The California Budget, Bankruptcy, Clinton, and Obama

[courtesy of California Progress Report]

By Rosemary Shahan,
President
Consumers for Auto Reliability and Safety

Last year, Governor Schwarzenegger boasted about balancing California’s budget. Now it’s $14 billion out of whack. Why did California’s economy tank so suddenly? Many factors contributed to this fiscal meltdown. But President Bush’s drastic changes to federal bankruptcy law should not be overlooked. Ironically, the law’s enactment also illuminates a stark difference between the leading Democratic Presidential contenders.

When the Republican-controlled Congress and President Bush changed the rules for consumers who file bankruptcy, they encouraged banks to engage in reckless lending practices. They sowed the seeds for widespread predatory lending and the ensuing home mortgage debacle that is hitting California with the worst tidal wave of foreclosures since the Great Depression. The dramatic downturn in the housing market is now eroding California’s tax base and costing our state billions.

The Bush-backed bankruptcy bill was vehemently opposed by a large coalition of consumer groups, labor unions, academics, economists, and bankruptcy attorneys who warned that it would harm hard-working people who fall on hard times. They cited the leading causes of bankruptcy: high medical bills, job loss and divorce.

But Bush and the Republican Congress were falling over themselves to do the bidding of the large banks, credit card companies, auto dealers, and investment firms that had put them in power. Those interests salivated over the killing they would make by shifting the risks of their reckless lending practices onto consumers.

Former President Clinton had pocket-vetoed a less irresponsible measure in sunnier economic times. Banking interests and auto dealers retaliated by backing Bush and opposing Gore. When Bush took office, they were ecstatic. In March, 2005, with his trademark smirk on his face, Bush signed the bankruptcy bill. Thus he delivered for many of his campaign “pioneers” and largest sources of political cash—and ushered in an era of unfettered greed.