About the Bankruptcy Bill | 1
March 10, 2005
(UPDATE)
Your humble correspondent is himself still trying to get up to speed on Senate Bill 256 ("Bankruptcy Abuse Prevention and Consumer Protection Act of 2005"), which passed in the Senate Wednesday. Paul Krugman fires a hell of a salvo:
"The Debt Peonage Society": The bankruptcy bill was written by and for credit card companies, and the industry's political muscle is the reason it seems unstoppable [...]. 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.
Please note this comes in the wake of massive increases in interest rates on credit cards (NYT), part of a phenonomon called "universal default" in which credit card firms—fearful that any customer could default—are raising rates for trivial transgression on customers' credit reports.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.
None of which will be redressed by the new laws.
Echidne (via Unimpressed): ....What about those who file bankruptcy because of high medical expenses? Surely the proposal will allow them some extra slack? Actually, no. An amendment proposing a homestead exemption of $150,000 in home equity for this group was defeated by the Republicans in the Senate. So was an amendment asking for extra consideration for those in the military who had to file bankruptcy because their military service caused their private businesses to fail, an amendment asking for extra consideration for those who file bankruptcy because of identity theft and an amendment asking for a homestead exemption for the elderly. All defeated by pretty much every single Republican in the Senate.
[...] Another amendment which the Republicans also defeated would have gotten rid of the loopholes which allow for "asset protection trusts" in several states. Such trusts are expensive to create, so only available for the wealthy, but they will let you have a homestead exemption in a bankruptcy for your manor house or two.
[links added—JRM]
Ironically, the twist of the dagger in the backs of military families was very heavily cloaked in a scramble by legislators to get associated with some bill protecting service personnel (AP); the Senate was so mendacious they passed a version of the amendment that they would later vote to eliminate. On the other hand, an amendment to disallow anti-abortion protesters declaring bankruptcy to avoid fines was also defeated. Translated from the convoluted language of legislation, abortion clinic firebombers will continue to receive bankruptcy protection, while bankruptcy courts can continue to evict the elderly and infirm from their homes, or penalize military personnel who return from Iraq to find their shop out of business.
Measures to regulate the credit card industry—say, by limiting interest rates to 30% [!] failed; so did proposals to restrict issuing credit cards. I personally receive telephone calls constantly notifying me that a credit card in my name will be sent, or has been sent, to my home. I get about one to two offers in the mail for credit cards each day. In all seriousness, I would say my mail has become so aggressive in offering me "deals" on vacations, autos, boats, and other sundry junk, that it has tended towards requiring me to call a 900 number to reject purchases of these items. It's not there yet, but it is getting closer and closer.
Both parties voted for this bill, although the GOP did so unanimously; the amendments to the bill, proposed by ranking Democrats, were of course defeated with Democrat turncoats. Corrente lists Democrats who voted for cloture (from Talking Points Memo). Here they are:
- Tom Carper (D-Delaware)
- Joe Biden (D-Delaware)
- Ben Nelson (D-Nebraska)
- Tim Johnson (D-South Dakota)
- Mary Landrieu (D-Louisiana)
- Blanche Lincoln (D-Arkansas)
- Bill Nelson (D-Florida)
- Robert Byrd (D-West Virginia)
- Kent Conrad (D-North Dakota)
- Herb Kohl (D-Wisconsin)
- Joe Lieberman (D-Connecticut)
- Mark Pryor (D-Arkansas)
- Ken Salazar (D-Colorado)
- Debbie Stabenow (D-Michigan).
Links added by your humble, but ineffably furious, correspondent.
ADDENDUM: I neglected to mention these posts on the matter: AaronBurrFan (Blogging of the President) on how political triangulation and the DLC contributed to this montrosity (
however, please note Pres. Clinton pocket vetoed this same bill in '01; see comments below); Max Sawicky (via Brad DeLong) asking whether the private accounts and annuities under Bush's "excellent Social Security privatization plan"—meant facetiously, no doubt— would be vulnerable to attachment by creditors. Lorenzo (Unimpressed), who led me to Echindne's post, also makes some fascinating points. Please don't miss that en route to Echindne.
