155 posts categorized "Sociological Perspectives"

Are Corporations People Too?

posted by Adam Levitin

The "corporations are people, my friend" line was quite the momement. But as bad as it sounded, Mitt had a theoretical point. People (as well as other corporations) own corporations and people work for corporations.  The problem isn't that there aren't people at the end of the line behind corporations. The problem is that it's a minority of (primarily wealthier)people.  

According to the Federal Reserve's 2007 Survey of Consumer Finances, only 17.9% of families held stocks, 11.4% hold mutual funds, and 52.6% hold retirement accounts that likely hold a lot of stocks and mutual fund assets.   

I haven't been able to find data on the percentage of people employed by corporations, but it's assuredly large. That said, it's hard to imagine that corporate tax breaks would generally result in higher salaries for most employees rather than higher dividends for shareholders. The competition to attract capital is likely fiercer than the competition to attract labor (and certainly for semi-skilled or unskilled labor), which would mean that corporate tax breaks would benefit shareholders (a minority of people) and highly skilled labor (again a minority that probably doesn't need a lot of help).  So maybe a more accurate phrase for Mitt is "corporations are wealthy people, my friend". 

Bankruptcy Politics and State Bankruptcy

posted by Adam Levitin

I have a new paper out, Bankrupt Politics and the Politics of Bankruptcy, that examines state bankruptcy proposals and then uses them as a jumping-off point for sketching out a political theory of bankruptcy as a "creditor's armistice," an unstable political bargain, rather than an economic bargain ala Jackson & Baird's "creditor's bargain."  

The paper argues that bankruptcy is unlikely to do much good for the states because states' fiscal woes are akin to business model problems, rather than simple overleverage, and bankruptcy cannot fix business models.  States' business model--US fiscal federalism--is an inherently procyclical business model that is exacerbated by a moral hazard problem in state politics. Bankruptcy can no more fix this bad business model than it can make a buggy whip manufacturer (or a brick-and-mortar bookstore or video store) a viable operation.  

The intensely and patently political nature of the issues raised by state bankruptcy show a major set of deficiencies in contractarian theories of bankruptcy law, which have been developed primarily in the business bankruptcy context.  While others (such as our former co-blogger Elizabeth Warren) have criticized the creditors' bargain for failing to account for all of the stakeholders in bankruptcies, I argue that the inclusion or exclusion of various interests in bankruptcy is itself an essential part of a dynamic system of competing rent-seeking interests.

I don't attempt a formal exposition of an alternative political theory of bankruptcy in this paper--that's for another day--instead, I use this paper to lay out the idea and start linking the sovereign debt, subnational debt, business debt, and consumer debt literatures into a "unified theory" (yeah, I'm going to aim big, why not?) of debt restructuring (as in bankruptcy with a small "b").  The abstract is below the break:

Continue reading "Bankruptcy Politics and State Bankruptcy" »

Prisoners: When it Comes to Debtor-Creditor Issues, They’re Just Like Us

posted by Nathalie Martin

Once or twice a year, students from the University of New Mexico School of Law Clinic visit a women’s prison to provide brief legal services to those incarcerated there. We always assumed most of  inmates’ questions dealt with family law, so my group, the Business and Tax Clinic (the “B & T Clinic”), never went. This year, our Qualified Tax Expert, Professor Pamelya Herndon wanted to attend, and three of our students joined her. Professor Herndon suspected that at least a few of the women would have tax or consumer issues that we might be able to assist with. When our posse got to the prison, they were amazed by the demand for our services. Our mini-group was at least as busy as the groups answering questions about guardianships, divorces and parenting plans. Sixteen of the 64 women that were served that day had questions about taxes and debt. 

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Insurance Redlining and Transparency

posted by Daniel Schwarcz

Insurance nerds like to point out that insurance coverage is a pre-requisite to a wide range of activities, from starting a business to practicing medicine to driving a car.  In this sense, insurers often serve as gatekeepers to fundamental social privileges.  Nowhere is this more starkly illustrated than in the residential real estate context.  As one court succinctly put it: “No insurance, no loan; no loan, no house; lack of insurance thus makes housing unavailable.”  

Given the centrality of both credit and insurance to home ownership, one might expect that the rules in these two domains would similarly respond to the risk of redlining, which is the practice of denying or charging more for services in residential areas with large minority populations.  But as with coverage terms and claim handling, quite the opposite is true: whereas bank regulation has embraced transparency, insurance regulation has actively rejected it.  

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Democratizing the Money Issue

posted by Adam Levitin

Robert Kuttner has a fantastic piece on creditor-debtor conflicts in several contexts (sovereign, consumer, current, historical). For Kuttner it alls points to a need to "democratize the money issue," by which he means returning the money issue--creditors' interests versus debtors' and whether credit would be cheap or dear--to the forefront of national politics. 

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Dodd-Frank Gotterdämerung: The Durbin Amendment Rollback

posted by Adam Levitin

As early as this Tuesday we might find out who runs this country.  Is it Wall Street and the financial economy or the real economy of consumer citizens and retailers?  We will know the answer to this question based on what happens when the Senate votes on a bill to unwind a Dodd-Frank Act provision that would prevent banks from charging anticompetitive debit card swipe fees.

This provision, known as the Durbin Amendment is a bellwether for the state of political power and thus financial regulatory reform in the United States. Banks are working furiously to roll back the Durbin Amendment, and their success or failure at doing so is a measure of the political power of financial institutions. If the banks win, it will not just be the traditional story of the banks' routing the consumer groups. If the banks win, it will show that the financial services sector is more powerful than the largest retailers in the US.  (Heck, the US Chamber of Commerce is on the banks side on this, which might say something about the Chamber's funding. It's certainly not from all the small businesses over which they weep crocodile tears.) 

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The Anti-Consumer Agenda

posted by Adam Levitin

I often find myself annoyed by left-wing (and occassionally right-wing) anti-business screeds that decry corporations, big business, etc.  I don't find anything inherently troubling about corporate form or business size, and I have no problem with profit-motivated actors (individual or corporate), so long as they play fair. Mindless attacks on the business community have the unfortunate effect of undermining perceived validity of more targeted, thoughtful concerns through a guilt-by-association phenomenon. 

But business and consumer interests often diverge. Now, it should hardly be controversial that there is an unequal playing field between businesses and consumers. Generally, businesses know more about their products than consumers and have more bargaining power than consumers. (Yes, there are information assymetries running the opposite way, which is a particularly salient problem for credit and insurance products.) For many businesses, it is important to maintain this assymetry of information and bargaining power, as there's profit in it.

