What lessons can we learn from the failure of the bankruptcy cramdown bill? It is neither a conservative nor a liberal idea. It is unconventional, and goes against the existing rules, but there is nothing in it that speaks to the base of either party. There are several possible reasons it failed so badly in the Senate. One is the gross amount of money the financial elites have poured into Congress and lobbyists. One is the general good will that community banks retain with Congress. Another is the arguments put out by the Mortgage Bankers Association and the financial elites, which appeal to the conventional wisdom, and easily hook the non-expert congressional staffers and their even less-expert bosses. It’s partly due to the fact that Republicans vote as a block against any proposal from the Democrats. And there is the very clear fact that the financial elites don’t want the citizens of this country to have the tools to protect themselves. I see two other problems.
Progressive and pragmatic ideas do not have a workable launching point. When we come up with a good policy, like cramdown, that doesn’t easily fit into the conventional wisdom, we don’t have a way to make our idea understood. The idea of cramdown came from the bankruptcy bar. But as soon as it started to move in Congress, the financial elites lined up against it. It was a trivial exercise to get the Republican blowhards fired up against cramdown on the most specious grounds imaginable. How many people, including some of our commenters, said that it wasn’t fair to people who were paying their mortgages if other people could reduce their obligations by filing bankruptcy. That argument didn’t occur to me, but it should have, and if it had, I would have been able to provide an explanation. Once that idea was out there, the elites just supplied nonsense arguments and killed cramdown even among Democrats.
Smart policy should be able to get support. It doesn’t because the people who think up policy are rarely politicians: they are wonks. They, and we, need a way to give progressive ideas a chance of passing.
The financial elites have persuaded too many people, especially politicians, that business and finance are really hard, like math. They say, look how complicated our mathematical models are; you ignorant DFHs can’t understand our arcane profession. But it’s nonsense. The business people really don’t understand the models, which explains how they got hooked on the Gaussian Copula drug , and the VAR drug, and how they were deluded by a superficial understanding of the Modigliani-Miller theorem into ignoring the enormous risk created by high leverage.
Business and finance are not that difficult. I don’t remember anyone here complaining about how hard it is to understand the business writing of Ian Welsh or Scarecrow or my stuff. Partly that is because Ian and Scarecrow write really well, and actually understand what they are writing about, and partly because in fact we all know more about this than we think we do.
Even the current administration thinks financial issues are too hard to be dealt with in the public arena, which makes me wonder why so many people want us to handle our own investments to prepare for retirement and educating our kids. All of the financial people in this administration come out of Wall Street and giant banks. Public discourse on the economy is trivial: stock market cheerleading and CEO worship. The people who are sucking the life out of the nation are in charge. No one is going to listen to Ian or Scarecrow or Yves Smith or Calculated Risk or any other pragmatic smart writer whose ideas start on the internets.
What that means is that when we call Congress in support of cramdown, we are ignored. Congressionals and staffers think we don’t understand the complexity of the situation, that we don’t know enough to have a valid opinion on a matter of such financial complexity, and that they can safely and unthinkingly ignore any sensible rationale we might offer.
Fixing that is a real problem. Maybe we should try democracy?