Josh Marshall has spun off an excellent temporary blog on the travesty of the new bankruptcy bill.
I’m strongly opposed to this, but resigned to it’s passage. The venal residents of Democratic SkyBoxland are too busy tongue-kissing the bought-and-paid for residents of the Grand Owned Party on this issue. Here’s a case where there are real issues – the casual washing away of debt – that need to be addressed, but not by indenturing whole classes of people to finance companies that are as culpable for bad underwriting as the borrowers are for irresponsibility.A bill that stood on three legs:
* Borrower responsibility, shared by borrowers of all economic classes;
* Lender responsibility, in limiting the fines and penalties on distressed borrowers, and in tightening underwriting requirements and marketing regulations to make it harder for lenders to push credit on people, and raise the rates to usurious levels if a payment is missed.
* Realistic provisions for health and other genuine personal disasters
…would be a good bill.
And the reality is that this is a disaster for the Democratic Party. Why??
Because instead of standing for something – the powerless against the powerful – they regularly sell out. See my old post about Kos’ client, Rep. Jim Moran, who took a personal loan of $447,000 from MBNA four days before he signed on as a lead sponsor of the bill.
This kind of thing makes it damn hard to stand up and point fingers where and when they should be pointed.
But hey, as long as the contibutions and consulting contracts keep coming in, that’s OK, right?
Credit card companies are greedy, like all businesses. They never lose money in anything resembling a long run. (Exception: If laws change after contracts are signed to make them uneforceable.) When more people declare bankruptcy, they simply raise the rates and fees and pass the costs on to their customers, most specifically customers whose financial profiles look like the people who go into bankruptcy. So the easier bankruptcy is, the higher the rates, especially on the poor.
Of course, you can limit the rates, as you suggest. The problem is that your “lender responsibility” would result in the poor not getting access to credit. And since usually the bankruptcy is caused originally by some disaster, for which the person tries to use loans and credit cards to get along until their cash flow rights itself, people would still have problems. In fact, poor people who could have gotten out of their disasters will have to go to pawn shops and loan sharks, or else just declare bankruptcy as soon as tragedy strikes. Fun.
The burden falls most heavily on the poor in either case, as always. But it’s a choice between the poor with bad luck being stuck repaying debts, or the poor who do manage to pay back their debts without declaring bankruptcy facing higher rates, or the poor not getting credit at all and declaring bankruptcy faster when disaster strikes, and having even more problems getting out of poverty and accumulating wealth. (Note that if you just make the wealthy pay back their debts– well, the wealthy will get lower interest rates, but the poor won’t benefit since their credit profiles still won’t look like those of the rich. So you’ll increase a gap between the rich and poor that way.)
None of these solutions are “correct,” in that they all have huge problems. I don’t know what the proper balance is to strike. I do know that simplifying the issue and moralizing as you do is unnecessary.
A.L.: consider sending JMM an email and applying to join the special blog team.
How shocking that JMM and AL not only oppose letting younger workers invest a portion of their FICA taxes but also oppose requiring debtors to pay back the money they borrowed. Further proof that Democrats are not only against individual freedom but personal responsibility as well.
Thorley, bullshit.
Is it just that you don’t think the wealthy should be required to repay what they borrow? The bill as constitued has loopholes big enough to drive an Escalade through if you can afford the financial engineering.
Go read the bill and tell me it’s about equitably requiring debtors to take responsibility.
A.L.
Ah, Thorley, remember the good old days when there was no bankruptcy law on the books — a debt was a debt was a debt. Then those lefty founders placed a bankruptcy clause in the Constitution and it was all downhill from there.
Sorry but the whole “poor won’t have access to consumer credit” argument is specious.
About 15 years ago credit card companies discovered a whole new market. Low income high risk consumer credit.
And they found a way to make it profitable despite the risk, mainly through incredibly high interest rates, late charges and over limit charges.
Now they want the best of both worlds. High margin consumer credit accounts with minimal risk.
I don’t share AL’s pessimism over the bill however. I think there’s a good chance it can be defeated.
Love how the entire GOP endorses something and somehow it’s the Democrats fault. Typical.
Davebo is absolutely right. Time and again the credit card companies have been taken to court over their high interest rates. Time and again they’ve won by falling back on the argument that the rates are justified by the high risk. “Now they want the best of both worlds” sums it up perfectly.
