This Settles It, Right?

When the editors of the National Review announce that Barry was born in the USA, that should be the end of the story.  Fortunately for all real Americans, the denizens of the Free Republic message board refuse to drink the kool-aid. 

• No, it is not a distraction, it is something that the cult of personality seems to have swept into the trash bin … It is called the LAW. This is just another reason why I no longer subscribe to the National Review.
• I actually don't care where he was born as he is not a "natural born citizen" since his father was Kenyan.
• Gibbs said yesterday obama was a citizen; He did not say he was a 'natural born' citizen.
• it is all part of the same web of lies that the POSOTUS is fabricating. This Kenyan buttwipe needs to realize he may or may not be legaly the president….but if he tries to touch the constitution with his criminal touch (he did promise to obey and protect and follow the constitution) he will be in a world of hurt….and wind up losing states to secession, and where that will follow.
• Hey! We have all been screaming for the msm (controlled media) to get onboard on the BC story—so here it is! They all want a piece of the pie now—didja think they were going to take the Patriot side of the issue? Fat chance—they are just going to cloud the issue even further now. The state gubmint in Hawaii is going to glorify him now. At least Rush and Glenn Beck are spelling the truth out to the American people now (not We The People—the wee sheeple), on other issues that is. On the other hand, GB has not attacked the real issues lately—that I have heard anyway—y'know, the BC issue, of course, and those "camps", ML, etc. Who knowa? perhaps he too will wake up…???
• The National Review is a periodical that I have done without for over 30 years. I began to fall out of love with the magazine about the time William F. Buckley joined Jimmie (the Geek) Carter in pushing for the giveaway of the Panama Canal which is currently operated by interests of Communist China.
• Once again the National Review lets down the conservative movement. Lowrey is a naive boob. Goldberg is unreadable. And when will he apologize to Ann Coulter?
• which is why I think he was primed for this position for over 20 years and those behind the scenes have been planning on taking the country since Ayers stopped his bombing. He knew it would never work and as Marx and Hitler said or realised. We cannot further our agenda by violence it has to be done by getting into positions of power and influence. What better position than the presidency. He has no clue but they have covered his background up, they set his background up by the two books instead. There are so many questions and yet the media sit there and say , nah he is an America he had something in the paper or he had a thing on a website. All he has to do is show the damn thing. All the media have to do is go to Kenya and ask why two of his family say they saw him born there and ask why they are charging tourists to see bozo's birth place in Kenya
• It's easyh to believe this editorial was written by "The Editors". It appears that different editors wrote different paragraphs and they never got together to compare.
• Yes, BS is an undocumented worker residing at 1600 Pennsylvania Ave. Certain groups can't govern themselves. Look at the Bahamas - Burned out ends of Grand Bahama Island are a testament to the fervor of certain groups when they feel empowerd.
• National Review was sinking but they have hit rock bottom. It seems like it all fell apart after Bill died. Sad. We keep hearing the "let's move on" or "let's forcus on…" - it takes 5 minutes to provide the long form BC. It does not distract from anything.
• If you send a Letter to the Editor of NR, you get an Out of Office reply from them. Hmmmm?
• I think National Review is almost out of business. The print magazine may no longer exist. Rich ?? forget his name left and Lucianne's son was running it but he really is not up to the task. I guess they don't get the Saudi money like Huff Po or LGF. Maybe they decided to start taking it.
• I National Review "Editors" smarter than you, come down from on high and ask you to "please move along" nothing to see here citizen. I will not reveal to you that we expended no money or resources, hired no investigative journalist to support the band wagon conclusion that BO is your new official and certified master.
• Coulter is a disappointment. Where is HER plan? What is SHE advocating to save our country. Just shooting her mouth off on TV is entertaining but what has she done any different from us? We make noise. She makes noise and Democrats continue to destroy our America. Anne, run for the Senate. If Franken can win, so can you…..

23% Annualized Return for the American Taxpayer

Not too shabby.  Goldman buys some positive PR at a time it desperately needs it and W gets some post-White House credit.    

Audit the Fed

If anyone is feeling politically active at the moment, I would like to ask you to contact your local Congressional Critter to request their support of HR 1207, a piece of legislation which would require the first audit of the Federal Reserve since its creation in 1913. You can google the name for plenty more info.

