Any kind of bankruptcy plan is the same eonomic concept - a collective forbearance of economic interest (among creditors) in order to stave off a greater calamity. Enforced by the power of the federal government This is basically the same in purely economic terms as a government program to suspend/forbear/guarantee loans (paid for by us) to prevent an even bigger meltdown. If you're going to jump on the "no bailouts, defaulters must be punished!" bandwagon, then why do you stop it with foreclosures? The same concept applies to bankruptcies, whatever chapter.
Does anyone know how the $300 billion deal is structured? What that money does? What the lender and borrower obligations would be, etc?
Again, the difference is in the funding for the forbearance. What we are talking about is the government putting up $300 billion to recover loans that are in trouble. So what happnes once the debtor falls behind subsequent to that as the ARM adjusts? Do we simply roll out more cash? In a Chapter 13 case, the debtor makes monthly payments to a trustee (who funds his/her operating expenses by taking a % of the funds distributed). That trustee then pays the creditors. The government outlay on this is low. Most of the expenses are borne by the debtor. This is much more akin to a forbearance agreement than it is to a bailout. I have had three clients in the past 2 months who had been in their case for somewhere between 4 and 10 months who decided that they could not afford the plan anymore. These clients put the home on the market. All three closed a sale of the property. The mortgage company was paid in full at closing. We are modifying the plan to pay out autos, the IRS, and unsecured creditors through the plan. Lo and behold, there is not a loss for the mortgage company. There is no deficiency balance. There is no sheriff coming to boot people out of the home.
The same thing that happens in a reorg plan when something unforeseen happens - the plan is modified again (usually with the creditors taking more of a hit). You're missing the larger point though. There's really no economic difference between the creditors agreeing to take less money or if the creditors agreed to take the full prinicpal balance but instead agreed to pool some money and give it to the debtor to enable him to make payments Agreeing to give up money tomorrow is the same as paying somebody the present value of that money today.
Not really. Sure you can file a motion to modify, but any post-petition arrears are added to the plan and are paid (often with interest and attorney fees unless the property is undersecured in accordance with sec 506). The plan payments increase to make up for the deficiency (more money from the debtor). If the payments under the mod are not current as of the hearing date, the mod is denied. If the mod is denied, depending on the precipitating cause of the mod the stay lifts or the case is subject to dismissal as a whole. Sure there is a time value of money issue, but at today's interest rates it is not enough for the mortgage companies to even raise the argument that they are entitled to interest on all non interest components of the postpetiton delinquencies. As I have stated over and over, the real difference here is that in a Chapter 13 plan, the funds to pay the creditors come from the debtor. In a wholesale bailout, the funds come from government. In the context of this thread, that is really the bone of contention that some people have. The government rolling out $300 billion to reinstate delinquent loans at a time where we are increasingly in debt as a nation may not be the best idea. Neither is happening here though. In a Chapter 13 plan, they are not agreeing to take less than the principal balance. The proof of claim is ALWAYS going to be for the entire balance due on the mortgage. To the extent that the mortgage does not reach maturity during the plan, the remaining payments are made directly by the debtor to the creditor after discharge. The arrears and ongoing mortgage installments are made by the debtor to the trustee, and the trustee disburses. If the ARM readjusts during the plan, the trustee files a notice of adjusted mortgage and the wage withholding increases or decreases accordingly. Under the bailout program, it is the government pooling the money, not the creditors.
And over and over you miss the point. If I agree to take a haircut on the notes that I hold - which pretty much all creditors do, at least in the form of interest - the money doesn't come from the debtor - it's me who is losing the money. the money comes from me. I forgo money to avoid a bigger loss. This is simple economics and has nothing to do with provisions of the bankruptcy code. That's right, because no mechanism exists for a group declaration of bankruptcy in the case of subprime mortgages and the obstacles are too high. If you have a better idea than government intervention ("just let everything fail" is not a viable answer here) then let me know.
