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.
Its things like these that reassure me that no one really gives a damn, even if they do have an R next to their name.
Why not require people who can vote, sit on a jury and own a gun to meet their contractual obligations? If that is too much to ask then let's just end the Republic right here and now.'
And if someone is 50 plus years old and gets cancer and can't work? Or ends up with a disability like perhaps a diabetic who gets gangrene and has to have foot or hand amputated? Well, let's just end the republic right now if they can't pay.
"They don't need millions to avoid credit card debt.. No one forced them to use a credit card at all."
No one forced Congress to spend all the billions and billions of our taxpayer dollars on all their pork either. Talking about the pot calling the kettle black. The ones who voted for this bankruptcy law are right at this very moment bankrupting our social security system (a Ponzi scheme), bankrupting medicaid, overspending like mad (no limits for them), but saying we need to own up to our responsibilities. But not them, they don't have responsibilities, do they. No, they are just exceedingly irresponsible, and the Pubs are knee deep in this bad bill.
"But no one is forced to take on credit card debt."
Actually, you are pretty much forced to establish credit in today's society. Because if you don't have a history of paying on credit, you can't get credit. So unless you have cash to buy a house with, you must show that you have responsibly paid credit, which for most people will have to be getting a credit card. Or pay on a car loan. That's about the only two choices.
only in the sense that doctors and hospitals practice DEFENSIVE medicine all the time.....
sorry, but I work and pay my bills and think others should too....
I hate the credit card companies but the best revenge is to pay them off each and every month and carry no debt month to month.....
granted, once you're way behind, its almost impossible to get out....
well, I am too....no ATM card, pay off bills promptly, do owe on mortgage but paying it off quickly....
never watched one stinking episode of "Seinfeld" or "survivor" and am proud of it.....
Why can't they add to the bankruptcy bill something that would force credit reporting companies to actually keep accurate records and fix errors? If employers, landlords, and potential creditors are going to use that info, shouldn't it be correct?!?!
One of the problems here is Bush. He is actually just like his old man, good on foreign policy and lousy on domestic policy. He's going to tank on Social Security because of his private accounts position, which is not necessarily a bad thing, but monetarily would cost a bundle to switch over to at a time when we really can't afford to be taking on more debt. Plus it doesn't even solve the problem of SS running out of money. [Note how Congress & the Prez can get away with proposing new debt load, but w/the new bankruptcy bill, no slack is cut for us, even if we are terminally ill or laid off.] So he will tank on SS, will tick off most populist Repubicans (of which I am one), doesn't go after Medicaid which is in a worse position than SS, won't deal in any rational way with illegal immigration, went along with Teddy Kennedy on the education bill, and generally pretty much sucks on domestic issues. He's like a Rockefeller Republican about domestic issues (a chip off the old block), a hawk on foreign policy, and occasionally throws a bone to the morality religious folks, to keep them quiet. Not a happy Pub here, on the domestic front issues.
So9
"Or do you support predatory lending and preying on the weak and uninformed? Those are not on my conservative values list."
You know, everyone squawks when they hear stories about con artists that prey on old people to have phony house repairs done, or over the phone solicitations that are crooked. Well that's what credit card companies do by being rapacious, and they are getting away with it.
Eventually, my hope is, that people wise up, stop spending a lot on their credit cards, pay off their balances monthly and ask for low credit limits. This will drive the credit card companies nutz, and they will not make all that money off of you and I. That really is the only way to get back at them, and then they too will suffer as a lot of their profits will dry up.
That's a good point, to operate in today's society you are forced to build credit. But you are not forced to run up ridiculous debt on said credit card.
"But you are not forced to run up ridiculous debt on said credit card."
That's correct for the approximate 10% of the credit card population that are irresponsible. That does not apply when the debt is caused by health, disability, being laid off, etc. that has been discussed throughout this thread. Once again, you appear to be one of those people who think that all credit card debt is caused by "spendthrifts". That's not correct. Read just about every other post above.
Lazy thinking.
So preying on the stupid and uninformed shouldn't be a crime, and further, is just OK?
Nice try, no sale.
Your outlook fits every ugly stereotype of conservatism, and is the only reason why liberalism stands a chance.
It would be a coup for him if he did that....and yes its a pipe dream.