The bill is a Ron Paul creation, but I honestly don't see this as a remotely liberal/conservative issue. It is rather astounding that with all the power the Fed has, Congress currently has virtually no oversight power of its activities. I have long considered the Fed completely unconstitutional, and while this legislation is a small step, it would at least shed some light on the what the Fed does with its massive and virtually unchecked power. I would think both liberals and conservatives could agree on that value of some accountability.

So write an email or make a 2-minute phone call. It's not sexy legislation, but it's important.

On Chrysler's Bankruptcy

I haven't been monitoring the Chrysler situation all that closely, but what I have seen, I find pretty disturbing.  Most pundits' reactions have had a flavor similar to Restless' take...

...but nonetheless it seems to me that this is likely the best solution for essentially everyone, with the glaring exception of the bondholders.

Mark me as a hopeless finance romantic, but from my perspective, the mistreatment of the bondholders by the government is a pretty serious issue.   The bondholders in question hold senior debt, which means under the rule of law, they have senior rights to the company's assets.  But under the rule of Obama, that seems to no longer be the case, as some union benefits, which should be junior to the bondholders in the pecking order, have been elevated to equal status by Obama fiat.   This is a wonderful political gambit by Obama, thrilling to to his constituency, even if leaves tired, old, rule of law cranks like me feeling chill.   I am guessing any potential lenders in the future will share my queasiness.  Why loan anyone money if the government can wipe out your claim at its whim.  I thought Obama was trying to revive the credit markets, not suffocate them.

As far as the bankruptcy itself goes, I have already demonstrated by inability to comprehend bankruptcy law, and I'll leave it to the smarter legal heads on KP to sort out mysteries like section 363 of the bankruptcy code.

Finally, if you haven't read any of the allegations concerning intimidation by the Obama administration, you absolutely need to take a gander at this.   Pretty lively stuff, and while it is purely he-said-she-said at the moment, you must be well into your second pitcher of the Kool-Aid not to believe this type of thing is going on.

UPDATE:  I found a nicely presented argument from a hedge fund manager echoing some of my thoughts above.   It's hard to pity hedge funds or their managers, considering some of the astronomical bonuses that have been received over the last decade, but before you give Obama a giant huzzah and gleefully throw those greedy hedge funds under the bus, at least consider their point of view.

More on Swine Flu

I find it remarkable that so many commentators are playing down the swine flu. I have heard several comparisons to Y2K - as if that "bust" of a crisis means that all future crises will be busts. Yes, at the moment, the swine flu is not all that dangerous here in North America. It is not flu season, and the survivability of the virus is limited under these conditions. But the virus is just starting to pop up in the Southern hemisphere, and it could gain traction there. Also, a bit of history on past pandemics is useful.

In each of the four major pandemics since 1889, a spring wave of relatively mild illness was followed by a second wave, a few months later, of a much more virulent disease. This was true in 1889, 1957, 1968 and in the catastrophic flu outbreak of 1918, which sickened an estimated third of the world's population and killed, conservatively, 50 million people.

There is good news.   The current swine flu does not have some of the genetic elements of more fatal flus, and our ability to spot and respond to outbreaks is much better than it was during any previous pandemic.  But there is also worrying news.  They have confirmed human to swine transmission in Canada, which means the flu may bounce back and forth and have additional opportunities to recombine.   More importantly, this virus has a novel genetic makeup, so existing treatments may not work if it mutates into a more virulent form.  

There is an additional factor to consider.  We survive on resources that are provided to us on the tail-end of global, low-inventory, just-in-time, supply chain system.    While this supply chain gives us access to a remarkable array of goods at low prices in good times, it is not clear how it would respond to the stress of a truly dangerous pandemic.   My read is that any serious disruption would lead to wholesale breakdown.   Your local grocers have sufficient inventory to feed the populace for about three days.  The government certainly has more resources, but post-Katrina, I have a little confidence in the government responding well, especially when the significance of a virulent pandemic would dwarf Katrina.

In short, the odds are that this will not be a catastrophic flu pandemic, but on the other hand, if the virus happens to mutate to a truly virulent form, the consequences could be far worse that most people are predicting.  The good people of flutrackers.com recommend you have sufficient foodstocks to last you three months in an emergency.    It's an annoying expense, and odds are, you will be donating most of it to a food bank sometime down the road, but it's a matter of risk management.   

