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.
The credit card industry makes its money off slimer tactics, and preying on the less sophisticated and disciplined. They need to be punished, and then punished some more.
A bank giving unsecured loans is much like someone playing the stock market.
Prepare to see even more 'sweet deals' for youngsters who don't know better and other crap that's gonna really come back to haunt Republicans.
The credit companies are probably drooling like mad wolves at the prospect of offering desperate people way more credit than they otherwise ever would consider.
This is a nightmare political bill. I wish it at least had a 5 year sunset clause in it.
They'll lose their homes because they won't be able to make mortgage payments, etc., not because the home was sold off to satisfy the debt.
I don't know the details of this, but it is probably a very bad idea. I'd remind all my brother and sister freepers that Bankruptcy protection is in the Constitution. I don't know what we are going to do with people who can neither pay nor discharge their debts. But I do know the protection to file bankruptcy was put in the Constitution by our founders because they had seen the useless hell of debtor's prisons in the old country.
Maybe W will break out the veto pen, but I think he is allergic to it.
And isn't it fitting that it should be our national political leaders who sense that the time has come for Americans to understand that we just can't go on spending more than we're bringing in? ;-)
wHY CAN'T CREDIT CARD COMPANIES BE HAPPY WITH 30 CENTS ON THE DOLLAR, JUST LIKE BUYERS OF aRGENTINE bONDS?
They don't need millions to avoid credit card debt.. No one forced them to use a credit card at all.
So there should be no bankruptcy at all, is that your point?
Just for for yucks, does anyone know how the law impacts those who can't pay their home equity loans?
So get a different card, or no card. You haven't shown me any fraud yet.
The credit card industry makes its money off slimer tactics, and preying on the less sophisticated and disciplined. They need to be punished, and then punished some more.
If people don't know how to read contracts, then they can hire a lawyer or not sign a contract. If they can't figure out that they need help, then perhaps they need a legal guardian appointed.
I don't want the government as my legal guardian.
Understood, Bro, but Krugman is almost NEVER right. I have been watching this guy for a LONG time, and the song always remains the same. My 2 cents.
I personally think that there is a huge debt problem in this country, but that it is only 50% the fault of the credit card companies. Are their tactics manipulative and underhanded, designed to prey upon the young, stupid and poor? Yes, yes they are. But no one is forced to take on credit card debt. I think the industry needs to be regulated in a fair and just way, but also that the American consumer needs a better education about personal finances and personal responsibility. Why do our schools spend a year teaching algebra to students who will never figure out how to balance a checkbook?
I favor bankruptcy law to divide the assets of the debtor and manage his future earnings amongst his creditors, but not to remove his debt at the expense of his creditors.
The bankrupt might keep his car, as part of a plan to maximize his earnings, in order to limit damage to creditors.
"I don't want the government as my legal guardian." Ditto. Thanks for saying that.
I cannot imagine how anyone could disagree with a word you said. The only phrase that comes to mind is, "of course."
I don't believe you can legally force people into CH 13 because of the prohibition against indentured servitude.
If the masses don't understand contracts they sign, then we need to reconsider the franchise to vote.
Collection agencies which buy up bad credit are frustrated by the fact that their judgments become worthless after the debtor files bankruptcy.
The largest group of Ch 13 filings is from DOCTORS. (per a recent bankruptcy conference)
There is also the new phenomenon of people loosing their jobs and IMMEDIATLY filing bankruptcy. People don't wait to loose everything.
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