The chains of debt

by John Quiggin on March 8, 2005

I’ve been sitting on this great post about reforms to US bankruptcy laws and how they fit into the general pattern of risk being shifted from business to workers and to ordinary people in general. But I waited too long and Paul Krugman’s already written it. So go and read his piece, and then, if you want, you can look at the things I was going to write that Krugman hasn’t said already.

First, if you’re looking for reading on this general topic, let me recommend “When All Else Fails : Government as the Ultimate Risk Manager, ” (David A. Moss), which I reviewed here Moss shows how both bankruptcy and limited liability were (correctly) viewed as significant departures from laissez-faire when they were introduced in the 19th century. Of course, there’s no hint that the sacred status of limited liability is going to be challenged any time soon.

Second, given the rising trend in bankruptcy, this is going to affect a lot of people, quite possibly most people, at some time. Currently, more people go bankrupt than get divorced every year and, although the number has declined marginally with the economic recovery, the underlying trend is clearly upward. The proposed reforms are unlikely to change this. Although the bill will make bankruptcy a less attractive option for people who are already in difficulty, this demand side effect will be more than offset by the increased willingness of credit card companies and other lenders to lend to people with precarious repayment capacity.

Finally, while Krugman is probably right in describing the target of the reformers as a system of debt peonage, my long exposure to Dickens (and more recently to Patrick O’Brien) leads me to think that the large and powerful incarceration lobby might get in on the act here – anyone for debtors’ prison ?

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{ 97 comments }

1

cliu 03.08.05 at 8:16 am

No physical bars needed in this prison — credit card debt is a “soft cage.” The term is Christian Parenti’s and the title of his 2003 book on Surveillance in the US from Slave Passes to the War on Terror.

For Gilles Deleuze, in “Postscript on Control Societies,” consumer debt is the realization of “virtual confinement.

We are all in a sense invited to enter this virtual prison when we sign on the dotted line of our first student loan — especially we humanists who had no hope of capitalizing on our degrees. We agreed to mortgage our futures for a bit of time to read and study. It looked like an innocent enough choice.

What should be mentioned too is the number of Americans who are using credit cards to pay medical bills…why the Democrats can’t make hay out of this issue I don’t really understand. Do things have to get much worse before they might get a little better or is perpetual debt peonage to MBNA our destiny?

2

Darren 03.08.05 at 8:56 am

Is this another example of the ship of state coercing people into being used as ballast? Very safe until it capsizes and takes everyone with it.

3

Doug 03.08.05 at 11:57 am

Kevin Drum points out here that the credit card companies now earn half their profits from penalties and late fees.

That’s not how a market is supposed to work; that’s not how business is supposed to work. (Why do the Republicans hate capitalism?)

4

Erik 03.08.05 at 12:50 pm

And credit card companies have indeed lobbied hard for this bill. Here is an excerpt from a Forbes magazine piece describing some research on how hard:

http://www.forbes.com/2002/11/20/cz_ic_1120beltway.html

” a careful analysis of campaign contributions and voting patterns on bankruptcy reform by Princeton University’s Howard Rosenthal and Stephen Nunez of Stanford finds that the big financial institutions’ money has indeed bought substantial influence, though so far not quite enough.

While the crucial factor in most decisions by Congress is political ideology–it “correctly classifies over 90% of all roll-call voting decisions in recent Congresses,” according to the academics–voting on bankruptcy reform is something of an exception. When a corporate political action committee writes a member of Congress a check, its odds of getting his vote on the bankruptcy bill rise substantially. “A moderate Democrat receiving $30,000 from the credit-card coalition would have an 80% chance of supporting the House bill as against only a 30% chance if the representative had received no money,” say Rosenthal and Nunez.”

Here is a link to the paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=558365

5

mw 03.08.05 at 1:21 pm

I agree that, overall, the bankrupcy bill is a bad thing, but people have to stop repeating the ‘half of all bankruptcies are caused by medical bills’ meme just because they *want* it to be true. The single study reporting that ‘fact’ has been pretty thoroughly debunked — here, for example:

http://volokh.com/archives/archive_2005_02_13-2005_02_19.shtml#1108558247

And yes, I know it’s a ‘right wing’ blogger (and one who supports bankruptcy reform), but that doesn’t make the argument any less thorough or persuasive. Krugman is pretty slippery on this, saying:

“One recent study found that more than half of bankruptcies are the result of medical emergencies.”

In other words, I’m spreading a meme I know is probably bogus, but useful (a ‘useful lie’?), while using a formulation that will allow me deniability later (“I said it was only one study and didn’t say I necessarily accepted the findings myself.”) That’s unworthy, Krugman.

Are bankruptcies caused by misfortune or irresponsible spending? Yes. Families live close to the edge with credit card debt and no savings not because there is no other way to get by, but in no small part because they just can’t help buying things they’ve convinced themselves they ‘need’ or ‘deserve’. In such situations, it doesn’t take much to push them over the edge. And part of the reason people are willing to operate close to the edge is that bankruptcy is just not that big a deal–their house is protected, the social stigma is no longer there, and their creditworthiness may actually improve (since creditors know that they can’t file again for seven years).

True story–a relative of a close friend has had medical problems recently. He was injured and is on disability and his son recently has had some serious medical problems. The family’s church had a fund-raiser for them and raised $1500…and they spent it all on a big-screen TV (reasoning that since the Dad and son were now stuck at home a lot, they ‘needed’ it and ‘deserved’ it because of all the bad things that had happened).

I, too, have relatives and acquaintances who have low incomes and carry credit-card debt. I know some of the dumb decisions they make about money. One, for example, recently needed a new washer and dryer. Did she buy inexpensive, basic models (which I did when I recently replaced my own–because who cares, we’re talking about laundry)? Nope, top of the line in both cases–3 or 4 *times* what the basic models would have cost. Several of us tried to talk her out of it, but got nowhere. And then, shortly thereafter, she had to borrow $250 from her mother for medical expenses. Another ‘medical’ bankruptcy in the offing? Aaarrgh.

We don’t have to pretend that bankruptcies happen to blameless people done in by Dickensian misfortunes to oppose this bill–it’s not even good political strategy. The reason is that the lower middle class people who ‘play by the rules’, who carry bag lunches, shop carefully, *don’t* max out their credit cards and *don’t* have to resort to bankruptcy even when misfortunes strike them–these folks know the others and it really burns them to see them getting away with their irresponsible behavior. It’s not a good thing if responsible people of modest means end up feeling like chumps for exercising restraint.

So it would be better to acknowledge the problems with bankruptcy — while still opposing a bill that seems to be purely the handiwork of credit card companies.

6

A New York City Math Teacher 03.08.05 at 2:15 pm

A single question should have been asked before this bill was voted on:

Are fattened dividend checks worth the immiseration of millions of people?

Is debt-slavery worth the

7

Steve LaBonne 03.08.05 at 2:16 pm

“So it would be better to acknowledge the problems with bankruptcy — while still opposing a bill that seems to be purely the handiwork of credit card companies.” My impression is that the Democrats have been trying to do exactly that, by offering a series of amendments that would restore some protection for the genuinely unfortunate without letting the real deadbeats off the hook. Needless to say, the bought-and-paid-for-by-credit-card-issuers Republicans have unceremoniously shot them down.

8

nick 03.08.05 at 2:22 pm

Did she buy inexpensive, basic models (which I did when I recently replaced my own—because who cares, we’re talking about laundry)?

You mean she bought something with an eye on longevity? God save us.

In other news, ‘data’ is not the plural of ‘anecdote’.

9

bob mcmanus 03.08.05 at 2:27 pm

How stable a “debt peonage” society can they create? If the goal of the Republican Party is to eliminate the middle class, and create an America of owners and serfs, say in a 1/9 ratio;eliminate economic mobility, chance for a competitive education,political power:doesn’t this eliminate the pool of the revolutionary and reformist vanguard, the intellectual bourgeiose? Wasn’t Marx skeptical about the chances for revolution in Russia?

