The Bankruptcy lines. The Revenge of the Capitalists?

[Wake_up_call]

This thread is addressed for comments by the Ayn Rand worshipers – the Capitalists. In light of the desperate movement by thousands of Americans this weekend, do you feel better to read this article?

Is this your idea of “The survival of the fittest?” Do you really think that by dealing and wheeling in Real-Estate, thus pushing up the rents, you are contributing to anything?

Oh, I am sure you rationalize that “Hey, it is a free market. I jack up the price. As long as there are buyers, it is a fair game”. But can you sleep well, knowing (or not knowing) that the price of your “wellness, and clear conscience” is being paid, albeit indirectly, by those who need to line up to declare bankruptcy?

[Liberal]

I don’t think there are many Randistas here. But frankly, I take exception to your premise that capitalists espouse survival of the fittest. It is also ironic that you take pot shots at your caricature of the free market and blame it for what is actually a regulatory interference. From your own cite:

When the new regulations go into effect on Monday, they will introduce sweeping changes intended to make it more difficult for consumers to erase their debts. They will also increase the costs of filing for bankruptcy, adding new steps like credit counseling and more paperwork to the process. The new law, which was passed by Congress six months ago, will also require a thorough review of whether people can pay off at least some of their credit card bills and other debts.

These are new regulations and new laws that add paperwork and expense to the process of declaring bankruptcy. In other words, the market is now less free than it was. You should be ecstatic.

[sleestak]

@Wake up call

This thread is addressed for comments by the Ayn Rand worshipers – the Capitalists. In light of the desperate movement by thousands of Americans this weekend, do you feel better to read this article?

Is this your idea of “The survival of the fittest?” Do you really think that by dealing and wheeling in Real-Estate, thus pushing up the rents, you are contributing to anything?

Oh, I am sure you rationalize that “Hey, it is a free market. I jack up the price. As long as there are buyers, it is a fair game”. But can you sleep well, knowing (or not knowing) that the price of your “wellness, and clear conscience” is being paid, albeit indirectly, by those who need to line up to declare bankruptcy?

Well, I am not a Rand worshipper, but a couple points.

First, if someone buys things that they cannot afford why is it my, or anyone elses, fault? You linked to an article about how a ton of people are filing for bankruptcy. It does not meanion or prove in any way that 'Wheeling and Dealing" in real estate caused any of those bancruptcies. In fact, if you read the article it states “Most spoke of a messy divorce, medical bills or mountains of student loans or credit card debt that had gnawed at their finances for years”. So, we can toss out the real estate angle.

Second, if people don’t understand finances and get themselves in trouble, who’s fault is that? From your own cite it points to four things being the cause of the bancruptcies. Of those four causes, three of them are totally controlled by the individuals themselves. The three that people can control, divorces, student loans and credit card debt, are the individuals responsibility. The forth, medical exspenses, are a little different though it is still the individuals responsibility to have insurance or pay for whatever medical care is necessary.

Third, to go back to a point made in the OP, in many areas the cost of real estate is directly inflated by the governments actions. For example, in Las Vegas the housing market is quite insane. The prices of the houses has about doubled in the past 4 or 5 years. A lot that went for 30,000 in 2000 might go for 100,000 now. One of the main reasons is land. Land availble for development is scarce. Part of the reason for the shortage in the BLM. The BLM has a ton of land that cannot be developed because the BLM says so for various reasons. Since there isn’t much land left it has inflated the price of housing. There are other factors involved, many people are moving here for tax reasons, etc, but it has been estimated that housing prices would drop by up to 20% if the BLM would open up more land. (I’ll see if I can hunt up a cite. IIRC I got that number from the Las Vegas Review Journal) In other areas, especially back east like New York, rent control and other government programs artifically raise prices. Cite

That fact that so many people are declaring bankruptcy is troubling. It is mainly troubling to me because it shows that way too many people do not understand money. They are buying things they cannot afford. That is not good for the economy, which in the end, is not good for me or them.

Slee

[Left_Hand_of_Dorkness]

@Wake up call

This thread is addressed for comments by the Ayn Rand worshipers – the Capitalists. In light of the desperate movement by thousands of Americans this weekend, do you feel better to read this article?

I wonder if you could give me a bit of context, Wake Up Call: do you consider yourself a Democrat? It’s come up in this thread.

Daniel

[John_Mace]

Wow. Poison the well much, WUC?

This is a cartoon version of capitalists-- businessmen gloating over the misfortune of others. Cigar smoking speculators rubbing their hands together as they screw over the little guy.

There is lot to debate about the best way to write bankruptcy laws, and whether the new regulations are good or not. But it doesn’t look like the OP wants that type of debate. Was this supposed to be a Pit thread?

