On daytime television, streams of ads offer irresistible new loans — credit cards, house refinancing, interest-only loans. At night, eerie ads offer cash in exchange for death benefits.

The level of personal debt for U.S. households has jumped in the last decade from an average of 85 percent of the household’s after-tax annual income to over 120 percent. Interest payments are consuming a growing share of income, competing with rising housing, health care and fuel costs while incomes and benefits decline.

With social services and infrastructure fraying, a single layoff, a single sickness, one hurricane, one accident can set in motion a terrible downward spiral leading to economic crisis for a family.

Pin-striped loan sharks

A reactionary bankruptcy law went into effect Oct. 17, courtesy of Citibank, Chase and other pin-striped Wall Street loan sharks, and their bought-off politicians. They claimed that borrowers were abusing the old law, filing for bankruptcy when they could really afford to pay off their debts. The new law, they say, promotes “personal responsibility.”

Under the new law, a majority of bankruptcy filers will likely be forced into extended repayment schedules instead of having much of the slate wiped clean. They will be forced to pay for costly mandatory credit counseling. The new law demands far more paperwork, adding even more legal expense to the process. Reports are that the up-front costs of filing for a bankruptcy will double; many working-class and poor people will not be able to meet the documentation requirements.

Under the previous law, child-support payments had priority; under the new law, they now compete with Citibank’s claims.

Despite the severe provisions of the new law, in the coming months tens if not hundreds of thousands of Americans will likely be forced into bankruptcy simply as a result of Hurricane Katrina, and the Delphi, Northwest and Delta Airlines debacles of the past few weeks. And any significant rise in unemployment, interest rates or fuel prices, will push millions more over the bankruptcy edge.

Causes of bankruptcy

In their 2003 book “The Two-Income Trap,” Harvard bankruptcy expert Elizabeth Warren and her daughter Amelia Tyagi expose the hypocrisy of right-wing “morality” and claims that individuals “abused” the old law. The overwhelming majority of personal bankruptcies are due to loss of job, family illness or other circumstances beyond an individual’s control. Having a child, they report, is the single best predictor that a woman will file for bankruptcy. In 1981, 69,000 women filed for bankruptcy. By 1999, the number had risen to nearly 500,000.

They compare the bankruptcy process, even under the old law, to being stripped naked in front of strangers. The demands of the new law are that much more humiliating, intrusive and impossible to meet.


interest rates

Warren and Tyagi leave no doubt that Wall Street prefers lending to people in trouble. “In 2001,” they report, “when standard mortgage loans were in the 6.5 percent range, Citibank’s average mortgage rate (which included both sub-prime and traditional mortgages) was 15.6 percent.”

It’s easy to be relegated to a “sub-prime” mortgage. Be late on your phone bill, make an inquiry into a loan to buy a car, not to mention fall behind on your credit cards due to layoff or illness — these are all excuses to jack up your interest rates. But people in financial distress will always be relegated to the highest rates.

To put this practice in perspective, a family buying a $175,000 home with a sub-prime loan at 15.6 percent would pay an extra $420,000 during the 30-year life of the mortgage, “that is, over and above the payments due on a standard mortgage.”

While Citi and George Bush claim to be helping people buy homes, in reality they are helping making sure they will lose their homes.

“The Two-Income Trap” is filled with social and economic insights. What the authors fail to see is the decay of a whole social system. They close their book with recommendations to cope with this decay. Yes, we need to somehow cope, but the way out is through struggle to meet human needs, from food, heat and shelter to health, education and recreation. The way out is for the working class to take control of production, finance, and society to meet human needs.