Consumer Credit Card Debt Is On Rise Again

http://blogs.smartmoney.com/paydirt/2011/09/13/credit-card-debt-is-on-the-rise-again/

Arends: To restart our economy, everyone should default on their mortgages, file bankruptcy, and get a fresh start

This is a funny concept, but Brent Arends may be on to something.

http://www.marketwatch.com/story/massive-default-is-best-way-to-fix-the-economy-2011-09-12?pagenumber=2

Some will say the financial impact would be terrible. But the banks would just be facing up to reality. And a lot of these mortgages are already trading at distressed levels.

Some will say, "why should people get away with borrowing imprudently?" The response: Why should the banks get away with lending imprudently?

There's no point telling people not to borrow money. They always will. I have yet to see a Wall Street executive turn down free money. I have yet to see a company in an IPO say, "Don't give us so much money!" People like money. They will take as much as they are offered.

In a free economy, the people who are supposed to ration the loans are the lenders. Banks are supposed to lend carefully and responsibly. What else are they paid for? Accepting deposits? You could hire people on minimum wage to do that.

Some will say, "it's immoral" for borrowers to default. Alas, most of these people are being inconsistent. They are usually the first ones to defend a company when it closes down a factory and ships the jobs to China, or pays the CEO $50 million for doing a bad job, on the grounds that "this ain't morality, pal, this is business!"

But when Main Street wants to do the same thing, they start screaming "Morality! Morality!"

We don't live in an economy based on morals and fairness.

T Mobile doesn't charge me what's "fair" each month. They charge me what's on the contract. Your employer doesn't pay you more if you need more. He pays you your economic value. 

American mortgage contracts allow for default. Half of the states in this country are "non-recourse," which broadly speaking means you can send in the keys and walk away from a bad loan. The other half are sort of "semi-recourse." The bank can come after you for any shortfall, but only in a limited way. Broadly speaking they can't touch retirement accounts and basic assets. You can typically keep your car, personal effects, often things like life insurance.

Most of the people who are deeply underwater don't have that much anyway.

And the banks knew this. When they were lending $500,000 to a bus driver with $1,000 in his checking account, they knew that their loan was only guaranteed by the value of the home.

If they didn't know it, they should have. Their incompetence is not our problem.

It's tempting to say, "if someone borrows money, they should repay it." Generally speaking, I agree. I pay all my debts. But while that makes sense when applied to any individual, it doesn't work so well when it's applied to everyone.

We have tens of millions who cannot repay their debts. But they are all trying to. That sucks huge amounts of money out of the economy. And that means these people cannot function properly as consumers or workers. That's the reason people aren't coming into your restaurant. It's the reason people aren't taking your yoga class. It's the reason they haven't hired you to redo the kitchen.

And so tens or hundreds of millions of perfectly responsible business owners and employees are also suffering from this slump. That's the reason we have a shortage of demand. That's the reason no one is hiring.

Even worse: People who are underwater on their mortgage, but who do not want to default, cannot move to where the jobs are either. They are stuck with their home.

You want to break this logjam? Try Chapter 11 for the nation. Massive defaults. Clear the decks, clean the books.

What are the alternatives?

Government cutbacks, higher taxes, and a balanced budget? In a normal economy, fine. But in this situation, when the private sector is also slashing its spending, that could lead to absolute catastrophe. That's what happened in the Great Depression. And our debt levels are worse than in the Great Depression.

Government borrowing? That's the Keynesian solution. "The consumer can no longer borrow like a crazy person," says the Keynesian, "so Uncle Sam has to do so instead." It's just transferring private madness to public madness.

Inflation? That's probably the least bad alternative. But it's just default by another name. And instead of taking money from the imprudent banks that caused the problem, it robs grandma's savings.

Twice before, advanced economies have gone through what we are going through now — namely a massive hangover after a massive debt binge.

The first was the U.S. in the 1930s, the second was Japan in the 1990s.

The U.S. didn't get out of it until the 1940s unleashed inflation and reduced the debt's value in real terms.

Japan still hasn't gotten out of it. They have deflation, while government debt has skyrocketed.

