President Obama got generally high marks earlier this month for “getting it” after he struck a populist tone in his speech at Osawatomie, the Kansas town where he evoked the progressive spirit of former president Teddy Roosevelt.
But if he really wants to do something about the economic pain Americans continue to suffer, the president could start by keeping a campaign promise he made – to lead a fight to reform bankruptcy laws to allow judges to modify mortgage loans in their courts.
Under heavy pressure from bankers, the Senate defeated such a proposal in 2009, while the president and his administration remained silent on the sidelines.
At the time, Illinois Sen. Dick Durbin said bitterly, referring to Congress, the big banks “frankly own the place.”
The administration’s refusal to address the foreclosure crisis remains one of the sorriest aspects of its consistent underestimation of the depth of the economic crisis.
Earlier this month, the non-profit investigative journalism outfit Pro Publica filled in the details on how the administration pooped out on the president’s campaign promise. It turns out that many on the president’s bank-friendly economic team were never enthusiastic about cram-down.
The idea behind judicial cram-downs is to treat mortgage debt the same as other debts which bankruptcy judges are permitted to reduce as part of a bankruptcy.
The impact would be to encourage bankers to reduce principal on mortgages before they ever got to bankruptcy court. Judicial cram-down would be far more effective than the Obama administration’s previous failed programs intended to address the foreclosure crisis, which offered banks insufficient incentives to voluntarily modify loans with inadequate government oversight.
Part of the reason the president can’t hammer the Republicans for their lack of any plan to address foreclosures is that he hasn’t come up with a decent plan of his own – and that he didn’t fight hard enough for a solution like cram-down, which lost by six votes in the Senate, including 12 members of the president’s own party.
In addition, 11 Republicans who represent states among the hardest hit by the foreclosure crisis also voted against cram-down.
Couldn’t a tougher, savvier, more committed fight by the president come up with the seven or so votes needed to win this fight?
As the president takes on the big banks. he may take encouragement from these words from the predecessor he evoked so successfully at Osawatomie:
“The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”