Epilogue: The Fourth Communique


By Benjamin Adams       @BenAdamsEsq       December 14, 2016

A telephone phone rings, precisely as scheduled and subsequently confirmed multiple times across multiple platforms. A U.S. diplomat answers. On the other end is his Chinese counterpart. After a complex exchange of slowly translated pleasantries, the business is at hand.

Chinese Diplomat:  We would like to schedule a time for a congratulatory  phone call from our President to yours and the simultaneous reading of the Three Communiques.

U.S. Diplomat:  We are amendable to that. We have some language regarding South Seas that we would like read at the same time.

Chinese Diplomat:  (Long Pause) This is not what our normal diplomatic relations call for.

U.S. Diplomat: We understand that. This is a pressing matter to the new United States government. As you well know, we hold democratic elections in the United States, such that government policies may change as the opinions of our citizens change. We are sorry for any inconvenience this may cause you.

Chinese Diplomat: We are (pause) troubled (pause) by the call between your President and the President of Taiwan. Does your government no longer respect the territorial sovereignty of China?

U.S. Diplomat: A call between our President and another party is of no concern to your government. The United States wants friendly relations with China and respects the Chinese people.  The United States will explicitly guarantee Chinese sovereignty provided China explicitly rejects territorial expansion. We need language specifically acknowledging man-made Islands as illegitimate. Therefore, we think it makes sense for the United States President to read the Three Joint Communiques after the Chinese President reads language the language we are proposing. We would ask that this become The Fourth Communique.

Chinese Diplomat: This will not be acceptable to my government. This is not the standard protocol.

U.S. Diplomat: Please also understand that in the future, any statement regarding territorial sovereignty of China will need to contain language related to Tibet.  

Chinese Diplomat: This will never be acceptable to my government.

U.S. Diplomat: We understand and respect your position. You can contact me when you are willing to discuss the additional language

Chinese Diplomat: We have every legal right to claim sovereignty over Taiwan.

U.S. Diplomat: Frankly, your problem has nothing to do with Taiwan. Human beings do not want to live in a totalitarian, one-party state where people go to jail for having more than one child or for criticizing the government. As you may know, human beings want to live in freedom. They want freedom to speak, to worship, to associate, to express, and to dissent when they see fit. To the extent that the government of China works against these values, it will never feel befriended by our government, nor will it be befriended in fact. That will be our position while we continue to embrace the Chinese people and support their aspirations for freedom. This government will not waver from that position.

Chinese Diplomat: Please send over the proposed language so that I can discuss it with my government.

U.S. Diplomat: Most certainly. We are looking forward the renewed relations between our governments.

Chinese Diplomat: We are as well.

Trump & The (Ugly) Art of the (Renegotiated) Deal



by Benjamin M. Adams      @BenAdamsEsq      December 6, 2016

Practicing in the field of consumer bankruptcy, foreclosure defense, and loss mitigation, I’ve met more than a few people who own homes that are underwater. (Sometimes people refer to these as underwater mortgages.) The distinguishing feature of these mortgages is that the outstanding indebtedness on the mortgage or mortgages is higher than the value of the home. Over the course of my representation, most of my clients who stopped paying their mortgage (often long ago) proceed via one of several avenues available to apply for a loan modification. Moreover they usually proceed, in rather direct course, into a trial loan modification offered to them by their lender. More often than not the terms of that modification contain better-than-market interest rates, even considering today’s great market for rates.

A certain subset of folks, my clients that is to say colloquially, have on the other hand continued to dutifully pay their mortgage on-time each and every month. Most of them do this with eyes wide open about the raw deal they have gotten and continue to get. Perhaps they are making a payment on a mortgage note with a balance of $550,000, knowing that the house by which it is secured wouldn’t net them $350,000 on the open market. Moreover, they are making payments, often at a relatively high rate of interest, that can only be afforded through the exclusion of other necessities. They do this despite a lack of personal assets which might be exposed if they default.

