Comments on: A gilded tomorrow

A gilded tomorrow

The Jesse Helms — Mon, 28 Feb 2005 15:46:30 -0800

Why so many families report being financially less secure even as the nation has grown more prosperous. The answer lies in a quarter-century-long shift of economic risks from the broad shoulders of business and government to the backs of working families.

By: rolypolyman

rolypolyman — Mon, 28 Feb 2005 16:09:00 -0800

And on a related note, the Senate is about to vote on a pro-credit card industry bill that would reform personal bankruptcy. It's made it out of committee and now on the floor. Republicans also appear likely to be able to muster the 60 votes needed to defeat a filibuster. In that case, bankruptcy reform could be enacted this year, perhaps before the summer break. President Bush has indicated he would sign the bill.

By: thedevildancedlightly

thedevildancedlightly — Mon, 28 Feb 2005 16:13:50 -0800

> a pro-credit card industry bill In the short-run, possibly. In the long-run, not at all. Credit cards are an incredibly competitive industry (see all the junkmail you get every day about credit cards). Notice also that the rates are 18%+ in a lot of cases because this is a huge amount of unsecured debt that can be discharged in bankruptcy. If the debt can no longer be eliminated in bankruptcy then rates will come down. I'd be happy to put my money where my mouth is and place a bet that if the bill passes then average credit-card rates will be down at least 2% within a year of it going into effect. And, of course, that will have the ironic effect of reducing personal bankruptcies by reducing the rate at which debt grows...

By: tkchrist

tkchrist — Mon, 28 Feb 2005 16:17:59 -0800

if the bill passes then average credit-card rates will be down at least 2% within a year of it going into effect. And, of course, that will have the ironic effect of reducing personal bankruptcies by reducing the rate at which debt grows... Except this bill will do nothing to stop multi-billion dollar defaults by large corporate entities themselves... the fiscal events that lead to REAL mass impoverishment and starvation.

By: matteo

matteo — Mon, 28 Feb 2005 16:22:48 -0800

still working my way through the links, great post TJH

By: Al_Truist

Al_Truist — Mon, 28 Feb 2005 16:26:34 -0800

um, which article at New Internationalist would you be referring to?

By: ParisParamus

ParisParamus — Mon, 28 Feb 2005 16:37:04 -0800

Before you sign on to another version of economic reality--the one in Europe is the obvious alternative--be sure to read the fine print concerning the down side. Like having the American notion of entrepreneurship evaporate. Or, the unemployment rate double or triple. It's unclear who is more at fault with credit cards: pathetic individuals who buy durable goods they can't really afford; credit card seductions; some of each. bankruptcy is kinda easy. But I think it should be that way; it's not like the banks or credit companies are going broke; and it's not like I haven't been benefitting from 0-3.9% intro APRs for the last 20 years....

By: trharlan

trharlan — Mon, 28 Feb 2005 16:45:49 -0800

Except this bill will do nothing to stop multi-billion dollar defaults by large corporate entities themselves... the fiscal events that lead to REAL mass impoverishment and starvation. Over the last quarter of a century, many safeguards that people once counted on to shield them from financial harm have been weakened or completely lost. These include formal protections such as guaranteed corporate pensions These statements are somewhat contradictory, and the second (from the story) is one of sheer ignorance. The evolution of the Defined Contribution plan has freed workers, minimized moral hazard, and substantially reduced the risk of an insufficient retirement.

By: stratastar

stratastar — Mon, 28 Feb 2005 17:17:36 -0800

I am worried that the bankruptcy bill will make the US economy less dynamic by making it much more hazardous for entrepreneurs to leverage credit cards to their advantage to finance new ideas (of course the rest of us pay for those who go bankrupt, but growth ultimately comes from new ideas and new products).

By: crunchburger

crunchburger — Mon, 28 Feb 2005 17:22:37 -0800

I just want to keep putting food on my family

By: stratastar

stratastar — Mon, 28 Feb 2005 17:28:55 -0800

The New Internationalist articles have no mention of the shift in financial risk from companies to workers. I would want to see some measures of, and statistics beyond anecdotal evidence.

