By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com
The bankruptcy mortgage cramdown amendment was defeated in the Senate on Thursday afternoon by a margin of 45 - 51 (with three Senators not voting), a wide margin considering the 60 votes needed for cloture. Every Republican voted against it, not a surprise, but so did 12 Democrats, including Senator Arlen Specter who switched parties just days ago. Although the defeat was almost universally expected, the margin of the loss and the number of Democrats in the "nay" column must be disheartening for Senator Durbin. He admitted: "I had hoped for a better vote." Although he vowed to try to insert the bankruptcy provision in an anticipated conference with the House, such a provision having passed in the House in early March, the relatively large margin of the loss in the Senate makes his success there quite unlikely.
The Roll Call
The Democrats who had been on the fence and voted for the amendment include Sen. Evan Bayh of Indiana, Mark Warner and Jim Webb of Virginia, Claire McCaskill of Missouri, and Ted Kaufman of Delaware. Votes against were cast by Democrats Tom Carper of Delaware, Robert Byrd of West Virginia, Max Baucus and Jon Tester of Montana, Mary Landrieu of Louisiana, Ben Nelson of Nebraska, Blanche Lincoln and Mark Pryor of Arkansas, Michael Bennett of Colorado, Tim Johnson of South Dakota, and Byron Dorgan of North Dakota, as well as Arlen Specter.
Key Reasons for the Defeat
From watching the legislative developments closely since the House and Senate bills were introduced during the first week of this session of Congress, I believe the bill was defeated for two fundamental reasons: 1) the opponents largely succeeded in framing the debate on their terms; 2) President Obama and his Administration did not risk virtually any political capital on this fight.
Framing the Debate
The financial industry succeeded in convincing enough Senators that preventing hundreds of thousands of foreclosures was not worth risking having mortgage rates go up for everyone. This argument succeeded in spite of the lack of credible evidence of this purported cause and effect, indeed in the face of substantial indications to the contrary. And it succeeded in spite of changes in the original legislation designed to further mitigate any such purported tendency, such as its restriction to mortgages entered into before enactment and adding a sunset clause.
The argument played into and arguably even fanned the popular feelings of righteous indignation of "responsible" homeowners against supposedly "irresponsible" ones. Regardless of how convincing this was, it gave political cover to some Senators. For example, Democratic Sen. Ben Nelson justified his "nay" vote with: "Do I want to have my rate go up so that somebody else might be able to cram down" their mortgage payment?
The financial industry's message resonated in the media with the general fears about the instability of the economy. This resulted in reputable news organization such as the Associated Press mouthing that message with statements such as: "The forced easing, or 'cram-down,' of a mortgage by a bankruptcy judge would have likely introduced additional uncertainty for investors." Such arguments were found credible in spite of the appropriate current popular and Congressional distrust of this industry.
White House Missing from the Debate
For reasons not yet clear, neither President Obama nor virtually any senior members of his Administration provided strong support in the legislative effort in the Senate, indeed even undercutting that effort when it was most needed. Back in mid-February when Obama proposed his "Homeowner Affordability and Stability Plan with barely a mention of bankruptcy cramdown, I speculated that the legislation was "perhaps soft-pedaled because it is controversial." After the House passed its amended bill in early March, in spite of the clear need for help for the tougher Senate battle the Administration issued no statements of support, and seemed to pay no attention as the negotiations kept faltering. And last week, just when an enthusiastic endorsement could well have provided a needed push for the undecided Senators, Treasury Secretary Timothy Geithner instead guardedly said: "We are supportive of carefully designed changes” to bankruptcy law. . . . .“It’s a difficult balance to get right, as you know.” "But the president is supportive of this.” Hardly a ringing endorsement from the Administration's bully pulpit. Even after the vote, there has been no comment from either the Treasury Department or the White House. At some point it seems that a decision was made that in the grand scheme of things, this legislation, at least at this time, was expendable.
Financial Influence from the Financial Sector
And then there is always the issue of campaign money. According to the Center for Responsive Politics, banking and real estate interests have given about $2 million to Sen. Mary Landrieu's campaigns, about $2.6 million to Sen. Ben Nelson's, $1.3 million to Sen. Blanche Lincoln's, $2.5 million to Sen. Johnson's, and $3.5 to Sen. Max Baucus'. Oh, and more than $4.5 million to the new Democrat Sen. Arlen Specter's campaigns. Perhaps the most revealing comment in this respect after the vote was by the Delaware Sen. Ted Kaufman, a state with a very significant financial industry, who is not running for reelection: "I'm liberated from fundraising." He voted for the amendment.
Please return to this website tomorrow morning for a Bulletin on the prospects for this legislation going forward notwithstanding this Senate vote.
A new Bulletin on this website will provide an update of this legislation as soon as there is new information to report. PLEASE EMAIL ME at Andy@BLSforAttorneys.com IF YOU WOULD LIKE TO BE EMAILED A LINK TO IT AS SOON AS IT IS UPLOADED onto this website.
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com
PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.
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