I went through a bankruptcy a cuople of years ago when I suffered a catastrophic spinal cord injury. My income was cut in half and after 6 months I went on Social Security. I was able to stay current on my mortgage, car loans and utilities. I tried to dicker with the Doctor/hospitals and credit card companies to no avail. I finally told them that if these payments weren’t suitable I would have to declare bankruptcy – basically take this or take nothing. Especially the credit card companies who were banging me with 20+% interest and late fees, etc. I don’t feel too badly about stiffing them – they knew the risks as well as I did.
America doesn’t need the bankruptcy bill. Let’s leave the onus on the lenders to do proper underwrting before issuing credit. They have more resources at hand than borrowers, so why let them off the hook for poor fiduciary practices?
An irresponsible consumer will still be punished with the eventual, yet assured, loss of credit. An irresponsible lender, will be punished with the loss of capital. Sounds like both parties already have enough economic incentive for a smoothly operating credit market. What exactly is the crisis here?
Really now, please share with the group which specific loopholes you believe were created by the legislation in question.
C’mon Praktike, you know how the game is played. “Bankruptcy Reform Passed with Bi-Partisan Support” means the Dems (looks like about 14 of them) are giving the Republicans cover. Its why the Dems are lockstep against private accounts for SS. Its why Bush bragged about the “Kennedy” education bill he signed.
Patrick
I spent a number of years doing highlevel legal work for the crdeit card industry, including some pioneering work on banking law. I have a professional knowledge of the credit card and consumer lending businesses and how they work.
“Lurker has it right”:http://www.windsofchange.net/archives/006450.php#c9
If this bill passes, the benefits, if any, will flow to the bottom line of the credit card companies and will not touch any consumers.
I am not a liberal, in fact I am a very conservative Republican, but this proposal upsets me becuase it violates well grounded moral values:
Ex 22:
[26] If ever you take your neighbor’s garment in pledge, you shall restore it to him before the sun goes down;
[27] for that is his only covering, it is his mantle for his body; in what else shall he sleep? And if he cries to Me, I will hear, for I am compassionate.
Dt24:
[10]”When you make your neighbor a loan of any sort, you shall not go into his house to fetch his pledge.
[11] You shall stand outside, and the man to whom you make the loan shall bring the pledge out to you.
[12] And if he is a poor man, you shall not sleep in his pledge;
[13] when the sun goes down, you shall restore to him the pledge that he may sleep in his cloak and bless you; and it shall be righteousness to you before the LORD your God.
Christians would add:
Mt 6:
[12] And forgive us our debts, As we also have forgiven our debtors;
RE: praktike’s point about why A.L. is criticizing the Democrats.
The GOP has generally been seen (with some justification) as the party of big business. I think there’s an opportunity here they may be missing, but that’s neither here nor there.
The Democrats have historically not had that “big business” positioning, but by supporting this bill he feels they are [1] moving toward it (esp. in conjunction with other public sell-outs to folks like the entertainment industry), [2] failing to differentiate themselves at a tiime when the party needs revival within its traditional base; and [3] and leaving themselves in a poor position because this can haunt them if they try to play their traditional “champion of the little guy” card.
A.L. is not blaming the Democrats for the bill’s potential passage. He’s blaming them for screwing themselves up in all the ways described above.
Big difference.
Well, the thing passed.
AL, appreciate your stance against this travesty. Thanks.
In terms of the criticisms of the “venal residents of Skyboxland”, in this case, the “Credit Card Corps”:http://www.talkingpointsmemo.com/bankruptcy/creditcard.php manages to be the comprised of some of the few Democrats that you have praised on this site, however faintly.
So there goes that.
Joe –
You got it exactly right. Not only is the bill a bad bill (which, as noted, is liekly to pass now), but it paints the Democrats into a corner which gives them little leverage against the GOP on issues they should own.
A.L.
It wasn’t supported by “the Democrats.” It was supported by 14 “moderate Democrats” who are in reality sellouts — there is no constituency among party members for this kind of travesty.
Can you understand the difference?
If we take away the “moderate Democrats” that are too far to the right on bankruptcy and then take away the peacenik Democrats that are too far to the left on national security, who are we left with? Praktike?
PD Shaw,
I cracked up when I saw your last comment.
Of course, I’d vote for our good ole’ P, but I’m not sure about anyone else…
I’d vote for Praktike in a hearbeat too. I hope my flippant remark is taken in the spirit it was intended.
Patrick