June 26, 2010

Government as Lone Shark Collector

Justin Katz

I've written, periodically, about my belief that debt is the new method of indentured servitude. If we can get young adults to enter the working world with hundreds of thousands of dollars in education loans, some additional thousands in credit card debt (incurred on the expectation of profitable labor after graduation), with car loans a near necessity, and housing options pushing them toward entering into mortgages, we've taken away a great deal of the freedom that economic independence imparts. The situation gets chilling if this story is anything more than journalistic sensationalism of a few peculiar cases:

It's not a crime to owe money, and debtors prisons were abolished in the United States in the 19th century. But people are routinely being thrown in jail for failing to pay debts.

In Minnesota, which has some of the most creditor-friendly laws in the country, the use of arrest warrants against debtors has jumped 60 percent over the past four years, with 845 cases in 2009, a Star Tribune analysis of state court data has found.

Not every warrant results in an arrest, but in Minnesota many debtors spend up to 48 hours in cells with criminals. Consumer attorneys say such arrests are increasing in many states, including Arkansas, Arizona and Washington, driven by a bad economy, high consumer debt and a growing industry that buys bad debts and employs every means available to collect.

Whether a debtor is locked up depends largely on where the person lives, because enforcement is inconsistent from state to state, and even county to county.

In Illinois and southwest Indiana, some judges jail debtors for missing court-ordered debt payments. In extreme cases, people stay in jail until they raise a minimum payment. In January, a judge sentenced a Kenney, Ill., man "to indefinite incarceration" until he came up with $300 toward a lumber yard debt.

I expect we'll see this trend expand as the federal government takes on more responsibility in the finance sector, including the bailing out of too-big-to-fail banks. The reality that every loan shark has always known is that some debts cannot be collected. That's the risk of lending. If the government begins stepping in to jail those who fall behind, the public is taking the role of the crooked-nosed debt collector banging on the door and the balance of risk and benefit that makes lending a healthy application of free will and mutual benefit begins to evaporate.

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Probably the overriding theme here is why debt has become the new drug. I was raised both lower middle class and then, as my parents prospered, we moved up to upper middle. My parents nor I were ever in debt, nor were we in any situation which could have easily caused it. The same goes with my siblings. None of us did things that we could not afford to...yet somehow we all survived and prospered!

In terms of debt prisons and enforcement, my preference is for making credit much tighter at the end where it is doled out. Unfortunately, those who pray at the altar of increasing GDP (most American economists and pols) are unlikely to take to that idea.

Thrift is perhaps the single most important value for success. We need to encourage more of is, as opposed to "buy now, pay later".

Posted by: Stuart at June 26, 2010 5:21 PM

I am not as certain of Rhode Island as I should be, but the above scenario is perfectly possible in Massachusetts.

Here is how it works. A debotr is sued, perhaps in small claims. If the debotr defaults, the judge may be asked for a civil arrest warrant, known as a "capias". For reasons I will come to later, the judges are fairly free with these. It is also a matter of the creditor being entitled to it in order to compel the debtor's appearance in court.

When received, the capias is turned over to the sheriff/constable, not the police. The debtor may be arrested, but here is what usually happens. The sheriff calls the debtor and tells them that if they do not appear in court on the appointed date, they will be subject to arrest. That is usually sufficient, I don't recall hearing of an actual arrest.

In the 80's, there was a nutty constable in Boston, Dan something or other. He reveled in this, he had a custom made uniform and a "black maria" van. I think he did make such arrests.

Now we have entered another era, the era of the cell phone. Consequently a debtor's phone number can no longer be obtained. The sheriff cannot do nothing. Since he can't call, he may actually try to find the person and make an arrest.

This is not a new law, it is probably ancient. In fact debtor/Creditor law is much more lenient now than in ancient times. Many of the defenders of the Alamo, including Davy Crockett, were in Texas to avoid civil process by creditors. Texas was another country and civil writs did not extend there. To this day, Texas has numerous constitutional protections for creditors. Remember when all of Bush One's friends were filing bankruptcy? They first took residency in Texas.

Posted by: Warrington Faust at June 26, 2010 5:32 PM

"a judge sentenced a Kenney, Ill., man "to indefinite incarceration" until he came up with $300 toward a lumber yard debt."

I suspect this was not about an inability to pay a debt, you cannot be jailed for being impoverished.

News stories can be very misleading, that is why they are called "stories".