In theory, and I emphasize in theory, competition should eliminate many of the problems these assymetries create for consumers, but there's no such thing as a perfect, complete market, just varying degrees of market imperfection, so competition alone cannot be relied upon to solve everything. What, if anything else, should be done is an open question, but when one looks at a range of seemingly unconnected recent public policy issues, a troubling common theme emerges.

Instead of a laboratory of experiements to help level the b2c playing field, we see a different trend emerging:  a distinct anti-consumer agenda that aims to reduce consumer bargaining power and information.  Consider the common theme that runs through the following issues: 

  • AT&T v. Concepcion (waiver of class actions in arbitrations)
  • Attempts to bust up public employee unions (and attacks on unions in general, such as the failure of Card Check legislation)
  • Citizens United (corporate speech rights)
  • Attempts to retain the current corrupt swipe fee system (failure of antitrust)
  • Attacks on public health insurance (prohibition on Medicare bargaining over prescription drug prices and the death of the public option)
  • Attempts to first kill off and now to maim the Consumer Financial Protection Bureau

Continue reading "The Anti-Consumer Agenda" »

The Morality of Strategic Default

posted by Adam Levitin

Professor Curtis Bridgeman (FSU College of Law) has an article on The Morality of Jingle Mail:  Moral Myths About Strategic Default.  I have a fundamental philosophical disagreement with the article, but it's got a lot of very good, clear analysis of arguments about strategic default, including a very useful typology of argument.  

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Perceptions of Income Inequality

posted by Bob Lawless

A friend alerted me to "Building a Better America -- One Wealth Quintile at a Time," an article by Michael Norton of the Harvard Business School and Dan Ariely of Duke University and that appears in the current issue of Perspectives on Psychological Science. Although a discussion of the paper kicked around in the blogosphere last fall, I missed it. Credit Slips readers might find the paper interesting but, if you're like me, might not otherwise see it. Here is the abstract:

Disagreements about the optimal level of wealth inequality underlie policy debates ranging from taxation to welfare. We attempt to insert the desires of “regular” Americans into these debates, by asking a nationally representative online panel to estimate the current distribution of wealth in the United States and to “build a better America” by constructing distributions with their ideal level of inequality. First, respondents dramatically underestimated the current level of wealth inequality. Second, respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution. Most important from a policy perspective, we observed a surprising level of consensus: All demographic groups – even those not usually associated with wealth redistribution such as Republicans and the wealthy – desired a more equal distribution of wealth than the status quo.

A full version of the paper can be found on Professor Norton's web site.

Building a Culture of Compliance

posted by Annelise Riles

I was scheduled to speak at the AALS Financial Institutions breakfast this morning, but due to flight cancellations I was unfortunately unable to attend. I’m posting below a summary of what I intended to say there, and which I had already planned to share with the readers of Credit Slips anyway. I wanted to talk about what anthropological research among market participants and regulators tells us about how to change the way people behave in the financial markets.  After all, the whole point of regulation is just this--to change behavior. Yet how do you do it?

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What Can We Learn from Wikileaks About Market Regulation--or, Is Transparency Always a Good Thing?

posted by Annelise Riles

In the wake of the Wikileaks debacle, we have started to see some conversation in the editorial pages about whether transparency is always a good thing in international affairs. The point is that there are times when allowing the parties to talk in private may help to reach optimal outcomes for all sides. As we learn more about the personalities and motivations behind the leaks, also, the image of the whistleblower as the pure-hearted pursuer of truth and justice is getting a bit tarnished. It is a complicated issue, with room for reasonable people to disagree, but that in itself is news: it used to be that if you were against transparency you had to be for cronyism, corruption, and fraud, and in fact everybody everywhere felt compelled to assert that they were of course in favor of full public disclosure. Now we are not quite so sure.

I think that some of the heatlhy skepticism--or at least complexity of thought--about transparency that is coming into the public debate about foreign affairs also has a place in the conversation about the regulation of financial markets. Why?

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Welcome Annelise Riles

posted by Adam Levitin

Credit Slips would like to welcome Annelise Riles as a guest blogger. Annelise is the Jack G. Clarke Chair in Far East Legal Studies and Professor of Anthropology at Cornell University, where she teaches in both the Law School and the Anthropology Department. Annelise's work examines financial institutions and networks from an anthropological perspective.  

As a would-be historian, I am a particular fan of anthropological (and sociological) studies of consumer finance and the institutions involved there in. There aren't many, but they bring a much needed dose of reality to a field that is too often analyzed through economic theory. Legal scholarship rarely engages in the sort of qualitative field interviews that are the bread and butter of anthropology. (I recognize that there are important exceptions, including work by co-bloggers and past guest bloggers.) This is not just a matter of pesky internal review boards, but simply because this method of acquiring knowledge is not hard-wired into legal academia. (Given that it is somewhat analogous to the deposition, there's a lingering irony.) While we are not all going to becoming anthropologists, there's an enormous amount we can learn from the anthro literature about how regulators and market participants actually think , and I'm thrilled that Annelise will be sharing some of the insights with us on the Slips. Welcome Annelise!

Market Governance Is About People (And How They Think)

posted by Annelise Riles

Hello everyone and thank you so much to Bob and Adam for bringing me into this exciting conversation. This week I want to raise with you a few thoughts about the way forward on financial regulation that have come out of interviewing and observing regulators in their interactions with market participants over ten years. My research has been mainly in Japan but involves some US components as well.

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Principles Aren't Always Enough; Rules Are Needed Too.

posted by Ethan Cohen-Cole

In my last posting, I discussed the tradeoffs of regulation on the consumer side, and the extent to which disclosure would be sufficient to resolve consumer protection issues.

Here, I pose a simple problem to illustrate why principles based regulation would be inadequate.

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Google, Bankruptcy & Bieber

posted by Bob Lawless

One of the many wonderful things about university teaching is that you get to hang around lots of smart people who tell you lots of interesting things. One of my students, David Henken, pointed out to me a very interesting pattern that comes from Google Insights for Search. People use Google to search for the word "bankruptcy" much more often during the week than the weekend. Does this pattern tell us something about how people think about bankruptcy? Perhaps.

Compared to the weekly pattern for other search terms, "bankruptcy" seems to have its own rhythm. This includes a search I did for "Justin Bieber," perhaps the most useful Bieber-related search that has ever occurred. And, yes, my invocation of Justin Bieber is largely motivated by a shameless attempt to increase blog readership among girls aged 10-14, especially those living at Casa Lawless.

