Wednesday, March 09, 2005

Bankruptcy bill

It appears that the new bankruptcy bill is likely to become law. Personally, I'm all in favor. There is a cost to everything, and when people who can pay their debts don't, it makes the cost of credit greater for all of us.

Opponents of this bill seem to be of two motivations: those who are genuinely concerned about the plight of the poor who have taken on too much credit. For these people, quit worrying. The new law still allows people to discharge their debts who are truly unable to pay. Judging from the forumula they will use to determine who is eligible for Chapter 13 and who isn't, there will still be a lot of people discharging debt who can still pay. This bill only tightens things up a little more. So if you're worried about the poor, don't be. The poor are completely unaffected by this legislation. The ones who are affected will be middle class debtors who are quite capable of paying.

The other motivation I see from opponents of this bill is a more base one: anti-business. Their view is: these corporations make enough money, why should I cry for them? Even if I accepted the morality of this view(I don't, I believe the law should be fair, not take sides between rich and poor), it would still be wrong. There is no free lunch, and when corporations take a bath, consumers and workers get wet. So let's say for the sake of argument that I did believe the law should take sides. Whose side should it be on? How about what Bill Clinton once said, "Those who work hard and play by the rules?" And who would those be? Those consumers who are responsible with debt! Who are the primary losers when people get out of paying back what they owe!

Another issue among the anti-business crowd, and in fairness also a concern of those who aren't necessarily anti-business, is predatory interest rates. In my opinion, this is one of those issues that you can't do anything about. Concerned that poor people can get credit at 29% interest rates? Well, don't be. Alternatively, they could get payday loans, where interest is 10% over only a two week period. I'm not interested in doing the math on what that is for a year, but it's at least ten times, perhaps 20 times, higher than credit card interest. So, you say, we'll ban that too. Some state legislatures have even considered it, although I don't know who has and who hasn't tried to ban or regulate it. In my own state of Florida, it hasn't happened yet. Great. So you've cut off the poor from all sources of legal credit. Pat yourself on the back and tell yourself what a good person you are if it helps. Oh, you didn't know that the poor won't get credit at all if the most credit companies can charge is 19%(or some other arbitrary figure you wanted set?) Oh, and I said LEGAL credit too, didn't I? The poor can still go to loan sharks and lose their kneecaps if they fail to pay back. Oh, what a compassionate world you've helped create by sticking it to those evil credit companies!

One final note about hypocrisy. Under current bankruptcy law, you cannot discharge your tax obligations. I don't know how the anti-business crowd really feels about this, but I know there hasn't been much in the way of objection to it as there has been to the current bankruptcy bill. Seems that the attitude is "You owe a corporation? No problem, I feel your pain, we'll get you out of your obligations. What, you owe the government? You're DAMN well gonna pay!"