By: crunchburger

crunchburger — Mon, 28 Feb 2005 18:06:00 -0800

See, a lot of the metrics of the "good economy" have a disconnect to the expectatons and exigencies of yer ordinary working person. Many things that are "good for the economy" are, in fact, bad for that person.

By: a_day_late

a_day_late — Mon, 28 Feb 2005 19:09:03 -0800

The evolution of the Defined Contribution plan has freed workers, minimized moral hazard, and substantially reduced the risk of an insufficient retirement. posted by trharlan at 7:45 PM EST on February 28 [!] There! I feel economically more secure already. Looks at SEP/IRA account balance. Begins to cry. --- Anecdotal story (paraphrased). Call into C-Span's Washington Journal one recent morning. Voice of middle-aged man on the phone calling from Indiana: Caller: I don't think rich people should be penalized with higher taxes just 'cause they're rich. Host: Caller, do you consider yourself rich? Caller: No, I'm unemployed. Host: How long have you been unemployed? Caller: Not sure exactly. Long time. My benefits have run out. Host: How are you getting by? Caller: Well, it's getting tough. Not sure what'll I do. Host: Do you want to add anything else? Caller: No, that's about it. --- There's your busted, down and out Bush voter in a nutshell.

By: melissa may

melissa may — Mon, 28 Feb 2005 19:10:10 -0800

It's unclear who is more at fault with credit cards: pathetic individuals who buy durable goods they can't really afford; credit card seductions; some of each Or maybe people hit with sudden catastrophic medical bills or some other unpredicatable financial disaster who have to keep putting food on the table. When you live paycheck to paycheck thanks to a full-time job with poor or no insurance in a fluctuating job market, there's no cushion. That's the point of this series -- it's volatility, wild employment sector and market swings that's crushing people at every economic level. Of course there are people misusing credit cards, but I know so many otherwise proud, resourceful people who've had to resort to them thanks to a string of bad luck. bankruptcy is kinda easy Not unless you want to spend 7 years with a no available credit. And depending on how things go in the Senate this week, even that will seem like a walk on a sandy beach compared to what's to come.

By: melissa may

melissa may — Mon, 28 Feb 2005 19:11:55 -0800

Apologies for the poor editing...

By: techgnollogic

techgnollogic — Mon, 28 Feb 2005 19:30:39 -0800

That LA Times piece about the executive whose income dwindled to $48,000 in 2003 was just heartbreaking. It says he's only back up to making $120,000 annually at his new job. Raw deal, man. What happened to this country?

By: Space Coyote

Space Coyote — Mon, 28 Feb 2005 19:31:01 -0800

If the debt can no longer be eliminated in bankruptcy then rates will come down. hahahahaha.. yeah, right after health insurance costs plummet as soon as they pass tort reform. The question is : are you stupid or lying? Because you're not convincing anyone.

By: weston

weston — Mon, 28 Feb 2005 19:44:28 -0800

what stratastar said. I know a good handful of shoestring entreprenuers and small business owners whose first investors were Visa, Mastercard, Discover. And for some people, it's a last ditch resort for expenses they're not prepared for. Not all credit card debt is unrestrained consumption.

By: thedevildancedlightly

thedevildancedlightly — Mon, 28 Feb 2005 19:47:49 -0800

Space Coyote You seem to have two different elements of the credit card business confused. I think that you're referring to credit card processors, while I'm referring to credit card issuers. Yes, there is a Visa/MasterCard duoopoly in credit card processing. Visa/MC run the processing networks that underly every transaction. They take a 1% (give or take) cut off every dollar spent through your credit card. Usually the merchant has to pay that. The Visa/MC duoopoly hurts merchants. In comparison, there is no shortage of credit card issuers. Capital One, BankOne, CitiBank, BoA, etc etc etc. There is currently (subject to change) no monopoly concentration in that market. Issuing banks are the ones that set rates and terms, and there is still tons of competition in that market. Here's the simple comparison - you pay 12% on your credit card, 8% on your car, and 5% on your house. Why? Because your house is better security for a loan than a car, which is better security than none at all. People above have raised interesting points about balancing the need for some unsecured credit against the cost of that debt, but your math just doesn't compute. Tort reform is a whole different deal. Don't get the issues confused. I'll leave the personal attack out of this.