Serfdoms were stable for centuries.
De Soto’s theories haven’t really proved efficient. I suspect once you have eliminated the middle class, it is very hard to get it back. Is there any new non-Marxist theory on this?

10

Steve LaBonne 03.08.05 at 2:29 pm

The inexpensive, basic models are likely to last longer than the fancy gadget-laden ones, because there’s less to go wrong. (I dislike power gizmos on cars for the same reason.)

11

dsquared 03.08.05 at 2:47 pm

It might be possible to run a society on the basis that everyone should minimise their consumption in order to self-insure against a medical bill or negative income shock, but I’m pretty certain that nobody has run for election in the USA on this ticket recently.

12

mw 03.08.05 at 2:47 pm

Did she buy inexpensive, basic models (which I did when I recently replaced my own—because who cares, we’re talking about laundry)?

You mean she bought something with an eye on longevity? God save us.

Actually, no she didn’t — the high-end models also have a much worse repair history (according to Consumer Reports). What they did have were trendy stainless steel looks and pointless electronic convenience features (which tend to have problems–hence the repair histories). Not to mention load capacities far beyond what a single person needs.

In other news, ‘data’ is not the plural of ‘anecdote’.

No, of course not. But put it this way–do you think these anecdotes are unrepresentative? And do you think most voters (particularly those of modest means) think they are unrepresentative? Because I don’t–my sense is that people of modest means who avoid serious financial trouble by being careful are pretty severe on their acquaintances who are irresponsible. Being the ‘party of irresponsibility’ has not proven to be a winning strategy for the Democrats. They adopt class warfare strategies (as in this discussion) and then are mystified (“What’s the Matter with Kansas”) when even the classes they think they’re fighting for vote Republican.

Doesn’t anybody here understand the potential appeal of tightening bankrupcy laws to many people who work hard and pay careful attention to expenses to get by?

No, I didn’t think so…

13

abb1 03.08.05 at 3:01 pm

I suspect once you have eliminated the middle class, it is very hard to get it back. Is there any new non-Marxist theory on this?

The whole concept of ‘middle class’, isn’t it a response to various Marxist movements of the early and mid- 20th century?

No Marxist threat (at the moment) – no need for the middle class.

14

Steve LaBonne 03.08.05 at 3:06 pm

“It might be possible to run a society on the basis that everyone should minimise their consumption in order to self-insure against a medical bill or negative income shock, but I’m pretty certain that nobody has run for election in the USA on this ticket recently.” Which of course is exactly why any attempt at careful positioning by the Democrats on this issue is doomed- the Republicans will just overwhelm any nuanced message by promising free ice cream for all (provided you sell them your firstborn child, but that’s buried in the _really_ fine print.) Therefore, I must respectfully disagree witn mw; I think the Dems should be opposing bankruptcy “reform” tooth and nail.

15

Scott Martens 03.08.05 at 3:09 pm

MW – When the Volokh Conspiracy has a debunking, they usually do a better job than that. What you linked to is a claim that some people who go into bankruptcy in part because of medical problems are still to blame and don’t merit consideration.

First, if you have $1,000 in unpaid medical bills, you’ve most likely also had medical difficulties performing or finding a job. This may well account for a lot of the other debt. Second, if you’ve mortgaged your house to pay medical bills – which the VC rubbish as poor evidence of medically caused financial problems – it’s because you are awfully hard up. Third, self-identification is a lot better a data source in this case than most. If you’re bankrupt, you’re already in trouble and lying won’t help. Lastly, if 50% of bankruptcy filers had lost two weeks at work due to illness when they needed to be working as hard as possible to pay their debts off, it is most likely a sign that real medical problems really are causing them financial trouble.

True story – my father dropped dead in an American hospital after having consumed some $100,000 of medical bills. He had full medical coverage as a US state employee and member of his university’s professor’s union. However, the insurance firm was very reticient to pay, due to some questions about misfiled paperwork and regular payments of insurance premiums by his employer – the state. Consequently, my mother spent the year following my father’s death receiving progressively more urgent and impolite letters demanding that she begin making payment on this excedingly expensive treatment. This would have been difficult at best, given that she had no assets since the life insurance company was dragging its feet for the same reasons. So, she didn’t pay. Instead, she kept forwarding the requests for payment to the medical insurance company. Eventually, the letters began to be accompanied by progressively less veiled threats of legal action.

Fortunately, my mother is Canadian. After most of year, she wrote the hospital to inform them that she was leaving the USA, not leaving a forwarding address, that she had no assets and that my father had left no estate, and that in the future they could take their billing problems to the insurance company directly.

If she wasn’t Canadian, and did not have that escape clause, I have no doubt she would have been faced with a risk of bankruptcy. From what I gathered from my father’s co-workers, in the end, the insurance company didn’t pay and the hospital decided it was too expensive to try to sue anyone else who might be found liable.

If my mom had stayed in America, it’s possible we could have sued the state to receive compensation for their error, since the insurance terms of a teacher’s contract are supposed to be clear. But, that would have taken time and money we didn’t have. That we might have ended up in a bankruptcy court is more than a little likely.

I suspect that this kind of story – “dead or disabled breadwinner leaves unpayable medical bills” – is a lot more common than “bad financial hygene leads to bankruptcy.” The truth is that people who can’t handle money rarely get enough into debt to ever face a bankruptcy court. It’s simpler to default, and at least then there’s some prospect of credit recovery after 7 years with a default, while it’s hard to ever rebuild credit from a bankruptcy.

Do I think your story is unrepresentative? Of American consumers, no. I know plenty of people who have a hard time with credit and suffer from a disconnect between putting stuff on the card and paying for it out of wages. Of bankruptcy filers? Yes, I think very few bankruptcy filers fit the profile you describe. I note that you have not claimed that the people you’re describing have ever filed for bankruptcy. I don’t think they are likely to. I think they are likely to one day stop being able to make their monthly payments, and then will find their credit records ruined. But I doubt they will find themselves requesting relief from the state. In order to build up enough debt to _need_ a bankruptcy court, you have to be pretty good about paying your bills, and then you have to not be able to pay them. Otherwise, credit counselling and taking the hit on your credit report is a lot easier to deal with. And trust me, I know plenty of people who’ve been down both roads – rare is the case in America where bad spending habits lead to bankruptcy rather than simply default.

16

cc 03.08.05 at 3:11 pm

Just wait–someday it will be a crime against the economy to quit your job if you have too much debt.

17

mw 03.08.05 at 3:27 pm

What you linked to is a claim that some people who go into bankruptcy in part because of medical problems are still to blame and don’t merit consideration.

No, the claim is that $1000 in medical bills and two weeks of missed work over the course of two years preceeding bankrupcy is an absurdly low threshold for determining that medical problems were the primary cause of the bankrupcy (not to mention that they included drug problems and *gambling* ‘medical’ causes).

It seems pretty clear that the study’s authors wanted an eye-popping number and choose arbitrary criteria that assured they’d get it.

18

bob mcmanus 03.08.05 at 3:34 pm

Paul Krugman does not use words lightly. For those who may not know what “system of debt peonage” means:

Francisco Pascual,”The Development and Historical Context of the Debt Crisis”

“As it was in ancient society when usury thrived under conditions of widespread impoverishment on the one hand and the concentration of wealth on the other hand; so does usury in modern society thrives under condition of massive accumulation and concentration of finance capital coupled with widespread underdevelopment. This is the situation in the world today. And for as long as such opposite poles of concentration of wealth and poverty is maintained the cycle of indebtedness continues.

