Steve already noted this article from the Washington Post, but I wanted to expand on it:
“Senate leaders won the support of Citigroup, one of the nation’s largest banks, for legislation allowing bankruptcy judges to modify the terms of troubled mortgages. (…)
Senators Dick Durbin (D-Ill.), Chris Dodd (D-Conn.) and Charles Schumer (D-N.Y.) called this a breakthrough on the bankruptcy issue and said they will push to add the provision to the economic stimulus package now moving through Congress.
Schumer said the breakthrough came last week, when Lou Kaden, general counsel at Citigroup, called him to propose an agreement on the issue. Today, Schumer said, “an agreement has been reached.”
Citigroup’s primary demand, Schumer said, was that only existing mortgage-holders would have access to the bankruptcy courts. The bank also has asked for provisions that would require homeowners to contact their banker at least 10 days before filing for bankruptcy in order to give the bank an opportunity for negotiation; and that would bar minor violations of the truth in lending act from voiding the terms of the mortgage.
Citigroup’s support for the measure has since spurred “most of the major banks” to call Schumer’s office, “wanting to hop on board,” Schumer said, adding, “I am so glad the banks are seeing the light.””
Well, I’m glad they’ve seen the light too. And I’m glad they won’t be trying to block the sensible position that mortgage debt should be treated like any other secured debt in bankruptcy, which looks like a very good way to prevent foreclosures while visiting a certain amount of pain on both borrowers and lenders, and all without keeping housing prices in their current still-inflated state. [UPDATE: See this post by Tanta for a discussion of the merits.]
That said, if someone can explain to me why Citi, after taking some $40 billion of our money, is in a position to make “demands” on the US Senate, I’d be fascinated. You’d think they would be happy that we haven’t come after them with pitchforks, or at least sufficiently relieved that they’ve gotten their hands on our money without our requiring any real concessions of them that they’d refrain from asking for more. But noooooo…
The other day, in comments, I noted that I believe in John Kenneth Galbraith’s idea of “countervailing powers” — powers, like unions or large buyers, that can serve as a counterweight to the natural tendency of large corporations to acquire excessive influence. This is an excellent illustration of why they are needed. In the world we live in, Senators have to negotiate with Citibank even when it is at its weakest, and has just had to be rescued. But there are no powerful representatives of people with mortgages; and the Congress, who allegedly represent us all, depend on rich people and lobbyists for campaign contributions.
This has to stop. I have no idea what institutional fixes, if any, would make it the case that members of Congress take it for granted that Citibank’s interests are no more than a small part of the common good, which they are supposed to promote. But if they exist, I’m for them. In the meantime, I want more countervailing powers.