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Give Me Glass-Steagall or Give Me Death?

posted by Adam Levitin

I've recently seen some really surprising graffiti in DC:  on the outer loop of the Beltway, just after the I-95 merger someone has neatly printed on the overpass "End the Fed".  And this evening as I was driving toward DuPont on Massachusetts Avenue, I saw a banner hanging down from the railing above the 14th Street underpass (at 13th Street) that showed a snake divided into pieces and was labeled "Glass-Steagall or Die".  I haven't been able to get a picture of either, unfortunately.  I'm not really sure what to say other than that this is pretty different than the Folk and People tags I grew up with.  

[Update:  see Ed Mierzwinski's comment about this being a LaRouche campaign.  That would definitely explain things.] 

The War on Bank Profits?

posted by Adam Levitin

The Wall Street Journal had a peculiar opinion piece today about bank regulation.  I won't pick the low-hanging fruit of its bizarre statements about potential CFPB Director nominees, but I think it's noteworthy for the revealing language it uses.  It says that Washington should "call off the war on bank profits" and allow[] banks to make profits."  

The conceit of the piece is that a subset of businesses have an entitlement to be profitable.  That's deeply inconsistent with a belief in markets.  The fundamental rule of American capitalism is "Go Forth and Profit, but Fairly."  It's one thing to debate what sort of practice is fair or not.  But that's not what the WSJ piece argues.  It argues that legislation like the Credit CARD Act and the Consumer Financial Protection Act are wrong because the restrict banks' profitability.  This is a serious misunderstanding of financial services reform, and if this is how the financial services industry as a whole understands regulatory reform, we've got serious problems as a society.

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Debt Distress: Symptoms and Treatment

posted by Alan White
From the United Kingdom comes an interesting new study, based on a survey of more than 10,000 applicants for legal aid about their problems and the means they use to address them. The study explores the linkages between overindebtedness and social exclusion.  Consumers seeking help with debt problems are much more likely to face multiple related difficulties, including employment, mental health and other civil justice problems.  This longitudinal study also reports on the duration of debt problems and the success or failure of different strategies consumers employed.  The findings support the need for a broad array of services to assist consumers overwhelmed by debt, an approach characteristic of many European consumer bankruptcy and debt adjustment systems, about which Jason Kilborn and others have written.  These coordinated social service approaches are notably absent from the US bankruptcy system, at least officially, and apart from some token counseling requirements.  

Portrait of California Foreclosures

posted by Alan White
An important and empirically robust new study belies the stereotype of the California foreclosure crisis as resulting from house flippers and social climbers overreaching to buy 4,000 square foot mansions.

The typical California home in foreclosure is a very modest 1,500-square-foot, 2- to 3-bedroom house in the Central Valley or Inland Empire, refinanced in 2005 or 2006 by a Latino family.  The average home value at the time of the loan was about $400,000, considerably less than the $500,000 median home price statewide.   At today’s prices, that average California foreclosure property is likely to be worth between $200,000 and $300,000.   Fewer than half of mortgages in foreclosure were purchase loans.  Thus, the typical foreclosure story is not a family reaching too far in order to buy an unaffordable house, but more likely, of using home equity to pay credit card debt and maintain a middle-class standard of living in the face of stagnating incomes.  Essentially half of all foreclosures in California involve Hispanics, roughly in the same proportion that subprime mortgages were given out in the years prior to the crisis.  Thus, the last to arrive at the bottom rungs of the middle class ladder are the first to be pushed back off.

The picture that emerges from this foreclosure study is of a generation of Hispanic homeowners, typically refinancing an existing, modest home, rather than buying an extravagant McMansion, losing years of accumulated wealth and savings in the process.  Opponents of foreclosure relief and debt reduction regularly invoke the useful fiction of foreclosure victims as profligate yuppies with surplus bathrooms.  The facts are otherwise.

Real Housewives of New Jersey Bankruptcy

posted by Adam Levitin

OK, I'm way, way late on this story, but I thought it was worth a few lines.  Teresa Guidice, one of the Real Housewives of New Jersey has filed a Chapter 7.  Here's the petition for all you financial voyuers.  It's a nice window on the noveau lifestyle, and reasonably comparable to the other Real Housewives' petition (the White House crashing Salahis').  

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Are the Rich More Likely to Default on Their Mortgages?

posted by Adam Levitin

The NY Times has an article about mortgage default rates being higher on larger (>$1M) mortgages than on small mortgages.  The argument suggested by the article is that the rich are more likely to see their homes simply as investments.  Put a different way, the consumption utility component of the home is relatively less important to the rich.  A house has two value components--it's an investment, and it is also a consumable (but durable) product.   The consumption value of a home is basically the same for everyone--I might derive more or less utility from any particular house, but it is all within a relatively constrained range, and my range is probably around the same as everyone else's.  That means that the consumption value component of a house is largely fixed, regardless of the house's price.  The more expensive the house, the smaller the ratio of the consumption value to the investment value.  Therefore, it would follow that people with more expensive houses place more value on the investment component and treat the house more like an investment.  

I think that's correct, but I also think there's more going on and wish that the analysis in the article had dug deeper because it has unfortunately fed into a narrative of the mortgage crisis being one of strategic default by ruthless investors, with the corollary being that they do not merit any government assistance and even deserve opprobrium or punishment (although they are only playing by the rules of the game, which should have been priced in by lenders).  Here's what I wish the story had pointed out:

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The CFPA--A Bureaucracy to Benefit Women and Families

posted by Debb Thorne

I recognize that some folks dislike the idea of a CFPA. Indeed, it may well feel like just another bureaucracy--and sometimes it seems that our country is awash in the doggone things. Why in the world would we want another one? I think there are many good reasons for a CFPA, and not the least of which is discussed in a paper I recently published in Journal of Family and Economic Issues ("Extreme Financial Strain: Emergent Chores Gender Inequality, and Emotional Distress").

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White House Dinner Crashers' Bankruptcy

posted by Adam Levitin

Some of the news reports on the White House dinner crashers (Tariq and Michaela Salahi) have noted that they own a winery that filed for Chapter 11 (reorganization) bankruptcy and then converted to Chapter 7 (liquidation) bankruptcy. My prurient interest was engaged, so I tracked down the petitions and relevant filings (linked below).  What follows is my attempt to sort out the Salahi family's business doings, as well as some musings about where we should really look for bankruptcy abuse--small business filings where the business is the alter ego of the owner, but where corporate law might not allow veil piercing.  In these cases the sophisticated creditors get personal guarantees, but the tax authorities, tort creditors, and unsophisticated creditors get screwed by the corporate form.

