Houston Democrats

The problem no bankruptcy law will solve

There are currently, according to the census bureau, 295,865,890 people in the U.S.

At the end of 2004, according to the Federal Reserve, the total consumer debt (excluding mortgages on homes) was $2,105,300,000,000. That's more than 2 trillion dollars. Trillion is a word you usually hear only associated with the need to raise the national debt ceiling.

That works out to $7115 per person, including every man, woman and child, or, roughly $19000 per household.

I'm ambivalent about the current bankruptcy bill. Yes, credit card companies are making plenty of profit, and yes, they're enticing people. My personal record is shredding 7 "pre-approved" credit card applications in a single day. And yes, some people are abusing the bankruptcy law that currently exists. I happened to catch Suze Ormand on cable a few weeks back and got thoroughly disgusted when she said "it might be time for you to consider bankruptcy" to 3 callers in a row.

If the law changes, some people who have been gaming the system will be punished, and that's good. Some deserving people will be hurt, and that's a tragedy. But it's a quibble compared to the larger problem: individually, and as a country, we cannot continue to spend more than we earn.

Former Fed Chairman Paul Volker, who was Fed Chairman before Alan Greenspan (yes, there was a Fed Chairman before Alan) is possibly as deserving as any single person can be for the unprecidented economic prosperity of the United States over the last 25 years. It was he who managed the increase in interest rates at the beginning of Reagan's first term which stomped out inflation and set the stage for robust growth and the eventual taming of the budget deficit during Clinton's administration. Volker sees looming trouble. A few quotes:

We sit here absorbed in a debate about how to maintain Social Security -- and, more important, Medicare -- when the baby boomers retire. But right now, those same boomers are spending like there's no tomorrow. If we can believe the numbers, personal savings in the United States have practically disappeared.

We are buying a lot of housing at rising prices, but home ownership has become a vehicle for borrowing as much as a source of financial security. As a nation we are consuming and investing about 6 percent more than we are producing.

The difficulty is that this seemingly comfortable pattern can't go on indefinitely. I don't know of any country that has managed to consume and invest 6 percent more than it produces for long. The United States is absorbing about 80 percent of the net flow of international capital. And at some point, both central banks and private institutions will have their fill of dollars.

I don't know whether change will come with a bang or a whimper, whether sooner or later. But as things stand, it is more likely than not that it will be financial crises rather than policy foresight that will force the change.

I think we are skating on increasingly thin ice. On the present trajectory, the deficits and imbalances will increase. At some point, the sense of confidence in capital markets that today so benignly supports the flow of funds to the United States and the growing world economy could fade. Then some event, or combination of events, could come along to disturb markets, with damaging volatility in both exchange markets and interest rates. We had a taste of that in the stagflation of the 1970s -- a volatile and depressed dollar, inflationary pressures, a sudden increase in interest rates and a couple of big recessions.

The 1970s were a bad time - high interest rates, stagnant or declining real wages, high unemployment, huge jumps in the price of oil, and a real sense of malaise about American prospects. We're facing the likelihood of many of those same factors, and this time around, it's not just government spending that's terribly out of balance. Personal spending is too.

I don't know when the "culture of spending" which the U.S. as a society has embraced will come back to haunt us. The danger of being a Cassandra is that if you predict trouble and it doesn't happen soon, people will quit listening to you. But the situation the U.S. economy is in cannot continue, and soon or late, it will stop.

Regardless of what you think about the specific provisions of the bankruptcy bill, remember that in a period of economic difficulty, the best way to avoid bankruptcy is to increase savings and decrease debt. Right now, most americans seem committed to doing exactly the opposite. That's going to mean a whole lot of bankruptcies if the eventual correction is brutal, whether the law gets changed or not.

Done, Lyn. Rep Al Green's office took my call and promised to relay the message.

Thanks for the thought-provoking post, David.

