Rowyn (rowyn) wrote,

Bankrupt ranting

On the bankruptcy reform bill recently passed by the House, which is intended to make it harder for people to file for bankruptcy, and generally require them to pay more if they do:

"It is supported and being pressed forward by a coalition of banks and credit-card companies and other business interests who want to profit exorbitantly at the expense of families and small businesses at a time of crisis," said Rep. Jerrold Nadler (D., N.Y.).

Now, this just annoys me. As it happens, I don't favor the form of bankruptcy reform described in this bill. My opinion on bankruptcy (I've said this before, I'm sure, but what the heck) is as follows:

--On one hand, you have the morons in the banking industry who cannot figure out that giving a $10,000 unsecured credit cards to people who have never made $10,000 in a single year in their whole life is a bad risk.

--On the other, you have the fools who can't figure out that if they spend $10,000 of someone else's money, that means they have to pay it back at some point. Usually with lots of interest.

I am not, as you can probably tell, overflowing with sympathy for either of these camps. In some meanspirited way, I feel they deserve each other. They were made for each other. Let them claw one another's throats out: maybe they'll learn something from the experience. Like that bit of wisdom even Polonius managed to hang onto: "Neither a borrower nor a lender be." At least not if you have not the least clue about what the heck you're getting into.

Despite working for a bank, and personally observing the charm, intelligence, and wit possessed by the average deadbeat, in the current climate, I feel just a smidge more sympathy for the consumer than for the banks. Banks have underwriters whose job it is to keep the institution informed with tidbits like "Lending to people who have a long history of no income and not repaying their debts is extremely risky." While consumers in some cases are lucky if they've been taught that 20% of $100 is more than 10% of $100. Consumers can claim ignorance; banks ought to know better.

But this particular statement by Rep. Nadler annoyed the heck out of me. If I lend you $100.00, and you then lose your job and I only end up getting $50.00 back from you before I give up trying to collect, I have not 'profited exorbitantly' at your expense in this crisis. Banks trying to collect on soured debts during the current economic downturn are not doing so in order to "profit exorbitantly": they are trying to lose less money. Find a better straw man, Mr. Nadler.

[Telnar pointed out that banks may profit exorbitantly prior to a case reaching bankruptcy, by charging 20% interest and high fees on debts that they knew were high risk. But even if the bank has collected interest-only at that kind rate for two years, the bank will still take a loss on the loan if they have to write off more than 40% of it. And unsecured debt, which is pretty much the only kind that ranks that level of interest, almost always involves a much bigger write-off than that if it goes to collections, never mind bankruptcy. In order to profit exorbitantly from a customer, the bank really needs that custome to continue to willingly make payments for many years.]

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