Re: New bankruptcy law

[Brian Considine <bconsidi@xxxxxxxxxxx>]

I believe that bankruptcy has actually cost the credit card industry little
or nothing.  For every extra $1 lost in bankruptcy, I'm sure the industry
has gained more than a $1 in additional revenue from lowering its credit
standards and aggressively encouraging people to max out their limits and
spend the next 20 years making high interest payments.

Does anyone believe that if this law does dramatically reduce bankruptcies,
there will be any noticeable reduction in credit card interest or fees?

Brian Considine


-----Original Message-----
From: Sven R Larson [mailto:larson@xxxxxx]
Sent: Wednesday, March 14, 2001 6:02 AM
To: pkt@xxxxxxxxxxxxxxxx
Subject: Re: New bankruptcy law



Goncalo Fonseca wrote:
> 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.

Goncalo,

I would say credit card companies have already passed the cost of high
bankruptcy rates on to us in the form of higher interest rates and other
charges. And they won't cut down lending. I'm willing to bet that they
won't give the money back to us if bankruptcy rates fall - it'll simply
be a fringe benefit, a no-effort cash shower for the companies. However,
based on precisely your remark that existing debt wasn't assumed under
this law but will be subject to it anyway, I don't think there will be a
fall in the rate of bankruptcies in the US. Lonnie Stevans referred to
this as yet another expression of class warfare. Sounds pretty much like
what it is to me.

Keynesian indeed,
/srl

--
Sven R Larson
PhD; Assistant professor of economics
Department of Social Sciences, Bldg. 22.2
Roskilde University
Pb 260
DK-4000 Roskilde, Denmark
Phone: (+45) 4674 2910