Why is the really rotten Bankruptcy Bill about to Pass?

It is clear, when reading about the bankruptcy bill that is about to pass, ( Talking Points Memo - bankruptcy that it is a bill which will gouge consumers and allow credit card companies, payday lenders, and car dealers who offer credit to people with bad or no credit to be protected from their own acceptance of such rents.

Oddly enough, I thought the justification for letting them charge such usurious interest rates was to reimburse them for those risks. Now they want the profit, but they want to turn the courts into a large collection agency for them.

Bad deal, right? So why are the banks, etc, pushing the bill so hard?

I have previously mentioned the many signs of an impending financial crisis for America. ( here , here, here, and here.)

These are all indicators of problems coming. I haven't discussed the fact that the economy itself appears to be improving, but That's because the improvement isn't all that good. It is based on consumer spending. and government spending. The spending in both cases is based on increasing debt, not on a basically improving economy. Consumers are using credit cards and refinancing their homes to get money to spend more. The government is obviously borrowing money to pay for the Iraq war and the tax cuts.

There still isn't much spending on investment, and what there is involves an increase in debt rather than equity financing. This means that all three elements in the improving economy are going up by borrowing from the future rather than building value.

So what happens when interest rates increase enough to kill home refinancing? That is a major source of repayment of credit card debt. It is also the source of the "Housing Bubble" that is allowing people to sell homes at prices so high that it can't be economic. The buyers are betting they can sell them for even more. High interest rates will kill that. Then the economy, which is dependent on consumer buying, will drop and the increased unemployment will lead to greater bankruptcies. This will lead to major catastrophes for financial institutions.

The bankruptcy bill is the effort of the financial institutions to be first at the trough for any repayments that are possible when the catastrophe hits. It will leave many Americans working merely to pay debts rather than ever hoping to build wealth. But the financial institutions will still exist. Or so they beleive.

America will then become a nation split between some Lenders and many borrowers, with the lenders as predators sucking the financial life out of the borrowers.

The probable political effects of this are for another blog.