That is all to say that from a standpoint of personal economics, these people ought to have defaulted a long time ago, but they haven’t done so and often have refrained from default even in the face of severe financial turmoil. Some feel honor-bound. Some are too frightened to stop. Some have no clue what is going on in the world (and stop as soon as I explain it). The point is that Mary comes to me for help because all of her friends and neighbors have gotten favorable modifications on their mortgages. Even her crazy Uncle Ted got one. Mary figures that she should be able to get help. After all, she thinks to herself and often says aloud, “I haven’t ever even missed a payment. How can the bank treat my crazy Uncle Ted better than me? Ted stopped paying his mortgage when the Democrats controlled the Senate. Do you hear what I’m saying? I’ve never even made a late payment!” So this is about the time when I tell Mary how the world works.

Crazy Ted got a fixed, low-rate mortgage modification because he stopped paying the mortgage, not in spite of that fact. More to the point, this wasn’t an aberration of any sort. I explain to Mary that my experience is that banks won’t give substantial assistance to borrowers who stay current. Sadly, it doesn’t matter how bad is Mary’s circumstance, nor does it matter that her house is deeply underwater. The truth is plain, cold and rather easy to convey– Your mortgage lender is not redoing your deal for as long as you are current on your obligations. They don’t even want to talk to you. For me, there is a correlative set of thoughts, to which I sometimes give voice. When I do, I merely ask, “Why would they? Would you if you were in their place? Mary, imagine I borrowed money from you, promised to pay you back in certain amounts and assume I just came to you in the middle of the deal and asked you to make it better…”

One may or may not be surprised to learn that it doesn’t take but a moment for Mary and most whom are similarly situated to realize that it makes more than some sense. It seems unfair in a purely moral sense, but it also seems to make business sense from the lender’s perspective.  Moreover, my clients all understand that these mortgage loans were business transactions and hence properly governed by the mostly-Machiavellian rules of business. (The correlative thought here for Mary is perhaps she ought to begin thinking of the relationship with her mortgage lender on strictly business terms.) Mary doesn’t fight it much. The sole lingering bitterness is that she is mad at herself for not getting over as well and as quickly as crazy Uncle Ted, even though he’s get several screws loose. From there, Mary and I decide which course is best for her.

So this should not be terribly difficult to see how all of this applies to Donald Trump’s phone call with the Taiwanese President.

First, however, let’s take a moment to remember some of the things not often talked about with respect to China. First, on a personal level, I continue to connect this regime to the atrocities of Tiananmen in 1989. Cruel and oppressive autocracies like the one that carried out that bloodbath do not as a rule cede power voluntarily. That bloody 1989 regime became the ruling regime in 2016 without any intervening process which could remotely be described as democratic. Remember, how we reminded the world that Castro was oppressive? In China, Tiananmen can’t even be discussed. Let that sink in. It cannot be discussed. Yet we are supposed to believe this is not the same leadership with a different face? Of course it is. I am not suggesting that we should only trade with Democratic nations. We deal with any number of oppressive regimes. Some sell oil. Some sell bananas. I am suggesting that we are naive to think the Chinese government, which ordered its citizens crushed by its owns tanks for the crime of peaceful protest, are for some reason dealing in the purely-Machiavellian world of international politics with a greater measure of moral purpose.

In fact, the Chinese have increasingly mastered the ability to engage in the realpolitik of international passive-aggression while avoiding receipt of any of the normally-associated opprobrium. After all, China occupies a nation called Tibet. This is a human rights abuse of the first order. Second, China is now occupying and expanding land masses in the South in blatant violation of both international law and treaty and in a direct challenge to the United States’ right to navigate international waters. Third, China continues to run interference for North Korea which, in a world less charitable to Chinese sensitivities, would be called its Client state.

When speaking of the benefits of international trade, economists correctly note the concept of comparative advantage. That is to say, the United States makes guns 10x more efficiently than Columbia makes guns, but they make coffee 10x more efficiently than the U.S. makes coffee. The upshot is that — ceteris paribus — the U.S. is crazy to grow coffee and Columbia is crazy to waste its time making guns when the two nations can just trade (directly or indirectly) coffee for guns. If you want to go one level deeper, you can read any Macro 101 textbook or maybe click here.

