S. bankruptcy law gives municipalities protection from creditors while developing a plan to pay off debts. Created in the wake of the Great Depression, Chapter 9 is widely considered a last resort and filings under it are more taboo than other parts of bankruptcy code because of the resulting uncertainty for everyone from municipal employees to bondholders.
The economic slump, however, is forcing debt-laden cities, towns and smaller taxing districts throughout the U.S. to consider using Chapter 9. As their revenue declines faster than expenses, some public entities are scrambling to keep making payments on municipal bonds. And that is causing experts to worry about the safety of securities traditionally considered low risk.
"People believe that municipal debt is safe based on assumptions that are no longer true," says Kenneth Buckfire, managing director and chief executive of Miller Buckfire & Co., an investment bank that has worked with corporations on restructurings and now is advising municipalities. For example, it isn't safe to assume that governments can raise taxes to cover shortfalls, he says.
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