Class Warefare

[headscratcher4]

We live in troubled time – terrorist abound and threaten civilization. We are spending billions we don’t have fighting to establish a free Iraq at the cost of now over 1500 young American lives. Social Security, the president says, is in crisis (though he’s yet to detail a plan for saving it, save for private accounts which won’t save it) as is Medicare. The budget deficit is ballooning.

Fortunately, the Republican Congress has stepped up to the plate. What is the first new Administration supported initiative that the Congress has taken on at the outset of Bush II? Bankruptcy reform. That’s right, making it harder for middle class people to go legally bankrupt and making it easier for Multi-billion credit card companies to keep people paying. Thank god, the republic will now be that much safer.

Now, there may in fact be a point to bankruptcy reform…my point is, instead, is this the most important issue that the Congress could come up with out of the box?

Republicans always accuse democrats of crying class warfare when Republicans try to “reform” systems like taxes, social security, etc. This law is taking important protections away from the middle class and people struggling financially and shifting the power back to huge banks….why isn’t this reverse-class warefare?

In any event, I am sure a case can be made for "reform" here, that's not what I am arguing...just wondering about priorities...

 

[Tex]

It's a lot like rearranging the deck chairs on the Titanic.

Or perhaps more accurately, rearranging the lifeboats.

 

[Jaggy Bunnet]

We live in troubled time – terrorist abound and threaten civilization. We are spending billions we don’t have fighting to establish a free Iraq at the cost of now over 1500 young American lives. Social Security, the president says, is in crisis (though he’s yet to detail a plan for saving it, save for private accounts which won’t save it) as is Medicare. The budget deficit is ballooning.

Fortunately, the Republican Congress has stepped up to the plate. What is the first new Administration supported initiative that the Congress has taken on at the outset of Bush II? Bankruptcy reform. That’s right, making it harder for middle class people to go legally bankrupt and making it easier for Multi-billion credit card companies to keep people paying. Thank god, the republic will now be that much safer.

Now, there may in fact be a point to bankruptcy reform…my point is, instead, is this the most important issue that the Congress could come up with out of the box?

Republicans always accuse democrats of crying class warfare when Republicans try to “reform” systems like taxes, social security, etc. This law is taking important protections away from the middle class and people struggling financially and shifting the power back to huge banks….why isn’t this reverse-class warefare?

In any event, I am sure a case can be made for "reform" here, that's not what I am arguing...just wondering about priorities...

Kind of hard to judge without any specifics, do you have any links?

Remember that those big banks are owned by people (and savings funds). If people genuinely can't pay their debts then I can see no point in the bank pursuing payment, however when you have people using it as a method of clearing their student debts so they don't have to repay them, I can see the problem.

http://money.msn.co.uk/life_events/debt/insight/dealingwithdebt/Bankruptcy/default.asp

So it really depends what "important protections" you are talking about.

 

[toddjh]

I don't know much about the bankruptcy reform bill, but from what I understand, it mostly seems to be saying that people who can afford to pay part of their debt shouldn't be exempt from doing so by declaring bankruptcy. That makes sense to me -- if they legitimately owe someone money, they shouldn't be excused from paying what they can just because they can't afford to pay the whole thing. Maybe I'm not understanding it, though.

One thing that really rubs me the wrong way, though, is a comment Bush made in response to it passing the Senate:

I applaud the strong bipartisan vote in the Senate to curb abuses of the bankruptcy system. Reforming the system with this common sense approach, more Americans -- especially lower-income Americans -- will have greater access to credit.

Yeah, because what poor people need the most is more debt.

Jeremy

 

[pgwenthold]

Yeah, because what poor people need the most is more debt.

But what do you expect from a Borrow-and-Spend Republican?

 

[aerocontrols]

IMHO, this is a horrible bill. Yes, people should be more responsible for their personal debt, but this bill is essentially a license to credit card companies - telling them to keep loaning money to bad credit risks. How is a government effort to encourage bad business practices good news for the free market? It's not.

Of course, the Democrats didn't have the brains to unite around this issue. So the White House gets a great big bipartisan victory on horrible legislation.

Yeah, because what poor people need the most is more debt.

Somewhat on topic, this is a pretty nice discussion of consumer debt and credit cards.

You'll note that poor people who don't have credit cards available tend to find even worse forms of taking on debt.

Although this may seem irrational at first glance given the "high" interest rates charged on credit cards, consider that for consumers the alternatives may include pawn shops, personal finance companies, retail store credit, and layaway plans, all of which are either more costly or otherwise less attractive than credit cards.

Credit cards look like a bad deal - until you compare them to pawn shops.

MattJ

 

[CBL4]

This should be a big gain for everyone who pays their debts. If fewer people weasel out of affordable debts, then interest rates should go down because there will be more money to be made at lower interest rates.

CBL

 

[Zep]

I wonder if it will apply to the US Treasury itself. As I understand it, the US is the world's biggest debtor and getting bigger by the day. What happens it it has to default on any of its loans? Economists, comment please?


Re: Debt, I'm reminded of an interesting comment: "If I borrow a hundred thousand dollars from the bank and don't pay it back, I'm in trouble. If I borrow a hundred million dollars from the bank and don't pay it back, the bank is in trouble."

