The Debt-Peonage Society

The New York Times ^ | March 8, 2005 | PAUL KRUGMAN

[TXBSAFH]

Not anymore, The little guy is getting squeezed more and more.

[CharacterCounts]

IAs a bankruptcy lawyer, I have mixed feelings on this issue. I don't think the new bill will harm people who are truly in bad financial shape. It will take the incentive away from people earning aabove the median income to file.

That said, credit card companies are a major part of the problem. Expecting returns above 30% they push cards on people whom you or I wouldn't loan ten cents. In most states individuals are prohibited from charging interest even a third of what the credit card companies get and many make 25% rate a felony criminal offense.

Will the credit card companies reduce their rates once the new law takes effect? I doubt it.

[vikk]

Well, they're probably coming after 401Ks and IRAs next.

[Mr. Jeeves]

They in EFFECT created the real estate bubble. Their greed caused this mess we are in now.

I submit that "The American Dream" caused this mess, and if more children grew up believing that going into debt for ANY reason - including the purchase of a home - was totally unacceptable, these companies would quickly cease to exist and the real estate bubble would deflate.

The delusion that one has to buy residential real estate in an environment which punishes owners and rewards renters is responsible for many of the current imbalances in the economy. Take what the government gives you. Recognize that as long as you are paying property taxes, you don't really own your home, anyway. That's the best way to punish predatory lenders - by not buying into the illusions that sustain them.

[Mr. Jeeves]

Could you explain how you avoid buying a house without debt.

Easy - you avoid buying a house. You missed my point: the government favors renters, so be one.

[Fish Hunter]

Your are right to blame the American Dream. Debt is bad. People should know this. I have none myself. But banks prey on people who do not know this AND this predation has upset that natural supply and demand curve for housing costs, which effects you and me in two ways:

1 - It costs us more to by a house with cash. The prices are so high we CANNOT buy houses with cash anymore. So we are forced to deal with either the banks or the landlords.

2 - When this crazy bubble pops, the banks who own the government are going to make the taxpayers bail them out. Not fair, It's their mess, they should clean it up.

You see there are always going to be dumas's. Some are born that way, our crazy culture creates the rest. It really annoys me that intelligent, hard working middle class always has to foot the bill.

F H

PS: The my house has tripled in value, while my income has dropped. That still has not stoppped the town from raising my property taxes !

[Fish Hunter]

I live in RI.

Rents are way up. The state has a very high piggyback income tax, which penalizes the renters because they cannot write rent off, while property owners can write off the interest, and our town's outrageous property taxes.

But on the lighter side I could rent a place, feed my kid paint chips, and with the state's new fascist lead law I could sue the landlord. He goes to jail and I get his property :)

And to top it off Rhode Island does not have homestead protection ...

F H

PS: I agree with you that we do not OWN land, but merely rent it from the government, but that is a topic for another day ...

[Nowhere Man]

I'm with ya, Torie, if I was in the Senate, I'd be the second Republican to vote "no."

[Kickin Donkey]

I'm sorry. I can't let this kind of comment go idle. I expect I'll hear about it from people here, but this nonsense has to be pointed out by someone.

You pay you play? I agree that would apply to someone like a gambling or drug addict, who spends their every dime on their vice. They played, so they have to pay.

What about an auto accident? One of those drunk drivers, who used their credit cards to borrow their way into inebriation, hypothetically slams into you. He doesn't have medical insurance, so you're forced to pay all your own health care costs. Your spouse uses the standby emergency-use credit cards, you know those ones you might have sitting in the computer desk for situations like this, to pay off the hospital bills. The combined downtime and expenses force you to bankruptcy. (Oh, and don't forget it's harder now to sue that drunk driver and win damamges, thanks to tort reform!)

What about a small business owner, someone chasing that good ol' American dream to become a self-made person. He uses hs own money to start the business, and things go well for a few years. Conditions change, they always do in the real world. The business starts to lose money. The owner turns to his corporate cards to help pay the bills. It helps for a while, but is not enough. The business closes, and after selling off most of the equipment and inventory he still has the credit card bills to pay, and now he has to find a new job.

Do you consider that to be playing? The credit card companies do, and so do the senators who let this bill go forward uninhibited. That INCLUDES the Dems who voted for cloture yesterday, and thankfully it does not include my senators, Lincoln Chafee and Jack Reed. They voted for those who put them there, not for banks, credit cards, HMOs, or sophisticated drug peddlers.

[Mr. Jeeves]

In my part of California, rental rates are running at just about 50% of the monthly mortgage/taxes/insurance bills for the same properties. Tax write-offs don't even factor into it - but even if they did, my mortgage interest deduction would be limited becasue of my income level.

