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Haul 16 tons, and what do you get?

By The Cunctator in MLP
Mon Apr 02, 2001 at 10:33:27 AM EST
Tags: Politics (all tags)
Politics

Another day older, and deeper in debt. The New York Times has a pair of bitterly amusing stories on the wealth disparity of the United States: Many Americans Are Mired in Debt and Seeking a Way Out, and Some Very Expensive Belts Tightened, but Just a Notch.


From the first article:
"The multitude of people affected by bankruptcy laws are your lowest strata-class people, your blue-collar people and middle-class people whose companies close or size down and who can't get another job at the same salary," said Lawrence P. King, NYU law professor.
From the second article:
A veteran Upper East Side butler reported that had stopped pouring '89 Château Palmer ($195 a bottle) at dinner parties, downshifting instead to a slightly more shallow and marginally less complex '89 Château Talbot (about $40 a bottle).
...
The relation of debt to wealth for the top 1 percent of American households was just 3.3 percent in 1998, according to Dr. Edward Wolff's analysis of the Federal Reserve Board Survey of Consumer Finances.

The surveys show a substantial decline in indebtedness among the rich since 1983, when debt amounted to 5.9 percent of their net worth. For the middle class, the indebtedness trend has flowed in exactly the opposite direction. Federal Reserve figures show that debt as a percentage of net worth for the middle class rose to 51.3 percent in 1998, from 37.4 percent in the 1980's.

Dr. Wolff edits the Review of Income and Wealth journal, which has analyses of income all over the world.

See also Personal Bankruptcy & Consumer Credit Crisis, American Bankruptcy Institute, 11 April 1997.

The NYT conveniently published their soft-pedaled story about the debt problem only after the U.S. Senate passed S.420, aka the Bankruptcy Reform Act (note the many "Discouraging Bankruptcy Abuse" clauses).

Another MLP: S.421, aka the Nerd Education Act.

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o The New York Times
o Many Americans Are Mired in Debt and Seeking a Way Out
o Some Very Expensive Belts Tightened, but Just a Notch
o Lawrence P. King
o Dr. Edward Wolff
o Federal Reserve Board
o Survey of Consumer Finances
o Review of Income and Wealth
o Personal Bankruptcy & Consumer Credit Crisis
o American Bankruptcy Institute
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o S.420
o S.421
o Also by The Cunctator


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Haul 16 tons, and what do you get? | 37 comments (24 topical, 13 editorial, 0 hidden)
chapter 7 (3.25 / 4) (#2)
by Delirium on Sat Mar 31, 2001 at 07:28:49 PM EST

I'm not sure Prof. King's analysis is entirely accurate. While there certainly are a great deal of lower- and middle-class people who end up in bankruptcy for one reason or another, there are also a significant number of people who do not have to file for bankruptcy, but do so anyway as a strategic decision to reorganize (or in many cases eliminate) their debt.

Not accoring to the NY Times story (4.00 / 1) (#5)
by Philipp on Sat Mar 31, 2001 at 08:11:16 PM EST

The NY Times story quotes various people saying that abuse of bankruptcy is not a big problem. The vast majority file for bankruptcy because they lost their jobs or had medical costs, so they cannot service their debt anymore.

alias kn 'killall -9 netscape-communicator'
[ Parent ]
Cite source (2.00 / 2) (#6)
by cameldrv on Sat Mar 31, 2001 at 09:23:51 PM EST

While this may be true, there certainly seems to be a dispute as to the facts here. Where are you getting your information?

[ Parent ]
statistics would be nice, yes (3.00 / 1) (#8)
by Delirium on Sat Mar 31, 2001 at 10:47:25 PM EST

Various news stories plus Congressional debate on the topic. Of course since the people quoting different facts are also getting them from the same types of sources, if anybody has some actual statistics I'd be interesting in seeing them.