I suspect that the judge found reason to hold him for being in contempt of court, you can be jailed until you "purge yourself of contempt".

If it were just about the money, he could file bankruptcy and be freed immediately.

Posted by: Warrington Faust at June 26, 2010 5:39 PM

When one boils down all of these remarks, the basic premise that this is "new" stands in stark relief......... this is not new. In fact , it is very old. Government has always sided with capital over labor. I almost want to credit Justin for his new-found understanding of this most basic fact- but I can't. Long is the history- in this state - of government- in the form of armed troops- fighting labor -on the side of capital- aka mill owners, weathly property owners. Yes, you can say that was the past and it is not true today. But look at what Justin writes. Oh bad government-because HE does not like its Head.

Is it not personal responsibilty when one acquires school debt? Or car loans? Someone could go to a less expensive school/college/university and reduce debt load. Someone could live within means that reduces their transportation costs. These are personal choices. No one is pushing these costs on you.

Risk of lending. During our now past age of excess- I think many lending institutions lent with the HOPE of foreclosure- of failure- that they saw as their advantage. Now not so much.

Now the Justins and Tea partiers come out of the woodwork to proclaim their newfound hate for government..

Posted by: David S at June 26, 2010 8:07 PM

Here goes-Stuart's right.There-I said it.
He and I grew up around the same time and our parents went through the great Depression and WW2.Times of privation and sacrifice.
I never carry a credit card balance over and don't owe on anything other than my house.I could pay it off any day,but I like the mortgage deduction and it's a small payment.Actually,last year we filed a short form,so maybe I should pay it off.
Point is,we shouldn't live beyond our means or gamble on credit-that is totally insane.I don't gamble at all,but I've seen people go down the drain doing that.
Medical costs is the only reason people go into debt that is totally understandable.

Posted by: joe bernstein at June 26, 2010 8:31 PM

"Newfound hate for government"? Wow. I've been amazed,lately, at the extent to which what I write appears to matter less to some commenters than the vision that they wish to have of me, but this is really a new level of delusion.

Posted by: Justin Katz at June 26, 2010 8:39 PM

David S. writes:

"Government has always sided with capital over labor."

Wait a minute, wait a minute.

The debtors borrowed the money didn't they?

The debtors promised that they would repay, didn't they?

There is a Bankruptcy system for the relief of impoverished debtors, isn't there?

So, where does "capital versus labor" enter into this?

Posted by: Warrington Faust at June 26, 2010 9:20 PM

I guess the only place where capital vs. labor works into this is big picture stuff - of course, it was not my comment so I don't have to defend it....

however, just because I run my affairs in a certain way does not mean I cannot understand some of the causes and effects of this new debt phenomenon.

First thing - look at credit cards! These companies, back in my day, did not solicit college students and others with little or no income. Now, we have allowed "capital" unbridled access to our young and financially vulnerable....perhaps before they have enough sense in finance.

secondly, our society as a whole, which includes business and government, celebrates consumption. A perfect example is GW after 9/11 when asked what Americans can do to help.."go shopping". This can be seen very clearly even now, when government stimulus of consumer spending is attempting to keep the ship from sinking. This is a BIG problem and it will not go away by simply stopping it. Like a drug addict, our society must be weaned from the medication of consumerism.

as a third opinion, consider that for the first time it is likely that a lot of people will not be better off than their parents. Real wages for the working person have stayed level for 30-40 years and the middle class has been decimated. Yet, we are constantly sold the "bill of goods" that we can and SHOULD live the lifestyle we see on TV, in magazines and...in fact...that we see many of our friends and family living.

Sure, a thinking person can avoid the trap.....but it is tough! It's almost like the "default" setting is more debt.

Government and Capital have colluded to make this a bigger problem. As Joe said, he can deduct his mortgage interest....heck, he could buy a million dollar vacation house and deduct his interest! Mortgages are guaranteed by the government...all that stuff was not thought up by some government employee - it was lobbied for by CAPITAL. Capital, usually in the form of Ex-Goldman Sacks employees, runs the financial affairs of much of our government.

That is the case I would make......for Government choosing Capital over Thrift. Very few of the interest rates being paid today are actual free market rates...they are much lower. The "drug" of consumerism is being subsidized.

Posted by: Stuart at June 27, 2010 11:13 AM

A lot of people purposely and willfully run up huge amounts of debt before claiming a planned bankruptcy. They know the rules inside and out, know exactly how to play the game to their advantage.

