Davit Sirota has a very good analysis of the despicable betrayal of the American people by the so called “moderate” Blue Bush Dog Democrats with regards to basic fairness and the economic stability of the United States.

The bill in question, HR 3609, is rather simple: It would allow a bankruptcy judge, “To ameliorate the terms of abusive “subprime” mortgages.” Under the current law, judges can already do this for investment properties, and for vacation homes, but for primary homes? Das ist Verboten.

So the judge could vitiate prepayment penalties to allow for refinance, or change interest rates, or modify fees charged for things like taking a phone call from a customer, though it would not give the judge power to forgive principal, since a mortgage is, after all, a secured loan.

While I favor a more expansive bill, one that would cover all consumers, this could go a long way towards fixing the system. As it currently stands, many loan servicers are legally unable to modify the terms of a loan, because their contracts with the bond holders prohibit it.

Even when they can, there is little incentive for them to negotiate in good faith.

What this means, of course, is more Chapter 7 liquidations, as opposed to Chapter 11 reorgs, more foreclosures, more empty houses blighting more neighborhoods, and more turmoil on wall street. It is The Tragedy of the Commons writ with trillions of dollars to be eventually be baid for by all of us.