I wrote my critique of this essay before I realized that Arianna Huffington is the author. Makes no difference, but just want to give due credit.
The Senate Opens Fire on U.S. Consumers
By Arianna Huffington
U.S. consumers and freed Italian hostage Giuliana Sgrena found themselves in the same position this week: under fire from those put in place to protect them.
For Sgrena, the bloody barrage came from jittery U.S. soldiers. For consumers, it was jaded U.S. senators who pulled the trigger, about to pass a bankruptcy bill so hostile to ordinary American families that it could only have come about in a place as corrupt, cynical and unmoored from reality as Washington, D.C.
In a normal world, those elected to represent the interests of the people would have fought for bankruptcy legislation that would, well, represent the interests of the people. But not in Beltway Bizarroland. Instead of cracking down on predatory lending practices, closing loopholes that favor the wealthy, and strengthening the safety net for working people, single mothers and elderly Americans struggling to recover from a financial setback, the Senate put together a nasty little bill that reads like a credit industry wish list. Rubbing salt in the wound, Sen. Charles Grassley (R-IA), the bill's chief sponsor, labeled it the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005?even though it does nothing to prevent bankruptcy abuse or protect consumers.
So what does the bill do? It makes it harder for average people to file for bankruptcy protection; it makes it easier for landlords to evict a bankrupt tenant; it endangers child support payments by giving a wider array of creditors a shot at post-bankruptcy income; it allows millionaires to shield an unlimited amount of value in homes and asset protection trusts; it makes it more difficult for small businesses to reorganize, while opening new loopholes for the Enrons of the world; it allows creditors to provide misleading information; and it does nothing to reign in lending abuses that frequently turn manageable debt into unmanageable crises. Even in failure, ordinary Americans do not get a level playing field.
Credit card companies have been feverishly lobbying for this legislation for nearly a decade?and it looks like the $34 million the finance and credit industries have contributed to political campaigns since 1996 is finally about to pay off. On Tuesday, the cloture vote on the bill was 69 to 31. The House passed similar legislation last year and GOP leaders are hoping to bypass the conference committee deadlocks that have derailed similar measures in the past and have the bill on President Bush's desk in short order. The president, well aware that credit card giant MBNA is one of the Republican Party's largest donors, has promised to sign the bill as soon as someone hands him a pen.
Make no mistake, the inequitable nature of the bill?bending over backwards to help the credit card industry while sticking it to American working people who fall on hard times?is no accident. Time and again over the last week, the Senate shot down amendments that would have made the bill a bit less mean-spirited. They denied proposals that would have made it easier for military veterans, the sick and the elderly to qualify for bankruptcy protection. They even rejected an amendment that would have put a 30 percent ceiling on the interest rates credit card companies can charge. Thirty percent?that's more than Paulie Walnuts charges. But 74 U.S. senators?including John Kerry, Harry Reid, Barack Obama and Dick Durbin?clearly thought that wasn't high enough. Quick, somebody send those guys a Bible bookmarked to Deuteronomy 23:19: "Thou shalt not lend upon usury to thy brother."
For years, credit-card companies have been claiming that tougher laws are needed to reign in high-flying customers using bankruptcy to game the system. But the truth is that the vast majority of people who file for bankruptcy are middle-class folks who can't pay their bills because they've lost their jobs or been hit with high medical bills or gone through a divorce.
Indeed, a recent study by Harvard University found that half of last year's 1.6 million bankruptcies were the result of crushing medical bills. Put another way: Every 30 seconds, someone in this country files for bankruptcy in the wake of a serious illness. How's that for a shocking stat? Here's another: Three-quarters of the so-called medically bankrupt had health insurance. It just wasn't enough to cover the dramatic rise in health-care costs.
But instead of adapting to this harsh new reality, where hardworking, college-educated, middle-class folks can be financially destroyed by a sudden illness, the Senate is about to approve a one-size-fits-all law that treats a family man who has sunk into debt because of a heart attack the same as a con artist who maxes out his MasterCard, then refuses to pay up.
Worst of all, the bill does absolutely nothing to protect consumers from the aggressive tactics credit-card companies have devised in recent years?tactics that have proven hugely profitable. Along with sending out over 5 billion solicitations a year, they are constantly developing new ways to stick it to the people they've already lured into the tent. For instance, companies now routinely jack up a cardholder's interest rate when their payment is late?and, presto, a "fixed" 7 percent APR is suddenly transformed into a cash-gobbling 30 percent loan.
There has also been an explosion in the fees that credit card companies charge: late fees, balance transfer fees, cash-advance fees, over-the-limit fees. Such fees bring in billions and are partly responsible for the fact that, even as personal bankruptcies in America have steadily increased, so have the profits of credit card companies--which reached a whopping $30 billion last year.