 

[shanek]

Yeah, it's not like he should do anything useful, like repealing the regulations that get in the way of the poor starting their own business, or the Minimum Wage and other unemployment-causing laws. Or get rid of the licensing laws that stop the poor from making a living because they can't afford the thousands of hours of training required, such as young black women wanting to do business braiding hair, who are required to have licenses that require hundreds of hours of cosmetology training but which don't actually teach anything about hair braiding. Or the "medallions" required to run a cab service in New York City, the number of which has never increased, so NYC only has a handful of cab companies and the prices are much higher than the market would otherwise allow. Or they could stop taking 15% of their pay for a fraudulent retirement scam.

But why bother with solutions that actually work?

 

[shanek]

I wonder if it will apply to the US Treasury itself. As I understand it, the US is the world's biggest debtor and getting bigger by the day. What happens it it has to default on any of its loans?

It can't default. All it has to do to pay back the debt is to either tax us by force, or go into more debt, which it can do without limit thanks to the Federal Reserve.

 

[RandFan]

Fortunately, the Republican Congress has stepped up to the plate. What is the first new Administration supported initiative that the Congress has taken on at the outset of Bush II? Bankruptcy reform. That’s right, making it harder for middle class people to go legally bankrupt and making it easier for Multi-billion credit card companies to keep people paying. Thank god, the republic will now be that much safer.

When you are right, you are right. I'm with you headscratcher, this is to me a big headscratcher. Credit card companies charge what would otherwise be usuary fees and then complain when they can't get every cent from some poor sucker.

Hey, look, if you can't aford to pay don't get a credit card. On the other hand, if someone is NOT credit worthy don't give them a card.

Yeah, I know the arguments. I'm a libertarian for christs sake. I'm not a strict one though. A lot of people are pretty f***ing dumb and Darwinism doesn't work the way it used to (I have to include myself there at times). If credit card companies are so woried about people not paying then tighten up the cash flow.

 

[RandFan]

This should be a big gain for everyone who pays their debts. If fewer people weasel out of affordable debts, then interest rates should go down because there will be more money to be made at lower interest rates.

CBL

Hmmmm.... Remember when the prime was falling through the floor? Down, down, down it went. Savings accounts went down, down, down. Morgtages went down, down, down. Everything went down except unsecured debt. Sudenly returns on unsecured debt soared. You could borrow money at a point or two above prime 3 - 4% and then loan it out at 21% or more.

It seems that for some things a change in the market has zero effect on interest rates. I wouldn't hold my breath.

 

[Drooper]

Yeah, because what poor people need the most is more debt.

Jeremy

Well, not just poor people, in practice it tends to mean you as well.


What tends to happen is everyone is lumped into a single credit risk class. So the credit worthy poor (probably the large majority) are paying more for the uncreditworthy poor and those who are rorting the the system through bankruptcy law (the minority).


But to the point, why should poor people not have access to credit as cheaply as possible? Are you going to be the bank clerk that tells someone they have been refused credit simply because they are "poor", despite being financially responsible?

 

[shanek]

But to the point, why should poor people not have access to credit as cheaply as possible? Are you going to be the bank clerk that tells someone they have been refused credit simply because they are "poor", despite being financially responsible?

Being poor has nothing to do with determining how much of a risk you are; only the overall amount you can borrow. It goes to your debt burden, not your credit rating.

 

[Drooper]

Being poor has nothing to do with determining how much of a risk you are; only the overall amount you can borrow. It goes to your debt burden, not your credit rating.

Was I not clear enough?

 

[shanek]

Was I not clear enough?

Apparently not. You said, "So the credit worthy poor (probably the large majority) are paying more for the uncreditworthy poor and those who are rorting the the system through bankruptcy law (the minority)." They aren't. The only thing income has to do with it is the total amount of debt burden you can have.

 

[Mycroft]

Yeah, because what poor people need the most is more debt.

Jeremy

Credit and debt are not the same thing.

 

[Mycroft]

Originally posted by aerocontrols
IMHO, this is a horrible bill. Yes, people should be more responsible for their personal debt, but this bill is essentially a license to credit card companies - telling them to keep loaning money to bad credit risks. How is a government effort to encourage bad business practices good news for the free market? It's not.

I agree the bill is horrible.

Creditors have all the power in deciding who to lend money too. They get to decide what level of risk is acceptable to them as well as how to charge to compensate for that risk.

Originally posted by aerocontrols
Credit cards look like a bad deal - until you compare them to pawn shops.

From my own perspective in lending, there are many examples where people in need are denied credit because well intentioned legislators have decided the credit available to them is "predatory" and should be outlawed. The unfortunate result is not protection but permanent denial of credit.

 

[shanek]

Creditors have all the power in deciding who to lend money too. They get to decide what level of risk is acceptable to them as well as how to charge to compensate for that risk.

And that is the way it should be, since it's their money and they're the ones having to assume the risk.

From my own perspective in lending, there are many examples where people in need are denied credit because well intentioned legislators have decided the credit available to them is "predatory" and should be outlawed. The unfortunate result is not protection but permanent denial of credit.

Excellent point. Someone with a bad credit history needs the 25% interest deals to start rebuilding their credit. Once they do, the interest rates will fall as their credit rating rises. Cutting those out merely prevents these people from rebuilding their credit ratings.

 

[Mycroft]

Originally posted by Drooper
But to the point, why should poor people not have access to credit as cheaply as possible? Are you going to be the bank clerk that tells someone they have been refused credit simply because they are "poor", despite being financially responsible?

Credit risk scoring does not factor income. If you are poor and pay your bills on time, your credit will be better than someone who is wealthy and does not pay their bills on time.

Which is not to say the wealthy person will not be able to borrow more money than the poor person, he will, but he will also be charged more for that privelege in relation to the amount of money he borrows.