How usury thrives in such polarized situation is clearly demonstrated in the case of the backward agricultural economies still prevalent in much of the third world where usury still remains a major form of exploitation and debt peonage a means of subjugation of a mass of impoverished peasants. Usury and other forms of exploitation leave the peasant barely enough for his means of subsistence; a situation that ensures his perennial dependence on the moneylender.

It does not matter to the usurer whether the peasant had a good crop or not. What matters to him is that debt is paid even if nothing is left for the peasant’s subsistence and, much less to improve his production. In fact, if misfortune befalls the peasant as in the case of a bad crop, the moneylender would only be too willing to extend another round of loans to the peasant to be paid after the next harvest. This trick assures the moneylender a good share of the next harvest even before the crop has even been planted.

As often happen the debt grows to the extent that it cannot by any stretch of imagination be paid. Then the moneylender can take possession of the land step by step until he fully owns it. But even under these new circumstances he will not banish the peasant from the land; he can make him a sharecropper and, as before, still advance his subsistence and production needs as well. And the cycle of indebtedness, therefore, continues but under more onerous terms and, often, from one generation to the next.”

Warren Buffett talks of the “sharecropper” society and Sen. Lindsay Graham(R-SC) says “Takes time to get over things” so they don’t celebrate Lincoln Day in South Carolina. The South has risen again.

19

Tom Maguire 03.08.05 at 3:40 pm

I am intrigued by the comment left by Doug (11:57 AM), linking to the Drum post and telling us that credit card companies now earn half their profits from penalties and late fees.

As best I can see from the article to which Drum links, there is no source for that info. He does quote the WaPo, which tells us this:

According to R.K. Hammer Investment Bankers, a California credit card consulting firm, banks collected $14.8 billion in penalty fees last year, or 10.9 percent of revenue, up from $10.7 billion, or 9 percent of revenue, in 2002, the first year the firm began to track penalty fees.

How did 11% of revenue become half of profits? Did someone just say, well, profits were $30 billion, and $14.8 billion is half of that? That calculation would ignore the possibilty that there are some collection costs that ought to be deducted from that revenue stream.

Or, if Doug or someone else has another source for that, I would love to see it.

Well, I should go vex Kevin with this – maybe I can get a prize for leaving the 200th comment.

20

mw 03.08.05 at 3:44 pm

Therefore, I must respectfully disagree witn mw; I think the Dems should be opposing bankruptcy “reform” tooth and nail

I’m not saying that Democrats shouldn’t be opposing it — I’m saying they should be careful about how they do it. They could, for example, fully agree with this:

“The purpose of the bankruptcy laws should be to preserve a fresh start for honest, unfortunate debtors who need it; but not became a haven for fraud and abuse for those who are gaming the system. Turning a blind eye to bankruptcy fraud and abuse doesn’t help anyone–either honest filers, creditors, small businesses, or those who are left paying the bills to make up for those who ditch their financial obligations by opportunistically filing bankruptcy. In fact, by decreasing the public confidence in the integrity and honest of the bankruptcy system and bankruptcy filers, in the long run ignoring rampant fraud and abuse will undermine public support for the bankruptcy system, hurting the honest, unfortunate debtors the system is set up to help.”

Democrats could argue that the system IS broken and needs fixing. They could avoid relying on transparently bogus claims about bankruptcy causes and still conclude that they can’t support reform (not ‘reform’) because the current bill is just too much tailored to the desires of the credit card companies.

That Republicans/Corporations are evil and out to screw the average American and send him to debtors prison…that argument just DOESN’T work. It turns off too many voters.

21

Tom Maguire 03.08.05 at 3:54 pm

No, really, I hadn’t peeked – here we have an overview of the credit card industry. Profits for 2004 – $30 billion.

Is this “Reality based accounting” for the reality based community”? And why am I bugging the good people here about it?

22

Steve LaBonne 03.08.05 at 3:55 pm

In principle I agree with you; in practice the Democrats get taken to the cleaners whenever they attempt that sort of split-it-down-the-middle approach (remember all those careful caveats to the authorization to use force in Iraq? They were worth a whole lot, weren’t they.)

23

eihg 03.08.05 at 4:05 pm

Don’t know enough about the bill’s incentives to answer my big question: will the lower Ch. 7 thresholds result in more deleveraging? That way lies deflation.

24

eihg 03.08.05 at 4:07 pm

Don’t know enough about the bill’s incentives to answer my big question: will the lower Ch. 7 thresholds result in more deleveraging? That way lies deflation.

25

fih 03.08.05 at 4:10 pm

Don’t know enough about the bill’s incentives to answer my big question: will the lower Ch. 7 thresholds result in more deleveraging? That way lies deflation.

26

liberal 03.08.05 at 4:18 pm

mw wrote, Being the ‘party of irresponsibility’ has not proven to be a winning strategy for the Democrats.

LOL!

First, the Republicans are clearly the party of irresponsibility. Look at what happened to the debt and deficits under Reagan and Bush II. (Bush I is an honorable exception.)

Second, the Republicans proposed bankrupty reform is grossly irresponsbible. It allows

  • Wealthy bankrupts to shelter assets;
  • Credit card companies to give out credit and then not accepting responsibility for their poor decisions when some of their loans go bad.

They adopt class warfare strategies (as in this discussion) and then are mystified (“What’s the Matter with Kansas”) when even the classes they think they’re fighting for vote Republican.

Well, the fact that a large fraction of the population—and far more Republicans than Democrats—have their basic facts on Saddam, WMDs, and al Qaeda completely wrong might have something to do with it.

Class warfare goes the other way. There an enormous transfer of wealth from the poor and those who work for a living to the wealthy. Ricardian land rent alone, which is received by landowners for doing absolutely nothing, is perhaps about 15% of GDP. See Are you a real libertarian, or a ROYAL libertarian? for a discussion why much right-wing political economy is a fraud.

27

Bill Gardner 03.08.05 at 4:27 pm

Scot Martens,
I think Todd Zywicki at the Volokh Conspiracy does have an important criticism of the Himmelstein et al. paper. They could have used a case-control design to assess the effect of medical events and expenses on the risk of filing bankruptcy. They didn’t, but their language nevertheless suggests that medical events cause bankruptcies. The paper would not have been published an epidemiological journal.

Because Himmelstein et al. is a weak study doesn’t mean that medical catastrophe doesn’t cause bankruptcy.

28

mw 03.08.05 at 4:30 pm

In principle I agree with you; in practice the Democrats get taken to the cleaners whenever they attempt that sort of split-it-down-the-middle approach (remember all those careful caveats to the authorization to use force in Iraq? They were worth a whole lot, weren’t they.)

So are you now suggesting that the Democrats would be better off (in light of recent events in Iraq and the Middle East as a whole) if they were on record, as a group, of having adopted the full-throated, MoveOn, Not-In-Our-Name, it’s-all-about-the-oil opposition to the war in Iraq?

Or are they going to be better off in coming elections having offered qualified support for Bush’s policies? I think the latter is far more likely.

29

Steve LaBonne 03.08.05 at 4:38 pm

1) Yes, I think the Democrats as a party should have said quite straightforwardly that they did not see justification for rushing into an invasion of Iraq. (Full disclosure- at the time I would have disagreed with them- I bought the WMD stuff wholesale, to my shame.) What was the smear that really did in Kerry (admittedly an unimpressive candidate?) That he was an opportunistic “flip-flopper” with no principles.
2) Bush’s economic policies remain markedly less popular than his national-security policies, further reducing the downside risk of straightforwardly opposing them.