[ Parent ]
A suggestion (3.00 / 1) (#9)
by Miniluv on Sun Apr 01, 2001 at 12:35:23 AM EST

A good gathering of statistics are probably available from either the US Dept of the Treasury, the Federal Trade Comission, or one of the public watchdog groups on consumer credit and/or bankruptcy.

There is a very specific agency I have in mind whose name is completely escaping my mind. They tend to advocate against bankruptcy, but they do have statistics I'm sure. If it comes to mind I'll post it.

"Its like someone opened my mouth and stuck a fistful of herbs in it." - Tamio Kageyama, Iron Chef 'Battle Eggplant'
[ Parent ]

Some unbiased info (4.00 / 1) (#10)
by Miniluv on Sun Apr 01, 2001 at 01:03:28 AM EST

Heh, of course as soon as I post I put another search into google and hit some good links.

State by state statistics on bankruptcy filings:
This pdf is maintained by the American Bankruptcy Institute, an indepedent agency.

This collection of statistics is from the same people, but is mostly links to other sources, including lots of federal information.

"Its like someone opened my mouth and stuck a fistful of herbs in it." - Tamio Kageyama, Iron Chef 'Battle Eggplant'
[ Parent ]

Not unbiased...just right (4.00 / 1) (#15)
by The Cunctator on Sun Apr 01, 2001 at 03:57:09 AM EST

The ABI (to which I linked mindlessly in the post) is essentially left-wing/pro-consumer/working-class, as opposed to right-wing/pro-business (which can include small and large).

I personally agree with the bias, but there's no such thing as unbiased info, and that's the unbiased truth.

[ Parent ]

Statistics (2.00 / 1) (#19)
by Miniluv on Sun Apr 01, 2001 at 04:38:40 AM EST

Believe it or not, it is possible to present factual information in an unbiased manner. Usually this means minor formatting of raw data, such as category aggregration and such, but it's very do-able. From brief perusal of the statistics I linked to, they qualify as unbiased.

The slant of the group providing them is irrelevant when all I'm citing them for is raw data, instead choosing to provide my own analysis.

"Its like someone opened my mouth and stuck a fistful of herbs in it." - Tamio Kageyama, Iron Chef 'Battle Eggplant'
[ Parent ]

I hate to bust your bubble... (3.00 / 1) (#20)
by The Cunctator on Sun Apr 01, 2001 at 04:52:50 AM EST

But even "raw data" is astoundingly biased.

How do you think that "raw data" was collected?

For an example, let's take the U.S. Census. Goal: count the number of people living in the U.S. (Tied in, of course, with the political reasons for the census, which dictate who is counted and how their categorized.) We could go on for a long time talking about the methodology, but we'll skip just to the part people argue about: whether to use the "raw data" or the statistically corrected data.

The census always undercounts people, but it does so unevenly. Urban areas have a much higher percentage of undercount than suburban and rural. However, it's possible to recalculate the census numbers using statistical sampling to get a more accurate, but less raw, count.

So which is the unbiased data? Guess what, there ain't any.

(See Census Sampling Confusion, The Fiscal Impact of the Census Undercount on Cities.

Even in physics, it's impossible to get unbiased information, as the act of measurement changes the measured system. Fortunately, the change can often be less than the precision of the measurement.

And more importantly, the bias comes in first in what we choose to measure.

[ Parent ]

A few notes (3.00 / 1) (#21)
by Miniluv on Sun Apr 01, 2001 at 05:22:39 AM EST

There are, however, a few differences between the census and reporting on the number of bankruptcy cases in a specific jurisdiction. The former relies on a variety of methods, all prone to human error in varying degrees. The latter can be accomplished in a mostly automated fashion, only relying on human intervention in those regions not electronically storing court records.

"Its like someone opened my mouth and stuck a fistful of herbs in it." - Tamio Kageyama, Iron Chef 'Battle Eggplant'
[ Parent ]
Haul 16 tons, and what do you get? (3.00 / 2) (#7)
by eLuddite on Sat Mar 31, 2001 at 09:40:25 PM EST

You get to elect President Tough Love.