As far as I can tell, however, from the PACER filings, this part of the story has been misreported.  There are two separate, but apparently affiliated entities that filed for bankruptcy separately.  First, Oasis Vineyards, Inc., filed for Chapter 11 in December of 2008.  Oasis Vineyards has three shareholders:  Mr. Salahi (5%), his mother (40%, also president of Oasis Vineyards), and his father (55%).  The petition schedules assets of $333K and liabilities of $1.9M.  Tariq Salahi, a Salahi Family limited partnership, Oasis Enterprises, Inc., and Salahi's parents are listed as codebtors (cosignors or guarantors) of various obligations.

In April 2009, the US Trustee filed a motion to convert the case to Chapter 7 liquidation or have it dismissed because the debtor failed to file its monthly operating reports and had not filed a plan of reorganization.  (This is pretty standard; it appears that several monthly operating reports were subsequently filed simultaneously.)  The court has postponed ruling on the motion to convert or dismiss because of the death of the debtor's counsel.

Second, Oasis Enterprises, Inc., a/k/a Oasis Winery, of which Tariq Salahi is the president and sole shareholder, filed for Chapter 7 bankruptcy in February 2009.  That case is still pending.  The scheduled assets are $339K and liabilities oare $982K. The petition states that Oasis Enterprise's income fell from $1.7M in 2007 to a mere $35,000 in 2008.  Ouch.  In 2008, a bank repossessed a $150K Aston-Martin car (resulting in a $85K deficiency) and a $90K Carver 350 Mariner Boat from Oasis Enterprises (resulting in a $56K deficiency judgment).

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Laughing through the Pain

posted by Katie Porter

This economic meltdown isn't fun for anyone, not even bankruptcy law professors. But Americans are creative, resilient folks and in the midst of hardship, some people are finding ways to cheer themselves with humor. Here are three recent examples to lighten your day:

A former student of mine wanted to teach his elementary school-age son about the financial system and give him a taste of entreprenuership. They created Bankster Buddies toilet paper, which is printed with the faces of government officials who had a role in the meltdown. The bipartisan paper bears a memorable slogan: They dump on us; we wipe with them!

Next up is the Disposable Bullshit Bag. The bag comes printed with directions and carries a handy warning:  "Do not attempt to dispose of your BS through any government agency since they produce more bullshit than they can dispose of themselves." I've located a picture here but don't know where to purchase them. They are the perfect gift for that hard-to-shop for family member though.

Max Gardner of Shelby NC sent me a new twist on a classic song. Take a load off Fannie illustrates the current meltdown with visual images, including some great headlines from 2008 like "Bernake says housing crisis is contained."

I'm sure Credit Slips readers will have other examples. I think I've already pushed the outer limits of taste with my first two examples, so keep it in bounds, but feel free to share. We all need a laugh to lighten our load these days.

Hearings on Squeezing the American Family

posted by Bob Lawless

Yesterday, the Joint Economic Committee of the U.S. Congress (JEC) held a hearing on the economic state of the American family. We've got falling real incomes, a mortgage crisis and a housing market in turmoil, record gas prices, and other increases in the costs of living. It's not going well.

Among the witness was Credit Slips's own Elizabeth Warren who started off with this:

From 2000 to 2007, measured in real dollars, incomes declined while basic expenses increased sharply. By the time today’s family makes a few basic purchases—housing, health insurance, food, gas, phone—it has about $5800 less than it had back in 2000.

Warren backs up that statement with numerous charts and statistics that demonstrate how incomes have failed to keep up with the rising cost of living. Her full testimony is here.

Older Americans in Bankruptcy--The First Paper Out of the Consumer Bankruptcy Project

posted by Bob Lawless

Many of us on Credit Slips are part of the Consumer Bankruptcy Project (CBP), a multidisciplinary research initiative. This week, many of you probably saw the press coverage for the first paper published out of the CBP data: Generations of Struggle by Deborah Thorne, Elizabeth Warren, and Teresa A. Sullivan. This paper's reports three key findings. Since 1991--

  • Americans age 55 or older have experienced the sharpest increase in bankruptcy filings.
  • Americans age 34 or younger have experienced the greatest decrease in bankruptcy filings.
  • The influence of Baby Boomers on bankruptcy filings has moderated substantially.

A full copy of the paper is available from the AARP here. The paper shows that older Americans are under greater financial stress than ever before. I am sure we will have more to say about this paper here on Credit Slips.

Because the courts do not collect any basic demographic data about who files bankruptcy, this sort of information would not be available without interdisciplinary research teams like the CBP and the organizations who generously support our research (the AARP, the Robert Wood Johnson Foundation, the Federal Deposit Insurance Corporation, and research funds at the University of Michigan and Harvard University). The data collection for the CBP is complete, and we will keep announcing the availability of new papers here on Credit Slips. What exactly, however, is the CBP?

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The Very Big Men Who Sort Out Debt

posted by Mechele Dickerson

During the last session this morning, Professor Stephen Lea (University of Exeter) provided a psychological perspective on debt in poor households in Britain. He initially listed the people he believes to be the cast of characters involved in debt. First, there are consumers, and their friends and families. On the creditor side, he made a distinction between business creditors (like utilities) and credit businesses (banks, debt collection agencies – whom he labels "the very big men who are left to sort out the mess"). Because of England’s long tradition of credit counseling, he also included credit counselors in the cast.

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Consumption Is Too Important to Be Left to Consumers

posted by Mechele Dickerson

Professor George Ritzer, another sociologist (University of Maryland), presented a hyper paper ("Hyperconsumption" and "Hyperdebt": A "Hypercritical" Analysis). He argues that it has now become part of our public duty to consume. We were asked to consume after 9-11. We have been encouraged (really, really, encouraged – just ask WalMart) to spend the stimulus tax checks some of us might be receiving over the next few weeks. While consumers aren’t dupes, he stressed, we are being encouraged to do what producers want us to do.

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God Was the Poor Man’s Only Surety

posted by Mechele Dickerson

The Conference opened with a talk on "Debt, Credit and Poverty in Early Modern England" presented by Dr. J. Craig Muldrew, a history professor from Cambridge (the one in England, not the one in the US).  (He used the term that is the title for this post.)