By: nakedcodemonkey

nakedcodemonkey — Mon, 28 Feb 2005 19:52:53 -0800

It's unclear who is more at fault with credit cards: pathetic individuals who buy durable goods they can't really afford; credit card seductions; some of each. Whoa nelly. Debt != frivolous spending. (on preview, what they said...) 1/2 of U.S. personal bankruptcies are attributable not to "pathetic individuals who buy durable goods they can't really afford" but to collapsing under the weight of medical costs that keep rising faster than the rate of inflation. I've personally known too many people whose lives have been royally fucked up because of one injury, one illness that crushed them financially. It's scary how fast it happens. And it's not the easy to protect yourself from it. At the low end of the wage scale, even employer subsidized insurance is out of reach for the very people who have no ability to build up that kind of savings to fall back on in times of emergency.

By: techgnollogic

techgnollogic — Mon, 28 Feb 2005 20:43:42 -0800

Close to half met the researchers' definition of a "major medical bankruptcy," meaning they either cited illness or injury as a specific reason for bankruptcy, had more than $1,000 in uncovered medical bills in the past two years, lost at least two weeks of income from work due to illness or injury, or mortgaged a home to pay medical bills. More than half met the criteria for "any medical bankruptcy." This group included people who had a major medical bankruptcy or anyone reporting addiction, uncontrolled gambling, birth of a child, or death of a family member as a cause of bankruptcy. - Forbes Those are some interesting definitions. only 27% of the surveyed debtors had unreimbursed medical expenses exceeding $1000 over the course of the two years prior to their bankruptcy. Presumably 73%–the vast majority-- had medical expenses during that two-year period of $1000 or less. Had that figure been recited up front, it would have been obvious that the authors had to massage the data pretty hard to support the conclusion that half of bankruptcies are somehow driven by medical costs. [more]

By: bonecrusher

bonecrusher — Mon, 28 Feb 2005 23:22:05 -0800

"only 27% of the surveyed debtors had unreimbursed medical expenses exceeding $1000 " That's what the survey said - about half of those who declared bankruptcy due to medical reasons did so because of large medical costs (an average of $11000 over the course of the illness), the other half due to loss of income. "Presumably 73%–the vast majority-- had medical expenses during that two-year period of $1000 or less." Look how sleazy this sentence is - 73%! Wow! Of course, that 73% includes the ~50% of those surveyed who did not report medical expenses as a reason for their bankruptcy. And the remaining 23% may or may not have had medical expenses > $1000 during that period. The survey doesn't say - all we know is that they didn't list that as the reason for their bankruptcy. They cited loss of income due to missing work. " This group included people who had a major medical bankruptcy or anyone reporting addiction, uncontrolled gambling, birth of a child, or death of a family member as a cause of bankruptcy. - Forbes Those are some interesting definitions." Those are interesting definitions of medical expenses? How so? Who exactly do you think delivers babies? Where do people die? Where do people go through rehab? (The gambling one is a little tenuous, but the authors give their reason for including it - it's listed as an "illness" in the DSM IV. If you don't buy that, subtract 1.2% from the 54.5%).

