Tag Archives: Bankruptcy

It Makes You Wonder

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Elizabeth Warren looked like she might become the front-runner for the Democratic presidential nomination. But announcing her Medicare For All plan without simultaneously describing her sensible transition plan, as well as attacks from the corporate wing of the Democratic Party, have cost her a lot of support. She’s probably in third place now.

Still, I watch this brief video from a speech she made once, probably before she became a senator, and wonder what we could do with a president like her.

Who would you choose as president? A talented, hard-working woman who became a nationally-recognized expert on the law of bankruptcy, who knows what it means to struggle in America, and who has serious plans to fix our problems? Or a semi-senile, racist con man whose businesses declared bankruptcy six times (after he was handed $100 million dollars by his father), while “the burden of his failures fell on investors and others who had bet on his business acumen”.

Maybe we as a nation are too far gone to deserve a president like her.

The Professor Got Educated

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I wish every voter in the country would read this article. Okay, relatively few will, but I’m convinced she’ll be our next president anyway. From “The Education of Elizabeth Warren” in the New York Times, here’s a much shorter version:

By 1981, Ms. Warren and her husband had secured temporary teaching posts at the University of Texas, where she agreed to teach bankruptcy law. She quickly earned a reputation for lively lectures, putting students on the spot and peppering them with questions and follow-up questions…

Even visitors to her class got the treatment. One of them was Stefan A. Riesenfeld, a renowned bankruptcy professor who had come to lecture on the Bankruptcy Reform Act of 1978. The law, which had expanded bankruptcy protection for consumers, was already under attack by the credit industry, which argued that it made personal bankruptcy too attractive.

Even so, Mr. Riesenfeld explained to Ms. Warren’s class, those who filed personal bankruptcy were “mostly day laborers and housemaids who had lived at the economic margins and always would,” she wrote in her 2014 memoir.

“I asked the obvious follow-up question: ‘How did he know?’” Ms. Warren wrote. After more questioning, it became clear that not only did Mr. Riesenfeld have no real answer, he was irritated by Ms. Warren’s probing.

The subject struck close to home. When she was growing up in Oklahoma, her father’s heart attack had thrown their household into precarious financial territory, forcing her mother to take a minimum-wage job answering telephones at Sears.

She remembers being fearful as she lay in bed at night listening to her mother cry. “She thought I had gone to sleep. I didn’t know for sure the details of why she was crying, but I knew it was bad and that we could lose everything,” Ms. Warren said.

(Later, the oil glut of the 1980s would destroy her brother David’s once-thriving business delivering supplies to oil rigs. Her brother John, a construction worker, would also struggle after the oil market collapsed….)

She wanted answers, more than Professor Riesenfeld could provide….

Dozens of people would eventually be involved in the … analysis of a quarter million pieces of data gathered from bankruptcy cases filed from 1981 through 1985.

Among the researchers was Kimberly S. Winick, then a University of Texas law student … While Ms. Warren didn’t talk a lot about her views, Ms. Winick said she believed that the project’s initial theory was that, “If you filed bankruptcy, you must be cheating.”

“Liz was from a more conservative place,” Ms. Winick said. “And she was somebody who had worked very, very, very hard all her life. And she had never walked away from a debt. And I think she kind of started with the view — let’s see what people are doing and how they’re cadging on their debts and screwing their creditors.”

That was the conventional thinking of the day….

While the [bankruptcy files] did not tell the whole story, they provided enough evidence for Mr. Warren and her co-authors to write, “Repeatedly, we have been surprised by the data and forced to rethink our own understanding of bankruptcy”.

… Over the years, the research elevated Ms. Warren’s status, from little-known Texas professor to sought-after lecturer, writer and consultant in bankruptcy law. It also set the stage for her career in politics.

In 1995, Mike Synar, a former Democratic congressman from her home state, asked Ms. Warren, by then a Harvard professor, to advise a special commission reviewing the bankruptcy system….

It was during that period, in 1996, that she switched her party affiliation from Republican to Democrat, though she insists that her essential conversion was from “not political” to “political”.

“I didn’t come from a political family,” she said. “I hadn’t been political as an adult. I was raising a family, teaching school and doing my research,” she said.

Then she went to Capitol Hill.

“I quickly discovered that every single Republican was on the side of the banks and half the Democrats were,” she said. “But whenever there was someone who would stand up for working families, it was a Democrat.”

She added, “I picked sides, got in the fight, and I’ve been in the fight ever since”.

merlin_159494604_bb8319a0-292c-4940-9d65-d3e2c6834404-jumboUniversity of Texas, 1985.

An appropriate addendum.

Surely, You Must Pay Your Debts!

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Not necessarily, and don’t call me Shirley!

Below is a link to a fairly long review by journalist Robert Kuttner of a book called Debt: The First 5,000 Years. I’ll summarize:

People, especially poor people, have been borrowing from other people, especially rich people, for thousands of years.

As long as people have borrowed, lenders (not all of them, but some of them) have accepted partial payment, especially in difficult economic times. Sometimes it makes economic sense for lenders to suffer a loss, if that’s what’s required to make the economy as a whole (and possibly the lenders themselves) more prosperous. It isn’t mentioned in the review, but Babylonian kinds periodically canceled debts so their wealthy subjects didn’t end up owning all the land. 

The modern form of bankruptcy was invented 300 years ago in England. The idea was that both creditors and debtors would be better off if debtors were allowed to start over, repaying what they could instead of wasting away in debtor’s prison.

Our current laws are tilted in favor of banks and the people who run corporations. Corporations are allowed to declare bankruptcy, sometimes more than once. Corporate officers generally remain in control of their bankrupt companies. On the other hand, countries like Greece can’t declare bankruptcy, although this has been proposed. Homeowners can’t use bankruptcy to deal with their mortgages. Students can’t even refinance their student loans at lower rates. In Kuttner’s words: “The obligations of a student loan follow a borrower to the grave”.

The Germans use the same word for “debt” and “guilt” (Schuld). They’re strongly in favor of other countries paying everything they owe, but seem to have forgotten that, after World War II, the Allies forgave almost all of Germany’s debts and allowed the Germans to postpone their remaining payments for 50 years, helping Germany rebuild and eventually become a creditor to other nations: “Germany, whose debt-to-GDP ratio in 1939 was [a whopping] 675 percent, had a debt load of about 12 percent in the early 1950s—far less than that of the victorious Allies”.

Most of us believe there is a moral aspect to paying our debts, but that’s not the way it’s generally thought of in the business world:

The double standard in debt relief that favored large merchants, present at the creation of bankruptcy law in 1706, persists today in many different forms. It gets surprisingly little attention in the debt debates. Despite the tacit assumption that “surely one has to pay one’s debts,” the evasion of repayment is both widespread and selective. Corporate executives routinely walk away from their debts via Chapter 11 of the national bankruptcy law when that seems expedient. Morality scarcely enters the conversation—this is strictly business.

It’s an excellent, eye-opening article. It even includes some recommendations for changing how various kinds of debt are handled today.

http://www.nybooks.com/articles/archives/2013/may/09/debt-we-shouldnt-pay/?page=1