So tell me again: Just who is gaming the system?
It's one thing for credit card companies to exact their pound of flesh even as their profits soar. But shouldn't we hold our elected officials to a higher standard? The bankruptcy bill is morally bankrupt. And so is any senator who votes for it.
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My response:
That's a really good article on the bankruptcy fiasco. Very complete. However, it contains four false assumptions and two misunderstandings. Let me elaborate.
First of all, the bankruptcy legislation, as so much else (capital punishment comes to mind) is premised on the assumption that punishing one person for a particular behavior will keep others from similar acts. There just isn't any evidence for that. People do bad things or anti-social acts because they think they are immune from retribution or above the law (GWB for example).
Secondly, the representatives of the people obviously assume that to compromise with evil will produce a less evil or almost good result. We all know that assumption is wrong. Whenever Democrats proposed to compromise with evil legislation, the battle is already lost. If any of you communicate with Democratic Senators tell them just that.
The third false assumption is being made by the writer of this essay. S/he assumes that our interest in equity and fairness is shared by Republicans. Not so. The reason people become Republican politicians is because they are convinced that they are better equipped to lead the nation. I'm not sure they even know what the word "represent" means.
The fourth false assumption, one we probably all share with the writer, is that legality and morality are intimately related, if not the same. Not so. Lots of sinful behavior is actually legal and lots of legal behavior is sinful in anybody's book. For example, touching another person in their private parts, especially when such touching is not welcome, is generally considered a sin. And yet we have more and more laws on the books which not only permit but mandate such behavior.
So, those are the four false assumptions. Note that false does not mean morally in error. The assumptions just don't reflect reality, though some clearly should. That is, reality should be different than what it is.
The misunderstandings are a little different in that nobody seems to appreciate what is really going on in regards to bankruptcy. Bankruptcy has long been a strategy used by business to get itself out of difficulties that were assumed to be unforseen and unforseeable. That is, business is assumed to be engaged in socially useful enterprise, much of it focused on the unknowable future, so when difficulties arise, it is equally socially useful to provide some social support and ease the business out of the difficulty.
We are all pretty aware that instead of this rescue from unanticipated catastrophy, the majority of business bankruptcies are the result of poor business practices, if not downright fraud, as well as being orchestrated by competitors in order to make it possible for someone to pick up the pieces of the enterprise for less than they are actually worth. In fact, business bankruptcy has become a rather routine business strategy, evidence that trade and exchange have morphed into predation.
From another perspective, we could say that bankruptcy is an integral of modern business competition. And, its practitioners naturally assume that it should be reserved to them. So, when they become aware that individuals are making use of this strategy, they are alarmed. Because it tells them one of two things--neither of which they want to hear. On the one hand it suggests that there is a new class of competitor out there--i.e. the individual entrepreneur, whose access to credit represents a direct threat and needs to be discouraged. On the other, it suggests that there's a whole new class of competitor which, especially if it doesn't fail, is operating outside the regulations with which traditional business has to comply.
Even though America is presumed to be philosophically committed to "private enterprise," that doesn't mean that individual enterprise is welcome. The individual capitalist, a person who has access to credit solely on the basis of a promise to repay, is a threat to organized enterprise and to the government that relies for its authority on the promise of protection and regulation for support from the business class.
So, the "consumer protection" phrase in the title is quite accurate. Our government is concerned that consumers be "protected" from morphing into something else--i.e. individual entrepreneurs whose access to credit and reliance on their own skills makes it possible to survive and thrive without government support and regulation.
Pretend you're a government and ask yourself what your purpose is if individuals can enter into contracts, willy nilly, for personal or productive reasons and can trade with whomever they want, anywhere on the globe without your say-so and permission. What happens if individuals don't have to be registered as partnerships or corporations to do business? How are you going to regulate them?
Well, if all other options seem to have failed, the only strategy, other than throwing them in jail, is to try to rein in their access to money and to try to work with the social class that shares your concern.
The big question is how government is going to exercise control when it can't control the supply of money. That the fed hasn't raised the interest rate is instructive. It tells us that they have finally figured out that the official interest rate is not an effective control mechanism. The economy cannot be jerked up and down by "adjusting" the cost of money.
'Tis a puzzlement. And I love it. We are seeing the flowering of individual capitalism, which, of course, undermines all the restrictions society has placed on the use of land. The power of private property rights as the handmaiden of corporate capitalism is being replaced by individual access to credit and that's why there is an effort to restrict it.
Posted by Hannah at March 11, 2005 05:57 AM