May 04, 2009
A Little Satire Never Hurt Anybody
When Congress passed a bill that would give bankruptcy judges the power to modify the terms of mortgages, I impulsively and rashly pounded out a satirical and fairly scary fictional letter. The letter, in its entirety, is below. I didn't have the intestinal fortitude to publish it in my newsletter, NoteWorthy, for fear of scaring my subscribers.
Today, thanks to clearer heads prevailing in the Senate, the bill was voted down. Now this letter can be viewed as nothing more than what "might have happened" had the vote gone the other way.
Dear Note Holder,
Whoo boy! What a crazy market, huh? Property values are down, delinquencies and defaults are up, and you’re still toiling away, trying to support your family. Look, I appreciate your spunk and everything, but let’s see if you’re still standing after the next overhand right to your collective jaws.
See, when you entered the voting booth last November, you elected a bunch of attorneys and lifetime politicians to determine your economic and financial fate. What were you thinking? That’s like giving me a scalpel and asking me to remove a brain tumor; I’ll give it a go, but don’t expect a pretty outcome. These are the same people, by the way, that publicly vilify Wall Street fat cats for grossly misusing public funds. (I’ll give you a minute to fully absorb the irony of that last sentence)
For starters, we have all these homeowners who got upside-down on their mortgages. Poor things bought at the peak of the market, and it just isn’t fair that they would potentially have to pay more than what the durn homes are worth today, is it? Of course it isn’t. So, here’s what we’re gonna do:
Those nice politicians in Washington are giving me some SERIOUS power; I’m talking market-killing power. Once all these over-leveraged homeowners file for bankruptcy protection, I ride in on my white horse and save their bacon. Is it fair? Well, for them it is. Oh, you mean for you? We’re not talking about you, are we?
Back to that market-killing power I mentioned earlier. See that gavel right there? It might as well be a wand. With one wave I can make changes to a petitioner’s mortgage debt (interest rate, balance, term, whatever I want) commensurate with what he tells me he can afford to pay and what his property is now worth. This could potentially cut thousands (or tens of thousands, should my heart desire) off the balance owed to you. I’ll cram that decision right down your throats! Bwah ha ha…oh, the POWER!!!
Now, what were you saying? You hold a note and your borrower pays you every month? Are you telling me you collect that same payment and charge that same interest rate even though the property has lost value in the past few years? How dare you! How can you even sleep at night? What do you mean, you didn't promise an appreciating asset when you sold the property?? How incredibly selfish of you.
What's your other problem? Ah, you’re wondering why an investor would potentially buy your note, AT ANY PRICE, when I can wave my magic gavel and change the terms to whatever I deem fair and just, potentially jeopardizing their investment. Well, I guess they would need to be a little bit naïve and a whole lot stupid, that’s all. Being able to foretell the future to know who will eventually file for bankruptcy wouldn’t hurt, either.
Now, now…to say that I could single-handedly bring down the secondary market (and you with it) is quite a stretch, don’t you think? Well, yes, I did say I have market-killing power, but I certainly wouldn’t do that intentionally. Besides, what about all these poor, bankrupt homeowners who bit off more than they could chew? Now wait a minute…there you go asking about how you’re supposed to support your own family if I kill the secondary market and render your note worthless, or at least worth a whole lot less than it is now. Why do you keep bringing this back around to you? Relax! We’re your government…we’re here to help!
Well, I’d love to keep debating this with you, but I’ve got a full docket of downtrodden petitioners to relocate from Skid Row to Easy Street. I’m sure you’ll be fine…just look in the mirror and repeat after me…you want fries with that?
All my best,
Your Friendly (and ALL POWERFUL) Bankruptcy Judge
I hope this piece of satire helped make your Monday a little more enjoyable. Make it a great week.
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