That’s the question a subcommittee of the House Judiciary Committee examined Wednesday. Echoing a recent parallel hearing in the Senate, lawmakers and witnesses considered whether the Supreme Court’s recent rulings in two key cases undermined the ability of victims to have their day in court, or protected business and government from costly and intrusive lawsuits.

As in the Senate, House lawmakers appear divided along party lines. Democrats and their witnesses say that the Supreme Court’s recent decisions in Bell Atlantic v. Twombly and Ashcroft v. Iqbal have gutted the civil rights and antitrust laws and imposed an unfair and often insurmountable burden that will doom many valid claims. Republicans and their witnesses, meanwhile, say the court did the right thing to help reduce frivolous lawsuits that destroy small businesses and drag busy government officials into court unnecessarily.

Rep. Jerrold Nadler (D-N.Y.), who testified at Wednesday’s hearing, has introduced legislation to effectively turn back the clock to before the Supreme Court’s rulings by restoring the previous standard for filing claims.That legislation, HR 4115, the Open Access to Courts Act, was the focus of the hearing.

The key question is, should a victim filing a lawsuit be required to produce evidence of specific credible facts supporting her claims in order to be allowed to proceed with the case? In the past, courts have required only “a short and plain statement” of the claims. The facts are adduced in the course of the lawsuit through a legal process known as “discovery.”

For those who view most lawsuits as frivolous, the Supreme Court’s new standard is a welcome change. Rep. Bob Goodlatte (R-Va.) argued Wednesday that the high court’s recent requirement “seems to me to be very reasonable.” The proposed legislation, on the other hand, he argued, “is an economic stimulus package for trial lawyers.”

The Democrats’ witnesses, such as Eric Schnapper, law professor at University of Washington and a former attorney for the NAACP Legal Defense Fund, countered that the two recent Supreme Court cases “brought about sweeping changes in the lower courts, all for the worse.” In discrimination cases, now, so long as “discriminatory officials do a good job covering their tracks, under Iqbal and Twombly they can cut off any legal challenge before discovery is available to unearth their records or force them to answer questions under oath,” he said. The new standard “requires proof of a smoking gun,” which could doom many meritorious cases at the outset, he testified.

Gregory Katsas, a Justice Department official in the Bush administration who defended former Attorney General John Ashcroft and FBI Director Robert Mueller in the Iqbal case and now defends corporations at a private law firm, warned that the proposed legislation would “open the floodgates” for “fishing expeditions – intrusive and expensive discovery into implausible and insubstantial claims.” That would “impose massive costs on defendants who have engaged in no wrongdoing.”

When it comes to cases against government officials, such as Iqbal — which alleged that senior Bush administration officials discriminated against Muslims by improperly detaining them after the Sept. 11 terrorist attacks — “such discovery would vitiate an important component of the officials’ qualified immunity” even where the claims are against individual government officials “for actions undertaken to prosecute wars abroad or to respond to national?security emergencies at home,” said Katsas. “Such a result,” he added, “would be paralyzing if not deadly.”

Both sides came armed with statistics to support their case that the recent Supreme Court decisions were either a “sea change” in the law that decimated the ability of civil rights claimants to pursue their cases, or were merely a logical interpretation of existing law and had little impact on the actual outcome of cases in court.

As several of the expert witnesses pointed out, however, the statistics don’t really tell you all that much. Even if cases are being filed or dismissed at about the same rate as before, there’s no telling how many cases haven’t been filed because the new standard would doom them, or how many defense lawyers are relying on the new standards to ask courts to dismiss cases that they wouldn’t have dared tried to get dismissed so early in the game before.

The new draft bill is expected to take a tougher stance toward troubled financial firms than the administration’s original plan, and may take out some language that would allow for temporary bailouts.

Robert Reich argues that a stronger approach regarding too big to fail is long past due. It should have been a reality earlier, but was blocked by the fact that Congress and the White House have strong financial and other ties to Wall Street, he contends. Anything short of truly breaking up big banks won’t be enough, Reich writes.

