We're reliably informed by the Wall Street Journal this morning that Citigroup-you know, those pesky people who'll sue you at the drop of a hat when you get a little behind on your credit cards...where was I?
Oh yes. Citigroup has dropped their opposition to the idea of letting bankruptcy judges 'cram down' mortgage loans on primary residences for chapter 13 bankrupt debtors.
That provision is likely to be written into law as soon as President Obama takes the oath. He may say "so help me God. Got a pen, Senator Durbin?"
Historically, the idea has been opposed at every turn by the banking and credit industry over the last fifteen or so years with much hysterical braying over 'moral hazards' and 'the sanctity of contracts' and similar sanctimonious hand-wringing nonsense.
They never believed it for a minute, folks-what they wanted all along was to milk that cow until it was dry and suck every last drop of equity out of the corpses of people who couldn't pay their bills in a growth market.
Simply stated, foreclosure and resale was a good business to be in, when property was appreciating 20 and 30 per cent a year in places like Los Angeles, Las Vegas, and Miami. They were getting fat off of stripping equity out of defaulted mortgages that the courts could not rewrite. If they thought it was such an important principle, why not extend it to commercial credit? I mean, money owed, defaulting debtors?
"B-b-but Sparky!" you say, "Isn't this a good thing?" Well, of course it is, little feller, but it's mighty good for the bankers too, which is why they're signing on to it.
As mother always said, follow the money. They've run the numbers.
The assets the banks were so ready to grab not all that long ago-residential housing in Los Angeles going up 20 per cent a year-have now shown themselves to be a millstone around their necks, and they'll be better off if they can get some people to pay something rather than to add the houses to an already bloated, unsellable and deteriorating inventory.
I'm not ready to give these people the Socially Conscious Good Guy award just yet. The whole sorry episode points to being careful what you ask for, because you could get it, and have to live with the results. Citigroup and their fellows wanted it, they got it, and now it is biting them in the ass good and hard.