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.
Not anymore, The little guy is getting squeezed more and more.
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.
Well, they're probably coming after 401Ks and IRAs next.
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.
Easy - you avoid buying a house. You missed my point: the government favors renters, so be one.
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 !
I'm with ya, Torie, if I was in the Senate, I'd be the second Republican to vote "no."
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.
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!
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.
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.
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.
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.
"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 . . .
And increase the ways that banks and creditors can "game" their predatory, exploitatory, irresponsible, and usurious lending.
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