By: randomstriker

randomstriker — Tue, 01 Mar 2005 00:04:35 -0800

bonecrusher, I sympathize with those people who've gone bankrupt after crippling, unexpected medical expenses. As an American living in Canada, I'm totally for socialized medicine. But I still think that's a sign that people are suffering from a pathalogical inability to save, wallowing in credit card debt. Sure, they are managing their debt load reasonably well in times of stability, but when they're hit with what should be minor crises for which they've got some savings to cushion the fall, instead they're right up against the debt limit. Think about it: the Forbes article you quote states that the majority of people who file for bankruptcy are middle-class professionals. If these people had saved for a rainy-day, they should have had no problem whatsoever taking an unexpected $5-10,000 hit. It might hurt to have to tighten the belt for a little bit, but it certainly should not result in bankruptcy. I make CAD 42,000 p.a. and I make it a point to put away $1,000 a month in pure savings. This means I make do with a lower material "standard of living" than most people in my salary bracket do -- but it means I am living well within my means, able to weather almost any non-permanent problem and building a kick-ass passive-income asset portfolio to boot. My style of money-management used to be the norm just one or two generations ago, and indeed it still is the norm for most of the rest of the world. But somehow here in America (and Canada), it is acceptable in this culture for people to spend pretty much their entire paycheck right down to the last cent, while they shuffle debt around from one creditor to another and barely service that debt. I content that medical emergencies aren't the cause of most bankruptcies, they are merely the straw that broke the camel's back which was already overloaded with consumption debt. Oh, and I live a fantastic lifestyle on my restrained budget, thank you very much. I just buy less useless shit and rent a smaller place, and don't care about keeping up with the Joneses.

By: Jim Jones

Jim Jones — Tue, 01 Mar 2005 04:17:09 -0800

In comparison, there is no shortage of credit card issuers. Capital One, BankOne, CitiBank, BoA, etc etc etc. There is currently (subject to change) no monopoly concentration in that market. posted by thedevildancedlightly at 10:47 PM EST on February 28 "JPMorgan Chase & Co. merged with Bank One Corp. to form the second-largest banking company in the United States." Source "[T]he merged firm intends to cut 10,000 jobs and $2.2 billion in expenses over three years." Source

By: MattD

MattD — Tue, 01 Mar 2005 04:23:19 -0800

Two thoughts: First, don't use bankruptcy filings as a measure of economic distress. It is so easy, and so consequence free, to file for bankruptcy that you'd be a fool not to do so in many circumstances. Easy bankruptcy has become built into our economy, and a lot of consumer goods manufacturers and retailers would not be happy if all of a sudden people got more risk averse with their credit cards. Second, what randomstriker said. For all that it is built into the current system, I just don't see how people sleep at night if they don't have a safety cushion, and how they could enjoy consumption, beyond sheer necessities, bought with borrowed money at 18% non-deductible interest rates.

By: Mitheral

Mitheral — Tue, 01 Mar 2005 08:49:02 -0800

randomstriker that's a good annual wage and I'd bet you're single and without children to boot. Lots of people make a lot less than that or even less than you make minus what you save.

By: randomstriker

randomstriker — Tue, 01 Mar 2005 11:06:11 -0800

Mitheral, you bet wrong. I'm supporting two kids and an unemployed common-law partner. And I live in Vancouver, the most expensive city in Canada. I don't claim to be in poverty, but you can't deny my salary is on the lower spectrum of middle-class. My point, rather, was that the kind of people who excercise the sort of fiscal discipline that I do are in desperately short supply. The few that I encounter are usually immigrants from Asia, and many often make a lot less than I do yet are still able to squirrel away substantial savings. On the flip side, many of my co-workers earn twice as much as I do, yet still struggle to make it from paycheque to paycheque with their credit cards maxed out. At the end of the day, there is always something more that we can buy. Most Canadians and Americans don't seem to see a need to set a spending limit that is less than their bank + credit card balance, and those that do don't have the willpower to stick to it.

By: Mitheral

Mitheral — Tue, 01 Mar 2005 18:39:41 -0800

I congratulate you randomstriker on both your fiscal responsibility and your modesty. I've never seen someone state they save so much and not throw in how many additional people they support. If you don't mind sharing why did you emigrate? Was Canada's better safety net a factor?

By: rough ashlar

rough ashlar — Tue, 01 Mar 2005 21:14:11 -0800

Before you sign on to another version of economic reality--the one in Europe is the obvious alternative--be sure to read the fine print concerning the down side. Like having the American notion of entrepreneurship evaporate. Or, the unemployment rate double or triple. Welcome back my friends, to postings by the troll who never ends, See him handwave while he trolls, come inside, come inside. No where does PrimusParis admit that the Economic Model the US relies on is going town the tubes with the end of cheap oil. That end is around the corner, and you can watch PrimusParis twist in the wind. Don't worry, you'll be twisting with him. Enjoy the backside of Hubbards peak.