Though his paper related to Early Modern England, you'll notice striking similarities between what happened then, and what's going on now.  Indeed, Professor Edward Balleisen (a history professor at Duke) connected the dots between then, and now, in his response to Dr. Muldrew's paper.

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Homeownership Myth (Part II)

posted by Mechele Dickerson

As I argue in the earlier posting, the Sunday Washington Post article raises a number of interesting points about the value of homeownership as an investment device.  I discuss many of these points in an article that will be published this Fall, and ultimately conclude that it is time to debunk some of the myths associated with homeownership. 

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The Myth of Homeownership

posted by Mechele Dickerson

An article in the Sunday Washington Post asks whether -- given the current housing crisis -- real estate or the stock market is the better investment.  Of course, the answer is -- it depends.  Formulating a longer, more sensible answer happens to be something I've been thinking about for the last several months and is the subject of my current research.  I'll discuss this article in two posts.  Here's the first one.

As the title of one of my forthcoming articles suggests ("The Myth of Home Ownership, and Why Home Ownership Is Not Always a Good Thing"), I challenge this country's obsession with Homeownership and the view that attaining homeownership is crucial to achieving the American Dream.  I'll discuss a few points raised in the Post article to explain how I've reached these somewhat heretical views.

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The Meaning of the Loss of Home

posted by Debb Thorne

When Bob Lawless posted yesterday (April 17) the table showing the daily filings for March, 2008, it got me thinking about what exactly those numbers mean, and specifically, about the families who are represented by those statistics and in the middle of financial crises. And while I recognize that not all, or even most, of these filers are losing their homes in the process of bankruptcy, some will be. And this fact really tugged at my emotions.

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An Update on Erica Stevens

posted by Debb Thorne

Back on February 24, I posted the story of Erica Stevens (again, not her real name). Erica is one of the respondents of the Consumer Bankruptcy Project 2007. I described how her bank had held a check from the bankruptcy study for five days, without telling Erica, thus causing a couple of her checks to bounce---to the tune of $33 per check. In our outrage over the way Erica was treated, a couple of us who blog here on Credit Slips volunteered to contact her bank on her behalf (with no charge to Erica whatsoever). The objective was simply to attempt to get the charges reversed. When our interviewer, Denise McDaniel, called Erica with the offer, her reaction surprised us.

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Ripped Off by the Banking Industry

posted by Debb Thorne

Bankrupt folks who participated in the Consumer Bankruptcy Project 2007 had the opportunity to complete a telephone interview. For the interview, they were paid $50. Respondents who shared particularly heroic and inspirational stories could be nominated by the interviewers for additional compensation. Denise McDaniel, one of our interviewers, nominated Erica Stevens (not her real name) for this "award." Little did we know that Erica's bank would take this opportunity to rip her off.

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Another Consequence of Economic Crises: The Loss of our Four-Legged Family Members

posted by Debb Thorne

In my free-time, I frequently cruise the sites of horse rescues and adoption facilities. I certainly don't need another large, four-legged, hairy family member, but, like visiting the local ice cream shop, it's fun to look. Anyway, I've come across several comments describing some of the less-recognized effects of the economic downturn and the increase in home foreclosures. Namely, it appears that as people lose their homes and their jobs, they are increasingly forced to leave their horses at rescues or other shelters. (Even more disturbing, because the market is currently flooded with horses and they are so expensive to maintain, many end up slaughtered rather than at rescues and shelters.) And back in December, The Columbus Dispatch ran a piece on families who had lost their homes in foreclosure and had to leave their dogs at the Franklin County Dog Shelter. The director of the shelter, Lisa Wahoff, said: "There's even a national term for it: 'foreclosure dogs.' We started seeing it more about 18 months ago, people writing 'foreclosure' or 'financial reasons' on their surrender forms."

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The Isolation of Debt and Other Such Things

posted by Debb Thorne

As of today, 700 telephone interviews have been completed as part of the current round of data collection on the Consumer Bankruptcy Project. Since I am overseeing this part of the process, I have had the privilege of being one of the first to hear about people's experiences with bankruptcy. One thing that has struck me repeatedly is the extreme loneliness and isolation that typically accompanies these families as they wind their way through bankruptcy. The people who are going through it often go it alone. They seldom turn to family members or friends for support. More often, they say that it would be a cold day in hell before they even told anyone else about their insolvency, let alone ask them for help. And there simply are no support groups for these people.

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Good Debt?

posted by Debb Thorne

I grew up believing that some types of debt were good and necessary: namely, mortgage and student loan debt. (I'm in my mid-40s, just to provide some historical context.) The assumption, I expect, was that these debts would, in the long-run, pay off. (The house would eventually evolve into wealth to be passed to one's kids and the education would make it possible to pay off that mortgage.) However, with recent reports of corruption in certain segments of the student loan industry, the stories of educated Americans owing more student loan debt than they can ever hope to repay, the historically high rates of home foreclosures, and the meltdown of the mortgage lending industry, I'm not so convinced that either one of these types of debts is at all good. In fact, I think that Americans should be encouraged to rethink (even reject?) these taken-for-granted pillars of the American dream.

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Hang On To Your Bootstraps!

posted by Debb Thorne

One of the things that so many Americans pride themselves on is their ability to make it on their own. Call it the "boot-strap" approach, if you'd like. Very individualistic. Much more so than most other industrialized nations. I was reminded of this quintessential American attitude when I read an email from one of our research assistants who is currently completing questionnaires with bankrupt families for the Consumer Bankruptcy Project.

The questionnaires ask folks what they did to try to "make ends meet" before they finally filed bankruptcy. While we give them a list of prepared options, we also provide them the opportunity to tell us about "anything else" they did to try to make it. Today, one woman told our RA the following:

"I ran an ad in the local newspaper that said, 'Disabled woman wanting to sell household items for gas money.'" This woman went on to say that she had sold almost everything in her house that she doesn't use on a daily basis, as well as family treasures that had been passed down from her grandmother. She said that she also has 25 zucchini in her garden that she is thinking about selling at a veggie version of a lemonade stand. However, she's reluctant because she's afraid she will be fined for not having a vendor's license.

Now if that isn't the American way, I don't know what is. Kind of blows that whole "bankrupts are deadbeats" myth right out of the water, doesn't it?

How deplorable that this country treats its most vulnerable citizens with such disregard. 

Debt to the Future

posted by Jonathan Lipson

This will be my final Credit Slips post. I want to thank the keepers (and the audience) for indulging me. I've enjoyed posting here, and hope that it's been useful and perhaps interesting for some of you.

