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Bankruptcy Asymmetry

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Good point by Dayen here:

The Tea Party, the very movement whose energy Trump has tapped into so successfully, was founded on the principle of not having to “subsidize the loser’s mortgages.”

Businesspeople defaulting on each other never raised this kind of ire: only if ordinary people wanted to allocate losses in the greatest crisis since the Depression onto the banks who caused it did the rage emerge.

When Congress made an effort to change the bankruptcy laws, these same banks howled in protest. Members of the Obama administration, despite expressing support for the idea of allowing judges to modify primary mortgages during the 2008 campaign, decided to sit on their hands and let senators drowning in bank cash kill the idea, leading Sen. Dick Durbin to pronounce about Congress that the banks “frankly own the place.”

In fact, everyone would have benefited from relieving primary mortgage debt, the absence of which led to at least 6 million foreclosures. Economists Amir Sufi and Atif Mian have shown how the post-recession recovery was markedly slower because of the failure to discharge debt, which depressed consumer spending. This huge policy mistake created an unnecessary drag on the economy and made miserable the lives of millions, all so banks didn’t have to bear some of the pain of the post-housing bubble fallout.

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