30

roger 03.08.05 at 4:59 pm

It is interesting that the rise in consumer debt isn’t often linked, as it should be, in my opinion, to the stagnation of wages. I really think that the Repubs are eventually cutting their own throats this way — the only way to maintain a system that distributes wealth mainly to the already wealthy while stalling wealth creation – in the form of real wage increases to the producers — is to create a sphere of ‘false” wealth This is the political brilliance of the American credit sector. It is no coincidence that the extension of credit (at higher interest) to the lower and lower middle class has coincided with crushing the higer wage demands of that same class. Without credit cards and the embrace by the market of the two-earner household, the lower and middle class household would never have scraped by in the eighties and nineties. But they did, and they have exploited their sense of (false) wealth to vote for the party that will guarantee them tax cuts — the Repubs. This makes a certain economic sense — in the short term, at least, any money coming in counts. And, of course, living on false wealth is living in the short term permanently.

The best strategy for the Repubs will be to cast this as a moral question — those nasty households out there ‘stealing’ from nice credit card companies. I see no reason that they won’t be successful at this — the media will go for that story, and will wink at or simply sleep through such real rip offs as the World Comm bankruptcy.

31

moonbiter 03.08.05 at 5:06 pm

I got into credit card debt because I lost my job and my unemployment ran out. I sold my car and most of my books and other stuff to get by, but lacking a regular paycheck eventually the money you get from such sales has to be rationed to meet the minimum monthly payments of the debts you put on your card to pay the cost of living.

I’m hoping that once I get a job I will be able to get out of this yoke of debt that keeps me a slave to the industry in Wilmington, DE. I’m also hoping that I am able to make all of my minimum payments until then, because hell hath no fury like the interest rate of a credit card on which you miss an installment.

This bankruptcy bill also hurts those who are trying to pay back their debts.

32

liberal 03.08.05 at 5:06 pm

mw wrote, Or are they going to be better off in coming elections having offered qualified support for Bush’s policies? I think the latter is far more likely.

Shouldn’t your question be phrased as “Or are they going to be better off in coming elections having offered qualified support for Bush’s policies, which have proven to be a complete disaster and grossly against America’s national interests?”

33

CB 03.08.05 at 5:06 pm

During a quick read through the comments here, I found only one post suggesting that credit card companies should bear some of the responsibility for their irresponsible business practices. If they are going to lend money to people who are risky borrowers, then they should accept the consequences.

I, for one, am currently experiencing a financial strait (though not considering bankruptcy) and I cannot believe the mail I get from credit card companies. I probably get at least 10 solicitations in the mail each week. Based on the type of offers I get, its obvious that they know I have a poor credit score.

Frankly, I think it’s immoral. These companies deserve no additional consideration through the laws of our country.

CB

34

liberal 03.08.05 at 5:11 pm

mw wrote, That Republicans/Corporations are evil and out to screw the average American and send him to debtors prison…that argument just DOESN’T work. It turns off too many voters.

Perhaps in some cases such a partisan attack won’t work. I don’t see why it wouldn’t work in this case, though. It should be rather easy, as no one likes paying credit card bills, and everyone detests paying fees. (Not saying those feelings are valid, of course.)

You have polling data to the contrary?

35

liberal 03.08.05 at 5:12 pm

cb wrote, During a quick read through the comments here, I found only one post suggesting that credit card companies should bear some of the responsibility for their irresponsible business practices.

That was me, I believe. :-)

Isn’t this the main point, though?

36

Cranky Observer 03.08.05 at 5:33 pm

> the only way to maintain a system
> that distributes wealth mainly to
> the already wealthy while stalling
> wealth creation

Correct me if I am wrong, but 17th Century France supported a few thousand very rich nobles on the back of 20 million impoverished victims (until heads started getting chopped off I guess). I don’t _think_ that would work today, but I also think that Norquist, Lay, Skilling, DeLay, etc. don’t realize that.

Cranky

37

mw 03.08.05 at 5:42 pm

Shouldn’t your question be phrased as “Or are they going to be better off in coming elections having offered qualified support for Bush’s policies, which have proven to be a complete disaster and grossly against America’s national interests?”

‘A complete disaster and grossly against America’s national interest.’ You believe that’s how a majority of U.S. voters will perceive the events in Iraq and the Middle East as a whole in 2008? Thank you for illustrating the problem.

38

george 03.08.05 at 5:45 pm

John Q: this issue reminds me a bit of CK Prahalad’s “Bottom of the Pyramid” theory — which says, as I understand it, that a lot of problems could be solved (and a lot of money made) if companies focused on serving low-income consumers. Charging them exhorbitant risk premiums just to do business may be a model that works (for the companies, anyway), but taking on a bit of risk and actually encouraging their business might work far better.

Any thoughts on that? The BOP theory was crafted with consumer goods in mind; is that model applicable to the market for credit?

39

Steve LaBonne 03.08.05 at 5:50 pm

Again, the trouble with “qualified support” is that the Republican idea of compromise is: “You give something, and I take back what I promised to give in return, so I lied, tough luck.” The Democrats will never win at this game.

40

mw 03.08.05 at 5:53 pm

Perhaps in some cases such a partisan attack won’t work. I don’t see why it wouldn’t work in this case, though. It should be rather easy, as no one likes paying credit card bills, and everyone detests paying fees. (Not saying those feelings are valid, of course.)

No problem with the Democrats saying something on the order of, “Bankruptcy does need reform–it is sometimes abused, but the present bill is far too slanted toward the interests of the credit card companies, so we can’t support it.” That’s fine. But then to go on and say, “…AND THIS IS JUST *ANOTHER* EXAMPLE OF THE EVIL REPUBLICANS TRYING TO RETURN WORKING AMERICANS TO A LIFE OF SERFDOM” is a bad idea. Why? Because the typical voter reaction is, yeah, yeah, the Democrats were right on bankruptcy reform but clearly there are still an awful lot of loons in the party. So are we going to trust them to run the country in general? No. Win the battle and get farther behind in the war.

41

CalDem 03.08.05 at 5:54 pm

Dems 06 and 08 platform should include a mandatory 20% cap on credit card and payday loan interest rates. Yes I know this would destroy the credit market for many people but I think that is a bonus, people aren’t rational when it comes to credit card borrowing and limiting access would be a good thing. and it would be great populist politics that would be a tangible sign of the way Dems are with the working person.

42

Koranteng 03.08.05 at 5:59 pm

All this handwringing and back-and-forth is all well and good, but how about a change of perspective?

The best recent movie about bankruptcy is Character (or in its original dutch formulation, Karakter), made in 1997. Set in The Netherlands circa the 1920s, the institution of bankruptcy itself is a character in the film outshining for me even the oedipal framework or the Hitchcockian and period overtones. An Oscar-winner and much recommended.

Incentives, personal tragedies, pride, guilt, shame, heartlessness, debts, frivolity, all these things are there. I wonder if the policy and economic discussions can capture the bewilderment of those under the thrall of bankruptcy – not to mention the collateral damage in society not to mention even those who administer it. Perhaps it’s flippant but, at the very least, there is some comfort from knowing that bankruptcy has been a spur for great art.

43

Cranky Observer.com 03.08.05 at 6:01 pm

> 20% cap on credit card and payday
> loan interest rates. Yes I know
> this would destroy the credit
> market for many people

Reminds me of the discussion I had with the lender last time I refinanced:

Me: are you going to hit me with junk fees and last-minute rate increases?

Them: No.

Me: Why not? All your competitors are doing it.

Them: We aren’t rich, but we are making a very nice living here being honest. We don’t understand how they get away with it.

Perhaps that is the key: “we are well-off but not rich”. In the immigrant cities (New York, Chicago, LA) there are still face-to-face lenders and furniture/appliance stores making a decent living lending money to the working poor at high but not unreasonable rates. Of course, their owners are probably living in very nice houses, not $100 million mansions in CT with a ranch in WY and a private jet…

Cranky

44

liberal 03.08.05 at 6:23 pm

mw wrote, That’s fine. But then to go on and say, “…AND THIS IS JUST ANOTHER EXAMPLE OF THE EVIL REPUBLICANS TRYING TO RETURN WORKING AMERICANS TO A LIFE OF SERFDOM” is a bad idea.