Looking Backwards; Looking Forwards

My first posts were largely backwards-looking, in the sense that they were about a case (Gheewalla) that was flawed in part because it was burdened by the logic of a fairly ancient doctrine (the "trust fund" cases). Indeed, I think problems of financial distress are often backwards-looking:  You lent me a dollar yesterday, which I can (or cannot) repay today. To be sure, we spend a good deal of energy thinking about how much better the future will be depending on the bankruptcy result you're looking for (the debt is paid or discharged). But debts are usually the product of prior behavior.

Which is why a new symposium issue of the University of Chicago Law Review is so interesting. Entitled Intergenerational Equity and Discounting, it is in general about how to calculate the costs and benefits of big decisions today that might have no impact until the distant future. The key example is usually global warming: Most of us are not likely to live to see the moment in the future when there is atmospheric payoff from levying a carbon tax, abiding by the Kyoto Protocols, or whatever else we might do today that saves the planet for later generations.

The authors in the symposium do not generally write in bankruptcy or commercial law (with the exception of Eric Posner), so do not discuss these problems in those terms. But really, what we are talking about is a future debt, an obligation to the distant future, that may be payable today (or in the near future). The problem of intergenerational equity is figuring out how to come up with fair and efficient decisional rules about what that debt and those payments should be.

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Predatory Lending: Robin Hood in Reverse

posted by Keith Kilty

The story of Robin Hood – of the noble bandit stealing from the rich in order to give to the poor – is a popular cultural motif. It’s a shame that that’s just not true, that the real scenario is the rich stealing from the poor in order to give to themselves. Predatory lending has become one of the more common ways that this is now happening. Unfortunately, these practices are not even thought of as stealing. Actually, they are perfectly legal.

So-called “payday” services, including check-cashing and short-term loans, are the most scurrilous of these business activities. When I typed “payday services” into the Google search engine, I found one directory that included 66 separate providers, and that was only on the first page of results!

In Columbus, Ohio, a local community advocacy group has been calling for legal limits on these services. BREAD (Building Responsibility, Equality and Dignity) is demanding that the Ohio legislature limit the interest rates that can be charged. In a story written by Sherri Williams for the Columbus Dispatch (May 8, 2007), an example was given of a woman who borrowed $500 and ended up paying back $3,000. Loan sharks might actually provide better interest rates than that! Obviously, these are lucrative businesses, since the number of shops in Ohio grew from 107 to 1,562 in the ten years between 1996 and 2006. Of course, when interest rates can be as high as 390% a year, who should be surprised?

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Targeting the Elderly

posted by Keith Kilty

The elderly are increasingly the victims of various kinds of scams.  Older people – especially those who are poor – are seen as easy targets.  Telemarketing schemes often focus on the old through lists of names compiled by organizations such as InfoUSA, according to Charles Duhigg of the New York Times in an article headlined "Banks aid thieves in bilking elderly, feds say" (Columbus Dispatch, Sunday, May 20, 2007).

This "bilking" can occur in many ways.  It is most blatant in the case of individuals who find their bank accounts have been emptied out.  Even legitimate companies help.  According to Duhigg, "And major banks have made it possible for criminals to dip into victims' accounts without their authorization, according to court records."  But the elderly are taken advantage of in other ways as well.

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Being Poor in America

posted by Keith Kilty

Recently, I was asked to join Credit Slips as a guest blogger.  I am a social scientist, and my work has focused for many years on the broad issues of poverty and inequality.  Everyone in our society is affected by credit in many ways.  The poor are especially affected because of the kinds of credit to which they have access - especially predatory lenders who prey on the disadvantaged.  I include so-called "payday" services among these predatory lenders. I'd like to begin by taking a look at the nature of poverty and inequality in the United States.  Since the beginning of the Reagan era, far too many people in this society - especially politicians and media figures - have become very hard-hearted and mean-spirited, working long and hard to demonize the poor.  What is popularly known as "welfare reform" - the Personal Responsibility and Work Opportunity Reconciliation  Act (PRWORA) of 1996 was the final outcome of these efforts.  This law changed public assistance from an entitlement to a privilege and has put many of the most disadvantaged individuals and families in our society in dire circumstances.  My colleague Elizabeth A. Segal and I recently edited a book titled The Promise of Welfare Reform:  Political Rhetoric and the Reality of Poverty in the Twenty-First Century (Haworth, 2006) that documents just how draconian welfare reform has been and how ruthless it has been on those at the bottom of our society. But there is a bigger problem:  during the past quarter century poverty and public assistance have come to be seen as one and the same.  The reality is different.  The poor in our society have never received much help from the government, whether at the federal, state, or local level.  But that doesn't seem to matter.  It has been easy for politicians to use the poor as a whipping post and to blame them for their own problems.  And much of the public has bought into that viewpoint, perhaps as a way of separating themselves from the poor – from being seen as even having the possibility of being among the poor.

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Senate Thinks About the Middle Class

posted by Elizabeth Warren

For those of us who care about credit issues, yesterday's Senate Finance Committee hearing, called by Senator Baucus, was instructive.  The title: "Can the Middle Class Make Ends Meet?" I testified, along with a Brookings fellow, a social worker specializing in pediatric oncology, and the president of a tax-cut foundation.  Three of us thought the middle class was in trouble, and the fourth thought that thanks to tax cuts the middle class was doing great and the with more tax cuts they would be even better off.  (You can guess who took what positions.) 

While the senators focused mostly on specific issues like paying for college or the impact of a medical problem, everything said in that room (except maybe the tax cut stuff) was also about credit.  Rising debt, falling savings, bankruptcy, aggressive credit marketing, aggressive collection--it all plays out against the background of what's happening to the middle class.  If families could still afford to put away 11% of their incomes in savings, as they did in 1972, then the credit and bankruptcy issues we discuss would be very different.

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The Gendered Slide into Bankruptcy

posted by Debb Thorne

I'm wrapping up an article on the gendered nature of the slide into personal bankruptcy. It's taken from a chapter of my dissertation--which was the result of interviews with bankrupt couples. Since so little of what sociologists write actually gets read by others (either in the general public or across disciplines), I thought I'd take this chance to share my findings.

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It's All One Guy!

posted by Buce

I'm a little shaky on just how the issue of income inequality comes to fall into the brief of this weblog, but the precedent seems to be established, so perhaps readers will be amused by this just in from Dan Walters at the Sacramento Bee (link--and thanks again, Joel, who gets up earlier than I do):

When California's personal income tax revenues took a sudden jump last year, those who chart the state's fiscal affairs wondered why -- and it turned out to be mostly due to a payment by one very high-income taxpayer.

