PhillyDeals: Bank-state senators try to weaken reform bill

As the bank-reform bill rumbles through the U.S. Senate, Sen. Tom Carper (D., Del.) has rallied a bipartisan coalition of bank defenders to prevent states and cities from enforcing tougher laws than Washington's.

They're opposing parts of the main bank-reform bill, sponsored by Sen. Chris Dodd (D., Conn.), that they say would give state and local officials greater freedom in limiting bank loans, fees, and other services, and make it easier for state attorneys general to sue banks for alleged violations of federal law.

That's too much for Carper, whose district includes headquarters for the credit-card operations of Bank of America and JPMorgan Chase, among other multistate lenders.

In a statement, Carper said the Dodd bill would "hand over [national] enforcement tools to states," which would "inadvertently hurt consumers" by forcing banks to cut services or boost fees to preserve their profit margins.

To cosponsor his Amendment 3949, Carper has signed up Tim Johnson (D., S.D.), whose state hosts Citibank's credit-card operations; Mark Warner (D., Va.), whose state includes the headquarters of card giant Capital One, plus at least nine Republicans.

The bipartisan coalition Carper leads recalls an earlier pro-bank campaign in 2005, when then-U.S. Sen. Joe Biden of Delaware led a group of Democrats who joined Republicans to pass a sweeping bankuptcy- reform law.

How did that work out? "The U.S. bankruptcy reform of 2005 played an important role in the mortgage crisis and the current recession," according to a paper by scholars Wenli Li, Michelle J. White, and Ning Zhu published last week by the Federal Reserve Bank of Philadelphia.

In the past, the Fed authors say, homeowners in financial distress would "use bankruptcy to avoid losing their homes, since filing allows them to shift funds from paying other debts" and they could better continue paying their home loans.

But the 2005 bankruptcy law limited homeowners' ability to walk away from credit-card debt. So "an unintended consequence of the reform was to cause mortgage-default rates to rise," the authors found.

Reviewing data from "millions" of home loans, they found that "prime and subprime mortgage-default rates rose by 14 percent and 15 percent, respectively, after bankruptcy reform."

The researchers concluded that the "bankruptcy reform caused the number of mortgage defaults to increase by around 200,000 per year even before the start of the financial crisis, suggesting that the reform increased the severity of the crisis when it came."

Lubert Adler, the Philadelphia real estate partnership, has canceled plans to buy Princeton HealthCare System's University Medical Center in Princeton, hospital vice president for marketing and public affairs Carol Norris told me.

In 2006, Lubert Adler planned homes and stores for the site, but it axed the $55 million project earlier this month, as previously reported by the Trenton Times.

The real estate investment group did not return calls seeking comment. Last week, one of its biggest clients, the Pennsylvania State Employees' Retirement System, reported that three Lubert Adler funds, to which PSERS committed a total of $350 million in 2004-07, were each worth less than the state's initial investment after the national real estate collapse. Two earlier Lubert Adler funds had made millions for the state.

Princeton HealthCare is planning to shut the hospital after finishing its new $355 million hospital complex, now rising in nearby Plainsboro.

The health-care group says it is raising $180 million through variable-rate tax-exempt bonds backed by letters of credit from TD Bank and Bank of America, plus $175 million in direct adjustable-rate loans from Wells Fargo Bank and JPMorgan Chase. The borrowing will average less than 3 percent annually in initial interest.

Despite the failure to sell the old property, the new hospital is "on schedule and on budget," according to Princeton HealthCare.