Does Cong. Al Green's "aye" vote favoring the credit card/bankruptcy slavery bill today in Congress not sicken you? stan Merriman

I'm very unhappy about it. I called his office and asked for an explanation. Hopefully he'll respond, if he does, I'll post the response.

Does Cong. Al Green's "aye" vote favoring the credit card/bankruptcy slavery bill today in Congress not sicken you?

Yes it does, Stan. It's kind of appalling, actually.

What was he thinking?

Update: Congressman Green called me this afternoon and has offered to send me a statement by email. I will publish it as soon as I receive it.

I'll tell you what "sickens" me -- it's Democrats attacking Democrats instead of attacking the real enemy -- the Republicans!

Do you all realize that the bankruptcy bill does not even apply to people making less than $54,000 per year? And the real benefactors of the old system were the millionaires who could move to Texas or Florida the day before filing for bankruptcy, sink unlimited amounts of money into a mansion (homestead) and not have to pay back any of the debts they previously accrued -- frequently at the expense of small business! The bankruptcy act closed that loophole. The new bill simply says that if you make more than $54,000 per year and, after paying all your medical, insurance, housing, food, clothing, education, and other necessary costs, still have substantial money left over, you can be required to pay a part of the excess over 3-5 years toward the debt you incurred.

Now don't get me wrong, on balance I don't personally like the bill. But it does address some abuses which needed to be corrected. Like deadbeat homeowners who refuse to pay their homeowners association fees, putting the burden on all the rest of their neighbors in the subdivision to pay their share, or wealthy renters who "game" the system by repeatedly filing last minute bankruptcies rather than pay retiree landlords.

The point is, this bill doesn't hurt anyone earning more than $54,000 per year. While I would much prefer that exhorbitant interest rates be 100% dischargeable, I'm not ready vitriolicly to condemn every Democrat who saw or sees this bill differently.

I believe that Chris Bell voted for this bill in the last session of Congress. I didn't hear anyone condemn him for that vote -- and they shouldn't have. So did Steny Hoyer (for example) -- the Democratic whip and primary force pushing for voter verifiable paper trails for electronic voting machines. Why attack these good Democrats when there are plenty of Republicans who actually deserve condemnation?

Al Green has been a passionate supporter of civil rights and of the rights of the least among us. It's just not right to condemn so strong a champion of the rights of all those we claim to care about over this vote. It's one good Democrats can disagree about.

Meanwhile, while we were busy being "sickened" by the bankruptcy act, the Republicans passed the estate tax bill -- making permanent the abolition of the estate tax. Now there's one that sickens me. (Al Green voted against that bill, by the way). The Democrats wanted to exempt the first $8 million in an estate from estate taxes, but the Republicans insisted that people with $100 million or $1 billion estates should not have to pay one penny in estate taxes. They won.

I can't find one word on this blog complaining about that action which diverts taxes that could be used for the poor or health care or education or reducing the deficit or whatever to the heirs of multi-millionaires and billionaires. Instead, we use our energies to condemn a Democrat. THAT "sickens" me!

Tom DeLay and his cronies must be delighted. Once again they outsmarted us by diverting our attention from something really egregious they were doing to attacking one another.

Gerry Birnberg

The last time there were comments criticizing a Democrat for voting in favor of bad legislation, you suggested we give him the opportunity to explain his vote. I did just that in this case, and am eagerly awaiting the opportunity to publish Representative Green's response.

The fact that the bill could be worse, justify voting for it. Any time a Democrat votes for a bill that benefits corporations over hard working people, there will be questions from Democrats who support the party platform and look forward to seeing our representatives stand up and fight for it. We deserve answers in the case of this bankruptcy bill.

The very wealthy still have the homestead exemption in many states, as well as the ability to shield assets in trusts.

But if a single mother such as myself is forced into bankruptcy, child support payments are diverted to credit card companies. Furthermore, no exceptions will be made for cases where bankruptcy is caused by medical disasters, loss of employment or service in the military. A reservist who is serving honorably for our country and has been forced to take a pay cut, is not protected from predatory lending practices. No limits were put on interest rates.