State tax officials, citing tax confidentiality laws, are very reluctant to provide any information about the person who sent in about $200 million in unpaid taxes, even the taxpayer's profession or business. It could be a Silicon Valley tycoon, a Hollywood entertainer, an athlete -- or someone else entirely.

The payment was in response to a state amnesty program aimed at settling outstanding tax disputes, but its sheer immensity implies that the income involved must have been about $2 billion. It indicates that amnesty has been a success, but more than anything, it underscores a tax system that makes it increasingly difficult for the state to balance its books because of its utter dependence on a relative handful of high-income taxpayers.

State and local governments, including schools, rely on three major taxes to finance their operations: property taxes, sales taxes and personal income taxes. But the three-legged stool of public finance has become unstable.

Property taxes are limited by Proposition 13, which voters passed in 1978, while taxable retail sales have flattened out due to demographic changes -- especially the aging of the state's economically dominant white population.

Over the last quarter-century, and especially in the last decade, personal income taxes have become, by far, the most important revenue source, and because California has a steeply progressive income tax system, the bulk of those revenues come from a relative handful of high-income taxpayers.

Roughly half of personal income taxes are collected from those reporting incomes of $200,000 a year or more, while they file just 3 percent of state tax returns. The roughly 3,000 (out of 14 million) California tax returns with incomes over $5 million a year pay a whopping 10 percent of all personal income taxes.

From a populist standpoint, that's all to the good, but there's a downside that should bother everyone: Wealthy taxpayers tend to receive much of their income from capital gains, business profits and other non-salary sources.

Simply put, California's fiscal health -- its ability to pay for schools, colleges, medical care and other programs -- is very dependent on how well a few people do with their personal investments, and that's bothersome for several reasons.

First, the wealthy are mobile. Many could simply relocate their residences, at least for tax purposes, to Nevada or some other income tax-free venue. Second, they have at least some flexibility in the timing and other aspects of their income streams. Finally, their incomes are in large measure dependent on how well the stock market is doing.

It is, in practical effect, a triple whammy. Increasingly, revenues depend on a narrow base of taxpayers whose incomes are increasingly volatile while at the same time, the spending side of the public ledger is increasingly rigid, thanks to decrees by voters and politicians, and unable to adjust to the system's inevitable peaks and valleys.

That's why we developed a state budget deficit in the first place seven years ago and why, fiscal forecasters believe, it will continue as a chronic headache even if the economy continues to expand -- which is not at all certain.

Gov. Arnold Schwarzenegger and lawmakers have voiced all sorts of grandiose schemes they want to pursue this year. Their first priority, however, should be to address the state's dangerous fiscal predicament, whatever that may take. And it will take much more than getting a few rich scofflaws to cough up.

 

U.S. Wealth Inequality: An Observation from the Stable

posted by Debb Thorne

The wonderful thing about holiday break is that I have guilt-free, university-mandated time to spend a few extra hours at the stable riding my mare, Zoe. I've been at this particular stable for six months now, and, having come from a working-class family, am amazed (maybe appalled would be a better word) by the extreme wealth that is evident there. The $20,000 horse is considered the economy model; at the upper end is the quarter horse gelding that is insured for more than $100,000. For a horse! (And I thought the $2,600 price tag on my Zoe was outrageous.) Of course, when the price of the horse is coupled with the $150,000 horse trailer and the $60,000 pick up truck, well, you get my point.

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Financial Stress and Employees

posted by Katie Porter

I recently ran across a study with interesting implications for the question of who should care about consumers in financial distress. Elizabeth Warren has argued we should think of debt as a family issue; others have highlighted the religious or moral component of debt; still others are pointing to racial disparities in overindebtedness and predatory lending. The study that I describe below suggests a new and powerful constitutency that should be working to reduce financial stress on Americans--businesses that have employees. Perhaps the Chamber of Commerce and the businesses that it represents (Wal-Mart, McDonalds, Dell, etc) need to be aware of the dollars at stake in financial hardship in a different context--not the costs imposed on a business by customers that don't pay but the costs imposed on a business by employees who can't pay.

In 2003, Dorothy Bagwell and Jinhee Kim published Financial Stress, Health Status, and Absenteeism in Credit Counseling Clients. They report on an analysis that they conducted using a random sample of consumers who contacted credit counseling agencies. These consumers were asked questions about their financial stress, absenteeism, and demographic qualities. Bagwell and Kim peform a regression analysis that indicates that financial stress is strongly correlated with missed work days. The effect of financial stress was more profound than many other factors, including marital status, gender, age, household income, and even health.

The study's findings suggest that companies would improve their balance sheets by helping their employees with their balance sheets. Employee absenteeism has high economic costs; businesses interested in reducing such costs ought to consider whether they should be supporting legislation or programs that seek to reduce the incidence of financial stress. Many companies offer Employee Assistance Programs; given that approximately 3 million households seek credit counseling annually, it would seem crucial that these programs have reliable resources to help employees with financial problems. The study's findings also reinforce why the U.S. military is alarmed about the number of military families experiencing financial trouble; the military is a huge employer and it may well be ahead of private industry in recognizing the costs that financially stressed employees impose on an employer.

A huge thank you to Viviana Zelizer

posted by Debb Thorne

At the risk of sounding a bit silly, I am reminded of the old adage "All good things must end," as I write a sincere thank you to Viviana Zelizer for her wonderful guest blogs this past week. For years I have admired her work, so when Bob asked for recommendations for guest bloggers, I jumped at the chance to invite Viviana. I was thrilled when she agreed. You see, I believe that the link between sociology and law should be strengthened--both disciplines have much to offer one another. Without a doubt, Viviana's contributions have demonstrated our disciplines' commonalities. I have learned much from Viviana this past week; I expect that you have done the same. And if we're lucky, maybe she will agree to post on Credit Slips again.

Personal Ties Matter

posted by Viviana Zelizer

It's been great to guest blog at Credit Slips for the past week. Thanks to Bob Lawless for being such a welcoming host and guiding me through the technical details. And to Debb Thorne for her warm introductory note.

I especially appreciate establishing a dialogue between legal experts and sociologists. In fact, sociologists who specialize in economic processes have recently been paying greater attention to issues of credit and debt. More specifically, they have examined how the creation, maintenance, and transformation of interpersonal relations intersect with a whole range of economic transactions from consumption to debt. Although they have dealt less frequently with debt and bankruptcy, their findings shed light on those tricky transactions as well.