[Evil_Captor]

@Liberal

I don’t think there are many Randistas here. But frankly, I take exception to your premise that capitalists espouse survival of the fittest.

Oh, come now, Liberal. I have read many posts on this board which declare that “There are some people who are winners in life, some who are winners, that’s just the way it is.” Or, describing someone who loses out in terms of jobs, “Well, it sucks to be X.”

I’m really surprised you can’t connect THOSE dots, for all your hangups on libertarianism, you seem fairly intelligent.

[SteveG1]

There was one “group” or “type” lumped in with the rest who are filing - those with medical expenses. It is wildly inaccurate to simply say they “do not understand money” or they are just irresponsible. These are people who are in this fix because they had no choice.

Just last year, I got the grand daddy of toothaches, down in the bone of the jaw. Let’s just say the only thing that mattered was making the pain stop - now I am paying of the dental bills. It’s only a few thousand. Now imagine someone with the more serious choice of dying - or getting surgery, or dialysis, or whatever. The bills mount up. It isn’t their fault that they want to live. They now owe tens or hundreds of thousands. So, they file bankruptcy because they know no amount of “counselling” will make enough money magically appear.

Now add in those who have credit card debt. Regular middle class people. Credit cards now have rates that would make a loan shark jealous, and on top of that are various fees. People are paying the interest and fees, but can’t ever touch the principal because it keeps climbing. An endless circle. I was in that boat about 20 years ago myself. I had taken an involuntary transfer from Texas to California for my job. The Government was supposed to reimburse me in a timely manner. Three years later I was till waiting. Meanwhile, the credit card balance kept climbing. So, I filed bankruptcy and threatened to file suit for my reimbursement. As soon as I made my threats, the money I was supposed to already have gotten “magically” appeared. Apparently, some low paygrade flunky had been sitting on it the whole time.

So, not everyone filing now is gaming the system or taking advantage. Going into debt is not always a choice. Besides, if debt IS so bad, then why is there a government deficit? Why are companies still allowed to file various “chapters” of bankruptcy? I see this whole thing as the administration giving a gift to corporate buddies. Make it fair. Restructure bankruptcy for companies, and make it just as draconian as it is now for consumers.

[Evil_Captor]

@Evil Captor

Oh, come now, Liberal. I have read many posts on this board which declare that “There are some people who are winners in life, some who are winners, that’s just the way it is.” Or, describing someone who loses out in terms of jobs, “Well, it sucks to be X.”

I’m really surprised you can’t connect THOSE dots, for all your hangups on libertarianism, you seem fairly intelligent.

Should read: some people who are winners in life, some who are losers that’s just the way it is. (And yes, there SHOULD be a huge government agency to prevent me from doing stuff like that.)

[squeegee]

What SteveG1 said: I’d bet a surprising number of bankruptcies are for medical or other non-optional debts. Certainly there will be a lot of Katrina victims who didn’t choose to get their homes flattened by Mother Nature and are or soon will be penniless. Luckily for the hurricane victims, the DOJ is supposed to cut them some slack(PDF) and not enforce the new bankruptcy guidelines for a time, which I guess goes to show how unfair this bill was – what will be done for the victims when the next disaster strikes, bupkis?

[Loopydude]

I have a new neighbor who apparently lost her last house to foreclosure, yet drives a $40,000 Lexus SUV. You know what that is? It’s irresponsible, that’s what. With a heaping helping of stupid besides. It baffles me that such an arrangement is even possible.

So, I’d rather not see such a person in bankruptcy court. I’d like to see that person paying off their goddamn debt so that their idiocy isn’t simply thrown on the backs of people who are content to live within their means, and feel an obligation to repay what they owe. There are too many consumer-morons out there, and I have no sympathy for them.

I’m not sanguine about the new rules, as they seem to make little provision for honest, responsible folks who fall on hard times. But as for the consumer-debt-aholics, they day they can’t line up to screw their creditors, but instead have to face the consequences of their unethical behavior, is a better day.

[squeegee]

Loopy, I tend to agree with you about a person like you’re describing, but why wasn’t an exclusion made in the Bankruptcy bill for people with [url=]medical debt, to exclude responsible people who had no choices?

Warren and her colleagues surveyed Americans in bankruptcy courts and found that half said illness or medical bills drove them to bankruptcy. The “bigger surprise,” as Warren has said, is that three-quarters of the medically bankrupt had health insurance. Which is to say that even those who have insurance are often not sufficiently covered to protect them from financial disaster.

