Harsh

… but a fair assessment.

Who’s trying to kid whom here? Consumer debt is up at a record, vastly surpassing wage growth. So how the hell do you service all this debt? Ultimately you do not, which means that when the wheels come off it will not just be foreclosures but a massive wave of bankruptcies on top of it.

Oh, and let’s not forget – we did “bankruptcy reform”, which means that now, instead of the pain being taken (by banks and lenders) immediately, we instead pushed it back to the consumer, which means that the overhang will persist for YEARS and could turn what was going to be a quick, sharp recession into a full-on consumer-led DEPRESSION.

Why? Well what happens when you go BK but can’t discharge the debt? You get garnished. That drives down your standard of living until paid off, which takes years. During that time your credit is destroyed but more importantly (for the economy as a whole) so is your discretionary purchasing power.

But heh, it was all a good idea, right? Was that before or after the housing market went to crap, which was the “out” that the banking industry counted on (go BK, be forced to sell the house to get rid of the garnishment, even in states like Florida which protect primary homes.)

But what now, when the equity in the house is less than the mortgage? Oops!

I’ve taken to reading this blog every day. Above demonstrates why. As does this:

When history is written on the entire mess, 10 years+ from now, one of the key items that may be identified as contributing to the depth and severity of the economy malaise will be the alleged “reform” of bankruptcy laws.

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