---
God hates human rights.

I don't have a lot of sympathy (4.00 / 5) (#11)
by skim123 on Sun Apr 01, 2001 at 03:12:31 AM EST

I really don't find myself having a lot of sympathy for those who find themselves in serious debt troubles. I make allowences for those who prudently saved but were decimated by the unexpected: health complications, loss of the income generating spouse, etc., but I find it hard to feel sorry for those who overextend themselves.

I probably sound cold hearted by saying that, but it's honestly how I feel. Every person, skilled or unskilled, can make enough money to live within their means. Ha! How do you like that for a bold statement?

I guess it boils down to self control and intelligent planning. Make only $7 / hour? Don't have a bunch of children because you are not making enough to support them! Just because the neighbors got a new SUV doesn't mean you need to go get one too. I guess the simplest thing is to spend less than you make. Not spend exactly what you make, but less than what you make.

What will reducing the total number of bankrucptcy claims each year do? Will more Americans be fiscally hurt when they try to claim bankruptcy but are denied? Yup. If they cannot find protection from debtors they can have things like their car and home repossessed to pay back the money they owe. Sucks to be them. Is this a bad thing, though? They did take borrow the money, shouldn't they have to give it back? Many folks have loaned money to family members never to get it back (or to get it back after longer than agreed upon). If that's happened to you, how did it make you feel? Also, fewer bankruptcy cases means lower interest rates for the rest of us, no?

So am I a greedy, cold-hearted, money loving fuck with no sympathy for others or am I someone who believes that people are intelligent, rational beings who can make their own decisions and, therefore, should have to live with the consequences of their own decisions? I'll let you decide.

Money is in some respects like fire; it is a very excellent servant but a terrible master.
PT Barnum


I may be shooting in the dark, but... (3.66 / 3) (#16)
by The Cunctator on Sun Apr 01, 2001 at 04:08:43 AM EST

I bet you don't make $7 an hour. I think that both the borrowers and the lenders should take responsibility. Lenders extend credit to people when they shouldn't, particularly in the form of credit cards, pushing credit cards on teens and always promoting them as free money.

Since the harm for bankruptcy falls disproportionately on the borrower (even the "great" Chapter 7 "only" means you lose your house and car before your debt is retired...Chapter 13 means you lose your house, car, and have to pay the full debt (I am oversimplifying, of course; check the links in the main post for a fuller picture)), I don't think it unreasonable to push the lenders to be at least equally responsible.

In short, bankruptcy is a symptom of the problem, not the problem. When most people file for bankruptcy, it's because they're at the end of their rope. The intelligent, rational decision is to fight the problem further upstream.

[ Parent ]

Debt and education (none / 0) (#32)
by egeland on Mon Apr 02, 2001 at 04:21:55 AM EST

These days, it is not uncommon to see kids graduating deep in debt (even high school graduates), because they are uneducated in simple financial matters like compound interest.
If the education system had provided the kids with the financial tools to understand what they are getting into, they might not be so keen to embrace the "Charge it!" mentality. Further, if a simple explaination of compound interest on those consumer debts had been provided, they might cut up the credit cards instead of charging to the limit on them.
It is unfair to blame the credit providers, however, as they are merely providing a service which is demanded by their customers.
It is also unfair to blame the rich for getting richer, simply because these are the prople who bothered to educate themselves in financial matters.
It's easy to blame others, but the simple reality is that nobody is to blame for your own actions. Nobody but yourself.
In a better world, the education system would provide the survival tools to brave a harsh financial world, and prosper in it, but in this imperfect world, we are as individuals forced to do so ourselves.
It is an easy excuse to say "I can't do that", but that is all it is, an excuse.. if you really want to change your life, then start today!

I am a great fan of Robert Kiyosaki, and recommend anyone wanting to change their life for the better to read his books. Start with "Rich Dad Poor Dad".

