Mr. REED - Mr. President, today I am introducing the Bankruptcy Fairness Act, with the goals of bolstering financial stability in the United States and requiring the necessary analysis to assess the consequences of potential changes we might make in the future to the Bankruptcy Code.
One of the many lessons that we learned from the financial crisis is that reckless Wall Street behavior can have devastating consequences on middle class Americans, too many of whom lost their jobs, their nest eggs, and their homes. Statistics bear this out. Nationally, over 750,000 jobs per month were lost between January and April 2009. In Rhode Island, over 1,800 jobs per month were lost during this same period. The Dow Jones Industrial Average dropped from an average of 13,677.89 in July 2007 to an average of 7,235.47 in March 2009, resulting in a 47.1 percent loss for many families who for years had set aside hard earned paychecks for emergencies, college tuitions, and retirements. Nationwide, there were nearly 7.5 million home foreclosures and short sales between July 2007 and November 2014. Unfortunately, the impacts remain to this day for some of our neighbors in Rhode Island and throughout the country as they continue to look for a decent paying job or are faced with gut-wrenching financial decisions like whether to turn the heat off or to skip feeding the family another day just to make ends meet.
That lesson of how many of our neighbors suffered due to the sins of the rich and powerful seems to be fading for some of my colleagues. Indeed, there appears to be an effort to further rig the system in favor of elites, this time through the Bankruptcy code. We must stop this effort cold in its tracks. Before we make changes to the Bankruptcy code, we should ensure that a thorough analysis is conducted so we have facts at hand. If anything, we should be seeking to restore fairness and balance to the Bankruptcy code, and this is what my legislation strives for.
Specifically, my bill directs the Financial Stability Oversight Council and the Office of Financial Research to do two things: work hand in hand with the Administrative Office of the United States Courts and the Executive Office for United States Trustees to ensure that bankruptcy judges have, on an ongoing basis, the necessary financial expertise to oversee the orderly resolution of a failed mega bank; and update the Administrative Office of the United States Courts’ post-crisis review of the Bankruptcy Code’s ability to resolve complex financial institutions and make recommendations to Congress regarding changes that would strengthen financial stability in the United States.
Second, my legislation permits the federal agencies that supervise large complex financial institutions to offer their advice and expertise to the bankruptcy court whenever a mega bank files for bankruptcy. This is important because these Federal agencies can assist the court in deciphering complex financial products while also providing the court with an independent assessment of how the court’s decisions could affect financial stability in the United States.
Lastly, my legislation directs our financial regulators and experts to do the necessary homework to justify proposed changes to the Bankruptcy Code. Some proposed changes have drawn praise, and others have drawn concern. For example, should Wall Street banks still be able to cut to the front of the line and take more than their fair share, while ordinary creditors, such as employees and customers, have to wait in the back of the line? When a jumbo bank gets in trouble, why should those customers who place the riskiest bets, such as large Wall Street hedge funds, get paid back in full while ordinary customers may not get paid back at all? Should shareholders be prevented from holding the mega bank’s board of directors accountable for most actions, when a mega bank files for bankruptcy? Is it really possible for a trillion-dollar jumbo bank to be processed through bankruptcy safely in just 48 hours without hurting our economy? Is it fair that ordinary creditors, such as small businesses, who are owed their hard earned dollars, would be given virtually no notice of a mega bank’s bankruptcy, making it nearly impossible for them to fight for their rights?
These are important, incredibly complex, questions that need thorough answers. Many of my colleagues have called for greater deliberation and analysis before enacting legislation. My legislation heeds this call. Let’s take a moment to ensure that we’ve really done our homework so that we can all be confident that we’re really accomplishing what we’re aiming to do: making our financial system safer and restoring fairness and balance to the Bankruptcy Code, especially for hardworking ordinary Americans.
I thank Senator Brown, Senator Merkley, Senator Whitehouse, and Senator BLumenthalL for joining me in introducing the Bankruptcy Fairness Act. I also thank the U.S. Department of the Treasury, Americans for Financial Reform, Harvard Law School Professor Mark Roe, Delaware Law School Professor Bruce Grohsgal, and MIT Professor Simon Johnson for their support. I urge our colleagues to join us in pressing for action on this legislation.