Personally, I am building that inventory and hoping it all goes to waste.

On Facebook and other Existential Questions

I must begin by apologizing for my neglect of KP. All kinds of things going on, including buying a car, a house and lots of comings and goings at my day job. I wanted to get us up to speed with a couple of issues being widely commented upon by the MSM, several on several of which I have a different perspective or need the Occam's Razors of this forum to clarify my thoughts.

1) Swine/Mexican Flu

About 10,000 people apparently die from the flu in Mexico in a normal flu season, I haven't seen a number for the US. Sounds like a lot, but it's less than 0.01% of the population there. Normally the unfortunate victims are the elderly or the very young (even more tragic) but my point here is that we are definitely not talking crazy numbers on this swine flu thing yet, and likely won't be. The measures taken by the Mexican government are nothing short of amazing. They identified this strain with very, very few deaths and have made extraordinary economic sacrifices to contain the contagion. They should be given a medal, not subject to the rantings of the jackass, Jay Severin, in Boston (shocking, really, to find racism there) on the radio. I'd leave that schmuck in his underdrawers, with $100-bills taped to his body and a kilo of heroin shoved up his rump (and info to that effect posted on narco.com.mx), in the worst neighborhood in Tijuana and see if he could get home to Boston intact. He want "criminaliens", we got "criminaliens". F-ing lowlife.

I also wanted the - ahem - less liberal members of KP to comment on Hong Kong's approach to quarantine. WWRPD?


2) Chrysler's bankruptcy

Very, very interested in everyone's take on the structured bankruptcy of the Littlest of the Big Three. Fiat? Giggles ensue, but nonetheless it seems to me that this is likely the best solution for essentially everyone, with the glaring exception of the bondholders. From my years in Argentina I am pretty immune to feeling bad for bondholders. What are we talking about anyway? It's not like it's a loan, or something. It's an investment that went south, right? Tee, hee, tee, hee.


3) The Mainstream Media - aka Ourselves

How much do we like to scare the shit out of ourselves? Generally, a fair amount, no? Discuss.

Thoughts on the Mexican Flu

Last time I can remember having Mexican fever was watching Salma Hayek in From Dusk til Dawn.    I am much less excited about our contemporary version.   Technically, they both involve rather gruesome deaths, but at least battling vampires is scary in a fun way, whereas my new boogieman, the cytokine storm, is just hide-in-the-basement terrifying.

When something freaks me out, I tend to read about it incessantly.  The additional knowledge, even if dispiriting, at least gives me the illusion of control.   To that end, I recommend the site Flutrackers.com.    

In particular, I want to point you at this thread here (nerd alert!  this is extra nerdy stuff).  I found the discussion fascinating.  The fact that this level of detail is available this quickly is simply amazing to me.   I am a layman, obviously, so this might be old hat to the researchers among us, but I guess the fact that this data, and accompanying analysis,  is actually available to a layman like me is part of what amazes me.

Now I have a question for the researchers of KP.  On one of the other blogs I read, a couple of commenters made the argument that it is just a matter of time before this Mexican flu strain ends up infecting someone that is also hosting one of the virulent Asian flu strains.  A couple of recombinations and other genetic hoodoo later, and they stated that it was virtually a certainty that a virus emerges with the unique genetic code of the Mexican strain combined with the virulence of the Asian strains.    The discussion on the thread above obliquely suggested a similar conclusion.   So KP brains, is that a reasonable conclusion?  Is this destined to turn into a superflu next winter after some Asian tweaking or is it more likely to join the pantheon of false alarms flus?

While we're at it, let me pose another question.   The whole cytokine storm thing really bothers me.   Not only am I smack in the middle of the 20-50 age range that takes the brunt of cytokine storm fatalities, but philosophically, I'm annoyed that my own immune system would go Benedict Arnold and betray me.   I'm defending the Alamo here, and I look over to see my artillery men doing shots with Santa Ana as they turn their cannons on me.    Thanks, dicks!

My question, and I actually mean this seriously, is whether, in the face of a known flu pandemic where otherwise healthy people are getting capped, it makes sense to purposefully degrade my own immune system.  If a stronger immune system leads to a heightened risk of a cytokine storm fatality, shouldn't I greet the news of a serious flu pandemic with all-night sessions of Marlboro Reds, bottom-shelf tequila, and Ho-Hos?