Congress won’t go as far as to unleash the antitrust laws on the big banks or resurrect the Glass-Steagall Act. After all, the Street is a major benefactor of Congress and the Street’s lobbyists and lackeys are all over Capitol Hill.

The Street obviously detests the notion that its behemoths should be broken up. That’s why the idea isn’t even on the table. But it should be. No important public interest is served by allowing giant banks to grow too big to fail. Winding them down after they get into trouble is no answer. By then the damage will already have been done.

Whether it’s using the antitrust laws or enacting a new Glass-Steagall Act, the Wall Street giants should be split up — and soon.

Meanwhile, there has been little talk about the optics created by the massive government response to the problems in the banking system, while many homeowners find themselves on their own. Sen. Dick Durbin (D-Ill.) chastised banks this weekend for causing neighborhood blight by failing to take care of their foreclosed houses, Bloomberg reports. Durbin spoke in Chicago at a “Showdown in Chicago” protest sponsored by labor and community groups, and timed to coincide with the American Bankers Association annual  conference in that city.

“As long as those plywood boarded-up houses are sitting there, we are not going to have an economic recovery,” he said. “These banks have to realize they can’t sit on these neighborhoods, sit on these families and sit on economic opportunity across America.”

But as usual in this crisis, the focus on regulation and speeches has missed what’s actually happening on the ground. And that’s the really scary part, according to the Miami Herald (via Patrick.net). Homeowners in South Florida, the Herald reports, are walking away from their mortgages in droves. The walk-away phenomenon — once more a theory than a reality — is a now a measurable occurrence.

As property values have plummeted by an average of 50 percent, such strategic defaults now make up a sizable chunk of South Florida’s foreclosures. In the fourth quarter of last year, they accounted for an estimated 28 percent of all defaults in Miami-Dade and Broward counties, according to recent research from the credit bureau Experian and Oliver Wyman, a New York-based international consulting firm.

That’s up from 8 percent in the same quarter two years ago. With property values down even further now, researchers are certain the numbers have risen even more.

With the social stigma of foreclosure eroding, experts say it is becoming easier for discouraged borrowers to justify throwing in the towel.

“People are saying, ` Everyone is doing this, and I do not feel any compunction in fashioning my own bailout,’ ” said Roy Oppenheim, a Weston real-estate and foreclosure defense attorney who conducts weekly seminars that discuss strategic defaults and other financial options for distressed borrowers.

Looks like homeowners are deciding they’re too big to fail as well. That can happen when bank executives and employees take home big bonuses after being bailed out by the government — it looks like they’re getting away with something, and any homeowner underwater on a mortgage can see that. Unless the government genuinely cracks down on big banks, it’s not unreasonable to expect that more homeowners will likely rationalize their decisions to strategically default. As things stand now, major financial institutions can make risky decisions knowing full well that, in the end, the government will be a backstop. What message does that send to a troubled borrower struggling to keep making payments on their mortgage?

This post has been updated.

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Senator Herb Kohl (D-Wis.), just spent much of his questioning time asking Judge Sonia Sotomayor whether she a) believes there is a right to privacy, as the Supreme court has ruled there is; b) whether she thinks Roe v. Wade is still good law; c) whether she agrees with the Supreme Court’s decision that allows a government to take land by eminent domain and turn it over to a private developer; and d) whether the Supreme Court’s decision in an antitrust case that allowed vertical price-fixing was right or wrong.

Kohl knows full well that no candidate to the Court can or would testify that she believes a recent Supreme Court decision is wrong, or that she’s intent on joining the court and then urging her colleagues to reverse their own precedent.  So why is he wasting his time?

Not to beat up on Kohl in particular, but it’s a perfect example of how nomination hearings are as much (or more) about political posturing for the senators’ constituents as they are about actually learning more about the nominee. In this case, it was also an easy way for Kohl to hand Sotomayor a golden opportunity to display that she would join the Supreme Court without biases or preconceptions and faithfully apply the law (just as Justices John Roberts and Samuel Alito, nominated by President George W. Bush, promised to do before her).

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