ADDENDUM-2: Kash (Angry Bear) writes:
The finance industry is not in particular trouble, and personal bankruptcies are not threatening the profitability of lenders. Capital One Financial earned about $1.5 bn in profits in 2004, MBNA will earn over $2 bn in profits in 2004, and American Express earned about $3.5 bn in profits in 2004 [...]
There's no economic justification for this new law, no social justification for this new law, no major existing problem that this new law will solve. The law is simply the result of lobbying efforts by one particular industry to enact legislative changes that will increase their profits. That fits my definition of rent-seeking behavior.
James Wolcott also joins the ranks of indignant Scots...The Right's assault on the Republic grows more intense than ever this year, becomes a kind of mad, jeering defiance that almost unmasks itself...
Under George W. Bush, the mask is completely cast aside, the jeering defiance in full cry. The bankruptcy bill, the renomination of rejected or blocked judges, the enthronement of America's first Attorney General of Torture, the refusal to even admit the looming disaster of global warming, the arrogant insult to the UN and the diplomatic world with the nomination of John Bolton as UN ambassador—Bush's second term is a triumphal 'Fuck You' that the pundits and cable newsers will interpret as a jaunty thumbs-up, not possessing enough self-respect even to mind being played for fools.
Jason Chervokas (Trickster) starts out saying one thing...
There will be much hand wringing on the left today now that the Senate is expected to ratify a bill reforming personal bankruptcy. It is a valid criticism to say that the measure, in essence, turns the federal government from a protector of debtors to a collector for creditors.
But the anguish over the bill is misplaced. The issue of debt in America is enormous and goes to the heart of core issues like standard of living, pension policy and Social Security reform, economic growth, and maybe in the end national sovereignty. Instead of wailing about the bankruptcy bill, we should be taking a long look at the much bigger problem.
He then launches into a 700-word summary of the "debt revolution," then makes the crucial point overlooked by bromides about "personal responsibility":The renters list, as Greenspan noted, typically consists of younger and poorer folks than the homeowners list. While the financial obligations ratio for homeowners increased 15% since the end of 1980, the FOR for renters increased 33%
It is this poorer group that has been aggressively targeted by the subprime lending market, not just the credit card issuers but also car loan lenders and other lenders with the radio ads promising loan approval no matter how bad your credit. This is the industry that pushed for the new bankruptcy legislation.
With wage and job growth stagnant among this group, it's hard to see how it will grow its way out of its debts.
His point is that something needs to be done; but I think the outrage over executive, legislative, and judicial management of the problem is actually very well-placed indeed. It's just that there's so little of it.
Comments
on this Post:
Excellent post James.
Does this legislation start with Sir Alan's increases some 7 or 8 months ago?
Something must be done, says Chervokas who may be susceptible to panic attacks.
Too daring to suggest government cutbacks I suppose. Too daring to implement taxes on foreign based income or any number of other rational programs.
Too daring to let your eye fall on anyone other than the small debt-burdened stress-ridden guy who has just received some bad medical news.
Cowards.
And what do they hope to achieve with this abomination? A more financially responsible public?
They have some gall.
At what cost to the country will a few credit companies' coffers be filled? I'd say at the cost of an already fragile consumer demand.
Posted by: calmo at March 11, 2005 04:43 AM
Does this legislation start with Sir Alan's increases some 7 or 8 months ago?
Unfortunately, no; the legislation has been sitting around since at least 1998. However, I see that the Harvard Review of Business Legislation (PDF, p.1) reports that Pres. Clinton in fact "pocket-vetoed" the bill in the 106th Congressional session (ending Jan '01). So a lot of the ranting in the comments section of the BoP post (& elsewhere) attacks Pres. Clinton erroneously.
However, it is true that the bill has undergone repeated re-inventions to reach its current state.
One interesting discovering in the few minutes I've spent reading the Zachary Price article: see page 13-14. According to Price, the bill poorly designed for creditors as well, because it doesn't discriminate in order to establish priority of debt. "A bill at war with itsef," as Price puts it.
Could this be the "firebomber and corporate lawyer vocational assistance act of 2005"?