Not so outrageous any more

Well, the least likely of my outrageous predictions has shown some legs.   To recap...

Secession discussions begin
Of all the unlikely happenings suggested above, this is by far the least likely, but it will eventually happen, just maybe not in 2009. As it becomes increasingly apparent that the federal government cannot meet its obligations, or conversely, as the tax load required to meet those obligations explodes, there will start to be discussions in states about secession. At first, it will be quackery, but as the situation worsens, it will gain traction with people. It is unlikely to actually happen, but the thought alone that people might start to take the idea seriously is by itself remarkable. The most likely candidate, of course, the Republic of Texas.

You scoffed and rightly so.  But read this.   Very surprising, especially from a governor.

More on tax revolts

Between his various ad hominem attacks, Aztec actually made an interesting comment regarding tax revolts...

Now, it's nice to see that GG is concerned about civil servants' pensions because she doesn't give a shit about the pensions of union members. And I really hope all of the traders really do take to the streets in full scale tax revolt. Surely the general public will understand the OUTRAGE of having to pay an additional 4% of income tax on ever single dollar earned above $375,000. How will Obama sleep at night knowing that poor hedge fund managers will be forced to liquidate their Hampton beach houses because soon they will be taxed not at the capital gains rate, but at normal income tax rates? Yes, please let them REVOLT at the mere thought of being treated just like everyone else.

Aztec is probably correct that Obama's tax increase on the "rich" is unlikely to ruffle many feathers. The targeted population is small enough and generally well-educated and conservative enough that they won't start brandishing torches. If anything, Obama's policies might lead to a slow-motion capital strike ala Atlas Shrugged, but it will be difficult to separate that behavior from the overall recession.

But Aztec is missing the point by focusing on federal income taxes. The anger behind the tax revolts is focused on two separate problems. One, the federal government is spending like crazy, and most Americans are smart enough to understand that this will translate to a heftier tax burden down the road. Two, and this is much more visceral, is the anger at rising state and city taxes, particularly property taxes. Mish coincidentally just discussed the problem, and I have personally seen multiple examples over the last week. A friend in Hoboken, NJ just saw his property taxes raised from $4K to almost $12K. Add to that the increases in NJ income taxes, and you have the recipe for an angry electorate. Many other states are doing similar things. Rather than cutting spending to reflect recessionary conditions, they are raising taxes on an already strapped middle class.

As an aside, I also want to address one of the most unjust but least talked about side effects of rising property taxes, the forced sales of properties by elderly people. I know of three cases personally of elderly individuals living on fixed incomes who are being forced to sell their properties because they cannot meet the rising tax burden. One couple in NY bought their home two decades ago for less than $150K, but they now face an annual tax bill above $20K a year. They have to sell. Another woman I talked to today is putting her MD property of 30 years on the market because she can no longer keep up with the tax obligation.

These are people who own their homes outright and have for years. For the state to essentially force them to leave is immoral and ought to be criminal, but it is happening all over the U.S. now has governments looks for new sources of revenue.

A nationwide tax revolt is coming. It might not reach critical mass this year, but it is just a matter of time.

In any case, I will be marching April 15th. And not for my 4% as Aztec smugly suggests, but because out of control government spending threatens the basic values of life, liberty, and property, and apparently the only way to stop it is to take credit card from the politicians' hands.

Pavlovian Aztec

Ah, Aztec. Thanks for proving yourself to be as predictable as always. I knew we'd get that link out of you; arch-typical, straight out of the playbook, knee jerk leftist crap.

1. My link was a response to your pathetic Sarah Palin attack link, which was in poor taste, required zero research, and less relevant than BO's bow/denial. The fact that you responded to GB's callout with such venom says a lot.

2. I always hated the fact the the Bushes and their clan are so tight with the Saudis. Unlike you, I am not a hyperpartisan automaton, incapable of criticism of those toward my side of the political spectrum. My post wasn't about Bush. It was about Obama and his administration's denial of the obvious. He should be honest with the people rather than following the Clintonian playbook. Of course, I never would expect you to admit that a simple admission of a misstep would have been a better response from BO.

3. I love how I can poke you in your leftist cage and you come out smearing anything on the right. The condescending tone is a nice touch, too. Especially when you don't even address the issue. I'm surprised you haven't tried to get a job on one of BO's hit squads.

