Tuesday, July 08, 2008

Elizabeth Warren writes:

As I write, Senator Obama is giving a major policy speech on bankruptcy. So far as I know, he is the candidate to discuss consumer bankruptcy in a general election. I can think of many reasons that bankruptcy is a terrible subject for someone running for president. It is very technical (hard to wedge into a sound bite). It is depressing (no one wants to think about going bankrupt). It will annoy big-money interests (financial services gave big money to pass the current bankruptcy laws).

Savvy handlers would advise against it. So why would Obama make bankruptcy relief a visible part of his platform?

Here are my theories:

First, he understands that bankruptcy policy is an integral piece of economic security for families. When all else goes wrong, bankruptcy is the ultimate safety net. More importantly, bankruptcy rules affect all other consumer lending rules. So, for example, if homeowners in trouble on their mortgages could reorganize in Chapter 13, the threat to file Chapter 13 would get more home mortgage lenders to the negotiating table.

Second, Obama has history. He voted against the bankruptcy bill. He voted in favor of the amendments that would have eased the effects of the amendments. But his real history is deeper. He was a community organizer who saw first-hand the effects of aggressive lending. He was a state legislator who felt the impact of federal pre-emption on his ability to protect the citizens he represented.

Third, McCain has a history. McCain has voted in favor of financial institutions since he first went to Washington. He voted over and over for the bankruptcy bill, and he voted against the amendments to give medical bankrupts a means test exemption, against a uniform minimim homestead for older Americans, against limiting recovery for lenders who violate Truth-in-Lending laws. After Katrina, McCain opposed an amendment to make procedures easier for victims of natural disasters. The list is long.

The specific proposals are getting attention--expanded homestead protection, fast-tracking more consumers through bankruptcy, better protection for people nit by natural disasters. But I'm attracted more strongly to the overarching principles for rebalancing bankruptcy: Obama talks of restoring the safety net, and making bankruptcy less friendly to the very creditors that pushed a family into bankruptcy.

The deteriorating economy makes bankruptcy a more urgent national issue. Bankruptcy and consumer finance are issues where the money and power is all on one side and the middle class families are on the other. It is also an area where both candidates have an on-the-record history. They can show what walk they have walked before they became candidates for president. McCain has carried big financial institutions, while Obama has worked for families.

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