Thursday, August 30, 2007

What Didn't Make the 2005 Bankruptcy Bill

This week the federal government and the Federal Reserve Chief released information on two major causes of bankruptcy, subprime mortgages and high medical bills. Ben Bernanke spoke to ways policy makers can help, while the Census Bureau released data on the number of uninsured Americans in 2006. Neither issue was addressed in the most recent Bankruptcy legislation, passed by a Republican Congress in 2005.

The number of uninsured rose by over 2.1 million people to 47 million Americans. The largest jump came courtesy of employers who dumped the benefit or shifted jobs to non-benefit workers. The number of uninsured children rose by 700,000 to 8.7 million as President Bush did everything in his power to thwart state expansion of children's health insurance programs. High medical costs were the number one cause of bankruptcies in 2005 but the bill completely failed to address this issue.

As for mortgage failures, the words of Fed Chief Ben Bernanke are instructive.

Bernanke said the development of "a broader range of mortgage products which are appropriate for low- and moderate-income borrowers, including those seeking to refinance" might help the situation. "Such products could be designed to avoid or mitigate the risk of prepayment shock and to be more transparent with respect to their terms

Does that mean the 2005 bill didn't require transparency in terms or regulate prepayment penalties? Did that leave low and moderate income borrowers vulnerable to predatory loan practices? It appears leaving out two important causes of bankruptcies left the American public open to financial ruin. What will Congress do about it today? My bet is more of the same, companies get the presents, while the average citizen gets a lump of coal.