Wingnuts Angry That Obama Didn’t Suck Off Saudi King, Like Bush Always Did

This is why I wish Hoss would post more often.  Responding take no research (except the ocassional Snopes check) and let's me feel less guilty about reusing Wonkette posts wholesale.  It also obviates the need to cut and paste portions of the Freeper message boards. 

Keep posting Hoss.  Don't let the crypto-objectivist/libertarians dominate the right wing discussion on KP. 

BTW, can some of the KP vets post on the Gates Budget?  Voodoo, I'm looking at you.
 

Wingnuts Angry That Obama Didn't Suck Off Saudi King, Like Bush Always Did

via Wonkette by Ken Layne on 4/8/09

Oh noes the wingnuts are very, very upset! Why? This street negro, Barack Obama, allegedly kowtowed to the Saudi King while meeting said Saudi King at the G-20. (The White House says, "Uhh, Obama is a lot taller than that old dwarf, so he bent down to look at him.") It is shameful for an American president to politely bow one's head while being presented to a Saudi Prince/King. You are supposed to smooch him up and hold his hand and walk him around your ranch and then give him a loving blowjob, like George W. Bush Junior always did! Let's remember the good times, together.

See, black people nod politely to the Royal Head of State Monarch, while white people romantically caress the fat old dude's hand — foreplay, it is called — and then robustly lick his ass for a few hours.

And then you just get in close with that Grecian-formula goatee and jam that tongue in there, old school:

Thanks, Wingnuts! Without you people, American might've forgotten the proper way for an American president to deal with the Arab Monach: just cold suck on his peter.

 

Obama - Abdullah's Bitch

What a disgrace. What is even more disgraceful is the response of the administration - total denial. I would have a lot more respect for the adminstration if Obama would simply acknowledge his error. Next we'll probably hear that it is Bush and Cheney's fault.

Maybe next time he'll drop completely to his knees.

Obama's a bitch. Only Jimmy Carter projected more weakness as President.

Ron Paul on the 15-year Depression

From the FT.

Fifteen years sounds about right to me.  I tend to be a believer in historical, generational cycles, from the Kondratieff wave to even some of the sort of tin-foil literature on cycles like The Fourth Turning (which I have not actually read).   While I can understand skepticism of this kind of analysis, I am of little doubt that national psychology seems to go through huge generational shifts.  For example, virtually ever one I know whose grandparents suffered through the Great Depression remember them as pack rats, storing stuff that would strike us as disposable.   Most of the generation is now dead, and their experience largely forgotten.  

The approach of that generation towards "stuff" is basically the polar opposite of our generation's willingness to junk something at a moment's inconvenience to buy a new one, but I think we are witnessing the very beginnings of a shift to that generation's mentality.  Over the last few months, I've noticed a pronounced tendency in the media to celebrate the coolness of being frugal.  The hipness of frugality will subside as things worsen and frugality becomes a requirement rather than a fashion statement.    I'm afraid that when our generation emerges in the 2020s, we may not think so differently than our grandparents, and, unfortunately, that kind of polar shift in psychology can only come as result of severe national trauma.  Which, as you know, I am forecasting.

The optimistic counterpoint is that might see a renaissance for our republic as people start to spend less energy debating the American Idols on TV and more debating the American Idles in Congress (god awful pun copyright Gammaboy 2009).    Perhaps we might actually see more from real political thinkers in Congress (RP to start) rather than the daily idiocies of clowns like Barney Frank.

Pension update

There have been about a dozen different important threads that I have been meaning to link and expound on, but I haven't had the time, so I am afraid many of them are lost in the ether of good intentions.    Since I just railed on Aztec's posts with proper invective (surprisingly alcohol free),  I thought I would add an update to my prediction concerning pensions.   I still think the pension crisis will be one of the big headlines come year-end, and frankly, the situation looks worse than I had imagined.   Read this story.  

As far as other big picture economic data, everything has been coming in disastrously, the current stock market rally notwithstanding.  I have actually been quite long stocks all year and think we probably have one more leg up in this rally through early May before things really start to go downhill this summer.   April 15th should be interesting.  I am hoping, rather desperately, that the various tax protests taking shape will get some footing, but I frankly think turnout will not be big enough to be more than a footnote on the evening news.   Regardless, once the government starts counting its dough in the weeks following, I expect the deficit to come in significantly worse than expected, and the financial crisis to begin its next calamitous chapter.   The summer of 2009 certainly has the possibility of becoming one of those landmark periods in American history like '68.  Interesting times, as per the Chinese.