Now if that equation changes in the future, buying and even borrowing to buy (er, rather, rent from the government) might make sense - but right now it sure doesn't!

[agrarianlady]

I wish every time a credit card company sent me an offer or called me on the phone, I could retaliate somehow. They drive me nuts. Once a credit card company - I think they were called Providian - ended up issuing me a card without my consent. I was about 23 at the time and didn't know not to completely clam up on the phone and get rid of them as quickly as possible. I must have given them the last 4 of my social security number and was trying to be polite and get rid of them nicely.

Lenders are predatory nuisances.

[A Ruckus of Dogs]

Individuals are responsible for their own actions.

That's true, but how about when your debts are due to overwhelming medical bills? My uncle's got $28,000 in bills he doesn't know how he's going to pay.

[RKV]

Then that is what bankruptcy is for. The legislation in question changes some of the rules (admittedly in the favor of creditors), but certainly does NOT do away with bankruptcy as such. Debtors prisons are not coming back. Having been through my brother's financial problems where he nearly went bankrupt (due to just plain overspending on his part), I am sympathetic to the debtors side of this story. I just want to reduce the ways in which people can game the system. The bill as such appears to me to do so. Anytime I find myself on the same side as Kennedy, Schumer and Krugman I have to think twice. I wish others here would do the same.

[RKV]

You are absolutely correct about greed being at the root of this. That much we agree on. For my part there is greed on the side of the debtors and the creditors both. Bankruptcy isn't going away, the deal is just getting worse for debtors.

[TrinityRidesAgain]

"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."

Ironic then, isn't it, that so many Republicans voted for it? Sometimes you almost think that Republican congressmen really do work for big money, and that they make policy decisions designed to favor corporate interests rather than rugged individuals . . .

[Nowhere Man]

First off, in many cases that's simply not true.

True, although technically people are not forced at gunpoint to get credit cards, but if they have them and poppa loses his job and mom only makes so much, if one of the kids needs something like braces or the car breaks down, unfortunatly out comes the credit card.

Second off, are the banks FORCED to issue credit cards? No? Then they need to shut up and clean their own houses.

Exactly, either they should be more tight with issuing credit cards or don't issue them at all. Again, some do issue credit cards to "X" amount of people knowing that "X-Y" will eventually default and declare bankruptcy, they still know that "Y" will still pay and yet they still make record profits. I was born at night but not last night.

I thought, "Some alleged conservatives will smugly say 'it's the bankruptees' own fault; they should be made to suffer.'" I was right. That is the kind of attitude which hands elections to liberals and populists. Justice - a virtue conservatives are supposed to support - demands that we not jerk our knees, and look beyond the face of the situation.

Exactly. Many conservatives unfortunatly adopt such a smug attitude and that makes the rest of us look bad. Yes, there are people who misuse and abuse it, you'll always have that but there are other people who get into economic trouble with little or no fault on their own. Maybe I'm speaking from my roots here, my father's side of the family are "Pittsburgh Democrats." At one time, the idea of the Democrats being the party of the poor and the Republicans the party of the rich was largely true, of course there have always been exceptions. I think what saved the Republican's bacon in the last generation was not economic issues, sure that was a part of it, but because of their social conservatism. If there were proponents of abortion, homosexual marriage and man hating feminists on a roll in the 1930's, the Republicans would have chewed them up and if there was anything left of them to crawl around to the Democrats, the Democrats would have finished them off and tossed them off the bus.

Bringing up "Pittsburgh Democrats," well really, any Democrat from industrial areas and prior to the "hippiefication" of the Democratic party would scoff at the far left's agenda. In short, it is OK to have social security and a welfare safety net but touch my guns, shove the homosexual agenda down my kid's throat, and get in bed with Michael Moore, that would never fly. If the Democrats of today keep their 30+ year strategy of following the rabid feminist and homosexual agenda, the uber anti-war ideas and so on, they will still lose but there could be a day when they will see this issues as turkeys and toss them off the bus (and under it) and that would be trouble for the Republicans.

Trouble is, I do believe America is going down the toilet and maybe some form of collapse in the long term. There are two wings to this, the Democrats with their current, uber lefty social policy and the Republicans hold on the idea of free trade and other such economic issues that do make them look smug. I've been registered Republican since I turned 18 in 1984, I admire their stance on social conservatism as well as support of the military but economically, they are kind of iffy but I certainly can't stomach the Democrats in their current form so the choice is easy for me but there are others who due to economic reasons as well as traditional would vote Democrat even if they disagree with the social policy.

[Kretek]

I just want to reduce the ways in which people can game the system.

And increase the ways that banks and creditors can "game" their predatory, exploitatory, irresponsible, and usurious lending.