[zamboniracer]

I want to know why the free market only applies to the debtor side of the equation. If the creditor makes bad loans to known bad credit risks then why isn’t it at least the creditor’s fault as much as the debtor’s. Credit card companies have been throwing credit cards at low introductory teaser rates at people, and then they jack up the rates and fees, and then they complain about how debtors aren’t making payments and so therefore the bankruptcy laws have to be tightened.

[Loopydude]

@squeegee

Loopy, I tend to agree with you about a person like you’re describing, but why wasn’t an exclusion made in the Bankruptcy bill for people with [url=]medical debt, to exclude responsible people who had no choices?

…

@Loopy

I’m not sanguine about the new rules, as they seem to make little provision for honest, responsible folks who fall on hard times.

[raindog]

For a long long time the financial industry has known how to quantify, and subsequently price, risk.

If Acme Bank expects a 10% return on capital, on home loans for example, they know full well the correlation between the Fair-Isaacs credit score of a consumer (or group of consumers) and the rate of default. If consumers with an average credit score of 740 default at a 2% rate for example, then maybe the bank loans out at 7%. This interest rate takes into consideration the certain defaults that will come, and the cost of those defaults.

If the next customer has a credit score of 520, the bank knows for certain that there is a higher rate of default for those customers, and therefore higher risk, and, for certain, higher costs. (related to defaults)

Do they refuse to loan to them? No!

They simply adjust the interest rate to reflect the risk and certain defaults. It is hypothetically possible that a group of consumers with credit scores of 740 and who borrow at 7% will produce the same net profit margin to the bank as a group of consumers with credit scores of 520 and borrow at 12%. (because of the different costs associated with different rates of defaults)

Is that fair? Yep!

If you pose a greater risk, you should pay more.

Is that how it works in real life? No!

Sub Prime Lenders take outsize risks, loaning to the riskiest borrowers, often the working poor. Is that a noble thing? No. While they take outsize risk, they often charge interest rates that are disproportionately high based on their risk and actual defaults. Many lenders have interest for cars and credit cars at the legal limit; just below the rate considered usury. They have little relation to the real risk and real defaults. They ply their trade among the unsophisticated and poor. The rates are often morally reprehensible. Often “Predatory Lenders” target the elderly.

But there is a perception that the consumer [alone] is making irresponsible decisions, and is acting in bad faith when attempting to walk away from debts. this is not the true picture.

Several years ago, “Sub-Prime Lenders” were the darling of Wall Street. Banks that didn’t have a Sub Prime Dept quickly acquired a sub prime lender or started one. So as to not sully their names, most didn’t carry the parents name any where. They were minting money. They were charging rates that were much higher than their actual risks/defaults. Big money was being made. They were loaning to unsophisticated borrowers with few choices.

And so what did they do? The same thing that a borrower does. So many banks got into the game that the competition intensified. More and more banks were chasing a static supply of subprime borrowers. The fools rushed in. To get business, banks lowered their credit standards. They took on greater and greater risks. Eventually there was a bloodbath, of their own making.

The banks and the borrowers did this together. They are jointly responsible for this mess. The financial industry would like the public (and the congress!) to believe that we need to purge the n’eer do wells. Hey, the financial industry courted tham and threw money at them. Now they’re crying about their own decisions.

I have no sympathy for either of them. But, Joe SixPack doesn’t have an army of lobbyists to craft legislation.

Now this legislation will make it harder to file bankruptcy, and harder to walk away from your debts. Good! But…this means that the financial industry now has lower risk, and lower costs due to losses/defaults. It will be interesting to see the impact it has on their profits.

But given the fact that interest rates for borrowers are based on the risk of default for a given borrower (as refected in credit scores) and that those risks have been lowered, shouldn’t that be reflected in the rates for borrowers going forward?

IOW, I would expect rates to go down for all borrowers, but particularly higher risk borrowers. If not, it seems fairly obvious that fewer borrowers will now be able to default, and that if interest rates are not lowered to reflect this reality, this legislation will just be a boon for the financial industry. I think they’re crooks.

I think this is bad legislation. People should be held accountable for their decisions, but bankruptcy is not a painless process. OTOH, if the financial industry wants to loan a guy with a credit score of 5 a bazzilion dollars bcause they can charge 68% interest, than they should take what is certainly coming to them. I think this legislation tilts the field in favor of the financial industry, and masks the real problem:

In their own greed and competition they lost track of prudent loan underwriting practices and got burned. Good for them.

[elucidator]

Are we really sure Ayn Rand is dead? Has anyone applied to the traditional stake-and-garlic treatment, just to be on the safe side?

But I don’t look at this as Randism, but simply a vigorous and robust Social Darwinism that seeks to protect the worthy (CitiGroup, etc.) from the unworthy (you, me, and that other guy).