- Frode

--
Some interesting quotes
[ Parent ]
Don't bother with "Rich Dad" (none / 0) (#35)
by bluebomber on Mon Apr 02, 2001 at 05:06:40 PM EST

Go here for an excellent analysis of Kiyosaki's book.
-bluebomber
[ Parent ]
Amen. (none / 0) (#36)
by jolly st nick on Mon Apr 02, 2001 at 05:46:01 PM EST

I really don't find myself having a lot of sympathy for those who find themselves in serious debt troubles.
Amen, and while we're on the subject, we should also reform corporate bankruptcy so that stockholders have to pay any debts the corporation may incur. At least that should be the case for the rugged individualists that invest in credit card companies that want to cut in front of the grocer in line to be paid out of a debtor's assets.

[ Parent ]
responsibility (4.80 / 5) (#12)
by Seumas on Sun Apr 01, 2001 at 03:14:41 AM EST

I'm all for making bankruptcy more difficulty to file for and to get out of. Taking something or getting services without payment is absolutely nothing less than theft. My problem with the current attack on bankruptcy laws is that they treat individuals differently than corporations (which are granted the same rights as individuals in this country, but given far greater benefits). If bankruptcy for corporations were being addressed with this same severity, then I'd probably be in strong support -- but to call individuals with the accounting and budgeting skills of a stick to be responsible while allowing corporations to act without regard or punishment is astonishingly offensive.

The problem, however, is not just bankruptcy -- it's this whole global society of credit -- spending what you don't have. We have entire generations of adults who have absolutely no comprehension of the difference between actual money and credit and spend both with equal abandon.
--
I just read K5 for the articles.

In a perfect world... (3.00 / 1) (#17)
by The Cunctator on Sun Apr 01, 2001 at 04:16:05 AM EST

Noone would ever file for bankruptcy. But even a perfectly rational being cannot prevent the unforseen; it's one of the major problems with the application of game theory in economics: game matrixes depend on accurate weighting of gain and loss scenarios, an impossible task even for the perfectly rational and perfectly informed.

And none of us is close to being perfectly rational, and it's utterly impossible to perfectly informed. Rationality is, sadly, monstrously unhelpful much of the time, even though it's great for doing programming or science.

To actually respond to your post, rather than going off on a complete tangent, well said.

We have entire generations of adults who have absolutely no comprehension of the difference between actual money and credit and spend both with equal abandon. Generations who begin the credit cycle as children. Billions upon billions of dollars are spent to program everyone into being a consumer, and that money is well spent.

It's simply unconscionable that corporations are treated better than people. Which is why it's a great idea to incorporate.

[ Parent ]

Re: responsibility (4.50 / 2) (#23)
by eLuddite on Sun Apr 01, 2001 at 06:50:14 AM EST

The problem, however, is not just bankruptcy -- it's this whole global society of credit -- spending what you don't have.

Some economists will tell you that money _is_ debt and that a certain amount of bankruptcy is required (or at least inevitable) if you have expectations for wealth to increase. No pain, no gain.

On a practical level, in an inflationary environment where money is depreciating, people will incur and hold onto debt because it will pay itself off with the mere passage of time :-) This is why printing an endless supply of money to forestall a recession is bad: hyperinflation is a probable outcome, rendering debts without value.

On another practical level, if we knew you'd never go into debt, what would we do with Madison Avenue? I dont know how many people go into debt buying an SUV but I do know that there are lots of them than actually drive beyond the city limits.

---
God hates human rights.
[ Parent ]

Who was irresponsible first? (4.00 / 3) (#28)
by Erbo on Sun Apr 01, 2001 at 09:50:58 PM EST

If we want to talk about "responsibility" here, let's start with the credit card issuing companies, who for years have been sending out "pre-approved" credit card junk mail to virtually everyone in the country over 18 (and even some under 18) who has a pulse. Unsurprisingly, more cards got issued as a result. And equally unsurprisingly, more of these accounts turned delinquent, and more of the people who got in trouble filed for bankruptcy.

