On April 20th 2005, President Bush signed into law a new bankruptcy bill that would change the way consumer debt is handled in this country. For most Americans, bankruptcy would no longer be a vehicle to get a fresh start away from heavy financial pressure and inability to pay current obligations for hospital bills, divorce, job loss etc. Even confirmed victims of identity theft would be subject to the new reform guidelines. Those going through bankruptcy would have a much greater burden of proof and far more rigorous standards to prove financial hardship and inability to pay off their overwhelming debt. Credit card debt would be the toughest item to get included in their bankruptcy package.
Obviously, the signage of this bill was widely recognized as a win to banks, credit card companies and auto manufacturers who many times finance the autos they sell. The banks and credit card companies can now be guaranteed a far greater return of the debt they are owed by forcing the debtor to undergo a gauntlet of judicial hurdles before relieving themselves of any debt. According to the proponents of the bill, these “dead-beat” borrowers needed to be accountable for their bad financial decisions.
Those who opposed the deal argued that the new standards were completely one-sided and favored the banks without any consumer protection balance measures. Several legislators proposed provisions that would limit excessive interest rates and the lending practices that would lead to unaffordable monthly payments. However, these provisions didn’t make it onto the final bill.
Fast forward two and a half years.
Recently, the United States Congress approved giving around $700 billion of taxpayer money to some of the most prominent banks and financial institutions in our country. This bail-out will be used to eliminate debt and provide an influx of cash that would help restore confidence in today’s financial system. Where’s the accountability that they promoted so vehemently for consumers?
This plan has been heavily supported and promoted by President Bush, Treasury Secretary Ron Paulson and anxious Wall Street investors who are scrambling like mad in order to prevent additional heavy losses created by defaults on the loans they provided
The same companies that provided or insured these loans are the same ones now seeking to be bailed out by the American taxpayer. The same companies that forced the bankruptcy bill down the throats of the American public are the ones that hope to be left unaccountable for their own actions and bad decisions. Clearly, if consumers are at fault for signing for loans that they could not afford, these banks need to be equally at fault for giving it to them. However, now they seek to be “bailed-out” while the consumer on the other end loses their home. Well, if that’s the case, they should lose their businesses.
Surely, to see this coming didn’t require the reincarnation of Nostradamus. The writing on the wall was as clear as Michelangelo’s “Creation” painting at the Sistine Chapel. The banks knew this was coming, but still made the loans.
However, they do not want to be subjected to the same humiliating bankruptcy process that they strongly advocated for their troubled customers. Smarter banks that did not provide these risky loans will now have to compete with other financial institutions that are subsidized by the federal government. Certainly, it would be tougher for their businesses to compete. Although their competitors have shown severe operational deficiencies and make questionable decisions, they are financed by taxpayer dollars that guarantee their existence. What’s American about that?
In the vast history of business in the United States, many companies have failed. It would be nearly impossible to determine exactly how many companies have gone out of business. When most companies fail to make smart business decisions, they end up in front of the bankruptcy judge; likewise for the consumers who cannot properly manage their finances. However, Federal Reserve Chair Ben Bernanke says these companies are simply “too large to fail”, so they aren’t subjected to the same process and procedures as the rest of us.
It is against the equal-protection provision of the U.S. Constitution to allow some companies to fail while the well-connected companies are given taxpayer dollars in order to forgive them for their mismanaged funds. Large companies fail all of the time. However, the solution is never to nationalize the companies. Usually, they are auctioned off to preserve the free-market system and the American way of doing business.
If these companies cannot manage their finances, they need to be subjected to the same procedures as they promoted for their consumers. What’s good for the goose is good for the gander.