While standard economic approaches focus on individual bargaining and strategizing in carrying out economic transactions, new approaches in the sociology of economic life start their analysis by focusing on interactions, transactions, and social ties. In different ways, sociologists show how regularly people create and rely on close ties for what others think of as strictly economic transactions.

Let me give you a few examples from the sociological and anthropological literature. Paul DiMaggio and Hugh Louch survey pre-existing non-commercial ties between buyers and sellers in consumer transactions involving major purchases: cars, homes, legal services, and home repairs. DiMaggio and Louch find a remarkably high incidence of what they call within-network exchanges. A substantial number of such transactions take place not through impersonal markets but among kin, friends, or acquaintances. Noting that this pattern applies primarily to risky one-shot transactions involving high uncertainty about quality and performance, DiMaggio and Louch conclude that consumers are more likely to rely on such non-commercial ties when they are unsure about the outcome. Risk favors reliance on friends and relatives.

In another study, Mariko Chang compares how households with different economic resources seek information about financial transactions. She finds that overall social networks constitute the most common source of information about saving and investment. Wealthier families, however, are more likely than poorer families to also consult financial professionals and certain kinds of media (e.g. direct-mail advertisements, the Wall Street Journal, or internet financial sites). The less affluent are more likely to rely exclusively on friends and relatives for information on such matters as account fees or interest rates. Among other reasons, Chang speculates that the wealthy are less likely to rely on personal networks because they find them less useful to gain information on savings and investments, they are reluctant to share personal financial information, or they are concerned with building expectations of reciprocal obligations.

As readers of this blog probably know from personal experience, close ties figure even more prominently in house purchases -- the largest expenditure that most households ever make. Nicholas Townsend's interviews of a group of men in their late thirties from varied social backgrounds, provides some specific evidence of how that works. Acquisition of homes, Townsend finds, often involves extraordinary efforts including relying on kin, increasing hours of work, and depending on wives' income. The men acknowledged receiving substantial family help of one kind or another in their first home purchase: help included both direct financial assistance (such as a loan from parents or a gift of a down payment), guarantees such as co-signing a mortgage, and other non-financial support in finding or building the house. It also included living with parents rent-free while saving for a down payment and buying from a relative below market price.

In addition, most men reported that they saw the likelihood of family assistance - especially their own parents' - in case of financial crisis as a crucial form of insurance. As we might expect from yesterday's discussion of the independence myth, Townsend reports that the men downplayed that substantial help in favor of self-portraits representing their own capacities to provide their households with adequate, appropriate shelter.

It is not just households that rely on interpersonal networks. One of the more surprising results from recent work on capitalist firms is how regularly business people develop and use ties with their suppliers, customers, and counterparts in other firms for aid and information in getting their own work done. Brian Uzzi, of instance, has looked at middle-market banking. There he finds that firms whose executives establish friendships (or personal relationships) with officials at credit institutions receive lower interest rates for loans than those that operate at arms-lengths. Across a wide range of commercial transactions, personal ties matter. They not only facilitate connections, but also often produce superior economic outcomes.

Specialists in credit and bankruptcy can surely benefit from this sort of theory and research. Most likely they will find that personal ties matter significantly to how, and how well, firms and households deal with financial crises.

The Independence Myth

posted by Viviana Zelizer

Financial aid from parents to children hardly seems to be a political issue, unless you happen to be running for governor of New York. Eliot Spitzer, currently New York attorney general, got into serious trouble during his 1998 campaign for accepting millions of dollars from his wealthy father to repay a bank loan for money he used to run his earlier 1994 campaign. Bernard Spitzer, his father, was stunned at the criticism: "I couldn't believe that there was any objection, to a father lending money to a son who wants to enter the political world" (The New York Times, October 12, 2006). Bernard Spitzer is not the only one helping his children out.

As Tamar Lewin reported last year in the New York Times (July 14), increasingly long-lived and prosperous American grandparents are providing financial aid to their children and grandchildren as never before, including tuition costs and real estate down payments. Yet they often conceal their help in fear of damaging their children's reputations for independence (In fact many of the grandparents interviewed by Lewin requested anonymity for fear of embarrassing their children). The longevity and prosperity are new, but aid across generations is old. The aid has always included money, but it has also included a wide variety of other help, including personal care.

The distinctive American myth that upright individuals and households take care of themselves economically has long hidden extensive exchanges across generations. It has also hindered clear-sighted public policy for dealing with economic emergencies, dependency, and personal care. Critiques of Social Security and Medicare that treat their financing as intergenerational warfare, for example, ignore the frequency with which government aid reduces the financial strain on children of aging parents.

When Americans lived shorter lives and older people had neither investment income nor government benefits to support them, it is true, more financial aid flowed from younger to older generations. But even then grandparents often took care of children, helped with household chores, provided contacts for job finding, and offered gifts that made a difference. For most American families, a house or apartment is their largest single chunk of wealth. Parents regularly either pass on their own homes or make substantial contributions to the financing of their children's first homes.

A surprising parallel appears among America's low-wage immigrants. Migrants from Mexico, Central America, and the Caribbean send back huge amounts of remittances each year. To Mexico alone, US immigrants sent about $17 billion in 2004. Often the money sent back home supports grandparents who are taking care of the migrants' children while the migrants work in American cities. It also helps buy houses. Some of the migrants will return to live in those houses after their stints in the American labor force. Others will use their savings to bring their elderly parents and their children to live in the United States. Here again inter-generational transfers belong to webs of mutual aid.

That mutual aid does good and bad. On the positive side, it maintains solidarity and security within families across generations. Ironically, it even supports the myth of independence in that way.

On the negative side, it reinforces inequality as whites much more frequently pass on property while blacks and Hispanics less often have substantial property - including houses - to pass on. Elimination of inheritance taxes aggravates the difference between haves and have-nots. It also means that a death, divorce, or loss of job can devastate not just one household but a whole connected group of kin.

Here smarter public policy could take advantage of people's readiness to help each other in reducing inequality and reinforcing the safety nets that people build for themselves. For example, something so simple as paying grandparents for care of their grandchildren (which has worked well in some experiments) could make a big difference to low-income households.

Yes, changing demographics are strongly affecting the place of American grandparents in the lives of their children and grandchildren. For all the bickering, uncertainty, reluctance, grudges, and myth making that accompany mutual aid, the extent of help, financial and practical, remains striking. Generations help each other, parents care about their kids, and kids continue to do what they can for aging parents.

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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