The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), was one of the worst, most destructive, and downright evil pieces of legislation ever visited on our nation.
It’s primary function was to protect credit card companies, based in very heavy lobbying by those companies, against people deeply in debt, to avoid their having the ability to get structured relief from that debt in bankruptcy court. Whereas before, if a judge ruled that a family was impoverished, often by catastrophic medical bills, the judge might direct relief from a portion of those debts, and an orderly reimbursement of the rest.
What the credit card companies wanted was perpetual and growing indebtedness, so that people could never escape the ever growing debt, and its interest, until they died.
But the even more insidious part of BAPCPA, was how it affected corporate bankruptcy. Before, when a corporation went into Chapter 7 bankruptcy, its assets would be divided among its creditors for goods and services.
With BAPCPA, now leverage derivatives corporations, who are responsible for much of our current economic catastrophe, get first call for all corporate assets, even *before* a judge can place controls on those assets. Thus, any company that goes bankrupt gets utterly looted, and sticks its creditors with great losses.
Doing so can cause a domino effect among businesses. One goes bankrupt, and the others cannot recover their credit, which drives them into bankruptcy as well.
This is why nobody will loan anybody money right now. Nobody will extend credit, because they could lose 100% of that loan, if whoever they give it to goes bankrupt. This also means that corporations have to hoard their money, and build up liquidity, just to keep operating, because nobody will loan them money to operate.
And don’t blame the Democrats for this monstrosity. The Republican leadership, especially Tom DeLay and Chuck Grassley, tried to push this through for five years before they finally won in 2005.
Cramming down mortgages means that the contract between lender and borrower is altered ex post facto to deprive the lender of the security bargained for. In essence, the bank loses its priority rights to the property which have been hypothecated as security for the loan and the bank is reduced to the status of a general creditor and thus defenseless to the whim of the bankruptcy judge.
So we have the government monkeying with the right of parties to make a contract. The government interferes with the right to make a contract and it does so ex post facto. This is reminiscent of the Obama administration forcing the bondholders in the Chrysler deal to give up their security to favor the unions which had contributed heavily to Obama's campaign.
Manifestly, banks are going to charge more to make loans which are unsecured.
Of course this will be justified by the fact that the government has poured $1 trillion into the banks and therefore government is morally justified in taking the security advantage away from the banks. Once the government insinuates itself into these affairs there is virtually no end to the concessions it feels justified in demanding.
For example, if the government is providing health insurance called Medicare and fat people are driving up the cost of health care because they get diabetes, the government is now proposing to make fat children attend fat camps. The government is also considering taxing sugary drinks. Ultimately, the government feels justified in telling the elderly that their health care costs too much and they must die. Once the government provides a benefit it can extract virtually any condition (read: penalty) it wants, even on people who themselves do not receive the benefit -like the Chrysler bondholders.
When the federal government has the potential power to incarcerate fat kids in fat camps it is time to consider whether we as a people should return to a government which is limited to express powers listed in article 1 section 8 of the United States Constitution. It is the departure from the authorized powers which starts the chain reaction which leads ultimately to fat camps, death panels, toilet bowls that will not flush, deficits which cannot be curbed, debts which cannot be paid and a currency soon to be as worthless as Confederate scrip.
