The New Economy

Rivka at Respectful of Otters (great name) talks about the realities of debt:

My household once made the mistake of assuming, based on our quaint 1990s expectations of the economic world, that an intelligent and personable individual with good work habits would be able to find a job in a major city. On the basis of that assumption, we signed a lease for an apartment which, when a job failed to materialize, we couldn't afford. Was it ridiculous for us to be paying $950 in rent with a combined annual income of somewhere around $24,000? Yes. Was it ridiculous of us to assume, when we signed the lease, that two working adults would be able to pull in more than $24,000? I don't think so. We had not adjusted our expectations to the bold new rules of the new economy, the 'ownership society' in which it was our responsibility to plan ahead for such common eventualities as a year of un- and underemployment. But even if we had adjusted our expectations, it's hard to imagine what we could've done to cushion ourselves against such a severe economic shock.

What did we do instead? We borrowed money from our parents, and we maxed out my credit card. (That's my generation's version of unemployment compensation, after all.) Eventually, we fell behind in our bill payments. At that point we were flooded by new credit card offers, far more than ever before or since, all of them bearing stratospheric interest rates and enormous penalties for late payments. Five or six offers a day. We were terrible credit risks at that point, and the credit card companies were falling all over themselves to sign us up for more debt.

But they would've been shocked, shocked if we'd defaulted on our loans. We would've been one more example of why Congress needed to protect them from the economic risks of their poor decision-making. And no one would've made speeches to them about their need to take 'ownership' of anything... but our assets.

Welcome to the new economy.

Credit card debt has replaced the safety net. As Rivka says, no wonder people are declaring bankruptcy at record rates. And our good friends in Congress have just made it a lot harder for people caught in that trap to ever escape from it.