So while comparative advantage is an economic truth, it contains the kind of assumption that always renders economists imperfect substitutes for policy-makers. All things are never equal. Comparative advantage from trade is an accurate mathematical context but nothing more than that. Actual trade carries implications not only for the economy but also for national security, the environment, immigration and a great deal more. So we need to understand that international trade requires “dynamic scoring” for lack of a better term. In today’s international marketplace, China’s comparative advantage is in making crap that ends up in U.S. landfills. China maintains this cheap labor advantage by allowing wholesale and egregious exploitation of its workers, including its children. China’s advantage in making shiny things that look good but break also flows from polluted water and befouled air which, one should not need to note, is breathed by Chinese as well as non-Chinese alike. China’s other main advantage is that it doesn’t respect intellectual property rights, encouraging a vast piracy industry that specializes in ripping off American artists.

I’m not being simplistic. I get that when we buy poorly-made Chinese textiles and plastics, Walmart makes a profit and does so by employing people in the U.S.. Those employees buy iphones, use Uber, and generally contribute to economic activity in the U.S. Moreover, the Chinese factory owners then take their profits and buy iphones and ipads for their kids. Chinese also buy big stuff like cars and airplanes and NYC condos. Those Condo sales yield big commissions to realtors who pay taxes and private school tuition which goes to pay teachers salaries and so on and so on and so on. Crap has its role in the natural and financial ecosystems.

So turning back to Trump’s phone call with the Taiwanese President…

Let’s remember that Trump campaigned from start to finish about getting tough with the Chinese. How can we not say he hasn’t got some kind of mandate to at least try to re-balance Sino-U.S. relations? He clearly does. Moreover, if Trump really wants to renegotiate the terms of trade and currency with China, he needs real and substantial leverage. Starting off his presidency by dutifully reciting U.S. acquiescence to Chinese demands, as Obama and Bush did, may not be the best way to obtain that leverage. Taking a call from Taiwan’s president may not send the right message, or perhaps it sends exactly the message that needs to be sent. Time will tell.

In the meantime, Americans are told that we should quake in our boots at the thought that the Chinese may sell a bunch of U.S. Treasuries in response. I think that’s nonsense for a number of reasons and, worse, it is uninformed defeatism. If the Chinese want to start denominating oil in RMB, they are free to try. They are also free to try making the Chinese Yuan into the world’s reserve currency. I don’t see where they have incentive to do any of that. I see even less reason why they would have a broader motive to collapse our economy. After all, who would buy all their crap? What would we do with all the empty landfills?

So it should all make sense now. China is our mortgage lender. Obama is Mary. Upon taking office, he promptly and dutifully gave his recitations to the Chinese regarding the 3 communiques. Obama-Mary never risk a fight with their lender, no matter how bad the deal may look. They are cautious and more, importantly, they don’t work by shaking things up. Trump is your crazy Uncle Ted and he is willing to skip payments in order to get his lender to talk to him. He simply understands, for lack of a better term, the animal spirits perpetually at work across human relations. One hopes that he will learn how to harness those talents for the cause of enhancing American interests rather than petty acts of retribution. Don’t look now, but it looks like Trump just skipped a payment to China. Let’s see if someone is willing to talk.

Can Same-sex Married Couples File a Joint Bankruptcy Petition in New York?

The short answer is Yes, No, and Maybe.

Now that New York has passed a law allowing same-sex marriage in the State, a number of issues will need to be sorted out by various state agencies. Some issues will inevitably fall to the judiciary for resolution. One of the trickiest areas will be the tension between the State’s legal recognition of same-sex marriage and the odious federal legislation known as DOMA or The Defense of Marriage Act.  Nowhere is the tension between DOMA and same-sex marriages more pronounced than in the realm of bankruptcy law, where federal courts continually blend elements of state and federal law.

In essence, DOMA prevents the federal government from recognizing same-sex marriages in any context. (It also gives states the option of  refusing to recognizing same-sex marriages which take place in other states.) Thus, the United States Bankruptcy Courts and the Office of the United States Trustee are both governed by DOMA. The ability to file a joint petition in a bankruptcy proceeding is a significant benefit to couples for several reasons, including the right of spouses to aggregate their property exemptions. Until recently, the only prior ruling on this point held that a same sex-couple could not file a joint bankruptcy petition.

