Was the Bankruptcy Bill a leading Factor in Causing the Recession?

[alcibiades_mystery]

I'm convinced - though I don't have the statistical chops to demonstrate it - that the passage of the bankruptcy bill was the trigger for the economic downturn. Hear me out. The Bankruptcy Bill was really the final plank in rapacious action on the part of the banks. But I think it had a chilling effect on consumer credit. The banks were doing relatively good business, but had to eat the bankruptcies. They got greedy, and tried to shut down that release valve on what was a rampant leveraging of household net worth. But as soon as they shut down that release valve, the pressure started building up. On the one hand, people began pulling back on borrowing through the credit cards. On the other, they sought novel credit arrangements, particularly through leveraging their home values. Seeing the spike in this business then encouraged the refinancers. But you already had pressure on the lenders through the credit pullback. Psychologically, it was devastating for an economy that ran mostly on leverage, as costs rose while wages stagnated: the credit industry was itself the "cure" for the crisis of overproduction, but the bankruptcy bill injected disincentives precisely into that cure, making the crisis reappear with a vengeance. In a sense, it is the ultimate tale of over-reaching, as the predator capitalists sought to shut down the one line of escape from their grasp which was also - as in Greek tragedy - the only thing that kept them alive. Easy bankruptcies incentivized what was essentially irrational leveraging by consumers, but that situation allowed the crisis of overproduction remain beneath the surface, and might have even done so indefinitely. But the capitalists couldn't leave well enough alone, and had to squeeze every last penny of surplus value from the society. In doing so, they broke the very mechanism that allowed the irrationality of the system to continue. I think somebody with more economics chops than I have should attempt a causal analysis of the Bankruptcy Bill vis-a-vis the housing balloon and collapse of the credit markets.

[susanna]

1. Interesting theory...

...it makes this childhood story all the more relevant:

http://en.wikipedia.org/wiki/The_Goose_That_Laid_the_Golden_Eggs

[ColbertWatcher]

8. Looks like we need another Aesop! n/t

[robinlynne]

2. I think it was the theft and looting by the republicans, coupled with deregulation

and many many other laws, such as the bankruptcy bill (and nobid contracts, no auditng, tax cuts for the rich, etc. etc.)to enable that theft and looting.

[bstender]

4. excess credit

this economic event is _deflation_, just a butt load of bad loans that have to be written off. . neither theft or 'deregulation' caused it, everybody big and small was bellying up to the bar and are now feeling the hangover.

[2Design]

3. multiple factors and not just that - the housing bubble was major

1. when they got rid of the Interest deduction years ago - banks started home equity loans
2. When they allowed the deduction that used to be one time in a lifetime on gains on a home for any home lived in or held for two years - flippers entered
3. Cutting interest rates to the bones allow realtors to up the prices of homes because now the payment could be lower
4. Banks got in on the deal when they started coming up with interesting ways to get people to get adjustable rate mortgages even though interest rates had not where else to go but up
5. Wall street got involved by bundling all this crap into bundles and selling it to investors
6. ponzi schemes everywhere in ever sector to do with housing

7. so congress played a big part with their trying to give the rich so many loop holes out of taxes
8. Deregulation of everything

[leftofthedial]

5. it opened the floodgates of predatory capitalism and turned those vermin

on the consumer full force.



Thanks, Joe Biden!

And most of Obama's economic team!

[closeupready]

6. I absolutely agree.

It was one contributing factor among several, but not an insignificant one.

[Lagomorph]

7. It was a game of musical chairs...

The lenders were accepting toxic mortgages and selling the mortgages to whoever would take them (banks and other lenders, investors, etc...). People kept passing them around at their artificially high value, until the music stopped and whoever was holding them lost their chair, their table, the floor, the door and the whole damn building.