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March 13, 2005 - Keeping the Poor Honest

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I saw in the New York Times on Tuesday, March 8, that the Senate was expected to vote to limit debate on a bill that toughens the existing bankruptcy law.  That means it would pass – and it did.  It’s off to the House.  And the Senate had been voting down amendments all week.  None were added. 


Below are two items explaining why this merits some attention.  Things are changing in this country fast – and it’s not just Social Security becoming something we should think of as evil because it makes people irresponsible.


The Times summary is that the new bankruptcy bill will make it much harder for families to write off their debts and make a fresh start.  It will get a whole lot harder to do that.  And the credit card companies say this is needed because people have been abusing the bankruptcy law, borrowing irresponsibly and walking away from debts.  So what to think?  The Washington Monthly item lists the amendments the Democrats proposed and the Republicans shot down – letting seniors protect their homes, an exception for catastrophic medical expenses, and one for protecting the homes of such medical patients, an amendment to force the credit card companies to disclose real time frames and interest rates to pay things off, exempting veterans from loans of over thirty-six percent interest.  All that was defeated.  Tough love?  I guess.  Loopholes allowed?  If you have the means you can set up a large “asset protection trust” no one can touch – but you have to be pretty rich to do that.


Smells of class warfare to me.


Paul Krugman in the New York Times (link below) gets on his high horse.


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.


Yep –


… 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.


Yeah, yeah.  Lazy bums.  Dead beats.


Parting shot?


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.


Ah yes.  But also see this - where you will discover Pennsylvania's Republican Senator Rick Santorum is proposing a bill that would raise the minimum wage by $1.10 per hour (story here) - but now he would exempt any business with revenues of one million dollars or less from regulation - raising the exemption from the current $500,000 level.   Bottom line - while 1.2 million workers could qualify for a minimum wage increase, another 6.8 million workers, who work in companies with revenues between $500,000 and $1,000,000 per year, would, with this new bill, lose their current minimum wage protection.  Ha, ha.  (Analysis here from the Economic Policy Institute.)  And the bill would ban states from requiring employers to pay tipped workers with a guaranteed wage.  Employers could pay tipped workers nothing and force them to live off tips, while states would be preempted from creating a higher wage standard for tipped workers.  This will not improve service when you dine at a restaurant.


Something is up.  But nothing can be done.  The bullies take the lunch money from the nerds.  That’s life.  Or that’s the new ideology.


Kevin Drum in the Washington Monthly on the amendments to the bankruptcy bill that the Republicans voted down  -


From Russ Feingold, an amendment that would have allowed senior citizens to protect $75,000 of the value of their homes during bankruptcy proceedings.


From Ted Kennedy, an amendment focused on helping people who are forced into bankruptcy due to major medical expenses.


Also from Ted Kennedy, an amendment that would have protected $150,000 of the value of patients' homes from being seized to pay creditors.


From Daniel Akaka, an amendment to force credit card companies to disclose how long it would take a consumer to pay off his bill making minimum monthly payments, and what the interest rate would be.


From Dick Durbin, an amendment that would have exempted veterans from the most onerous provisions of the bill and prevented creditors from recovering debts from military personnel if the loans had annual percentage rates higher than 36%.


And Drum asks if stopping abuse were really your primary goal, why would you vote against amendments like these?  Maybe there’s something else going on.  And he notes nothing was done about "asset protection trusts," used by rich people not lose money in a bankruptcy.  And nothing was done about the homestead exemption – and that allows rich folk to shield their expensive homes from bankruptcy courts.


Oh well.


And about those medical exemption that were voted down?


… It's true that bankruptcy rates have skyrocketed in the past couple of decades. If you look solely at population growth, you'd expect the number of bankruptcies to have grown from about 300,000 in 1980 to 400,000 in 2000. In reality, the number of bankruptcies was over 1.4 million in 2001. That's a million extra bankruptcies.


However, as Barbara O'Brien points out, there's considerable evidence that this has been driven largely by people who faced ruin due to huge unforeseen medical expenses. In fact, if you crunch the numbers in this report, it appears that about two-thirds of the extra million bankruptcies may have been caused by medical emergencies.


The bill does nothing to address this. Since medical emergencies certainly aren't an abuse of the system, wouldn't any honest bill aimed at abuse pay special attention to the recent and growing epidemic of families that declare bankruptcy due to medical emergencies?


Oh well.  The credit card companies want it, and practically every consumer group in the country doesn’t.  And who can spend big money to buy the votes with big campaign contributions?  Duh.


Drum’s summary of the bill?


Through their actions, its sponsors have made it abundantly plain that abuse of the system isn't their real aim: protection of major campaign contributors is. The poor get shafted, the very real crisis of medical bankruptcy is ignored, the rich are allowed loopholes that let them off the hook, and credit card companies can continue on their merry way knowing they won't have to pay the price for their own folly.


Welcome to America.


One wonders, since this bill screws the average guy, why the party is power still enjoys the unquestioning support of the average guys.  I guess the majority who elected these folks just assume one day they too will get filthy rich and be in the position to screw the poor, with a grin. 


And if some of them don’t make it there?  Ha, ha.  The joke is on you.





Paul Krugman in the New York Times, March 8, 2005

The Debt-Peonage Society





Copyright 2003, 2004, 2005, 2006 - Alan M. Pavlik
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