Skip to comments.The Debt-Peonage Society
Posted on 03/08/2005 2:54:18 PM PST by Torie
The Debt-Peonage Society
By PAUL KRUGMAN
Published: March 8, 2005
Today the Senate is expected to vote to limit debate on a bill that toughens the existing bankruptcy law, probably ensuring the bill's passage. A solid bloc of Republican senators, assisted by some Democrats, has already voted down a series of amendments that would either have closed loopholes for the rich or provided protection for some poor and middle-class families.
The bankruptcy bill was written by and for credit card companies, and the industry's political muscle is the reason it seems unstoppable. But the bill also fits into the broader context of what Jacob Hacker, a political scientist at Yale, calls "risk privatization": a steady erosion of the protection the government provides against personal misfortune, even as ordinary families face ever-growing economic insecurity.
The bill would make it much harder for families in distress to write off their debts and make a fresh start. Instead, many debtors would find themselves on an endless treadmill of payments.
The credit card companies say this is needed because people have been abusing the bankruptcy law, borrowing irresponsibly and walking away from debts. The facts say otherwise.
A vast majority of personal bankruptcies in the United States are the result of severe misfortune. One recent study found that more than half of bankruptcies are the result of medical emergencies. The rest are overwhelmingly the result either of job loss or of divorce.
To the extent that there is significant abuse of the system, it's concentrated among the wealthy - including corporate executives found guilty of misleading investors - who can exploit loopholes in the law to protect their wealth, no matter how ill-gotten.
One increasingly popular loophole is the creation of an "asset protection trust," which is worth doing only for the wealthy. Senator Charles Schumer introduced an amendment that would have limited the exemption on such trusts, but apparently it's O.K. to game the system if you're rich: 54 Republicans and 2 Democrats voted against the Schumer amendment.
Other amendments were aimed at protecting families and individuals who have clearly been forced into bankruptcy by events, or who would face extreme hardship in repaying debts. Ted Kennedy introduced an exemption for cases of medical bankruptcy. Russ Feingold introduced an amendment protecting the homes of the elderly. Dick Durbin asked for protection for armed services members and veterans. All were rejected.
None of this should come as a surprise: it's all part of the pattern.
As Mr. Hacker and others have documented, over the past three decades the lives of ordinary Americans have become steadily less secure, and their chances of plunging from the middle class into acute poverty ever larger. Job stability has declined; spells of unemployment, when they happen, last longer; fewer workers receive health insurance from their employers; fewer workers have guaranteed pensions.
Some of these changes are the result of a changing economy. But the underlying economic trends have been reinforced by an ideologically driven effort to strip away the protections the government used to provide. For example, long-term unemployment has become much more common, but unemployment benefits expire sooner. Health insurance coverage is declining, but new initiatives like health savings accounts (introduced in the 2003 Medicare bill), rather than discouraging that trend, further undermine the incentives of employers to provide coverage.
Above all, of course, at a time when ever-fewer workers can count on pensions from their employers, the current administration wants to phase out Social Security.
The bankruptcy bill fits right into this picture. When everything else goes wrong, Americans can still get a measure of relief by filing for bankruptcy - and rising insecurity means that they are forced to do this more often than in the past. But Congress is now poised to make bankruptcy law harsher, too.
Warren Buffett recently made headlines by saying America is more likely to turn into a "sharecroppers' society" than an "ownership society." But I think the right term is a "debt peonage" society - after the system, prevalent in the post-Civil War South, in which debtors were forced to work for their creditors. The bankruptcy bill won't get us back to those bad old days all by itself, but it's a significant step in that direction.
And any senator who votes for the bill should be ashamed.
Credit Card companies know the risks when they extend credit, and induce the spendtrift who don't read the fine print to get sucked into the quicksand. BK and a fresh start is not only something I think if fundamentally moral and right, but it also is the only real curb there is on credit card companies just going hog wild, and leading some folks into lifelong peonage as Krugman would put it.
I am a Republican, and if I were in the Senate, I would have been the sole Pubbie to vote no on cloture with respect to this turkey.
I even wrote Krugman to tell him so.
I hope the Republicans are pleased with themselves--they are going to pay a huge political price for this down the line.
I don't think I agree with Krugman on anything much less his take on revolving credit worthiness....you play you pay.
Do you think this will have an effect on housing prices? Maybe people will cut back on the amount they are willing to borrow?
Individuals are responsible for their own actions. NO ONE is forced to use a credit card. I know, because my own brother got into this kind of trouble, and I bailed him out. This is just more of the same from Krugman.
Same here as far as this bankruptcy bill goes. He could have done a much better job, however, of addressing the particular problems with this bill. Instead, he had to go to the broad brush approach of Republicans evil, Democrats good. Republicans are going to get hammered repeatedly over this.
When you find yourself on the same side as four partisan DemocRATs like
Ted Kennedy, Russ Feingold, Dick Durbin and Charles Schumer you are not
thinking like a Republican.
Warren Buffet is again over the top and a little hypocritical, after all he has made billions shorting the dollar while he gloom and dooms the american economy down.
Still severe bankruptcy reform is a very bad idea for Republicans to be promoting; I thought Enron etc taught them something about how all strata of society try to avoid paying their bills when they can.
Also its easy to be in favor of bankruptcy reform if you are a Senator from states like Texas, Florida, and some others now where it is impossible to collect debts anyway.
Not discussed is the fact that TORT issues are largely what made medical care so costly. Sorry you agree with "everything" here.
Second rate drivel from a third rate hack.
As do adults when they sign the contracts .
...and induce the spendthrift who don't read the fine print to get sucked into the quicksand.
They don't cause the spendthrift to get into debt - the spendthrift alone decides that.
This bill is a hugely bad idea -- in my opinion -- because it's going to play havoc with the banking system. Again, just my thoughts -- but I see two waves hitting the banks. The first is the massive number of people who'll rush to file Chap 11 under the old rules. Some of these people would have been on the fence and continued to pay off the bills, but since this is the last chance to walk away, many of them will take the opportunity.
Secondly, once people start failing in a significant way -- and it's gonna happen. They're gonna start losing their homes. Banks are not only going to end up with a lot of homes to sell (something they don't like to do) but if the numbers reach a certain level (as yet to be determined) it's going to drive prices down, so the banks end up upside down on all those mortgages.
This bill seems to be a real exercise in being real careful what you wish for...
The whole bill is a Rube Goldberg thingie and an embarrassment. The only merit it has is limiting the abuse of the effectively unlimited homestread exemption that Texas and Florida offer up, which is indefensible.
If you rent the money, you gotta return it.
They don't read the fine print?
Stupidity has always been a capital crime.
I know it's hard. When I was younger I dug myself in so deeply it took years to dig out, but I owed the money.
"Credit Card companies know the risks when they extend credit..."The "adults" don't have millions to spread around politicians to change the law to increase profits multi-millions.
As do adults when they sign the contracts ."
No, all the "adults" have is the ability to vote and fire the pols.
I think you are wrong. Under chapter 11, you lose your home now so if they rush to file under chapter 11 they wont keep their house anyway. Chapter 13 or the type of bankruptcy that the Republicans are attempting to make most file under you can keep your house, but you continue to make some payments on your other credit.
Really? That's so patently awful. The consequences are enormous, including credit card companies lobbying to have the govt. concocted statistical "median" to be lowered.
"The whole bill is a Rube Goldberg thingie and an embarrassment."
Yep. But the credit card companies paid big bucks to get this through.
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