President Bush and Federal Reserve Chairman Bernanke Say Time Is Right for 2nd Stimulus Package http://news.yahoo.com/s/ap/20081020/ap_on_bi_ge/financial_meltdown WASHINGTON – Momentum increased Monday for a new economic stimulus package as Federal Reserve Chairman Ben Bernanke endorsed extra help for the ailing economy, while the White House said it was open to the idea. Press secretary Dana Perino told reporters on Air Force One that the White House will have to see what kind of package Congress crafts. Perino said the administration has concerns that what has been put forward so far by Democratic leaders in Congress would not actually stimulate the economy. Earlier Monday, Bernanke told the House Budget Committee that the country's economic weakness could last for a while and it was the right time for Congress to consider a new package. Earlier this year, most individuals and couples received tax rebate checks of $600-$1,200 through the $168 billion stimulus package enacted in February. "With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate," Bernanke told the panel. Bernanke's remarks before the House Budget Committee marked his first endorsement of another round of government stimulus. Democrats on Capitol Hill have been pushing for another stimulus plan, but the Bush administration has been cool to the idea as the federal budget deficit explodes. Bernake also appeared to open the door for further interest rate cuts. Wall Street stocks rose on the news and on signals that the important credit markets were loosening further. House Speaker Nancy Pelosi chimed in on the stimulus idea. "I call on President Bush and congressional Republicans to once again heed Chairman Bernanke's advice and as they did in January, work with Democrats in Congress to enact a targeted, timely and fiscally responsible economic recovery and job creation package," Pelosi said in a statement Monday. Pelosi has said an economic recovery bill could be as large as $150 billion. Economists have told leading Democrats the plan should be twice the size. Bernanke suggested that Congress design the stimulus package so that it will be timely, well targeted and would limit the longer-term affects on the government's budget deficit, which hit a record high in the recently ended budget year. The economy has been beaten down by housing, credit and financial crises. Its woes are likely to drag into next year, leaving more people out of work and more businesses wary of making big investments. U.S. stocks rose in afternoon trading Monday. The Dow Jones industrials rose about 2.5 percent and the Standard & Poor's 500 index jumped 2.7 percent. Interbank lending rates fell for a sixth straight day Monday. The London interbank offered rate, or Libor, for three-month dollar loans fell 0.36 percent to 4.06 percent, the biggest daily drop since January. Bernanke said the package also should include provisions that would help break through the stubborn credit clog that is playing a major role in the economy's slowdown. "If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers," Bernanke said. "Such actions might be particularly effective at promoting economic growth and job creation," he added. The Fed and the world's other major central banks recently joined forces to slice interest rates, the first coordinated action of that kind in the Fed's history. The central bank meets next on Oct. 28-29 and many economists believe Fed policymakers will again lower its key rate — now at 1.50 percent — to brace the wobbly economy. Over time, "stimulus provided by monetary policy" along with the eventual stabilization in housing markets and improvements in credit markets will help the economy get back on firm footing, Bernanke said. Dropping rates might induce consumers and businesses to boost their spending, an important ingredient to energize overall economic activity. So far, though, a string of drastic actions by the Fed and the Bush administration has yet to turn around a bunker mentality. Banks fear lending money to each other and to their customers. Businesses are reluctant to hire and boost capital investments. Consumers have hunkered down. All the economy's problems are feeding off each other, creating a vicious cycle that Washington policymakers are finding difficult to break. One-third of Americans are worried about losing their jobs, half fret they will be unable to keep up with mortgage and credit card payments, and seven in 10 are anxious that their stocks and retirement investments are losing value, according to an Associated Press-Yahoo News poll of likely voters released Monday. Unemployment could hit 7.5 percent or higher by next year. Many analysts predict the economy will shrink later this year and early next year, meeting the classic definition of a recession. Some believe the economy already jolted into reverse during the July-to-September quarter. Last week, the Treasury Department announced it would inject up to $250 billion in U.S. banks in return for partial ownership, something that hasn't been done since the Great Depression. The government hopes banks will use the capital infusions to rebuild their reserves and bolster lending to customers. Treasury Secretary Henry Paulson said Monday that government purchases of stock in banks represent an investment that should eventually make money for the taxpayer. So far this year, 15 banks have failed, including the largest U.S. bank failure in history, compared with three last year. And Wall Street's five biggest investment firms were swallowed by other companies, filed bankruptcy or converted themselves into commercial banks to weather the financial storm. In other efforts to stem the crisis, the Federal Deposit Insurance Corp. is temporarily guaranteeing new issues of bank debt — fully protecting the money even if the institution fails. The FDIC also said it would provide unlimited deposit insurance for non-interest bearing accounts, which small businesses often use to cover payrolls and other expenses. Frequently, these accounts exceed the current $250,000 insurance limit, so the expanded insurance should discourage nervous companies from pulling their money out. The United States and other top economic powers also have adopted a five-point action plan and pledge to do all they can to provide relief.
The Proletariat and Bourgeoisie can argue to death about the necessity for such a measure and neither will form a conclusion that benefits all. However if you examine this closely, the first stimulus package failed to "stimulated" the economy hence no reason to procure one more. The recipients of these social endowments have used it for means other than the purpose intended. Many relieved mounting debts, others converted it to savings and didn't allow these funds to recycle through the hampered economy. Now many will argue against me based solely on my positions against social welfare established in previous discussion but to those people I may suggest, look at the facts of this program not its potential in order to make a informed decision.
give the govt an inch and they will take a mile...eh comrades? enough has been done. It's time to sit back and let the things play out the way they should. The panic button has been pushed enough.
lol, a second stimulus? Does anybody passing these bills stop to think about the looming nuke called social security? How, with so much debt already and possibly piling more, are we going to pay for that? Thanks Washington.