Posted by: James R MacLean at March 11, 2005 06:22 AM
Great post, and thanks for linking to me on this issue, however, I would have found your blog much earlier if you'd have linked to my actual entry rather than the category (http://www.unimpressed.net/archives/000120.html) I would have missed your blog had you not linked to another entry (I followed the trackback ping to get here) and that would have been a shame!
Posted by: Lorenzo at March 11, 2005 04:11 PM
Thanks for stopping by, Lorenzo; I recently became aware of your site, and I've been very pleased with its scope of analysis. I like the application of philosophy and anthropology to political controversies.
Posted by: James R MacLean at March 11, 2005 10:01 PM
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About the Bankruptcy Bill | 2
March 11, 2005
Earlier I posted about pending legislation to change the rules affecting bankruptcy (HC). At the end I included a list of Democratic senators who had voted for cloture, in order to end a filibuster on the legislation. At least a third of the Senate Democratic Caucus did, in fact vote for cloture; a majority of it voted for the bill itself (NYT). I may as well mention that idealistic Democrats and Greens who returned to the fold in '04: prepare for the hideous truth that no political party has ever been able to resist finance, insurance, or real estate (FIRE) pressure. Open Secret has a page on the bankruptcy legislation that is, alas, about two weeks old. Yes, the President has said he will sign the bill into law, and given the total, undiluted support of the GOP for this bill, plus the fact that such large numbers of Democrats voted for it, I'd say we can regard this bill as effectively the law of the land.
(Sorry to run counter to the pleas by sites such as Dēmos to urge your representative to vote against this bill; please don't let me stop you. I'm advised faxes are the most effective method of getting through.)
I just read an 18-page summary of the bill in question furnished by the Harvard Review of Business Legislation (PDF), which does point out that, while Pres. Clinton pocket-vetoed a previous version of this legislation, large numbers of the House Democratic Caucus voted for the bill. Moreover, when I took Econ 300 ("Financial Markets and Instruments") I was pretty amazed to see how consistently over time Congress acceded to financial interests. This led me to the rather hayseeded conclusion that the USA is run by finance capital, and not by elected officials.
A number of liberal web loggers noticed that "even freepers" were vexed by the bill. Someone at Free Republic posted Paul Krugman's "The Debt Peonage Society," which was followed by about two favorable remarks by embarrassed Republicans. This followed a long succession of attacks on Krugman and praise for "individual accountability." Sorry, there are not going to be conservatives outraged by this bill. Please allow me to explain.
A while back I noticed a weird phenomenon: suppose you have two candidates running for public office. A is a religious fundamentalist who believes personal morality should be rigidly enforced by the state; he favors biblical punishments for adultery. B is a radical social libertarian who vehemently believes the state should stay well away from any personal behavior which does not injure others.... and "injure" is defined very strictly. Suppose one of the candidates is caught having an extramarital affair. Whose campaign will be hurt more by the revelation?
Logically, of course, the answer should be A; by rights, he deserves to be stoned, not elected. However, the empirical evidence is that A will suffer little, while B will be the more affected. I apologize for not being able to prove this rigorously, but I must insist this is true. The question is, why B?
The reason is that people are frightened of B. A majority doesn't seriously believe A will overcome opposition to his agenda; as for B, however, most people assume he'll foster an environment of scofflaws despite the fact that A's complete legislative victory is more probable than B's. Meanwhile, B's refusal to pass judgment on those who commit adultery doesn't cause voters to let him off the hook—it causes them to assume he's going to usher in an age of debauchery. A may be pecksniffian, but at least he'll guard against social decay. Also, A is defending privilege; his partisans, if they were self-aware and honest, would admit they don't care about morality, but civil order and their own class or race privilege. Women may—as a group—be injured by this sort of pietistic posturing about personal responsibility, but those who regard themselves as winners of previous "awards" of social approbation will prefer to see such standards prevail. Men who have made it to the top, or who anticipate doing so, will tend to identify with the hierarchy of sexual entitlement inflicted by a code of morality that punishes sex out of place more than war crimes.
