Still More Bankruptcy

Here are a couple more thoughts on the new bankruptcy bill. President Bush had some wise words on the subject when he signed the bill: "If someone does not pay his or her debts the rest of society ends up paying them." (Via Article 19)

Bush is right--that's just basic economics. I hope this new recognition will extend to Bush's understanding of the Social Security trust fund. Just a couple of weeks back, he was in West Virginia looking at a filing cabinet. "There is no ‘trust fund,' just IOUs that I saw firsthand." Bush may not have seen what he expected to when he visited the Bureau of Public Debt, but perhaps now he'll realize that those IOUs are just as valid as debts as are credit-card bills.

(Another thing Bush said in West Virginia has continued to bug me: "A lot of people in America think there's a trust, in this sense -- that we take your money through payroll taxes and then we hold it for you, and then when you retire, we give it back to you. But that's not the way it works." While the President doesn't reveal whether he thought that or not, for anybody who does, I'd recommend getting a quick primer from Jimmy Stewart in It's a Wonderful Life. As George Bailey, he staves off a run on the Bailey Building and Loan on Black Tuesday, quieting the mob with the following explanation of how banking works:

You're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Your money's in Joe's house... (to one of the men) ...right next to yours. And in the Kennedy house, and Mrs. Macklin's house, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can.

Now that I think about it, Jimmy Stewart is also currently the poster boy for filibusters. Maybe we'd all understand our civics better if we took our lessons from Jimmy Stewart/Frank Capra movies.)

Getting back to the bankruptcy bill, Robert Reich pointed out on Wednesday's Marketplace that while we're making it harder for individuals to get back on their feet after becoming overwhelmed by debt, we're letting corporations that file bankruptcy largely off the hook. When such entities are pressed by rising medical and pension costs, bankruptcy judges will often simply release them from those obligations, which then fall onto their current or retired employees who, thanks to Congress and the President, now have an even more narrow margin of error in managing their own debt.