If this blog had been existence when Chris Bell voted for a similar bill in a previous session, he too would have been called on to explain his vote. I know now that I should have paid more attention to how my representatives voted in the past.

Looks like Dem activist Dale Napier got first dibs at Al Green at the Meyerland Dems meeting last night. See post at:

http://www.gregsopinion.com/archives/005924.html#005924

Copy and paste the above link to view.

It's Dem activists and voters that are speaking out. Mr. Chair needs to allow people to vent because it is those voters we're trying to bring back to the Party that are ALSO telling us that they can't tell apart a few of our Dems from the Republicans.

Ok, I have heard a lot about how Al Green is the newest traitor to the Democratic Party. I believe there is a need to get a full explanation of Al Green's reasons for supporting the bill, but I do sympathize with what Gerry Birnberg says.

It is an oversight that we did not write something about the action that diverts taxes that could be used for the poor, health care, education, reducing the deficit, etc. However, we are a team of six trying to keep up with local, legislative acts, and other news as it pertains to Houstonians, and there is a lot to keep up with in addition to our daily lives. Obviously some things get missed, but that doesn't mean readers can't send topics to us they would like to see covered, or write a thoughtful piece on an issue important and send it to us. Several have done it already, but others can as well. Readers may click on our names at the bottom of every post to contact us by e-mail.

Now back to the main topic. It does upset me that people are so quick to rip apart a Democrat. We need to hold our representatives accountable, but we shouldn't shred someone over one bill, especially one being rammed through Congress by Republicans. I think it's impossible for anyone to truly understand the complete bankruptcy bill. In some respects, Congressional bills are designed that way, besides the fact they are often moved through so quickly that there isn't time to fully understand them and even less to react.

I am sure many would have a hard time finding a Congressional member that could really give us the complete rundown of the bill either. I went to the US House page and looked up the bankruptcy bill and there is tons and tons on it. It's also written in language, like tax forms, that is hard to understand, making it necessary to look up the legal meaning of the words to understand what the bill says. Many portions even refer to other sections of law that one would have to go find to understand the intention of the passage.

I appreciate the fact that Al Green is willing to work with Republicans who are willing to work with him. This country needs more people who are at least willing to discuss their issues civilly and not come to the table with prejudices. There is far too much partisanship at all levels of government. Sometimes it feels like an undeclared civil war. Now I don't support the Republican Party, but I do support moderate Republicans – the few that have not been hijacked by the extreme right wing. Just today Senator George Voinovich (R-OH) sided with the Democrats on the international relations committee in calling for more time before deciding on whether to send the vote on John Bolton for US Ambassador to the UN to the complete Senate. He didn't necessarily say "no" to Bolton, but he gave the Democrats a chance, and time for a more complete review. That is the most we can ask for from any member of Congress of any party - to fully consider and evaluate the issues and give both sides a chance to have their say before making a judgment. We would be much farther ahead on many important issues with more people like that.

Honestly though, if Republicans want something they can get it. That is just the nature of being in the majority, and they have done far more than just this bankruptcy bill that hurts Americans personally. I know none of us likes being in the minority, but we will never become a majority if we are so quick to dismiss our own precious few members. We need to concentrate on building our party up. It's easy to complain, but much harder to accomplish something substantive. We should focus this energy on promoting Democratic issues and the party as a whole. I think it is despicable what the Republican Party is doing in the name of the average American. We should be holding them accountable for their actions and proposing powerful alternatives that truly benefit all Americans and make it apparent to all Americans the Democrats are the true majority when it comes to personal freedoms and the needs of the people. When we are in the majority, we can work to make things fairer, but we have to have a more substantial footing to be able to push our views more forcefully.

