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.
There are many legal reasons why certain contracts are unenforceable. Most reasonable people know that. You did in fact use a highly emotionally charged example which really doesn't fit the case 99.9% of the time.
You've answered my question in spite of your objection to the example. There are indeed limits to your policy of 'no one FORCED you, so you're bound'. In that case, the fact that no one FORCED Mr. Smith to sign a credit agreement isn't a sufficient reason to consider it binding, although in conjunction with other circumstances it may be (and perhaps usually is).
This has been a very good thread. I thank all who contributed to it, even those who took a swing or two at me. :)
I think you could make a similar argument against casinos, who take advantage of everyone who walks through their doors and plays their floors. Folks know how the game works, but they flock there anyway.
Possibly, although people who voluntarily go into casinos and bet seem to be pretty clearly distinguishable from people who get unsolicited offers of unsecured consumer credit in the mail or who sign complicated debt agreements without carefully reading the fine print.
I agree with Torie on this one. Misunderstanding caused by obfuscatory gibberish crafted for the purpose of being deceptive but technically accurate is the fault of the utterer, not the listener/reader.
If you disagree, fine. Just understand that, by your standard, Bill Clinton is a fine upstanding fellow who has been unfairly attacked for being precise in his use of the language.
Fair enough. In the case of someone who just runs up bills with no thought for the morrow, it's the spender's fault. In the case of someone who stumbles unawares into a carefully hidden loophole that raises his interest rate to levels traditionally associated with knee-breaker collection techniques, it's the credit card company's fault.
And you just made my case, thank you. Unenforceable contracts have reasons why they are unenforceable which are clearly known and few. Unenforceability is not dependent on ability to pay, rather, it is primarily a function of fraud or capacity to contract (as in being of age, not of your bank balance).
I've got no idea about the Harvard study. I can only go by my unscientific anectdotal experience as a collections attorney. But, in my experience, a majority of bankruptcies have a significant medical component. Either someone got injured or too sick to work so the money stopped coming in. Or, they still have a job but have huge medical bills -- sometimes even after insurance has paid. Very occasionally, someone has to stop working to take care of a loved one.
The practice of dropping preapproved card applications into people's mail should be prohibited. It is a gross breach of the (intended) recipient's security.
It doesn't do away with bankruptcy protection. It makes many more people go into Chapter 13 instead of Chapter 7. Under Chapter 7, basically you liquidate any assets a person has in excess of their exemptions (exemption levels are set by state law) and distribute any proceeds to the creditors. Then, it's over. This is advantageous to debtors because most people these days are extremely asset poor. Anything of substance they do have tends to be something they are buying in installments. So, they don't really have assets to seize, creditors get stiffed, and they get their "fresh start" in about 6 months.
Under Chapter 13, folks are basically required to pay a substantial chunk of their income into a Chapter 13 plan over the course of 3 years, over the course of 5 years in unusual circumstances. (Under the new law, I think the default is set to 5 years.) In the meantime, if they incur new debt after the date the bankruptcy is filed, it's fair game and no bankruptcy protection is granted. So, to get your "fresh start" you have to manage to stay out of debt for 5 years, *while* you are paying a big chunk of your income into a Chapter 13 plan. It's a tall order, and that's why a significant number of debtors fail to complete their Chapter 13 plans.
Krugman is a HACK. Know how I know? Because he's jumpin' on the "Iraq? Oh, Yeah. I Guess Things Aren't So Bad. I'll Give it A Backhanded Compliment, Too!" Bandwagon. Here he is from "Meet the Press" last Sunday. Truly nausiating to watch, because I did:
MR. KRUGMAN: Sure. It's a little bit harder to--I mean, someone like myself would say very strongly this was a war sold on false pretenses. It's actually greatly damaged America's position in the world if you look at it broadly, but there has been some good news lately and we're all glad about that and we hope for the best. You know, you can't be rooting for American failure. You know, we're all Americans. We all want to see things go well and you can't be rooting against democracy. You want to see it succeed. Now, you know, the news may change. It's five weeks, still no government in Iraq. You know, it's starting to look a little bit like another one of those Kodak moments, you know, toppling of the statue and then the weeks go by and suddenly it turns out that it looked better than it seemed. But maybe it'll turn out well, but, you know, you have to just hope that this is a good thing.
http://www.pkarchive.org/
They are ALL cut from the same cloth. I can't, personally, see myself agreeing with this Doofus on any topic. Ever.
Idiot. Torie has been on this board for years. You've been here for what, a month?
And you just made my case, thank you. Unenforceable contracts have reasons why they are unenforceable which are clearly known and few. Unenforceability is not dependent on ability to pay, rather, it is primarily a function of fraud or capacity to contract (as in being of age, not of your bank balance).
Fraud and incapacity to contract are only two of the reasons why a contract (or some of its terms) may be unenforceable. I specifically also mentioned unconscionability, which has nothing to do with either fraud or capacity. Another no-brainer is illegality: a contract for an illegal purpose is unenforceable. That's not a complete list; there isn't a complete list.
At any rate, what 'case' are you trying to make? In the post to which I originally responded, you said that no one FORCED anyone to sign a credit agreement, and I took your point to be that the absence of overt coercion was sufficient to make the agreement binding and enforceable. Since you do in fact recognize other grounds for unenforceability (even if your list is much shorter than that of common law), your original point now needs rephrasing: lack of coercion is sufficient as long as other certain conditions are met but not otherwise.
No need. I suspect you're right. Gambling and drug use seem like emotional hot-button issues deliberately used to sell their audience on something a bit more complicated. I might buy into it if I didn't see folks falling down because of medical problems every day. (Doesn't stop me from garnishing their wages and freezing their bank accounts until they file bankruptcy though. Just a cold hearted arm of the creditors, I am.)
Use of that technique indicates, to me, a planned intent to shake down the other party.
Look for the envelope labeled "NO POSTAGE NECESSARY IF MAILED IN US". Look around for bits of scrap paper (the kitchen and utility room are places, as things there tend to get greasy and grimy).
Not a recommendation for a course of action... just a thought.
What does Iraq have to do with bankruptcy? I think this is one of the times, like a stopped clock, Krugman happens to be right. Following the clock model, he might be right a second time. I'm not going to hold my breath.
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