In 2005, the Billionaires for Bush stumped for the new bankruptcy bill.

See how well that worked? And isn't funny that the NY Fed had to take all this time to figure out what so many of us already knew?

WASHINGTON -- Economists at the New York Federal Reserve have concluded that a controversial 2005 law backed by banks and credit card companies pushed more than 200,000 people into foreclosure and exacerbated the subprime mortgage crisis.

Consumer advocates fought hard against the law, which made it much more difficult for individuals to alleviate credit card debt in bankruptcy. This inability of homeowners to eliminate other debts, the New York Fed economists conclude, in turn made borrowers unable to pay off their mortgages, spurring foreclosures.

Despite opposition from public interest groups, the 2005 law easily cleared both chambers of Congress and was signed into law by President George W. Bush. In a paper released Tuesday, New York Fed researchers Donald P. Morgan, Benjamin Iverson and Matthew Botsch determined that the law sparked about 116,000 additional subprime mortgage foreclosures a year after going into effect.

What's more, they note, these foreclosures pushed home prices down, which may have lead to additional foreclosures. When the value of a home drops below what a borrower owes on the mortgage, it becomes nearly impossible to get out of the loan by selling the house or refinancing, making foreclosure more likely if they become unable to afford the monthly payment.

"By making it harder for borrowers to avoid paying credit card debt, [the 2005 bankruptcy law] made it more difficult for them to pay their mortgages, so foreclosure rates rose," the economists wrote.

Although borrowers have been unable to alleviate mortgage debt in bankruptcy since 1993, they remain able to discharge credit card debts by filing for bankruptcy. But the 2005 law made it much more difficult for consumers to file for bankruptcy at all -- and then limited their ability to reduce credit card debt burdens once they did.

As you may already know, in 2005, the credit card companies lobbied mightily and won provisions that made it much more difficult to file Chapter 7 bankruptcy. That successful effort put in place the current law, which has made it impossible to simply discharge consumer debt in order to keep paying the mortgage. Thanks, Congressional corporatists!

"Who could have seen this wave of foreclosures coming?" Don't make me laugh:

Cash-strapped families are seeking bankruptcy protection at nearly the same rate and in the same manner as they did before the much-debated 2005 bankruptcy law reform, a trend critics say proves the reform was a failure.

Congress wrangled for eight years before passing a reform act aimed at curbing abuse and ending an alarming rise in bankruptcy filings. With the economy in tatters and personal fortunes often in even worse shape these days, the bankruptcy law is beginning to undergo scrutiny again.

I suppose it never occurred to them that the bankruptcy filings were a symptom of economic stress - and not the problem itself?

For now, Congress is focused on efforts to stem home foreclosures by altering the law so that bankruptcy court judges will be allowed to modify certain mortgages to help people keep their homes. But once that's settled, attention will turn to the 2005 bankruptcy reform.

"There is continuing concern about the bankruptcy-reform bill and what its effects have been," says Sen. Sheldon Whitehouse, D-R.I., who leads the Senate Judiciary subcommittee that oversees bankruptcy law. "We are looking at a number of things that we can do to address the problems."

On Tuesday, Whitehouse will hold a hearing that will discuss legislation he has introduced that would allow families burdened by exorbitant credit card rates and fees to more simply discharge their debt under bankruptcy. He is considering several other proposals.

Critics of the 2005 reform say filing is more tedious, more difficult and costlier for ordinary debtors. They also believe the reform benefited banks over consumers. An independent study says the reform has helped contribute to the surge in home foreclosures. Supporters, however, say the reform has helped reduce fraud and has not trampled on debtors who really need to file for bankruptcy.

Not that I had any doubts, but it's exceedingly clear that the banking industry owns Congress. The failure of the cramdown vote is nothing less than a disgrace:

The Senate on Thursday rejected an effort to stave off home foreclosures by a vote of 51 to 45. It was an overwhelming defeat, with the bill's backers falling 15 votes short -- a quarter of the Democratic caucus -- of the 60 needed to cut off debate and move to a final vote.

The death of the bankruptcy reform measure -- which would have allowed a small number of homeowners who met strict conditions to renegotiate mortgages under bankruptcy protection -- is a major tactical win for the banking industry. But allowing the foreclosure crisis to continue unabated may end up being a failed strategy for the financial sector.

It wasn't easy for Majority Whip Dick Durbin (D-Ill.), who led the effort on behalf of homeowners, to wrangle the 45 votes.

Sen. Evan Bayh (D-Ind.), who had been on the fence for weeks, gave Durbin his support and nudged him on the way out of the chamber, alerting him of the anti-bank position he'd just taken.

Sen. Mark Warner of Virginia, a conservative Democrat, also cast a courageous vote in favor of the measure. He gave Durbin a hard slap on the arm on the way out.

Sen. Barbara Boxer (D-Calif.), a strong backer of the bill, spent a good deal of time trying to persuade his colleague Jim Webb (D-Va.).

As she got close to convincing him, she called in Durbin. "Hey Durbs," she could be heard saying, "help me with Jim."

I wonder how our newest Democrat voted? Why, Sen. Specter voted nay! In other words, it's perfectly okay to help the wealthy hang onto their vacation homes, boats and cars (because they're allowed the use of the same bankruptcy procedure for which Congress just deemed You the People unworthy). Other nominal Democrats who agreed that you didn't deserve that kind of help included many of the usual suspects: Baucus, Bennet, Byrd, Carper, Dorgan, Johnson, Landrieu, Lincoln, Nelson (NE), Pryor, and Tester.

Let's give props to Bayh and Warner, who did vote with the majority of the Dems - for a change.

Arianna Huffington is having a WTF? moment:

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