The Debt-Peonage Society
By PAUL KRUGMAN
Published: March 8, 2005
Read entire article at: http://www.nytimes.com/2005/03/08/opinion/08krugman.html
Summary:
Today the Senate is expected to vote to limit debate on a bill that toughens the existing bankruptcy law, probably ensuring the bill's passage.
A solid bloc of Republican senators, assisted by some Democrats, has already voted down a series of amendments that would either have closed loopholes for the rich or provided protection for some poor and middle-class families.
The bankruptcy bill was written by and for credit card companies, and the industry's political muscle is the reason it seems unstoppable.
But the bill also fits into the broader context of what Jacob Hacker, a political scientist at Yale, calls "risk privatization": a steady erosion of the protection the government provides against personal misfortune, even as ordinary families face ever-growing economic insecurity.
The bill would make it much harder for families in distress to write off their debts and make a fresh start.
Instead, many debtors would find themselves on an endless treadmill of payments.
The credit card companies say this is needed because people have been abusing the bankruptcy law, borrowing irresponsibly and walking away from debts.
A vast majority of personal bankruptcies in the United States are the result of severe misfortune.
One recent study found that more than half of bankruptcies are the result of medical emergencies.
The rest are overwhelmingly the result either of job loss or of divorce.
To the extent that there is significant abuse of the system, it's concentrated among the wealthy - including corporate executives found guilty of misleading investors - who can exploit loopholes in the law to protect their wealth, no matter how ill-gotten.
One increasingly popular loophole is the creation of an "asset protection trust," which is worth doing only for the wealthy.
Senator Charles Schumer introduced an amendment that would have limited the exemption on such trusts, but apparently it's O.K. to game the system if you're rich: 54 Republicans and 2 Democrats voted against the Schumer amendment.
Russ Feingold introduced an amendment protecting the homes of the elderly.
As Mr. Hacker and others have documented, over the past three decades the lives of ordinary Americans have become steadily less secure, and their chances of plunging from the middle class into acute poverty ever larger.
Job stability has declined; spells of unemployment, when they happen, last longer; fewer workers receive health insurance from their employers; fewer workers have guaranteed pensions.
Some of these changes are the result of a changing economy.
Health insurance coverage is declining, but new initiatives like health savings accounts (introduced in the 2003 Medicare bill), rather than discouraging that trend, further undermine the incentives of employers to provide coverage.
Warren Buffett recently made headlines by saying America is more likely to turn into a "sharecroppers' society" than an "ownership society."
But I think the right term is a "debt peonage" society - after the system, prevalent in the post-Civil War South, in which debtors were forced to work for their creditors.
Summarized by Copernic Summarizer
A solid bloc of Republican senators, assisted by some Democrats, has already voted down a series of amendments that would either have closed loopholes for the rich or provided protection for some poor and middle-class families.
The bankruptcy bill was written by and for credit card companies, and the industry's political muscle is the reason it seems unstoppable.
But the bill also fits into the broader context of what Jacob Hacker, a political scientist at Yale, calls "risk privatization": a steady erosion of the protection the government provides against personal misfortune, even as ordinary families face ever-growing economic insecurity.
The bill would make it much harder for families in distress to write off their debts and make a fresh start.
Instead, many debtors would find themselves on an endless treadmill of payments.
The credit card companies say this is needed because people have been abusing the bankruptcy law, borrowing irresponsibly and walking away from debts.
A vast majority of personal bankruptcies in the United States are the result of severe misfortune.
One recent study found that more than half of bankruptcies are the result of medical emergencies.
The rest are overwhelmingly the result either of job loss or of divorce.
To the extent that there is significant abuse of the system, it's concentrated among the wealthy - including corporate executives found guilty of misleading investors - who can exploit loopholes in the law to protect their wealth, no matter how ill-gotten.
One increasingly popular loophole is the creation of an "asset protection trust," which is worth doing only for the wealthy.
Senator Charles Schumer introduced an amendment that would have limited the exemption on such trusts, but apparently it's O.K. to game the system if you're rich: 54 Republicans and 2 Democrats voted against the Schumer amendment.
Russ Feingold introduced an amendment protecting the homes of the elderly.
As Mr. Hacker and others have documented, over the past three decades the lives of ordinary Americans have become steadily less secure, and their chances of plunging from the middle class into acute poverty ever larger.
Job stability has declined; spells of unemployment, when they happen, last longer; fewer workers receive health insurance from their employers; fewer workers have guaranteed pensions.
Some of these changes are the result of a changing economy.
Health insurance coverage is declining, but new initiatives like health savings accounts (introduced in the 2003 Medicare bill), rather than discouraging that trend, further undermine the incentives of employers to provide coverage.
Warren Buffett recently made headlines by saying America is more likely to turn into a "sharecroppers' society" than an "ownership society."
But I think the right term is a "debt peonage" society - after the system, prevalent in the post-Civil War South, in which debtors were forced to work for their creditors.
Summarized by Copernic Summarizer
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