Re: New bankruptcy law

[Clifford Poirot <cpoirot@xxxxxxxxxxx>]

William,

I think you miss the point. Of course there is irresponsible borrowing out
there but this irresponsible borrowing is encouraged by the massive
bombardment of credit card companies with misleading advertising. I receive
several credit card offers a month-a substantial number of them risable wrt
interest rates. I have on occasion even received checks, made out to me
personally, that I never requested, that if I cash, carry interest rates
upwards of 20%. Every night on TV Master Card, Visa and Amex sell their
product as a way to increase purchasing power and enjoy the good things in
life. Consumers wind up with 18% and more interest rates while credit card
companies send consumers statements with minimum payments that will result
in an amortization period of 30 plus years for balances of $10,000.

At the same time, consumers are saddled with high debt balances and
extremely vulnerable to an economic downturn. This law will result in more
bankruptcies, not less, and make working out bankruptcies more problematic.

True-there are many things that can be done for consumers such as better
credit counseling and more judicious use of debt. I agree, consumers should
educate themselves. But this does not change the fact that credit card
companies share in the blame and have steadfastly refused to address or
examine their lending practices at all. Thus credit card companies persist
in encouraging moral hazards while trying to transfer the risk entirely to
consumers.

-----Original Message-----
From: William F. Hummel [mailto:wfhummel@xxxxxxxxxxxx]
Sent: Wednesday, March 14, 2001 1:23 PM
To: pkt@xxxxxxxxxxxxxxxx
Subject: Re: New bankruptcy law


Doesn't a contract require a meeting of the minds?  There may be
a few incurring debt who do so fully aware of the bankruptcy
laws, but I'll bet the number is trivial.  And those who do so
with malice aforethought are hardly the ones deserving of the
protection.

If changes in the bankruptcy law is a breach of contract with
debtors, how about increases in FICA taxes in 1983 or income
taxes in 1993?

I haven't seen the details of the proposed changes in the
bankruptcy law.  But I do believe there is a need to correct a
real problem in the US arising from our litigious society.  There
are just too many lawyers, the highest per capita by far in the
world.  Hungry as locusts, they now openly make pitches on TV to
"help" people file for bankruptcy, at a fee of course.  That has
greatly watered down the stigma of bankruptcy.  Those who are in
over their heads from ignorance or misguidance deserve protection
against impoverishment, but not in playing the game at expense of
others.

William F Hummel

>Bankruptcy protection is an integral part of any debt contract, just as
much
>as interest rates, collateral and payment schedules. When the contract is
>written up, both creditor and debtor are both aware of the possibility of
>default and bankruptcy and of the legal protection that applies in such
>cases.  Furthermore, the probability of bankruptcy is (or should be)
>computed and already accounted for in the interest rate anyway.
>
>If credit card companies realize now that the bankruptcy rate was higher
>than they had calculated, then it should not fall upon the debtors to pay
>for that mistake. Furthermore, it is doubtful it was really a mistake to
>begin with.  By pushing credit cards onto all and sundry, you're begging
for
>a rise in bankruptcy rates!  Creditors should have adjusted for this higher
>risk by raising interest rates or cutting back their rate of credit
>expansion.  Of course, in a competitive environment, no profit-minded
>credit-card company wants to be the first to do either of these things.
>Consequently the only profitable option left is to reduce bankruptcy rates
>by convincing Congress to change bankruptcy laws.
>
>Whatever difficulties the credit industry may be having due to a
>misalignment of bankruptcy rates and interest rates is wholly due to the
>actions (deliberate and otherwise) of creditors and not debtors.
>
>As a coda, perhaps it is worthwhile reflecting on the historical factoid
>that bankruptcy laws are in place largely because they were pushed for by
>creditors, not debtors.  Before the English Bankruptcy Acts of 1706 and
>1732,  if a borrower could not or simply refused to pay his debts,  the
>creditor's only option was to (personally) send the debtor to prison until
>he paid up or died.  But it was not the government's responsibility to
>liquidate him. His personal estate was not confiscated -- and so the debtor
>could actually still use his estates' revenues to set up a comfortable
>prison life.  Whatever the case, the loss stayed with the creditor.  If he
>tried to expropriate as much as one cow from the debtor's estate in
>compensation, the creditor would find himself hung as a thief (at worst) or
>involved in a blood feud (at best).
>
>It was only after the Bankruptcy Acts, pushed by creditors, that government
>got involved.  An individual creditor could now petition the Lord
Chancellor
>to start bankruptcy proceedings (he would also have to post a bond, to
>discourage spurious claims).  If the government commission found the debtor
>to be insolvent, then his personal property would be expropriated to
satisfy
>the creditors.  If the borrower cooperated fully with the investigations,
he
>would not be sent to prison and could keep up to 5% of his estate -- even
if
>the remaining 95% was not enough to cover his debts.
>
>Somehow, in the interim, bankruptcy laws became regarded in the popular
mind
>as a "favor" that was granted by government to debtors, and "inimical" to
>the interests of creditors.  They are not.  They are part of the terms on
>the debt contract, a financial innovation invented and pushed for by
>creditors.
>
>Goncalo Fonseca
>
>
>----- Original Message -----
>From: "Clifford Poirot" <cpoirot@xxxxxxxxxxx>
>To: <pkt@xxxxxxxxxxxxxxxx>
>Sent: Tuesday, March 13, 2001 10:34 AM
>Subject: Re: New bankruptcy law
>
>
>> I've attached today's NYT article on this law. The article pretty much
>> speaks for itself. It is a disgusting spectacle of credit card companies
>> buying Congress and Congresspeople and Senators being entirely unwilling
>to
>> look at the merits of the issue. American credit card companies bombard
>> consumers with advertisements and mass mailing promising them an increase
>in
>> their purchasing power (along with family happiness, romance and
vacations
>> to exotic locations).
>>
>> The price of borrowing money on your credit card: 12-18%.
>> Buying a Congressional representative: Priceless.
>>
>