The Electric Commentary

Thursday, March 10, 2005

Bankruptcy Bill

When Glenn and Markos agree on something (has it ever happened before?) and Congress is poised to do the opposite, it's safe to assume that Congress is wrong. So it is with the new Bankruptcy Bill.

The new Bankruptcy Bill makes it harder to declare bankruptcy. It is nothing more than a giveaway to special interests, specifically, credit providers. Glenn's analysis is precisely correct. Credit Card companies employ entire departments devoted to assessing the risks of lending to individual debtors and assigning individual interest rates. They have already taken potential bankruptcies into account in their projections. If credit providers are offering credit to risky individuals, or underestimating the number of bankruptcies in their projections, they have no one to blame but themselves. When the average company makes a bad fiscal projection, it does not go crying to congress. It simply alters its projections the next time around. The credit providers supporting this bill want to have their cake and eat it too. They want to continue with their risky lending practices without having to assume any of that risk. And because the lobby for poor people isn't very strong, they're likely to get it.

I grant that the growing unsecured debt in this country is a problem, but this is not the way to go about fixing it. This bill is regressive by its very nature and should be opposed by all. Instead it is likely to pass easily. What a shame.

You can help here.

Update:

Arnold doesn't address the issue (although he seems to endorse the Bill through his inclusion of HedgeFundGuy), but discusses it here. I still disagree. HedgeFundGuy has a point, but I believe that the expansion of poor lending practices (as well as the punitive new section of the law which leaves bankruptcy attorneys liable for their clients' mistakes) will offset these gains. This may seem paternalistic of me, however I still agree with Glenn that current lending practices often border on fraudulent. Certainly borrowers are responsible for their debts, but (to quote Glenn's best line of the day) at any rate, if bankruptcy law is "anti-freedom" then what's pro-freedom? Debtor's prison?

Megan agrees here. (Read the whole thing, it's comprehensive and really good).

The best case in favor of the bill is laid out by Todd Zywicki, here, here, here, here, and here.

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