So now, faced with the possibility of massive write-offs due to people filing bankruptcy, the credit card companies went to Washington, looking for a government bailout. And, unsurprisingly, it looks like they're going to get it, as they can certainly buy enough legislators (and even a President) to do so.

Who loses? The average Joe who's lost his job, has a family member in the hospital or a nursing home, or is otherwise down on his luck--the kind of people that really needed to file bankruptcy in the first place (not the idiots whose only problem was that they overextended themselves). And, given the current economic downturn, there's liable to be a lot more of those kinds of people. And, but for the grace of $DEITY, you might be one of them.

Welcome to the Brave New World. Corporations can make billion-dollar judgement errors and evade responsibility for them, but you can't escape your "responsibility" even if you lose your ability to pay through no fault of your own. It's enough to make one wish we still had Bill Clinton in the White House...

Eric
--
Electric Minds - virtual community since 1996. http://www.electricminds.org
[ Parent ]

not applicable to most (none / 0) (#34)
by bluebomber on Mon Apr 02, 2001 at 04:46:43 PM EST

I should start by admitting that I have not read the text of the legislation as it stands.

However, from most of the commentary and analysis that I have heard about this subject, it does not seem that most people will meet the tests. And those people who are affected by the changes will have to make structured payments to their creditors, similar to corporations that file Chapter 11 bankruptcy. The "tests" to which I refer are income-level tests: if you earn more than $X/year, you must file under a different provision of the bankruptcy law; your debts will not be wiped clean; and you will have to make strutured payments until your debt is paid off.

Your point about responsible lending is right on the money. There may still be active legislation regarding predatory lending practices.

If someone could fill in some of the blanks in the info about, that would be wonderful...

-bluebomber
[ Parent ]

Stupid assertion (none / 0) (#33)
by streetlawyer on Mon Apr 02, 2001 at 09:51:33 AM EST

Taking something or getting services without payment is absolutely nothing less than theft.

No, taking something or getting services without intention of payment is nothing less than theft. Borrowing money in the legitimate expectation of being able to pay it back is finance, and it's the business that banks are in.

--
Just because things have been nonergodic so far, doesn't mean that they'll be nonergodic forever
[ Parent ]

That's funny (none / 0) (#37)
by krlynch on Wed Apr 04, 2001 at 11:44:30 AM EST

We have entire generations of adults who have absolutely no comprehension of the difference between actual money and credit and spend both with equal abandon.

This made me chuckle to myself in my cubicle. If you had tried to explain what money was to most of our ancestors, and then tried to explain credit, most of them would not likely be able to figure out what the difference was. Both of them are abstractions of value, which in itself is an abstraction. One is the promise to give something of value to you later for goods purchased now, and one is the promise that what I give you now for goods and services will have value later. Both are very very high level abstractions that we usually take for granted today, but are not at all obviously different.

[ Parent ]

Ei se oo tyhmä joka ottaa vaan se joka antaa... (none / 0) (#30)
by Punikki on Mon Apr 02, 2001 at 03:54:23 AM EST

or so goes the saying. Banks must take responsibility for dumb loans. If there is a risk that the loan asker can't pay up, well... well, they can't pay up, and they shouldn't lose their homes. The last thing I want is another homeless person. People fall for "cheap" "fast" loans, which banks give, sometimes fully aware that the debted can never repay them. Should they be made debt-slaves? No way. We have bad experience's in Finland about this. The gov is just starting to think about making loans null if they can't be paid ever. And of course, those who backed the loans, weren't told about the debt piling up and were fooled, with the bank loaning more money to the debted. Some of these cases are still in court. Any bank giving a dumb loan must take the risk that they'll lose money. People must be given the chance to start over, but each case must be checked thoroughly. The priority should be humans, no banks.

Haul 16 tons, and what do you get? | 37 comments (24 topical, 13 editorial, 0 hidden)
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