The correct moral hazard is to punish the banks who lent imprudently by making them eat their own losses.

I told you that you wouldn't like it. I don't either. But the alternatives are worse.

It's sad that loan sharks can buy legislators in Texas

The Dallas ordinance gives a glimpse of what to expect when a city tries to regulate lending practices. The Fort Worth ordinance is a preview into how the zoning restrictions will fare.

In announcing the suit over the Dallas ordinance, Consumer Service Alliance of Texas spokesman Alex Vaughn said the group had "no other option but to sue the City of Dallas to protect the interests of North Texas consumers who are best served when they are given a variety of realistic credit options and trusted to make financial decisions based on what's best for them and their families."

The concern for consumers is an oft-repeated justification for charging triple-digit interest rates on small loans that can trap unwary or unlucky borrowers into a debt spiral so steep that borrowers may pay for years and never put a dent in the loan principal.

Attempts to regulate the interest rates short-term lenders can set have been repeatedly rebuffed in the Legislature. State Rep. Tom Craddick, R-Midland and a former speaker of the house, sponsored such a bill last session, only to watch it die. There was no mystery in the bill's demise. Between January 2009 and March of this year, payday lenders spent a combined $8.4 million on lobbying, according to a report by Texans for Public Justice, a legislative watchdog group.

http://www.statesman.com/opinion/payday-lender-limits-may-be-borrowing-trouble-1747983.html

Watch Out For Debt Settlement Companies

http://www.mitchellculp.com/2010/expose-on-debt-settlement-company/

The One Page Blog - from a Silicon Valley patent attorney friend of mine

Good stuff

http://hsutube.com/

General Petreaus' Wife works for new Consumer Financial Protection Bureau

Cool!

http://www.dailyfinance.com/2011/07/21/meet-holly-petraeus-u-s-servicemembers-advocate-at-the-cfpb/?a_dgi=aolshare_twitter

Big banks and debt collectors buy favor with legislatures and judges

This article might make you a little queasy about the state of justice in our country.  

http://online.wsj.com/article/SB10001424052702303365804576433763597389214.html?mod=WSJ_hpp_MIDDLE_Video_Top

Here is an excerpt:

 

 

Companies such as Encore Capital Group Inc. and Portfolio Recovery Associates Inc. buy pools of bad loans at steep discounts, then try to collect on them. They begin by determining which states give them the greatest latitude to seize assets from borrowers who haven't paid up.

Brokers for distressed debt say investors like states such as Illinois, Maryland and New Jersey, where laws permit them to seize assets such as cars, pension payments and a portion of debtors' wages. Consequently, they try to buy loan pools from those states.

Brokers say investors shy away from buying bad debt from some other states [that are more debtor friendly, like Texas and California].

...

Debt collectors regard Indiana as friendly territory. If a debt collector wins in court, nearly all of a creditor's assets can be pursued for payment, including real estate, pension payments and cars, which are off-limits in many other states

 Jeff Bennett, who oversees the Warren Township court's budget and staff, says township courts depend on filing fees of $81 per case to fund a chunk of their operations. He says that creates a "perverse incentive" for judges and their staffs to be "accommodating" to collectors.

Pike Township's Judge Stephens says debt collectors often choose the court where they expect to recoup the most money. His court is the second-busiest in Marion County, with 8,200 cases filed last year and 2,731 filed through April of this year, according to court officials. "I'm pretty much the insurance-company judge," he says, noting that suits filed by insurance companies account for about 20% of his caseload.

Judge Stephens allows lawyers for companies trying to collect debts to use cubicles next to his courtrooms to hash out payment plans with debtors in lieu of bringing their cases before the court. The judge doesn't supervise the meetings—the law doesn't require him to do so—and nearly all of the borrowers come to court without lawyers of their own.

 

Such settlement meetings occur in several other township courts as well. Debtors sometimes agree to make debt payments using income that is protected from seizure by state law, such as unemployment or disability payments, according to Garland Graves, the judge in Warren Township, who says he doesn't allow unsupervised settlement meetings. Many defendants make concessions without knowing their rights, he says.