I know there are some people in the United States who do use bankruptcy as a way to get out of paying what they owe. It's true that many people think that some luxuries, like cell phones, big flat screen TVs, satellite TV, daily Starbucks coffee, big trucks, XM radio, numerous subscriptions, etc. are necessities and overextend themselves. They are NOT necessities. Having lived in Tunisia, a developing country, I have seen how people can survive without these luxuries.

What is repulsive is that credit card companies want this kind of person because that is how they make money. They disguise their credit card deals and lure their prey in with low APRs that jump after a month or two. However, the US is a huge consumer society, which feeds right into the hands of the credit card companies. There needs to be some kind of fiscal restraint on rampant credit buying, not only on a large scale by the government, but also everyone.

When I was in college people were complaining about having massive amounts of credit card debt, like in the thousands of dollars. Most of it came from massive use of cell phones and expenses associated with partying. It just amazed me. For some reason, there is some mentality that debt can just be written off and that it doesn't matter, which is just ridiculous. There do need to be some consequences for over spending, but credit card companies must be required to fully explain their policies and not to conduct deceptive advertising. Mailers offering thousands of dollars in credit are made to seem like free money. I get "free" checks all the time that I immediately tear up and trash. This is not free money, but far too many are deceived into believing that they just received a windfall.

Sometimes I wonder if we are headed for another Great Depression, when buying "on margin" as it was then called led to a crash in the stock market. However, the same thing is happening again today, purchasing stocks with money that does not exist. We are in a very precarious financial situation. Now I know I just oversimplified the Great Depression, but the ultimate root of the problem, credit purchases, is similar. As a society and a nation we spend far more than we save. That is our problem. Credit card companies do make it much worse since if one misses one's payment the interest rate spikes, often to over 20%, which makes it impossible for many Americans to ever hope of getting out of debt. What I would like to see is a more visible explanation for consumers of what the consequences of not paying one's credit bill will do, especially when it comes to paying only the minimum balance. That fine print needs to be written very large and featured prominently before accepting a credit card. We need to better educating consumers about credit and its potential pitfalls beginning in high school and college before students have a chance to rack up debt that will plague them for the rest of their lives. Credit card companies and their deceptive advertising must be reined in, but of course more regulation of the credit card industry is not likely in the current environment.

While this bankruptcy bill is far from perfect, it doesn't affect people who make less than $54,000 a year. Now I don't know what percentage of Americans that is, but that does shield a very large portion of Americans most at risk of not being able to get back out of debt from this bill's requirements. It was ridiculous that millionaires, like the Enron bunch, got to sink tons of money in lavish houses here in Houston they were able to keep when they had to file bankruptcy instead of paying back their debts, even as other former employees lost their life savings.

The bottom line is we need to save and part of the problem is with how much we spend. We also need to take responsibility for our actions and live within our means (i.e. fiscal sustainability). Americans must recognize the fact that spending more than one saves can lead to nasty consequences and not find convenient scapegoats for one's plight. However, there should be safety nets and programs to help those in debt to regain their footing. I am not advocating to get rid of the ability to file for bankruptcy, but those who make hundreds of thousands of dollars a year need to be held accountable for their debts and not allowed an easy out. Ideally, this should go for big corporations as well, which is where there is an even bigger problem.

Most of all we do need to support Democrats because they are by far better than the extremist-religious-right-wing-Republicans. Democrats, and the few moderate, centrist Republicans, and Independents in Congress are our only chance to effect policy. Without them, we would not stand any hope at all. There is likely not to be any favorable change for average Americans until the Democratic Party regains its majority. I don't know when that will be, but it will happen. That I do know.