But is that what Democrats are actually saying? And by “Democrats,” I mean publicly visible Democrats.

Why? Because the typical voter reaction is, yeah, yeah, the Democrats were right on bankruptcy reform but clearly there are still an awful lot of loons in the party.

Huh. Such considerations never seem to stop right-wing Republicans from saying crazy things.

Furthermore, you refer to the typical voter reaction… Do you have any actual polling data to support your claim?

45

Uncle Kvetch 03.08.05 at 6:58 pm

So are you now suggesting that the Democrats would be better off (in light of recent events in Iraq and the Middle East as a whole) if they were on record, as a group, of having adopted the full-throated, MoveOn, Not-In-Our-Name, it’s-all-about-the-oil opposition to the war in Iraq?

Are you suggesting that the Democrats could be any worse off than they are right now?

That Republicans/Corporations are evil and out to screw the average American and send him to debtors prison…that argument just DOESN’T work.

When’s the last time a Democratic candidate for national office said anything even remotely like this? Pace Rush & friends, Michael Moore does not, in point of fact, run the Democratic Party.

46

Tanner 03.08.05 at 7:19 pm

Cold-hearted capitalist that I am, I will say this about late fees: market competition tends to cause them to increase rather than decrease. This makes them unlike most other “prices,” which will generally be driven down by competition.

To illustrate, imagine that a bank decides to do its customers a favor and drum up more business by decreasing all late fees on its accounts. Though this will create loyalty on the part of current customers, the problem is in the kind of prospective customers that it attracts.

Banks like the one I used to work for have found that, when our late fees are not as high as the competition, the sort of customers we attract are precisely those that are consistently delinquent on their accounts. These “repeat offenders” are terrible credit risks and know it and are understandably drawn to banks with low late fees.

Thus, whenever our competition would raise their late fees, we would jack ours up correspondingly so as not to attract a flood of “dead beats.” Though this practice arguably kept away bad credit risks, it really provides a whammy to those existing clients who are only occasionally late in their accounts.

47

Tanner 03.08.05 at 7:22 pm

Cold-hearted capitalist that I am, I will say this about late fees: market competition tends to cause them to increase rather than decrease. This makes them unlike most other “prices,” which will generally be driven down by competition.

To illustrate, imagine that a bank decides to do its customers a favor and drum up more business by decreasing all late fees on its accounts. Though this will create loyalty on the part of current customers, the problem is in the kind of prospective customers that it attracts.

Banks like the one I used to work for have found that, when our late fees are not as high as the competition, the sort of customers we attract are precisely those that are consistently delinquent on their accounts. These “repeat offenders” are terrible credit risks and know it and are understandably drawn to banks with low late fees.

Thus, whenever our competition would raise their late fees, we would jack ours up correspondingly so as not to attract a flood of “dead beats.” Though this practice arguably kept away bad credit risks, it really provides a whammy to those existing clients who are only occasionally late in their accounts.

48

Tanner 03.08.05 at 7:23 pm

Cold-hearted capitalist that I am, I will say this about late fees: market competition tends to cause them to increase rather than decrease. This makes them unlike most other “prices,” which will generally be driven down by competition.

To illustrate, imagine that a bank decides to do its customers a favor and drum up more business by decreasing all late fees on its accounts. Though this will create loyalty on the part of current customers, the problem is in the kind of prospective customers that it attracts.

Banks like the one I used to work for have found that, when our late fees are not as high as the competition, the sort of customers we attract are precisely those that are consistently delinquent on their accounts. These “repeat offenders” are terrible credit risks and know it and are understandably drawn to banks with low late fees.

Thus, whenever our competition would raise their late fees, we would jack ours up correspondingly so as not to attract a flood of “dead beats.” Though this practice arguably kept away bad credit risks, it really provides a whammy to those existing clients who are only occasionally late in their accounts.

49

bob mcmanus 03.08.05 at 7:24 pm

Sharecropper Society

I noticed nobody had yet linked to Brad Setser, who adds an international finance perspective to the discussion. Setser also includes links to Buffett and Bill Gross. The previous post about Andy Xie is also very important.

“AND THIS IS JUST ANOTHER EXAMPLE OF THE EVIL REPUBLICANS TRYING TO RETURN WORKING AMERICANS TO A LIFE OF SERFDOM” is a bad idea.”

I don’t think so. I think the various levels of debt, which as Setser explains above, essentially asks future Chinese and Japanese workers to pay for our retirements, is a catastrophic situation calling for extreme measures.

50

liberal 03.08.05 at 7:27 pm

tanner,

Interesting point on adverse selection.

51

bob mcmanus 03.08.05 at 7:27 pm

Sorry. I got it backwards. The massive movement of capital overseas means American workers will be paying for Chinese and Japanese retirements.

52

Cranky Observer 03.08.05 at 7:36 pm

> the sort of customers we attract
> are precisely those that are
> consistently delinquent on their
> accounts.

So something about having low late fees also forced the bank to forgo performing risk analysis on its applications, and prevented it from steering high-risk customers to $500 savings secured cards?

I suspect there is a bit more to this story.

Cranky

53

bob mcmanus 03.08.05 at 7:37 pm

Third times a charm. If we were actually sending capital overseas, we might actually get some profit in return. But we are sending debt overseas, which is a dead loss, for I certainly don’t foresee us buying those bonds back.

Not sure who will be buying those bonds. Heck, I am not sure they won’t be defaulted. Paying back debt is not a rich man/Republican value.

54

roger 03.08.05 at 7:44 pm

I think the Dems will use this one. After all, nothing gets a politician madder than not being bribed — and it looks like, unlike the Clinton years, the credit card companies are being pretty asymmetrical about the bribes. You can’t pay off the Republicans alone, guys. This is a mistake — they needed to show Democratic senators that they, too, will be on the K street gravy train after a few posturing speeches and the last minute votes for this or that ‘reform’. Democratic representives have feelings, too.

In spite of themselves, the Dems might just turn into an opposition party for a year or two.

But Dems are a thin reed to lean on. Best to have credit card bill burnings and acts of massive publicized non payment directed by consumer organizations bold enough to rally people to “lower the vig’ demonstrations. Cranky’s right about the French Revolution — hard to overthrow an ancien regime in full throttle.

55

Cody 03.08.05 at 7:51 pm

Anyone else thoroughly unimpressed with the Volokh “debunking?” He argues that there are problems with causality in studies like this, just as the authors do. He argues that there are problems using self-reported information, just as the authors do. He argues that they need a control group, just as the authors do. Seems like his complaints are just lifted from the article itself.
Of course, the punch line is that “mv” is apparently thoroughly unimpressed with the empirical methodology in the Himmelstein paper but absolutely convinced by some anecdotal story of some family in her church. Talk about a double standard.

56

george 03.08.05 at 8:08 pm

It seems no matter how sound a bit of research is, it will be misused by somebody with an agenda. So sometimes “debunking” does consist of restating the qualifications stated by the authors.

On balance I’d say the Bush Administration is much more guilty of manipulating research — when they aren’t avoiding the problem by manufacturing research that does not have to be manipulated. But their opponents do it too. Witness that “100,000 dead civilians” datum that’s still floating around.

57

Doug 03.08.05 at 8:13 pm

tom maguire, I trust Kevin to be right about these things, so I didn’t look too deeply into the sourcing. On the other hand, remembering back from the days of Junior Achievement and other business basics, profits of 11 percent of revenue would actually be pretty good, considering the average for the economy as a whole (again this is old memory; economists or MBAs who have better figures please jump in) is on the order of 6 percent. So the back-of-the-virtual-envelope calculations you and Kevin both made would be in the ball park.