I'll also reiterate my possibly eyes-wide-open, possibly I-am-taking-crazy-pills, suggestion that everyone have some place well-stocked and far from the urban streets to flee should things get, well, crazy.  I realize the notion has a survivalist-tinged ridiculousness to it, this being America and all, but just in case, do yourself a favor and have a plan.   It costs nothing, and with full knowledge of the future mocking I risk should this (hopefully) prove to be hyperbole, it might literally save your life.

The Gift that Keeps On Giving

Remember the heady days with Sarah Palin gave the GOP its own dose of much needed energy and hope?  As it turns out, Palin was a gift to the Dems that keeps on giving.  How many meth dealers, cat burglars, and bundling teens can one extended family have?

Obama's Bitch

Mark Stanford is Obama's bitch.  He took the money even though he still doesn't have his state legislature's promise to use state funds for debt relief. 

More on Treasury looting

I continued to be amazed at the disconnect between the blogosphere and the MSM on this Geithner plan. The blogs have made excellent arguments that the whole Geithner plan is basically a scam, created to steathily move massive losses from a handful of banks and funds to taxpayers. Mish has another good rant on the subject, but I particularly wanted to highlight a post from Steve Waldman, to which Mish himself linked. The first two sentences particularly capture my sadness at the way this looks like it is going to play out.

I am filled with despair, not because what we are doing cannot "work", but
because it is too unjust. This is not my country.

I think that critics of the Geithner plan are missing some of its tactical
brilliance. My guess is that behind the scenes, Geithner has arranged a kind of
J.P. Morgan moment.

I don't think the scandal of the Geithner plan is going to turn out to be
the subsidy to well-connected investors embedded in the non-recourse loan put
option. On the contrary, I think that Treasury has already lined up participants
for the "Legacy Loans Public-Private Investment Fund" and persuaded them to
offer prices so high that despite the put, investors will expect to take a major
loss. My little conspiracy theory is that the Blackrocks and PIMCOs of the
world, the asset managers who do well by "shaking hands with the government",
will agree to take a hit on relatively small investments in order first to help
make banks smell solvent, and then to compel and provide "good optics" for a
maximal transfer from government to key financial institutions.

Why would PIMROCK go along with this? Because they feel it is their
patriotic duty to work with the government for the good of the financial system,
even if that involves accepting some sacrifices. And because they hold $100B in
J.P. Citi of America bonds, and they've received assurances that if we can get
the nation out of the financial pickle it's in, there will be no haircuts on
those bonds. "Shaking hands with the government" means that nothing ever has to
be put in writing.

The caveat here is that this is just Waldman's theory. But there are several other plausible theories out there, and they all suggest that however exactly this plays out, connected players are going to game the hell out of the system. You (and your children aand their children) will be paying down debt for years to ensure bondholders get fully paid and bankers get their bonuses.

Ron Paul Dominates Level Playing Field

Hoping to make him look ridiculous, the liberal MSM is constantly setting traps for Ron Paul. But as this clip shows, when you give Rep. Paul a level playing field and let him debate his intellectual peers, he can really shine.

Bankruptcy Primer

Conceptually, there are two types of bankruptcies: liquidation (Chapter 7) and reorganization (Chapters 11, & 13).  Liquidation occurs when the debtor surrenders all of its assets, which are then sold and the proceeds distributed to the creditors.  After the completion of liquidation, all of the debtor's debts are discharged (i.e., the debtor no longer owes any money to its creditors) and the creditors end up with pennies on the dollar. 

In a reorganization, the debtor becomes a debtor in possession, which not only allows the debtor to hold on to its assets during the bankruptcy, but also allows it to temporarily suspend debt payments.  During the reorganization, any interested party can propose a reorganization plan, which may include modification of certain lending agreements or rejection of pre-bankruptcy contracts (think union or pension contracts here).  In the event that creditors cannot agree upon or "confirm" a reorganization plan, then the bankruptcy court may unofficially step in and modify the plan in an effort to obtain confirmation.  Modification may include changing or restructuring the terms of preexisting contracts.  After the plan is approved, the debtor emerges from the bankruptcy with all of its assets and creditors end up with (a) new payment terms, (b) something more than pennies on the dollar, or (c) jack shit (see e.g., unions members and pensioners).   If it turns out that the debtor's income or assets cannot support any reasonable reorganization plan, then the court may convert the reorganization into an involuntary liquidation.