It might also be sub-named the Credit Counselor’s Full Employment Act of 2005. If you fall in that category of the medically disempowered, there is zip that a credit counselor is going to be able to do for you. But you get to pay for it anyway, you lucky ducky. I wonder who’s great fucking idea this was. Ponder, ponder. Yes, I wonder.

[John_Mace]

@squeegee

Loopy, I tend to agree with you about a person like you’re describing, but why wasn’t an exclusion made in the Bankruptcy bill for people with [, to exclude responsible people who had no choices?

Exclusion in what sense? It’s not like the new bill forbids bankruptcy. Yes, it changes the rules, but so what? I think it would help if people in this thread actually read the bill, described exactly which provisions they didn’t like about it, and how it should be improved. Seems to me like the biggest change is that if your income is above the median level for your state, you now have to file Chapter 13 instead of Chapter 7.

Anyway, I’m not defending the law, but it seems people in this thread are mainly ranting about how cruel capitalsim is and how terrible it is that people are in debt.

[url=http://www.uscourts.gov/bankruptcycourts/abuseprotection.pdf]Link to the new law. Warning: PDF](]medical debt[/url)

[Liberal]

@Evil Captor

Oh, come now, Liberal. I have read many posts on this board which declare that “There are some people who are winners in life, some who are winners, that’s just the way it is.” Or, describing someone who loses out in terms of jobs, “Well, it sucks to be X.”

I’m really surprised you can’t connect THOSE dots, for all your hangups on libertarianism, you seem fairly intelligent.

I really appreciate that. I’ve learned a lot from the boards too, so I understand what you mean. But I do like to do research off-board as well, just in case someone is mistaken about something or hasn’t quite painted the whole picture. Doing so in this instance, I discover that capitalism is an economic philosophy characterized by private ownership of capital and the means of production, the determination of prices by decisions made in the market place, and the creation of wealth through the mechanism of profit. I discover also that Adam Smith (father of capitalism) was long gone before Herbert Smith (father of notion that the fittest survive) came onto the scene. I discover that Social Darwinism has been a tool employed by tyrants irrespective of their economic philosophies. Mao was certainly no capitalist. And Bill Gates wasn’t the best programmer. It is often possible to succeed in capitalism through sheer blind luck.

[zamboniracer]

I am a lawyer, but not a neither a bankruptcy lawyer nor a Constitutional scholar, but it sure seems to me that the bankruptcy act’s “Full employment for credit counseler provisions” violate the Constitutional requirement forbidding impairment of contracts. The freedom to enter into a contract includes the freedom NOT to enter into a contract. Under the new act if a debtor wants to file bankruptcy he has to first enter into an agreement with a “credit counseler”, which doesn’t strike me as Constitutional.

[Knorf]

@sleestak

First, if someone buys things that they cannot afford why is it my, or anyone elses, fault?

Someone, for instance, who cannot afford medical insurance, receives no medical benefits from his job, and buys things such as emergency medical care, for his daughter? (I have a friend in this exact situation.) I suppose from your point of view, the guy is just screwed, and his daughter with him. Why should people of means look out for the working class, anyway? Let 'em all rot.

What gets me is, among all those working-class Bush supporters, haven’t you ever noticed that the vast majority of Bush administration policies primarily favor or directly benefit corporations and the very wealthy? That there have been very few policies that directly benefit working-class Americans? That, in point of fact, many Bush administration policies are been making things a lot tougher for working class Americans, and easier for the wealthy?

Welcome to a world of the haves and have-nots that goes beyond anything seen in this country for a long, long time.

The other thing that gets me, is that these wealthy Americans who are getting wealthier aren’t thinking beyond their immediate personal gain. Leaving aside whether anybody should care about anybody less fortunate than themselves, what kind of society do you want to live in? An increasing gulf between the rich and the poor only leads to severe societal instability. Is it worth having a less stable society just so some numbers attached to your name get larger?

[John_Mace]

@Knorf

What gets me is, among all those working-class Bush supporters, haven’t you ever noticed that the vast majority of Bush administration policies primarily favor or directly benefit corporations and the very wealthy? That there have been very few policies that directly benefit working-class Americans? That, in point of fact, many Bush administration policies are been making things a lot tougher for working class Americans, and easier for the wealthy?

Doesn’t this new bill make it HARDER for the wealthy? If you’re under the median income for your state, you can still file Chapter 7. It’s “the wealthy” who have to file Chapter 13.

Granted, this bill is a great deal for the credit industry, but I don’t think most of the people bitching in this thread really understand what the bill does.