Morally, does it matter much whether half or a quarter of the profits come from penalties? Even if Kevin is off by half, there’s still massive incentives for the companies to keep up these practices.

Are people on this thread really trying to defend practices like this? (from the Post story tom maguire linked to)

Owens tried for six years to pay off a $1,900 balance on her Discover card, sending the credit company a total of $3,492 in monthly payments from 1997 to 2003. Yet her balance grew to $5,564.28, even though, like Hosseini, she never used the card to buy anything more. Of that total, over-limit penalty fees alone were $1,158…

No one knows how many consumers get caught in the spiral of “negative amortization,” which is what regulators call it when a consumer makes payments but balances continue to grow because of penalty costs. The problem is widespread enough to worry federal bank regulators, who say nearly all major credit card issuers engage in the practice.

The banks want to keep engaging in these egregious practices. With so much of their earnings coming from penalties, they have significant incentives to lend to people who will be poor risks, and they don’t want to shoulder any of that risk themselves. That’s not capitalism, that’s rent-seeking. It doesn’t belong in a market economy, so again I ask why the Republicans hate capitalism so much.

Time to unpack good old fashioned words like usury. Maybe drive the moneylenders out of the temples of democracy, too.

58

rvman 03.08.05 at 8:28 pm

>> the sort of customers we attract
>> are precisely those that are
>> consistently delinquent on their
>> accounts.

>So something about having low late
>fees also forced the bank to forgo
>performing risk analysis…

>I suspect there is a bit more to
>this story.

There is. Specifically, adverse selection. Let’s say a credit rating of “X” means that the bank expects about 10% of people with this rating to be bad risks. To a great extent, those people know who they are, though they don’t exactly couch it in those terms (“I’m not a risk, I’m just a bit scatterbrained so I pay late occasionally, and there’s that time I was fired and couldn’t pay the phone bill, and…”) So they go to the bank with the low fees, while the better risks pick based on something else – a bonus gift, they go to the bank their deposits are with, whatever. Low-Fee Bank now has a few good risks who randomly wander in, plus much of the bad risk. So they get hammered.

59

Steve 03.08.05 at 8:31 pm

“Are you suggesting that the Democrats could be any worse off than they are right now?”

Absolutely. And believe me, I’m looking forward to it.

Steve

60

the sheep man 03.08.05 at 8:35 pm

This post on the talkingpointsmemobankruptcyblog is very good.

61

a different chris 03.08.05 at 8:37 pm

>that the Democrats would be better off (in light of recent events in Iraq and the Middle East as a whole) if they were on record, as a group, of having adopted

Oh Jesus. This is the same sh&t we heard from Dem “leaders” (what a laughable term) during Mission Accomplished, the Saddam Statue, Usay and Quday capture, Saddam capture..etc. etc. Let’s just quit and join the Happy Shiny People because, despite the fact that everything Bush has done has sucked and will blowback for decades, every once in a while the media manages to put a candle in the cowpie.

God, the Rethugs have gotten their ears beaten back on SS for most of a century and they didn’t quit. I gotta admire that. But let’s not be that way, let’s just humbly bow our heads and pitch our principles, and maybe we’ll be liked. The new Uncle Toms, a lot whiter this time around.

That’s not to say I disagree with you that the ability of the US populace for outrageous self-delusion will have abated by 2008.

Interestingly, from reading your posts, you must think this is the same reason we have so many bankruptcies? You don’t think people plan to welsh on their debts, I assume, just that they are stupid about their ability to manage them? Correct?

In any case, your way doesn’t give anybody ever any reason to vote for Democrats, does it? We are certainly going to lose the Presidency in 2008, if nobody’s noticed by now I’ll clue them in: post-Truman the American Presidency is almost a default Republican club and the hill is too high at the moment. But if we do it your way, not only will we lose the Presidency but:

1- We won’t convert any Americans to “reality-basing” who aren’t already there. To convert deluded people to reality you have to, by definition, tell them the opposite of what they believe, and keep telling them until it sticks enough that you can get a plurality.

2- By being Republican-lite, the Americans that currently *are* “reality-based” will lose enthusiasm. And we need inspired foot soldiers badly.

So the end of the Democratic Party is what you’re giving us. Sorry, not going to play that.

62

a different chris 03.08.05 at 8:46 pm

I’m baffled by this pair of posts, anybody else:

Did someone just say, well, profits were $30 billion, and $14.8 billion is half of that?

followed by…

No, really, I hadn’t peeked – here we have an overview of the credit card industry. Profits for 2004 – $30 billion.

Is this “Reality based accounting” for the reality based community”? And why am I bugging the good people here about it?

Tom, if you are still here are you saying Kevin was right? Because it sure looks like he was, but so what’s that snarky part about “reality based”?? You remind me of Fonzie trying to say “I was wr…wr..wr.wr.wr..oonnnn..gah”.

63

Cranky Observer 03.08.05 at 8:46 pm

rvman,
Please revisit my three posts under the assumption that I am familiar with adverse selection, game theory, and basic financial theory. Thanks.

Cranky

64

rvman 03.08.05 at 10:10 pm

Cranky,

My comment was phrased in a possibly pedantic way, I apologize. I think adverse selection is sufficient to explain this bank’s experience. Full stop.

65

Skip 03.08.05 at 10:45 pm

To a different Chris,

The distinction that you are missing is between revenue and profit.

Tom’s post gets the point right.

66

mw 03.08.05 at 10:46 pm

“That Republicans/Corporations are evil and out to screw the average American and send him to debtors prison…that argument just DOESN’T work.”

When’s the last time a Democratic candidate for national office said anything even remotely like this?

Well, Howard Dean called the Republicans evil just the other day–does that count?

67

floopmeister 03.08.05 at 10:53 pm

I got into credit card debt because I lost my job and my unemployment ran out.

Ever thought of moving to a civilised country that takes care of all those in its society? I hear Canada is nice.

68

mw 03.08.05 at 10:54 pm

Of course, the punch line is that “mv” is apparently thoroughly unimpressed with the empirical methodology in the Himmelstein paper

It’s not mainly the empirical methodology that I’m unimpressed with–it’s the low threshold they chose (arbitrarily) for determining when medical expenses were the main cause of a bankruptcy–two weeks of lost income on the part of the debtor or spouse or $1000 in unpaid medical expenses over the two years time leading up to bankruptcy.

That strikes me as a ridiculously low threshold–one seemingly chosen to produce a very high estimate of ‘medical’ bankruptcies.

69

liberal 03.08.05 at 11:00 pm

mw wrote, “When’s the last time a Democratic candidate for national office said anything even remotely like this?”

Well, Howard Dean called the Republicans evil just the other day—does that count?

Last I checked, he’s now the head of the DNC and is in a partisan role. And I think the Republicans have given honest, rational observers good cause to think so.

Furthermore, you want to compare that to the Republican (House member, I think) who “joked” the other day that Syria should be nuked? Or Senator Coburn, going on in typical nutjob style about lesbians invading Oklahoma? (“lesbianism is so rampant in some of the schools in southeast Oklahoma that they’ll only let one girl go to the bathroom. Now think about it. Think about that issue. How is it that that’s happened to us?”) Wasn’t there some woman in the South who committed some heinous act a few years ago, then some Republican in a national office at the time (Newt Gingrich, IIRC) said it was due to liberal values or something…when it turned out that she had been repeatedly molested by her (father or father in law?) who was a relatively prominent local Republican?

70

liberal 03.08.05 at 11:06 pm

a different chris wrote, God, the Rethugs have gotten their ears beaten back on SS for most of a century and they didn’t quit. I gotta admire that.

Well, the payoff is extraorinary. Effectively defaulting on the federal debt held by the Social Security Trust Fund represents an upward transfer of wealth in the trillions. Compare that to the amount spent by Cato, etc.