I know a person who was appalled that Sears wanted their $1000.00 grill back after she declared bankruptcy. She actually had the gall to damage it before it was repossessed.

If you can prove it, it is theft. And a crime punishable by incarceration.

Posted by: michael at June 27, 2010 11:37 AM

Stuart-I couldn't buy a million dollar home-LOL-I actually have an equity loan,not a mortgage on my house.The bank I borrowed from doesn't sell them and they're consumer friendly.
Sad but true that our children don't have the opportunities we did.We didn't NEED college degrees for many good paying jobs back then.I'm obviously not talking about being a physician or teacher or something of that nature.
Amaingly,there was a procedure in NY State(I can't imagine it still exists)whereby one could become an attorney by clerking for an attorney for a certain period of time and passing the bar exam without attending law school.
try that today!!

Posted by: joe bernstein at June 27, 2010 12:21 PM

The entire law school/bar admission requirement is a giant self-interested protectionist scam orchestrated by state governments for revenue generation and control. The 3rd year of law school is an utter waste of time, and the incredibly expensive bar exam has no relationship whatsoever to good lawyering skills. A lot of states don't even accept the universal multi-state portion unless you physically take it in the state itself. There is no conceivable justification for that except revenue generation. Who even knows where our bar dues go; certainly none of the attorneys I know get anything out of them.

Posted by: Dan at June 27, 2010 2:53 PM

>If you can prove it, it is theft. And a crime punishable by incarceration.

Tell that to Enron and the Supreme Court.

Businesses like Enron start stealing more and more when they know they are failing...after all, since the ship is going down anyway, why not grab some of the Gold that will sink with it?

It's hard to control individual behavior - much easier to make examples of some of the BIG crooks. A few good examples and we'll start to see some corporate responsibility - but as it is now, they have no shame. One of the things that many do not realize about Wall Street is that it is run largely by Male Testosterone..young kids who, at the bidding of their elders, will do everything and anything to make money. They are once or twice removed from the pain they cause and inflict. If you really want to know the inside scoop, read "The Wolf of Wall Street" about the greed, sex, drugs and downright theft which is part and parcel of the scene.

Their job is to suck you and I and everyone else in, then leave with the money.

Posted by: Stuart at June 27, 2010 3:02 PM

Theft is theft.

Posted by: michael at June 27, 2010 3:07 PM

Micahel writes:

"I know a person who was appalled that Sears wanted their $1000.00 grill back after she declared bankruptcy. She actually had the gall to damage it before it was repossessed."

For many years Sears was the only card that claimed a "security interest" in the items purchased, in other words the grille was collateral for the loan. I believe I have the amount right at $5.2 million, that is the amount Sears was fined in the Boston Bankruptcy Court for attempting to collect discharged debts. Sears never actually repossessed, they only threatened to. Why would they want a used grille? The idea was to scare a little money out of you, then they would issue you a new card. What got Sears in trouble, and it took years, was that they would wait outside the Bankruptcy Court and offer you a new card if you would let them put your discharged balance on the card.

Dan writes:
"Who even knows where our bar dues go; certainly none of the attorneys I know get anything out of them."

I can tell you where the first $50,000 goes in Massachusetts. It goes to the Supreme Court which dispenses it to send judges to the Judge Flaschner Institute. And where does the institute meet? Why, Las Vegas, of course. this applies to the interest the Bar Association skims of the client's funds held by attornies. When I was in Law School, taking the interest from client's funds was a disbarable offense. Times change.

Stuart writes:
"Businesses like Enron start stealing more and more when they know they are failing"

Yes, and then they file Chapter 11, which allows them to stay on the payroll until they can locate another position.

"read "The Wolf of Wall Street" about the greed, sex, drugs"

Yes, I used to know a bond trader at Harvard Management Company (Harvard's arm to manage their endowment). they at least hired a boat for cocaine parties outside the harbor. The sex I will leave to your imagination, but somehow secretaries became bond traders. All was fine as long as the money rolled in. Harvard fired the whole bunch of them about 10 years ago, not a word in the paper about the "greed, sex and drugs"

Posted by: Warrington Faust at June 27, 2010 8:07 PM

There is always more misery among the lower classes than there is humanity in the higher.
Victor Hugo

Submitted by OldTimeLefty

Posted by: OldTimeLefty at June 29, 2010 10:41 PM

OTL-you're such a humanitarian-I'm in awe.

Posted by: joe bernstein at July 2, 2010 2:57 PM
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