The point being missed is that the CC lenders entered into contracts with debtors over the past 11 years (last code overhaul) that incorporated the terms of the existing bankruptcy code and state exemption laws. And now, after those 11 years of contracts have entered into and relied on by debtors, the CC lenders seek to rewrite those terms (terms that govern loans already made) dramatically in their favor. I am copying a long post from another thread that discusses this in greater detail:
I suppose your question to me really boils down to why should debt discharges or asset exemptions exist at all. In my mind charity really should have nothing to do with it. Rather the real reason is macroeconomic benefit to the country.
Under the current system, when debtors reach the point of insolvency where the amount of the unsecured debt principle cannot be paid off from the disposable income of the debtor within a reasonable period of time or ever (because of accruing default rate interest, fees, and penalties) they can file a Chapter 7. The essential deal in a Chapter 7 is that the Chapter 7 trustee takes all of the debtors non-exempt assets and liquidates them for the benefit of creditors and the debtor gets a discharge of debt.
If we had no such thing as a discharge there really would be no point in federal bankruptcy law and state collection laws would prevail. That debtor would be wage garnished in perpetuity and the creditor that was the fastest with the wage garnishment would be preferred over other creditors and a race to the courthouse would ensue. The creditors' legal transaction costs would be added to debt and in the race to the courthouse scenario, the increased collective transaction would eat up (and likely exceed) the wage garnishment proceeds.
If you eliminate asset exemptions, all the debtors assets could be attached and sold by creditors to pay debts. You have the same race to the courthouse issues and increased transaction costs. And you would have a debtor perpetually in debt without any assets and unable to function effectively in the American economy or society.
I submit that the existing Ch 7 deal with exemptions I outlined above (what is known as the "fresh start") is better for the American economy as a whole than the alternative where we would get hundreds of thousands, if not millions, of perpetually dysfunctional participants in the economy.
With respect to paying obligations, you don't have a choice (its not a matter of should or shouldn't), you have to pay your obligation per the contract for debt you entered into with the CC lender or you will be sued and the cycle I describe above occurs. Note that when all the contracts for debt were entered into by CC lenders and debtors over the past 11 years (the last code overhaul) the existing Bankruptcy Code and exemption laws, pro and con for lenders and debtors, were defacto incorporated into those contracts. The CC lenders entered into these contracts for debt under these terms. Now, after the fact, after the contract has aleady been entered into, they want to rewrite those terms dramatically in their favor.
The responsive question to you would then be, why shouldn't CC lenders honor the obligations they entered into when they entered into the loan agreement with the debtors which included the then prevailing bankruptcy code and exemption laws?
I have used some space with this post because these aren't facile, knee-jerk issues, contrary to what the Frist/Biden rhetoric would have you believe.
What is laissez faire about having the state alter terms governing contracts between private parties that they have already entered into. CC lenders have entered into loan agreements with debtors over the past 11 years (last code overhaul) governed by the terms of the existing bankruptcy code and state exemption laws. Now, the CC lenders seek to use the mechanism of the state to rewrite these terms dramatically in their favor long after the loans have already been made. Cronyism, not laissez faire, is the operative term here.
No, really, I'm on your side. I think that the credit card companies have a nasty business model that preys on youth, ignorance and poverty. I'm in favor of effective and just regulation of the industry (for instance, minimum payments should be high enough that your debt does not continue to grow, at the least). On the consumer end, I'm not really assigning blame so much as suggesting that we need better financial education!
I think this "forced you to" line of thinking is a canard. CC lenders and debtors have been entering into contracts for debt over the past eleven years (last major code overhaul) and all those contracts for debt automatically incorporated the terms of the existing bankruptcy code, pro and con for both sides. One of the inequities with the current bill is that it effectively rewrites those terms on the previous 10 years of debt contracts in favor of CC lenders ex post facto.
This is an excellent point and one that I hadn't considered; so far I'd been thinking only about forward-going contracts. Yes, if the proposed new regs in effect alter the terms of existing debt contracts, that's yet another reason to oppose the change. (Technically, many of the contracts themselves probably do contain language that allows for changes in the law, but I doubt many of the debtors were aware of it at the time or, even if they were, would have understood the implications.)
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.