Judge Stephens responds: "I am under no obligation to tell someone how to defend themselves. "

The court in Decatur Township also arranges unsupervised meetings. When defendants arrive, they often are told to sit in the courtroom until their names are called. They are called one at a time to meet with debt-collection lawyers, according to court employees. No judge is present.

Jeff Cook, an unemployed plumber, had a closed-door meeting earlier this year with a lawyer for Med Shield Inc., which collects debts for some of Indiana's largest nonprofit hospitals and outpatient clinics. He says he agreed to allow Med Shield to tap his unemployment benefits to cover a $651 emergency-room bill. He found out later that debt collectors have no legal right in Indiana to seize unemployment checks to satisfy a verdict in a lawsuit.

Decatur Township Judge William L. Fisher Jr. didn't return calls seeking comment. Med Shield declined to comment.

Decatur Township has become the preferred courthouse for lawyers who collect soured debt on behalf of medical providers, according to Pam Ricker, who has managed the court's operations for more than 25 years. The township has no hospitals.

Ms. Ricker says a lack of public transportation in Decatur Township discourages many defendants from showing up in court, resulting in automatic wins for debt collectors.

"We certainly have our loyal attorneys," said Ms. Ricker. The court provides lawyers with coffee in a break room and a fax machine for their clerical needs.

Of the 106 Med Shield cases scheduled to be handled by the court one day in February, just three involved defendants who lived in the township, according to an analysis of court records by The Wall Street Journal.

Some township judges are uncomfortable with appearing too accommodating to debt collectors. Last year, Judge Steven Poore of Washington Township barred lawyers from meeting privately with defendants. He says he was worried that the court looked like "an arm of the debt collectors." He now reviews all debt-collection settlements. The number of debt-collection suits filed in Washington Township is down sharply, he says.

Judge Poore says the courts aren't intended to function as "business generators for debt collectors," noting that his changes in procedure help ensure that everyone gets a fair hearing.

Maxine King, the small-claims-court judge in Washington Township until she lost her re-election bid in January, says she also banned closed-door meetings between defendants and lawyers. She says she did so after learning that debt-collection firms were discouraging debtors from bringing their cases before her. "It was a clear obstruction of the justice that should be given to each defendant," she says. "Ideally, debt-collection firms wouldn't have such latitude and would have to file where the debtor lives, not where they like the judge most."

In Center Township, court constables hand out questionnaires outside the small courtroom's entrance. The forms ask defendants for their telephone numbers, Social Security numbers and employer's addresses. The defendants hand over the forms to collection lawyers when they are called to settlement meetings, which aren't supervised by the judge. The questionnaires are prepared by an Indiana law firm that sues borrowers on behalf of credit-card issuers, according to township Judge Michelle Smith Scott.

Crystal Dupree, a 32-year-old office manager facing a lawsuit over an alleged debt on a store-issued credit card, says she wrote down her bank-account information and cellphone number because she thought the form was an official court document. "It's really deceptive, and I never would have given them that information," she says. She disputes that she owes money on the credit card.

Lawyers at the law firm that prepared the questionnaire declined to comment.

Shortly after Judge Graves took over the Warren Township court in January, he says, calls poured in from debt-collection lawyers trying to figure out where he stood. Mr. Bennett, who oversees the court's budget and staff, says debt-collection lawyers threatened to take their cases and filing fees elsewhere if Judge Graves didn't back down.  Judge Graves says some company lawyers asked court officials to fax them hundreds of pages of documents on previous judgments, which the judge took to be a test of his willingness to accommodate debt collectors.  He refused. "I don't want to be a pushover," he says. "If that means losing business, well, I guess that's what we're going to do."

 

Don't Be Disrespectful In Court Or You Will Go To Jail For Contempt

http://jobs.aol.com/articles/2011/07/01/tgi-fridays-server-gets-6-days-in-jail-for-courtroom-gesture/?ncid=txtlnkuscare00000002

I see a lot of examples of this.  A lot of people apparently don't realize that Judges can and do throw people in jail immediately for being disrespectful in the courtroom.