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.
I've got no real information on the subject, but I heard somewhere that various banks own most of the credit counseling services. If true, they'll get ya coming and going. I've also heard that a number of credit counselors are subjects of fraud investigations.
My experience in collections is that credit counseling services are basically useless in terms of trying to negotiate lower rates from the creditor for the debtor. My experience is that my clients won't give a debtor any more of a break when they are acting through a credit counselor than they would if the debtor approached us directly.
I expect they will. If these guys don't shape up PDQ, 08 November 2006 will be a day of much wailing and gnashing of teeth here on FR....
I use my credit card to pay for gas, groceries, dining out, everything but fast food places which don't take credit cards. In fact I carry very little cash on me. And I manage to pay off the balance every month, thank the Lord.
This is exactly the sort of thing that produces a major--and lasting--backlash. The New Deal did not come ex-nihilo. It was a response to perceived abuses by powerful corporations and their political allies.
Do the banks and Senate Republicans really have such short memories? Do they really believe that they can tilt the playing field so blatantly and massively in favor of the banks and not generate a backlash?
If so, they are going to be in for a very rude awakening. This is not only a shameful bill, it is a colossal political error.
As I noted earlier, this ought to be as illegal as ferreting out and publishing people's ATM passwords, and for the same reason.
Mark this post. You'll feel like Nostradamus himself in about 2 years.
I also like your Heinlein tagline, by the way.
There used to be a time when having a credit card was a status symbol. It was a sign that you "made it." They didn't just hand them out to anybody. You had to have established the ability to manage your money before you were even offered one. Now every Tom, Dick and Harry has multiple credit cards. Even college kids with no income or credit history are being signed up for them!
I still believe in individual responsibility and it should not be made easy for the consumer to get out of his obligations. But the credit card companies also need to take some responsiblity for their poor business decisions to issue credit to non credit-worthy individuals.
I also think public schools should have mandatory courses on economics including managing money and balancing checkbooks. Forget teaching this bilingual crap. My kids are being required to take four years of Spanish. What a waste. I actually tell my kids that I don't care about their Spanish grades. Just pass it and make the stupid foreign language requirement and focus the subjects that will actually help them in life.
Whatever possessed our public schools to mandate foreign languages in their cirriculum? The Spanish-speaking immigrants need to learn English, not the other way around.
Yep,
I believe the poo is going to hit fan if we get a terrorist strike. One good economic bump and the loan defaults will shoot through the roof.
F H
Think of the effect that this bill is going to have on crime in this country.
As American debt has exploded in the last ten years, crime rates have dropped precipitously. Many people on this board have talked about credit card debt being a choice. That's true -- and in some cases it's the better choice. Better to borrow than to steal, no?
What this bill effectively does is take away some legitimate choices for people in dire financial circumstances, including our soldiers (the Republican leadership voted down an attempt to exempt military personnel from some of these measures). And when desperate people are backed into a corner, crime becomes a more likely option...
This is happening at a time, of course, when identity theft and digital thievery are rampant, and poised to explode to untold levels. So when I speak of "crime," don't imagine some junkie on the street. Think of the guy at the next cubicle.
In my opinion, this bill makes all of us less safe.
I have been seeing more binding arbitration clauses enforced in cruise passenger cases. Judges are just too happy to dump the cases off their dockets.
I guess it depends on whose ox is being gored.
Agreed, and the composite is a mixture.
I am pretty darn conservative, but some of the stuff that has come about since the election is absolutely stupid, like this bill. Yes, Iraq elections and tort reform were great things, but this bill does not benefit Americans in the least bit. This is for check-pants Republicans.
This has to be the first time EVER that I have agree with Paul Krugman.
You do not necessarily lose your home in a CH 11. CH 11 can be used to cure defaults and avoid foreclosure.
>> Christians and 'WWJD' don't stand a chance against the insurance and credit card lobbies.<<
Jesus didn't overturn the money changers' table by accident.
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