It is refreshing that a presidential candidate is talking about bankruptcy.

A fair bankruptcy law is so vital to a thriving economy that the Constitution specifically empowers Congress to establish uniform laws on bankruptcies. This implied right precedes the bill of rights.

Many lenders would have been more careful had the ridiculous tightening of the bankruptcy law not been enacted.

Let's get these laws reformed.

It will be interesting to see whether Dr Krugman makes any mention of this (and if so, what).

I appreciate this issue being brought into light in the Presidential campaign. However, after considering the solution to this problem for over 7 years myself, I keep coming back to the root of the problem. The fact that we have a central banking system in partnership with the government and a fiat currency. If we can just put some kind of discplinary control over the supply of money, we would likely solve the problem. As individuals, we can solve the problem by just living below our means, saving money, and never borrowing again. I wouldn't eliminate bankruptcies (nothing would do that), but it would significantly reduce them and change the political view of them since banks would not be as politically influential.

I suggested a mortgage foreclosure "stand down" today. People would stay in their homes as long as they maintained them, paid taxes and worked out a deal with the lender.

The deal could include deferring payment completely or partially for an extended period of time. The lenders would treat these loans as "non performing". This is what the Japanese banking sector did during their real estate collapse of the 1990's.

The Federal Reserve would have to change rules (which Bernanke is talking about today anyway) so that non performing loans would be still kept on the books with their nominal value. This would allow banks to stop selling off better grade assets at distressed prices to meet reserve requirement.

In addition people staying in their homes would take the pressure off the rest of the housing market, cut down on bankruptcy filings, abandonment of neighborhoods, and the increasing feelings of panic.

Those holding mortgage-backed securities would see their income stream cut or stopped during the stand down, but this is better than the losses that they are seeing now.

Think of this as a modern version of FDR's "bank holiday". When there is a panic going on the first thing to do is to prevent the run on assets until cooler minds have a chance to devise new policies.

After a predefined period of time, or when some overall economic measures improved (say the inflation or employment rates) the stand down would be eliminated in a controlled manner.

Another bit o' strategy - if McCain hit back on this it give the Obama campaign an opening to revisit the Keating 5 scandal without looking petty.

This has been one area where Obama has been both consistent and showed up for the votes.

I think that he's just honestly expressing his views about something he sees as important.

Great work, Elizabeth. You were key in the fight against the 2005 bill, and I think Senator Obama heard us loud and clear!

It is unfortunate that Obama's remarks on barnkuptcy came out on the same day that Michael Vick filed for Bankruptcy.

It is hard to imagine a less sympathetic individual bankruptcy debtor than former Falcon Quarterback Michael Vick.

JeffersonGa: Fantastic point. I was thinking about this all day (I listen to a ton of sports radio...). But when you consider how much debt that guy must have loaded up on his supposed future earning potential, it makes sense that he filed. He and his advisers completely pushed for him to "max out" in every way possible.

I think it's important to note what Obama did not include in this speech: an end to the bankruptcy exemption for private student loans. While in conference for the 2005 bankruptcy bill, Congress added a provision that makes it impossible to discharge private student loans -- giving them the same status as government fines, taxes, and child support. There is no reason that they should get such special treatment, and it's disappointing to see that Senator Obama didn't mention private student loans during his speech. You can read more about this issue here.

You're ignoring, though, that a major factor in a significant number of bankruptcies in the US is a medical emergency or chronic illness.


Well, I could write a series of books on this. I haven't ignored it. It is true that about 50% of bankruptcies are attributed to medical causes. However, it isn't as simple as that. The medical situation is usually what "breaks the camel's back". If people planned for emergencies with at least six months of of expenses set aside and carried appropriate medical insurance, then those numbers would decrease significantly.

Medical insurance paying out on claims is another issue. What people need to do there is pay more attention to enforcing the insurance contract and litigating it if the insurance refuses to pay. Make it expensive to deny claims and insurance companies will rethink their decisions.

We can't be victims. We need to take control of what we can and not expect the government to fix everything. It got this way because we are apathetic and take our lifestyle in the U.S. for granted. We need to remember what it cost to get the democratic freedom we've been granted. It is slowly slipping away because we assume it is guaranteed and turn an apathetic ear to warnings.