71

Uncle Kvetch 03.08.05 at 11:52 pm

Well, Howard Dean called the Republicans evil just the other day—does that count?

Depends on the context. AFAIK, it wasn’t in the strictly populist sense of railing against “corporations,” but more likely talking about the Republicans’ political strategy and rhetoric. And as Liberal points out, it’s not as if this kind of discourse is never heard coming from the other side of the aisle…

It simply comes down to this: the strategy of “Vote for us; we’re just like the other guys, only somewhat slightly less so” has been an unmitigated disaster for the Democratic Party. While the Republicans have pursued a scorched-earth strategy based on keeping their base of true believers organized and mobilized, the Democrats have been ever so careful not to alienate that all-important “swing voter.” Where has it gotten us? Howard Dean represents the possiblity that the party might actually begin to represent an alternative rather than a faint echo. I don’t see how that could be objectionable, unless you think the Democrats should actually aspire to being permanently out of office.

72

liberal 03.08.05 at 11:59 pm

uncle kvetch wrote, While the Republicans have pursued a scorched-earth strategy based on keeping their base of true believers organized and mobilized, the Democrats have been ever so careful not to alienate that all-important “swing voter.” Where has it gotten us? Howard Dean represents the possiblity that the party might actually begin to represent an alternative rather than a faint echo.

Right.

I don’t see how that could be objectionable, unless you think the Democrats should actually aspire to being permanently out of office.

It’s not clear whether he thinks

  • his recommendations are really the best tactics for the Dems,
  • he’s a center-right Dem attempting to police the leftmost boundary of “acceptable” discourse,
  • a Republican or other right-winger who doesn’t wish us well…
73

ben tillman 03.09.05 at 12:20 am

Being the ‘party of irresponsibility’ has not proven to be a winning strategy for the Democrats.

LOL!

First, the Republicans are clearly the party of irresponsibility.

I believe MW is talking about how the Democracy advertises itself, and how it is perceived. And the party is perceived as the party of irresponsibility because its voting base consists disproportionately of those looking for handouts, and its policies consist disproportionately of such handouts. The fact that the Republican leadership are degenerately venal for some reason does not brand the Republican Party with the “irresponsible” label.

74

george 03.09.05 at 12:34 am

Howard Dean represents the possiblity that the party might actually begin to represent an alternative rather than a faint echo.

We’re getting way way off topic, but this is way way wrong. For one thing, I never understand why people worry whether Dean is “too liberal.” Aside from Iraq, Howard Dean could pretty easily be tarred as “Republican lite” or even plain old Republican. Dean will be a good DNC leader because he’s a scrappy partisan, not because of his policy views. (Maybe that’s what you meant, but I didn;t read it that way.)

On your other point, I think it’s a mistake to think the Dems can win by energizing their base more. How could the base possibly be more mobilized than it was in 2004?

I’m basically a natural Democrat who nonetheless voted for Bush, largely on foreign policy grounds. I doubt many people think like me, so maybe you can discount all this. But I’m pretty sure the Dems didn’t lose last year because they were too delicate. The Republicans just have a structural advantage right now due to the issues of the day; had Bush been a better candidate, the GOP would have won by a landslide. But the pendulum will swing.

75

Uncle Kvetch 03.09.05 at 12:48 am

Dean will be a good DNC leader because he’s a scrappy partisan, not because of his policy views. (Maybe that’s what you meant, but I didn;t read it that way.)

I did mean it that way; the myth of “Dean the radical lefty” is indeed mystifying. It’s all about the scrappiness.

For that matter, Harry Reid is even more of a centrist than Dean, and therefore someone I should be less than enthusiastic about, but when he called Alan Greenspan a partisan hack this week, I wanted to stand up and cheer. How long has it been since we had Dems in Washington who talked like that?

On your other point, I think it’s a mistake to think the Dems can win by energizing their base more. How could the base possibly be more mobilized than it was in 2004?

You have a point. I guess I would say that while the base was enormously energized by the prospect of getting Bush out of office, they were barely energized at all by the prospect of electing John Kerry. And I think it took its toll.

76

cliu 03.09.05 at 1:09 am

Although I disagree with mw structurally about his notion that consumer debt is a completely individual “fault” — it does seem that when one makes the systemic argument for the subjugation of a population through “sharecropping” policies in a period dominated by finance capital, the Left suffers from the general prejudice that we are soft on self-indulgence, or worse yet, the “permissive” parent.

And so it is perhaps that the Protestant moralization of debt will once again allow the Republicans to cast the victims of a debt peonage system with a kind of moral failure.

The prejudice against debtors is so strong even on this discussion, that that is what I really find irrational — to pursue higher education in the US you have to assume debt if you’re not a millionaire — and yet the double bind is that once you’ve made yourself a peon, you become the target not just of credit card offers, but also of the contempt of conservative economists.

77

mw 03.09.05 at 2:49 am

That’s not to say I disagree with you that the ability of the US populace for outrageous self-delusion will have abated by 2008.

I think, rather, that by 2008 the situation in Iraq (and possibly in Israel and Palestine) will be such that the conventional wisdom, even among much of the left, will be that the war in Iraq produced progress rather than disaster.

But I *don’t* think that this will necessarily be a bad thing for the Democratic nominee for president. If the situation in the Middle East has substantially resolved, that advantage may be lost for the Republican nominee.

Interestingly, from reading your posts, you must think this is the same reason we have so many bankruptcies? You don’t think people plan to welsh on their debts, I assume, just that they are stupid about their ability to manage them? Correct?

No, I’d say that it’s usually a combination of mismanagement and misfortune–misfortune hits those who are stupid about money particularly hard. But I don’t favor the bankrupcy bill which, unfortunately, now looks certain to pass–I just wasn’t happy with what seemed to be dishonest data and overly strident rhetoric. I mean look, we’ve got a non-trivial number of Democratic senators (of which there’s no great surplus right now) supporting the bill. How do we square that with the argument that supporters are evil and out to crush the poor?

In any case, your way doesn’t give anybody ever any reason to vote for Democrats, does it? We are certainly going to lose the Presidency in 2008

I don’t think that’s necessarily so. The American people do get tired of single-party rule. The Republicans will very probably over-reach. The world will change and the WOT will likely not be so figural as it is now. I think there will be an opening for a Democrat like Clinton–one who does not run on bogus, stem-winding “Fight the Power!” populism like Gore or vaguely xenophobic protectionist slogans (“Firehouses in Baghdad, Benedict Arnold CEOs”) like Kerry.

I think the opening will probably be there–but will Democrats nominate someone who can exploit it?

78

Jason McCullough 03.09.05 at 4:23 am

“Families live close to the edge with credit card debt and no savings not because there is no other way to get by, but in no small part because they just can’t help buying things they’ve convinced themselves they ‘need’ or ‘deserve’.”

Is society requires the poor to live like saints before we hasve any sympathy for them, society is wrong.

79

cliu 03.09.05 at 4:39 am

Families don’t convince themselves — it’s not like Mastercard isn’t running ads all the time with pictures of happy families on idyllic vacations captioned “Priceless.”

Yeah, but to whom?

I’ve been in Taiwan for the past eight months outside of the advertising/market blitz of American capitalism (they’re catching up pretty fast though) and there are two reasons why there is a much higher savings rate here:

Affordable housing
National Healthcare

80

liberal 03.09.05 at 10:48 am

ben tillman wrote, I believe MW is talking about how the Democracy advertises itself, and how it is perceived.

But he’s clearly wrong there. That’s not how the party advertises itself; that’s how the party is labeled by right-wingers.

And the party is perceived as the party of irresponsibility because its voting base consists disproportionately of those looking for handouts, and its policies consist disproportionately of such handouts.

