Delinquent Debt in America: To Forgive or Not to Forgive
Back in the 1800s in Great Britain, those who couldn't pay back their loans would be sent to "the workhouse," AKA debtors' prison, where they would be forced to work off their arrearage – i.e., their delinquent debt. Consequently, taking on debt was a serious undertaking back in jolly old Dickensian England. But then it was a more serious age than ours, with more serious people.
In today's America, the gravity of debt no longer tugs at us as it did back in the 19th century, when we had debtors' prisons. Attitudes toward debt have changed. Some even think their debts should be "forgiven." Interesting term, that. It suggests that going into debt is sinful. Indeed, in the various versions of the Lord's Prayer, "debt" is synonymous with "sin" and "trespass" and is therefore in need of forgiveness: "forgive us our debts, as we forgive our debtors." We should hope the term "forgive" will continue to be used in the context of loans, because too many Americans aren't taking debt seriously enough.
Be that as it may, when it comes to delinquent debt, what's actually sinful is when it's forgiven. That's because when debts are written off, someone must take a loss, and it's often not the party that extended the loan.
One large group of Americans that believes in debt forgiveness is college students, as they have racked up some $1.4 trillion in student loan debt. Their idol, Senator Bernie Sanders, wants all student debt forgiven. But who's to take the hit? I'd say it should be the colleges that have admitted so many students who can't afford it and who really shouldn't be in college anyway. Let the colleges pay off the kids' delinquent loans. That would force colleges to be more careful about whom they admit, as well as work to moderate the price of tuitions.
Debts are incurred in loans. Loans are contracts. When considering any contract, one should be clear about what happens when one of the parties reneges and the contract is broken. One area where the new attitudes towards debt have been fairly well "institutionalized" is in bankruptcy, when a contract that is a loan is broken. In a bankruptcy, one's debts are "discharged"; one's slate is wiped clean; one gets a new lease on life; one is – forgiven. And if one acts responsibly enough for a while, one can eventually start running up debt again.
A bond is a type of loan. From a legal standpoint, bondholders are the first in line to get the proceeds of a corporate bankruptcy. But that didn't happen in the 2009 auto bankruptcies. The bondholders and other creditors got shafted, and the assets that should have gone to them went to shore up union pensions.
In 2012, the Cato Institute ran "The Truth about the GM and Chrysler Bailouts," an incisive little blog post by Randal O'Toole, who wrote (italics added):
Under bankruptcy laws, stockholders would have lost the value of their stocks, but bond owners – who have first claim to company assets and profits – would have been paid off, if not in whole than at least in part.
Instead of letting the companies declare bankruptcy, Obama decided to "bail them out" by taking them over. Once the administration had control of the companies, it had them file for bankruptcy, just as they would have done without the government takeover. Stockholders still lost everything, but so did Chrysler's bond holders. Instead of renegotiating union contracts, the administration gave the unions greater say over the companies. In other words, the administration didn't bail out the companies; it bailed out the unions at the expense of (in Chrysler's case) the bondholders.
The treatment of bondholders in the auto bankruptcies should alarm us. It was theft perpetrated by the government, and it should repel all Americans who care about the rule of law. Giving the proceeds of the bankruptcies to unions is not at all different from if Obama had paid off the stockholders at the expense of the bondholders. Are we still a nation of laws?
Bankruptcy in America is insane. All a bankruptcy should do is this: stop the debtor from taking out more loans so he can't pile up more debt, and then reset interest rates and payback schedules so that loans can be paid back over a longer period of time. Debts should stay with debtors until they're paid off; they should never be forgiven.
In February of 2016, the National Legal and Policy Center ran "After Original Bondholders Stiffed, GM Issues New Debt" by Mark Modica: "GM announced last week that it will be offering an estimated $2 billion of unsecured debt to help prop up underfunded pensions." ("The more things change, the more they stay the same.") One wonders if GM autoworkers feel any remorse about Obama giving them what he stole from the bondholders.
It's not only in debt forgiveness that someone else gets hit and must pick up the tab; it also happens when government borrows and future taxpayers must pay for today's spending. But that doesn't seem to gnaw at many of today's Americans; they want their "free stuff" from the government, and right now. Future generations will just have to tough it out.
Of course, debt delinquency isn't an issue with the federal government because the feds can roll over their debt again and again. The federal debt hasn't been paid off since Andrew Jackson, and it is rarely even paid down. One might say the entire national debt is delinquent.
The feds have deliberately conditioned the citizenry to accept indebtedness. The feds are like an obese person urging you to eat more dessert so you can share in his "sin." The federal government has done nothing less than corrupt us.
In February of 2018, the David Horowitz Freedom Center's Frontpage Mag ran "The Progressives' Legacy: Debt, Deficit, and Entitlement" by Bruce Thornton, who addresses how government has corrupted us:
[The Founders] knew that dependence on others corrupts character and accustoms people to getting something for nothing. And they saw the dangers in a people who have grown used to taking "the property of their neighbors," who will not brook a diminishment of those transfers, and who will punish any politician who suggests that they can no longer expect such largess. ...
Imagine what will happen in the lean years that are coming ever closer and closer. If we think we're polarized now, wait until the hard choices will have to be made on diminishing the transfers of wealth which we have been trained to believe are sacred rights to which we are "entitled."
Maybe America should bring back debtors' prisons, especially for those who have run up the biggest debt in the history of the universe: the U.S. Congress. But not only could we throw members of Congress into debtors' prison; we might also imprison their families, including their grandchildren as yet unborn. After all, Congress has condemned our unborn grandchildren to being debtors. So when Congress begs for mercy, tell them this: we are not in the forgiving mood.
Jon N. Hall of Ultracon Opinion is a programmer from Kansas City.