An interesting article is found here in the latest issue of the New Yorker discussing the potential effects of bankruptcy laws on the economy. In summary, at the encouragement of credit card companies, Congress passed legislation in 2005 making it more difficult for individuals to declare bankruptcy. This was supposedly done so that credit card interest rates and fees could be kept lower for the rest of us who aren't going into ridiculous amounts of debt with unnecessary consumer spending. However, according to the article, prior to this legislation credit card companies profits tripled while bankruptcy rates doubled: clearly not a fiscal crisis. It appears that loose lending was quite profitable.
Whether or not looser bankruptcy laws are better or worse for the economy is up to debate but I still can't help but feel that as much as we expect individuals to be responsible in their spending and in discharging the debts they accumulate, we should also expect financial institutions to be responsible in their lending and evaluation of risks as they stand without either 1) Requiring legislation to shield them from risk, especially when they are making sizable profits, or 2) Having the reassurance of a federal bail-out with only a minimal episode of public embarassment when things go south.
Just another blog
1 comment:
In a perfect world, we would expect financial institutions to be responsible. But since money is what makes the world go round, it is a sad reality that I'm not surprised at all that credit card companies can influence legislation in this country to their gain. Thanks for the insight.
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