Returning to theme of personal bankruptcy: when this strikes, it does so as a plague: the correlation between virtuous behavior and bankruptcy is actually quite weak. Still, people want to believe it'll never happen to them; even I can't bring myself to imagine declaring bankruptcy. So they're easily persuaded that they're beyond the reach of the icy fingers of ruin.
Comments
on this Post:
As a first generation American, I've always been perplexed by the incorrigible native mind-set of voluntarist individualism, which goes together with the ad hoc quality of American politics and the corresponding lack of historical awareness or perspective. But there is, as well, the quasi-paradox that such voluntarist individualism goes together with a conservatism of the "instincts", as if the very promise of American freedom required its retrenchment. Therein lies the wedge exploited by the rightwing, corporate hegemony. The advocacy of "personal responsibility" and self-reliance has an isolation effect, as if there were no common collective determinants of the situation of individuals and no common cause and collective means for their redress or insurance against the vagaries of individual fate. The isolation of the "losers" serves to enhance the zeal for the common run. The dissociation of the body politic is the aim, since any notion of the public interest might interfere with the unchecked perogatives of the "economy". And, after all, the confused incoherence of the "masses" only serves to enhance the appeal to their "patriotism" and the threat of the imaginary other. Best of all, since the mass of human beings are indignant for their individuality, they are inclined to repudiate the immorality of the crowd and seek their salvation elsewhere.
Posted by: john c. halasz at March 11, 2005 09:47 AM
...which goes together with the ad hoc quality of American politics and the corresponding lack of historical awareness or perspective.
Hmmm, not sure about that. I think a lot of the "historical perspective" is more a recognition that the country's glory days are in the past. The overwhelming consensus in each country is that that country's period and scope of imperial dominance was the best that ever was; both the right and the "left" in the UK are quite complacent about their empire, most of the time.
In the USA, the left is perpetually occupied appending the "Black Book of American Empire," which does preserve the ugly truth of empire for posterity, but also ensures they remain in the opposition of the opposition. So, I think the issue here is narratives: in the USA, the narrative is one of redemption through individual initiative, and that's the operant narrative of the political left as well (in this case, the lapsarian narrative is the Black Book of American imperialism; one achieves redemption by "repudiating" one's ill-gotten privilege, or turning away from a society perceived as squalid).
In my observation, other societies have redemptive narratives that do not involve turning away from the group. I mentioned the left; the American right, of course, is "into" individual responsibility. The European right is into household responsibility, where the household is really the nation. On the extreme right, there is a lapsarian narrative that the people have let the nation down, have disappointed the nation's household, or at the very least, been dangerously woolly-headed about making commitments to other nations. The left has a lapsarian narrative which is also highly nationalistic, although without some of the same motifs.
Posted by: James R MacLean at March 11, 2005 07:01 PM
It all boils down to the same dirty business in the end, but my sense is that, in Europe, political debate is a more elaborate and multi-generational, if embittered, affair. Class divisions there are much more culturally encoded and a certain pessimistic fatalism, alien to most Americans, is a part of everyone's equipment. American historical amnesia is pretty notorious. (Just a tidbit I recently came across: a poll in the lare '70's found that a large plurality could not identify which side the U.S. had fought on in the Vietnam War.) It has to do, I think, with the relative lack of a feudal past, as well as, perhaps the shoddiness of American secondary education. The one piece of their history that many Americans show an obsession with is the Civil War, but, even there a phenomenon such as, e.g., Civil War battle re-enactments show a hyper-realism that is bound to a presentist consciousness. That presentist mentality, I think, does lend an ad hoc quality to U.S. politics, as if one had to perpetually re-invent the wheel,- (and perhaps it goes together with a gee-whiz technologism),- since the precedence of past conflicts and struggles does not inform the framing of the current issue. One thing that has always struck me about American conservatives, (and here my exemplar would be Ronald Reagan), is how little sense of wanting to conserve anything they seem to bear. As for the left, there has been so little of an organized left in the U.S.A. that it scarcely warrants a generalization, though that too might be a mark of individualism. Most of what has been "left" in American political history has taken the form of a fitful populism.
Posted by: john c. halasz at March 11, 2005 09:13 PM
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