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.
Those who know me know that I am not a believer. But look: I have read the Bible. This secretagent really needs to crack out his copy. It doesn't say usury is unacceptable if it's entered into voluntarily. It says that usury is unacceptable.
You never hear anyone dispute that certain assets ARE exempt from creditors.
Homesteads, Retirement, certain classes of wages, Insurance anuities, and others are outside the perview of creditors.
The purpose of bankruptcy is to give people a chance are financial rebirth. As a society we have agreed that bankruptcy should exist. It is also limited to only once every seven years. (btw do you know how FAST credit card companies send preapproved cards to the just bankrupt?!!)
The founding fathers wanted to end the horrors of debtor prisons, it even preceeded the bill of rights. (you never hear about disputes in appointing bankruptcy judges. Bankruptcy court is supposed to be non-adversarial for the most part.)
In adding to your comment, if you read many of the super fine print you see there is a "bankruptcy provision" clause in the contract which waives your bankruptcy protections. The code provides such clauses are void as a matter of law no matter how voluntary. In some states you can't even waive homestead voluntarily.
incorrect...the insurance lobby greases the congressional wheels to the tune of about $40M/yr to prevent just that.
nice smack down. Now, RKV, please try to be logically consistent.
Word.
It won't be long now, the system was intentionally setup by Broomhilda to be out of control and it is.
I begrudgingly admit that Krugman has a point, but not for the right reasons.
Listen to SUZE ORMAN . Follow her simple rules.
Home mortgages loans and Home equity loans are secured by the property. They are not affected by this law.
Thanks. I asked a stupid question. Worse, I knew that.
Usury is unbiblical. It should be illegal. If I give somebody who makes $20,000 a year, with no sign that they will do better, $10,000 and write a contract with them for 30% interest payments, yes, they were an adult and are responsible, but where is my responsibility? They deliberately go after people who can't pay on time, in order to collect usury type repayments.
It isn't ethical practice. It's loan sharking. Plain and simple. There was a case I am familiar with, where several credit card companies gave out $35,000 in cards to a woman with alzheimers living only on SS checks. How did they reasonably think they would be paid? A: They tried to intimidate her kids into paying it off. These people are leeches.
As has been noticed before, they try to get you with the fees. Even when you pay your check on time, they pretend that you don't get it to them, when you do.
One cute thing my brother's bank does is this scenario. He made an error in his bank book. He thought he had $300 in his account, when he only had $100. He writes 3 checks over 2 days. Two checks for $25 and $50 were written the first day. The next day he pays a check for a $110 bill. What the bank does is pretend they get the $110 bill first, charged him overdraft fees for all 3 checks for $30 a pop.
If they were honest, they would have cleared the two smaller checks, and bounced the $110 one. They don't on purpose. I investigated with him. It's company policy to try to figure out the way to get you the most fees as possible even if they have to be dishonest and pretend that they always get the toppler bill first.
He screwed up, made a mistake, and bounced one check. He should/can have the fees imposed against him. That is not what happened. The late fees are just too tempting for the bank to be honorable.
My local bank stinks, but at least I know their policy. Any check you deposit after 2pm, 2pm!!!! doesn't count until the next day. Under their policy, if you deposit a check at 2:01 PM on Friday afternoon, if you write a check out before 11:59 PM on Monday evening, they will charge you a bounced check fee. I know this policy, but I wouldn't have without reading the fine print.
This is not honest business practice. They are leeches.
People are going to be indentured servants for life. We are heading back to debtor prisons.
It will really depend on how strict the means test will be done.
I do not believe it is healthcare alone that is forcing people into bankruptcy. The ulitmate objective of this bankruptcy reform was to force the bankruptcy court to be a collection agency for credit card debt. Debt by the way that has ALREADY been sold to collection agencies.
Its a question of the means test.
I wish you wouldn't say stuff like that. Who cares what political party a person identifies with? We can all agree on common things. We have the responsibility to lead, and to unite this country.
There is another word for people who care more about their party than what is right: communists.
Stop sounding like a Leninist, and start trying to have a real debate, to try to make our country as great as it should be.
A couple of months ago I had to have surgery to repair a hernia. Outpatient stuff, no big deal.
The charges submitted to my insurance, which is the price the uninsured would have to pay, totaled $18,000. Insurance has negotiated savings to make their cost about $4k. My out of pocket expenses were only $500 or so. I'm grateful to be able to have insurance.
I can easily see how someone without insurance who has a little accident, disease, whatever can wind up whe enormous medical bills and be forced into bankruptcy very quickly. And that is without acting irresponsible at all.
Score one for Paul Krugman.
"Neither borrower nor lender be" There is such a thing as suckering people into irresponsible borrowing with credit cards. The credit card companies (owned by major banks) want you on a perpetual merry go round of making payments. Like a renter or sharecropper
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