The Senate on Tuesday rejected further opposition to approval of the horrific bankruptcy “reform” legislation, which clears the way for a final Senate vote on the bill over in the next couple of days. House Republican “leaders” have already publicly announced that they would approve the Senate bill next month and send the bill to the White House later this spring.
Harvard Law professor Elizabeth Warren wrote the following about this special interest-backed abomimation on a temporary “subweblog” on the bankruptcy bill that she has been contributing to over on Josh Marshall’s blog:

So the bankruptcy bill moves forward, speeding toward inevitable passage in the Senate and the House. That’s good news for credit card companies, particularly those that are loading their cards up with surprise interest rate jumps and a dozen other tricks and traps. Good news for payday lenders, for banks raking in profits on overdraft accounts, and for car lenders that focus on no-credit-check lending. Good news for all of those who squeeze the American family when someone loses a job, gets sick, or otherwise falls behind in a tough economy.

Previous posts on this dubious legislation may be reviewed here, here, here and here.
Banks, credit-card companies and retailers have poured money into Republican campaign war chests for the past decade while pushing for this ill-conceived legislation. The demagouges supporting the bill contend that it is “too easy” for consumers to run up debt and then use bankruptcy protections to bail themselves out.
The Senate bill would limit the ability of individuals to use a liquidation under chapter 7 of the U.S. Bankruptcy Code to eliminate credit-card debt or certain loans. It would require those with the means to pay some of their debts to file under chapter 13 of the Bankruptcy Code, which requires that the debtor propose a plan for repayment of a portion of his debts from future income.
On the other hand, wealthy individuals will not be affected all that much by the legislation because the bill retains many of the same exemptions that can be used to shelter valuable assets from the bankruptcy estate that is established upon the filing of a bankruptcy case. The new legislation even retains a loophole that permits people to set up so-called “asset protection trusts,” which are exempt from being used to pay off debts in a bankruptcy case.
The most important change in the legislation makes it more difficult and expensive for families under heavy debt loaks from filing a chapter 7 liquidation case, which provides the “fresh start” discharge of personal liability for debts that is central to American insolvency law. The new legislation will force more debtors to file Chapter 13 cases, in which the Bankruptcy Court oversees a three to five year repayment plan. About 70% of individuals currently filing for bankruptcy do so under chapter 7.
The legislation does retain the liberal real estate homestead exemption of Texas and several other states, which allows wealthy debtors to come out of a bankruptcy case retaining the value of their high-priced homestead. However, the legislation does limit the exemption by requiring that debtors own their homes for 40 months to qualify for the exemption.
During yesterday’s Senate debate on the bill, the Senate also rejected efforts to drop the loophole in the legislation that permits wealthy people to protect assets by opening special trust accounts in several states, including Alaska, Delaware, Rhode Island, Nevada and Utah. Doctors in those states have been setting up these asset-protection trusts for years to protect themselves from potential malpractice liability, and many business executives are now doing the same out of concern for potential liability for corporate accounting scandals. Experts estimate that approximately 1,500 domestic asset-protection trusts holding more than $2 billion in assets were created between 1997 and 2003.
Finally, the reform legislation also provides a potential procedural nightmare for bankruptcy courts in that it imposes a strict “means test” to assess whether a prospective debtor would be allowed to liquidate under chapter 7, and adds new paperwork and legal burdens on debtors’ lawyers that will undoubtedly increase the cost of filing bankruptcy.
Make no mistake about it, I am against this bankruptcy “reform” legislation because it is an ill-conceived modification of a well-thought out but underappreciated bankruptcy system that contributes much to the strength of the American economic system. The “fresh start” of a bankruptcy discharge encourages entrepreneurs to take risk and create businesses and jobs, and gives individuals hope that they can rebound from a financial disaster to rebuild wealth for their families. I, for one, am not interested in giving that system away for the parochial benefit of the credit card industry.
Meanwhile, as Republican legislators harp about this “business-friendly” bankruptcy legislation, the Bush Administration’s criminalization of business continues unchecked. When are business leaders going to wake up and realize that the marginal benefit to business interests of “reforming” bankruptcy legislation pales in comparison to the damage done by the federal government’s increasing regulation of business through criminalization of merely questionable business transactions?

On the heels of Warren Buffett’s annual letter to Berkshire Hathaway shareholders that was silent on such matters, federal and state investigators are focusing on whether a four year old transaction between Berkshire Hathaway’s General Reinsurance Corp. and American International Group Inc. transferred sufficient risk to AIG to allow the company to account for it as an insurance policy. Here is an earlier post on this investigation.
AIG booked the transaction as insurance, which increased its premium revenue by $500 million and added another $500 million to its property-casualty claims reserves. Generally accepted accounting principles require insurance and reinsurance transactions to transfer significant risk from one party to another if either party accounts for the transaction as insurance. Absent risk transfer, such transactions must be booked as financing, which defeats the purpose of the transaction. In the General Re-AIG deal, $600 million of potential losses were transferred from General Re to AIG in return for the $500 million premium paid by General Re. Investigators are evaluating whether the risk transfer was illusory based on the structure of the transaction. AIG confirmed last month that the Securities and Exchange Commission, the Justice Department, and New York Attorney General Eliot Spitzer’s office are examining its accounting for certain reinsurance contracts.
You know, doesn’t all of this sound eerily similar to this case?