In this prior case, In re Kandu, 315 B.R. 123 (Bankr. W.D. Wash. 2004), the bankruptcy court rejected a joint filing by a same-sex couple who were married in Canada but resided in Washington. The court rejected the same-sex filing and in doing so also rejected the claim that DOMA was unconstitutional under the Equal Protection clause of the 5th Amendment.

However in a recent decision in New York’s Southern District, U.S. Bankruptcy Judge Cecelia G. Morris rejected the United States Trustee’s motion to dismiss a joint bankruptcy filing by a New York same-sex couple who were married in Vermont shortly before filing their petition. The ruling in In re Theresa L. Somers and Rosemary Caggiano, Debtors, 10-38296, was decided on May 4, 2011. Judge Morris noted that the constitutionality of DOMA has been questioned in recent second Circuit opinions. Judge Morris went on to rule that the mere existence of DOMA does not satisfy the “cause” requirements for a dismissal under Section 707(a).

The opinion of Judge Morris is available here.

So where does that leave the law now? What should same-sex married couples do if they could benefit from filing a joint bankruptcy petition? Several factors still weigh against filing a joint petition. First, DOMA remains the law of land whether we agree with it or not. Second, it is not clear if other bankruptcy judges will follow the approach of Judge Morris. Finally, and from a more practical standpoint, most debtors file for bankruptcy in order to get a fresh start. They usually want a swift conclusion to their case and they want certainty of outcome. A joint petition filed by a same-sex couple might not produce a clear and swift determination.

On the other hand, the constitutionality of DOMA is highly suspect, and the Obama administration is no longer defending it. It is also unlikely that the U.S Trustee will continue to aggressively challenge joint filings of same-sex couples. Adding to the momentum in favor of same-sex filings (and against DOMA) is the fact that twenty federal bankruptcy judges from the Central District of California joined together on June 13, 2011 in an opinion favoring the equal protection rights of such marriages under the Fifth Amendment.

In most cases, a joint filing will not be absolutely necessary. An experienced attorney will probably be able to achieve the same results with separate individual filings. So prudence dictates that until the law is firmly established, lawyers and debtors should avoid joint filings unless there are substantial benefits that would result from this type of filing. In that case, practitioners can take encouragement from the gutsy ruling of Judge Cecelia Morris in New York’s Southern District.

Beware Credit Counseling

Commercial advertisements for credit counseling services are sprouting up like weeds. One television commercial for credit counseling tells viewers that they “should not even think about bankruptcy.” Now as a general rule, I think it is probably not a good idea to hire anyone who advises you not to think. More specifically, it is worth asking why a credit counselor doesn’t want you to think about bankruptcy. The answer is that if you think about the pros and cons of bankruptcy versus the pros and cons of credit counseling, you will probably come to the conclusion that bankruptcy is the better choice.

Consumers should understand that many credit counseling services are simply “fronts” for credit card companies trying to take more of your hard-earned money. Many credit counselors are paid directly by the card companies, and they may also be paid on a commission basis. That means that the credit counselor only gets paid if they get you signed up to their program. So they have a financial interest in getting you signed up, even if it is not the best option for you. Don’t be fooled simply because a company claims to be a “non-profit.” Recent investigations have shown many credit counseling services to be nothing more than scams. You can read more about these abuses here and here.

As an experienced bankruptcy attorney, I urge my clients to get all the information and then think about what course of action works best for them. For some clients, credit counseling may indeed be a better option than filing for bankruptcy. Other clients cannot be helped by either approach. The field of loss mitigation is highly complex and every day it gets more complicated. People in financial turmoil need to understand all the options. These may include credit counseling, Chapter 7 bankruptcy, Chapter 13 bankruptcy, and debt settlement. Homeowners must understand additional options such as loan modification, forbearance, and deeds in lieu of foreclosure.

That is why I urge people to have a consultation with an experienced loss-mitigation attorney before deciding what to do. Ask the attorney about all the options available to you. Ask about the pros and cons of each option. Try to educate yourself as much as possible before you meet with an attorney so that you will know which questions to ask. Having an experienced attorney is very important, but nothing is more valuable than understanding your options. Knowledge is power, especially in such a complex area of law. You may be in financial trouble, but you still have the right to be treated with fairness, honesty and respect. If you are experiencing money problems, the best advice is to get informed.

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