Utter nonsense. Republicans support handouts to the same or greater extent than Democrats. Think corporate welfare; think farm subsidies; think pointless handouts to military contractors. I even heard a well-known (admittedly) Democratic pollster claim in a talk that if you look at actual support for increasing cost-of-living allowances, etc, for the elderly, the Republicans over the decades have been behind that even more than the Democrats, because they know the elderly vote more. Etc.

81

liberal 03.09.05 at 10:51 am

mw wrote, I think, rather, that by 2008 the situation in Iraq (and possibly in Israel and Palestine) will be such that the conventional wisdom, even among much of the left, will be that the war in Iraq produced progress rather than disaster.

And what reading of history in the Middle East is that rather rash, optimistic judgement based on?

82

liberal 03.09.05 at 11:02 am

mw wrote, I mean look, we’ve got a non-trivial number of Democratic senators (of which there’s no great surplus right now) supporting the bill. How do we square that with the argument that supporters are evil and out to crush the poor?

First, no one’s saying “out to crush the poor.” They’re saying “given the choice between outsized credit card company profits earned through predatory lending and maintaining the status quo on bankrupty laws which, while not perfect, do protect those in dire financial straits, they made a despicable choice.”

Second, it’s easy to square the argument. Perhaps many of those Democratic Senators are on the take from insurance card companies. Perhaps—gasp!—sometimes Democratic politicians do despicable things, albeit (averaging over the parties) without the consistency of Republicans.

Finally, on issues like tactics, I think ad hominem points are not out of order. Are you a Democrat or, if not an American, a member of a liberal political party? If not, why should we Democrats listen to your advice on the matter?

83

liberal 03.09.05 at 11:04 am

george wrote, I’m basically a natural Democrat who nonetheless voted for Bush, largely on foreign policy grounds. I doubt many people think like me, so maybe you can discount all this.

ROTFLOL!

84

liberal 03.09.05 at 11:18 am

ben tillman wrote, And the party is perceived as the party of irresponsibility because its voting base consists disproportionately of those looking for handouts, and its policies consist disproportionately of such handouts.

Not to mention the biggest handout of all: Ricardian land rent, to the tune of perhaps 15% of GDP. Of course, most Democrats, even many liberals, back that handout, though not quite to the extent Republicans do. (I would assume the biggest backers of California’s Proposition 13 were Republicans, for example.)

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liberal 03.09.05 at 1:34 pm

Here are some posts on freerepublic.com that indicate that even many right-wing nutjobs agree with the “liberal” side of this issue. (Via atrios.)

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Steve LaBonne 03.09.05 at 2:11 pm

liberal, you won’t find many people at _any_ point on the political spectrum who like this bill- but the only people who count, the ones sitting in Congress (including a shamefully large number of Democrats) have been well paid to like it by the credit card companies. Even to someone as cynical as I am about the workings of our political system, this is a disturbing spectacle. Our politicians aren’t even _repectable_ whores anymore- they’re low-class, crackhead street hookers.

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bob mcmanus 03.09.05 at 3:05 pm

mw wrote: “I mean look, we’ve got a non-trivial number of Democratic senators (of which there’s no great surplus right now) supporting the bill. How do we square that with the argument that supporters are evil and out to crush the poor?”

I no longer see any contradiction.

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Uncle Kvetch 03.09.05 at 3:05 pm

MW: But I don’t favor the bankrupcy bill which, unfortunately, now looks certain to pass—I just wasn’t happy with what seemed to be dishonest data and overly strident rhetoric.
[…]
The American people do get tired of single-party rule. The Republicans will very probably over-reach.

Right. You can oppose, but do it nicely. Sooner or later the other side will go so far that people will wake up and push back. In the meantime, be nice.

Been there, done that.

I mean look, we’ve got a non-trivial number of Democratic senators (of which there’s no great surplus right now) supporting the bill.

They’re whores. Nothing complicated about that.

stem-winding “Fight the Power!” populism like Gore

I’m sorry, I’m really trying to be charitable–but that’s the funniest thing I’ve heard in weeks.

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moonbiter 03.09.05 at 3:28 pm

Ever thought of moving to a civilised country that takes care of all those in its society? I hear Canada is nice.

In fact, I have. I’ve moved to Germany in seach of a job. I’m staying with friends who are kind enough to help me out. With luck I will get a job here soon, and will be able to pay down my debt much faster due to the Euro’s strength.

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liberal 03.09.05 at 11:38 pm

I had written, Wasn’t there some woman in the South who committed some heinous act a few years ago, then some Republican in a national office at the time (Newt Gingrich, IIRC)…

Right. It was Newt Gingrich:

“How a mother can kill her two children,14 months and 3 years, in hopes that her boyfriend would like her is just a sign of how sick the system is,” observed Gingrich, “and I think people want to change. The only way you get change is to vote Republican.”

You can google the whole affair.

Anyone really care to continue to claim it’s the Democrats who are marked by rhetorical excess?

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james 03.09.05 at 11:42 pm

The whole idea behind obscene interest rates is for lending institutions to provide high risk services to high risk individuals. The new plans provide these institutions with extra protection without forging the interest rate benefit. This is the primary failing of the bill.

Concerning the Democrat / Republican question. Pissing off the majority does not win elections. Pissing off a size significant block of people does not win elections. In the US, if you’re not nominally religious or you think a foreign entity should direct US policy, you’re in a very small minority. Deal with it.

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liberal 03.11.05 at 10:23 am

james wrote, In the US, if you’re not nominally religious or you think a foreign entity should direct US policy, you’re in a very small minority. Deal with it.

Uh, are you referring to the fact that Bush’s foreign policy is clearly being directed by Likud?

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liberal 03.11.05 at 11:31 am

Here’s another great moment in Republican Party rhetoric: House Speaker Hastert (no minor position, that—in line for the Presidency and all) referring to George Soros’ connections to “drug groups.”

You can google it…

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liberal 03.11.05 at 11:50 am

Ah…just now, a fairly major Republican office holder (President George W. Bush) insinuated that Social Security privatization opponents are racists.

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azad 03.12.05 at 10:34 pm

Back to the idea of debt and individuals…
I am wondering about the link between individuals smoothing out their life-time consumption and perhaps incorrect assumptions about the state of their ability to forcast or know about economic changes that would render their assumptions about and levels current borrowing wrong. Example: major undergraduate borrowing is essentially required of all students nowadays before they can get a job, but the amount required makes them think that their expected future income is higher than what it actually would be, and so their consumption on borrowed funds is much higher than what it originally should be.

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John Quiggin 03.13.05 at 7:38 am

Azad, this is a crucial issue, which I plan to address in a post coming Real Soon Now.

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Skippy McGee 03.14.05 at 2:38 am

“We agreed to mortgage our futures for a bit of time to read and study. It looked like an innocent enough choice.”
This was hilarious stuff. What you meant was, time to chase girls, get drunk and avoid responsibility or become an adult.
I usually read two hours a day and I don’t need a government grant to do it, simply the motivation. The majority of competent people in the world are self-educated. When I was in college all I saw was a lot of lazy, nasty whiners hiding out on campus talking about love, beauty and justice so they could try to score with easily fooled girls. When I sat in college dorms at night studying, the rest of the student body was outside working their way through DD-40 malt liquor cans and screaming they wanted to get laid.
College is no place to learn anything and it is certainly no decent place to study. Remember, some 80% of the recent class of Harvard graduated “with honors.” Right.
Let’s strike a pose and pretend to be intellectuals. Most liberals are not very attractive people so it might be the only way they are going to score with the opposite sex, by striding around in togas and pretending to be in search of the good, the true and the beautiful. “Justice, I tell you! This is what I desire! Sheila, let us return together to the dorms and explore one another’s sense of justice, to penetrate this mystery with all the thrust we can muster! Away! Away I say!”
All liberals deep down are just desperately flawed people looking for dates through subterfuge.

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