Now, to clear up some confusion: Friedmanite: While it is true that homes are protected in personal bankruptcies, that is a result of state and federal homestead protections and preferences (in the non-legal sense) given to secured creditors.  If a debtor stops making all its credit payments, but keeps its mortgage payments current, then the court isn't going to touch the home.  By the same token, the Court and the Chapter 13 Trustee are going to give the debtor some breathing room, amortize the arrerage, and try to deal with the unsecured creditors. But, bankruptcy provides no protection in the event that a debtor defaults on bankruptcy plan payments. 

What the Obama plan does is apply the reorganization bankruptcy principles to debtors seeking to prevent foreclosure on their home.  If a person files for bankruptcy, lenders would be forced to reach commercially viable compromises with homeowners.  If the lender and homeowner can't agree, the court may step in and present proposals of its own.  Of course, lenders are going to take a haircut - but they almost always do in bankruptcies.  And in the event that the homeowner's income can't reasonably support a revised loan or if the homeowner stops making payments on the revised loan, then the lender may liquidate through foreclosure. 

Nothing in the Obama plan would provide state court judges with the power to alter contracts.  The proposal is simply a change in existing federal bankruptcy legislation. 

The new legislation is unlikely to affect future lending.  First of all, the amendment is limited in time.  It won't affect new mortgages and will only affect mortgages created in past few years. 

Second, even secured creditors have to renegotiate existing contracts in Chapter 13 cases.  The legal and conceptual framework exist for the Court, Trustees, and creditors to work out issues such as market values and market rates.  The assets you typically see involved are large trucks or construction equipment.  Modifying existing contracts to protect a distressed borrower is really the core concept in Chapter 11 and Chapter 13 cases. 

Third, even if the change to the bankruptcy code were to affect new mortgages, lending institutions absolutely know how to account for bankruptcy risk and know how to factor a potential reorganization into their lending decisions.  To the extent that that the new laws create any market externalities, they are know quantities and are unlikely to present any major issues.  GG -  this is why these new laws will not freeze home lending.  If the potential for bankruptcy reorganization really did present as grave a risk to lending as GG foresees, then there would have been no commercial lending over the last 100 years.

What will likely happen is that the new laws will mitigate against moral hazards and help promote better lending decisions.  The moral hazard in this instance is that current bankruptcy law makes the home mortgage a unique type of secured lending that is almost completely insulated from bankruptcy risk.  The ability to lend without the risk of a potential reorganization creates much looser lending standards for home mortgages than for small business or commercial lending.    Go out and find someone who has actually applied for a individual commercial loan and ask them to compare the lending process with the home mortgage lending process.  I guarantee you that no one has ever provided a commercial loan based on a stated income application.  The availability of reorganization plays into the difference in the loan making process.  If the elimination of speedy home foreclosures means the elimination of the liar loan, then we will all be better for it. 

Third and finally, the new bankruptcy rules will eliminate the perverse lending incentives created by real estate booms.  If prices are steadily rising, lenders may have an incentive to create products that encourage default and foreclosure.  Take the ever-popular 5-year, interest only loan.  This is a product with a ridiculously high balloon that seems specifically designed to get people to move into houses they cannot afford.  Now, the lender knows the borrower's purported income and knows that the borrower is unlikely to be able to afford payments on a refinanced 3-year ARM in year 6.  Why not make the loan, buy the MBS, or the CDO but for the fact that you would likely make more money if the borrow defaults and you sell the house at a higher price?  The prospect of having to renegotiate the loan in bankruptcy court helps to reduce the incentives behind this type of lending speculation in boom markets. 

And you thought this recession sucked...

I'm always a little freaked out by stories like this. With plenty of "real" things to worry about, phenomenon like this seem like a waste of mental energy, but then there seem to be a quite a few phenomenon like this that occur every few hundred years (Tunguska). At some point, the laws of probability will catch up with us.

In the meantime, my greater fear is a Bruce Willis/Ben Affleck movie coming out of this.