The current melt down on Wall Street, largely fueled by the collapse of the sub-prime mortgage market, got me to thinking about the availability of easy credit and the inability of anyone drowning in their debt to do anything about it.
The news media rarely give any explanation for why Americans have been racking up debt at rates heretofore unseen in American society, leaving one to infer that the debt explosion is some sort of inevitable by-product of today's moral and economic climate. Nah. All that debt was made possible by one small change in the laws of consumer finance which transformed centuries of economics in a hot instant. In 1978, the Supreme Court interpreted ambiguous language in a little-known federal statute and opened the door for banks to "export" interest rates from one state to another. For example, a bank with lending operations in South Dakota -- where the interest ceiling was 24 percent, could now issue loans at 24 percent interest to a family living in New York (where the max rate is about 12%) without worrying about their corporate officers ending up in Riker’s Island perched next to loan sharks who collected overdue debts by breaking kneecaps. This set the stage for the explosion of the credit card industry and the availability of huge amounts of credit. The problem with all of that available credit is that people were quickly overextending themselves (by paying things like medical bills) and declaring bankruptcy, thus depriving poor little companies like MBNA of their minimum monthly payments and 27% interest payments. (In fact, nearly 90 percent of individuals filing for bankruptcy this past year had been felled by a job loss, a medical problem, or a family breakup, or by some combination of all three.) The solution the credit card companies came up with was to push for reform of the bankruptcy law. They achieved their goal in 2001. It is noteworthy that the bankruptcy bill could not have passed Congress without bipartisan (read, Democratic) support.
Americans in the 21st Century have become little more than debt slaves on a capitalist plantation. Up until a few years ago if you got in over your head you could declare bankruptcy and get a fresh start. No longer. The credit card industry, lead by MBNA and assisted by none other than Senator Hilary Clinton, effectively put an end to American’s ability to reboot their financial lives with a Chapter 7 filing. Of all the despicable things the Senate Democrats have done ion the last six years, and there have been many, none has had and will have such a devastating effect on the middle class than the passage of that bankruptcy bill. As thousands of overextended homeowners face the prospect of losing their homes and still remaining mired in debt for years, the credit card industry is raking in massive profits from jacked up interest rates and over limit penalties.
The industry authored bill to “reform” the bankruptcy system was first introduced when Bill Clinton was in the White House. Then First Lady Hilary Clinton convinced the President that the bill would devastate poor and middle class families if it were signed into law. A lame duck at the time, Clinton vetoed the bill in October of 2000.
In the spring of 2001, the bankruptcy bill was reintroduced in the Senate, essentially unchanged from the version President Clinton had vetoed the previous year. This time freshman Senator Hillary Clinton voted in favor of the bill. When the bill came up again in 2005, she missed the vote because her husband was in the hospital, although she indicated she would have opposed it. I call bullshit on that excuse. It is no coincidence that Senator Clinton received $140,000 in campaign contributions from banking industry executives in a single year, making her one of the top two recipients in the Senate.
Lest anyone forget, the following Democratic Senators voted for the version of the bill that ultimately passed and was signed into law by President Bush: Sen. Joe Biden (D-Delaware), Sen. Tom Carper (D-Delaware), Sen. Ben Nelson (D-Nebraska), Sen. Tim Johnson (D-South Dakota), Sen. Max Baucus (D-Montana), Sen. Evan Bayh (D-Indiana), Sen. Jeff Bingaman (D-New Mexico), Sen. Robert Byrd (D-West Virginia), Sen. Kent Conrad (D-North Dakota), Sen. Dan Inouye (D-Hawaii), Sen. Jim Jeffords (I-Vermont),Sen. Herb Kohl (D-Wisconsin), Sen. Mary Landrieu (D-Louisiana), Sen. Blanche Lincoln (D-Arkansas), Sen. Bill Nelson (D-Florida), Sen. Mark Pryor (D-Arkansas), Sen. Harry Reid (D-Nevada), Sen. Ken Salazar (D-Colorado), Sen. Debbie Stabenow (D-Michigan).