So, Gerry, there is doubt in your mind that I have worked vigorously to oppose Republican policy and therefore am restrained from the right, in a "family discussion" here on this site, to express contempt for patently sell-out Republican votes by those claiming to be Democrats? Excuse me, but your inference that criticizing our own errant Democratic public office-holders is off limits or somehow breaking the code of silence about our "crazy uncles in the attic" is undemocratic and unDemocrat. His vote was a betrayal, pure and simple. His work in civil rights does not innoculate him (Al Green) from criticism. The Democratic Party is not only about civil rights..........it is about economic justice too, an arena too long ignored by liberals in the Party and the reason we are stuck in this paradigm of losing; ie: we have, as a Party, failed to address systemic failures of our economic system to provide fairness to consumers and ordinary working folks. This is a classical case of a "good liberal" legislator ignoring fundamental and systemic needs of non-corporate persons and favoring the obscence "personhood" of corporate America. In this case we are talking about credit card companies, banks and in particular the corporatized healthcare system driving half of the personal bankruptcies in this society.
While we are at it, we now should also be discussing the votes yesterday by Al Edwards and Sylvester Turner to deny gay people the right to be foster parents, siding with the hard right theo- Craddick Republicans. No doubt you have a high tolerance for these obscene votes. Is there no end to betrayal of fundamental rejection of core Democratic Party positions? Sadly, our Party has lost its leverage in disciplining our elected officials to hold true to our core values. This is due to our Party abrogating its historic role of providing meaningful financial and voter mobilization support to our candiates. We have instead, mainly through disasterous reliance on "consultants", fostered a paradigm of allowing the tail (candidates and consultants) to wag the dog (our Party), leaving them adrift to rely mainly on their own resources for election and re-election.
The Republican party has stolen our playbook of a grassroots-powerful Party fielding and yes, disciplining our candiates/officeholders when they stray. Thus the long-haul populist strategy which I and others are advocating to restore our Party's clout with our candidates by rebuilding grassroots and precinct level power. Stan Merriman

At the end of my comments, I have pasted an article written by economist Paul Krugman for the group's perusal. The bottom line is that the bankruptcy bill is a boon to credit card companies and a swift kick in the butt to the poor and middle class among us who fall upon hard times. I am well aware there are some people who irresponsibly borrow too much on credit and then are unable to pay it back in a timely fashion, however, over half the bankruptcies that are declared in this country are either due to illness/medical emergency, job loss or divorce. Many people buy groceries on credit because they can't afford to eat otherwise! Many people have to pay utility bills or a portion of them on credit because they don't have enough money in their checking accounts to pay the bills! I am not concerned about those Republicans who voted for the asinine and immoral bankruptcy reform bill because I expect it from them, however, the idea that we are not supposed to hold our elected Democratic officials accountable for THEIR votes is absolutely absurd! I am sick and tired of the Democratic Party expecting its supporters to line up lock step behind Democratic elected officials no matter WHAT they say or do! It is the right of the American people to question those in authority and especially those we have entrusted to represent us in office. This Democratic Party had better catch a clue or it is S.O.L.

The Debt-Peonage Society
By Paul Krugman
The New York Times

Wednesday 09 March 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'd just like to add that I will always have difficulty supporting Democrats who vote with Republicans who, when asked to explain those votes, have difficulty explaining.

Blind loyalty is something the other side is pretty good at, which doesn't seem to me to be a good thing to emulate.

But hey, maybe that's just me...

I would like to add that I think my comment was somewhat onesided, and it obviously left out some other reasons for how some people end up in debt, and reflects the experiences I have seen and know about. I have spoken with others since then and read everyone else's subsequent posts stopping to take time to consider their positions. In so doing, I have formed a new, more rounded opinion that while some debt is brought on by personal choices, much of it can result from other outside sources over which an individual has no control. Also, I have learned more about Al Green's past votes that have affected my view.

In addition, it is this learning process I think that this blog was intended to facilitate and does well: to better educate and inform everyone about important issues, to share our experiences and knowledge, so that each of us can benefit from the combined knowledge we share in an open and frank discussion allowing us to establish more-informed and attentive opinions.

I am not opposed to changing my views as I learn more about the issues.