aTypical Joe: a gay New Yorker living in the rural South

Wednesday, October 26, 2005

It won’t last forever

In light of yesterday’s bankruptcy bubble article, it’s worth quoting Elizabeth Warren’s OpEd from Monday, one week after the new bankruptcy law went into effect:

In a free-market economy, bankruptcy laws are written and rewritten as new economic problems bubble to the surface. Today, consumers and small businesses that have been swamped by debt are in the crosshairs. Tomorrow, insurance company failures, a collapse of the mortgage-lending market, or another outrageous story of a Wall Street executive who hung onto a fortune while seeking shelter in bankruptcy may excite Congressional attention.

Even as the new law goes into effect, there are six new bankruptcy bills pending in Congress, three of them responding to the recent hurricanes. Others are sure to follow: Several members of Congress have railed against the airlines’ use of bankruptcy to write off their pension obligations, for example.

The first draft of the new bankruptcy law was written in the mid-1990’s by lobbyists for the credit industry. As they explain, they then “shopped” the bill to friends in Congress who advanced it. “It is rare to find such clear evidence of the effects of money” in Washington politics, Howard Rosenthal, a Princeton economist, and co-author Stephen Nunez wrote in 2002 of the progress of the bankruptcy amendments.

[...]

The new bankruptcy laws will surely squeeze some people harder, and they may well improve short-term corporate profits. But those laws won’t solve the underlying problems of unemployment, inadequate health insurance or failing small businesses. They won’t stop hurricanes or floods. And because those problems aren’t going away any time soon, the need to restore common sense to the bankruptcy system will not go away either.

The industry should enjoy its cake and Champagne today. It won’t last forever.

I’m disappointed at how quiet the area of the blogosphere that I read has been on this topic. But then, it took me a week to get around to it. Maybe they’ll come around too.