Timba,
I have a fairly low opinion of the bankruptcy law changes being proposed. As close as I can tell, it's something that has been lobbied into effect by the lenders who have over leveraged consumers in the first place. Where our bankruptcy laws really need an overhaul is at the corporate level, not at the consumer level.
Hardly a day goes by where I don't get some kind of credit card or loan offer in the mail. The typical offer doesn't require me to verify anything whatsoever. Just sign my name and return the form. To the best of my knowledge, none of these companies ever take the applicant's outstanding debt into consideration in issuing new credit. It's more like they treat it as if the new account will be the only debt outstanding once it's issued.
IMO, companies who issue unsecured credit, without any kind of due diligence as to the debtor's ability to ever pay it back, don't deserve any kind of beefed up legal protection against defaults. The idea consumers should be held to a higher level of responsibility for irresponsibly issued credit strikes me as being somewhat less than equitable. Especially considering the sub prime debt most likely to be affected by the changes is issued at predatory rates supposedly designed to make up for a certain percentage of defaults. Somewhere along the line Company X who issues a clerk at 7/11 his 20th credit card with a 24% interest rate deserves to take the hit on defaults.
I doubt there is likely to be much impact on consumer credit spending due to any changes in bankruptcy laws. Where I see the most danger is the companies issuing the credit are likely to treat it as an excuse to even more aggressively leverage consumers. What happens if the Fed has to raise rates to defend the dollar? Real Estate values tend to move opposite of interest rates. Default rates are already at record levels. What happens when a home purchased with 3% down loses 10% of it's value and the payments on variable rate credit cards go up?
If the consumer isn't able to reorganize their debt, at a certain point liquidation makes more sense. Instead of a limited number of defaults on credit cards, which never should have been issued in the first place, the defaults on everything skyrockets. Banks get a nice inventory of houses, and car companies get their SUVs back. But before that happens, the first thing to go is stocks, bonds and mutual funds.
Maybe I'm being too bearish, but I think we're in a whole bunch of trouble. Changes in bankruptcy laws are probably a fairly minor factor in the big picture, but it could be added to the trend of government serving the elite minority at the expense of everyone else. A wise government would have told the credit card companies if they don't like their default rates, to change their lending practices. |
