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mostlysignssomeportents · 3 months

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Bankruptcy is very, very good

On THURSDAY (June 20) I'm live onstage in LOS ANGELES for a recording of the GO FACT YOURSELF podcast. On FRIDAY (June 21) I'm doing an ONLINE READING for the LOCUS AWARDS at 16hPT. On SATURDAY (June 22) I'll be in OAKLAND, CA for a panel and a keynote at the LOCUS AWARDS.

There's a truly comforting sociopathy snuggled inside capitalism ideology: if markets are systems for identifying and rewarding virtue, ability and value, then anyone who's failing in the system is actually unworthy, not unlucky; and that means the winners are not just lucky (and certainly not merely selfish), but actually the best and they owe nothing to their social inferiors apart from what their own charitable impulses dictate.

It's an economic wrapper around the old theological doctrine of providence, whereby God shows you whom he favors by giving them wealth and station, and marks out the wicked by miring them in poverty. And like the religious belief in providence, the capitalist belief in meritocracy is essential to resolving cognitive dissonance: it lets the fed winners feel morally justified in stepping over the starving losers.

The debate over merit and luck has been with us for millennia, and even the hereditary absolute monarchs of the Bronze Age had to find a way to resolve it. For the rulers of antiquity, the way to square that circle was jubilee.

Bronze Age jubilees were periodic celebrations in which all debts were canceled. Different kingdoms had different schedules for jubilees, but imagine some mix of "every x years" and "every time a new ruler takes the throne" and "every time something really portentous happens." To modern sensibilities, the idea that we would simply wipe away all debts every now and again is almost inconceivable. Why would any society practice jubilee? More importantly, how could a ruler get the wealthy creditor class to countenance a jubilee, rather than seeking a revolutionary overthrow?

The best answers to this question can be found in the scholarship of historian Michael Hudson, who has written extensively on the subject. Hudson doesn't just write for a scholarly audience, he's also a fantastic communicator with a real commitment to bringing his research to lay audiences:

https://michael-hudson.com/

Hudson's most famous saying is "debts that can't be paid, won't be paid." It's in this dense little nugget that we can find the answer the the riddle of jubilee:

https://pluralistic.net/2021/09/29/jubilance/#debt

Let's start with a simple model of debt and credit in an agricultural society. In agricultural societies, everything exists downstream of farming, which is the core activity of the civilization. If the farmers succeed, everyone can eat, and that means they can do all the other things, all the not-farming work of your society.

To farm successfully, you need credit. Farmers enter the growing season in need of inputs: seed, fertilizer, labor; they need still more labor during the harvest. Without some way to acquire these inputs before the farmer has a crop that can pay for them, there can be no crop.

No wonder, then, that the earliest "money" we have a record of is ancient Babylonian credit ledgers that record the debts of farmers who borrow against the next crop to pay for the materials and labor they'll need to grow it. Debt, not barter, is the true origin of money. The fairy tale that coin money arose spontaneously to help bartering marketgoers facilitate trade has no historical evidence, while Babylonian ledgers can be seen in person in museums all over the world.

Farming requires an enormous amount of skill, but even the most skillful farmer is a prisoner of luck. No matter how good you are at farming, no matter how hard you work, no matter how carefully you plan, you can still lose a harvest to blight, drought, storms or vermin.

So over time, every farmer loses a crop. When that happens, the farmer can't pay off their debts and must roll them over and pay them off with future harvests. That means that over time, the share of each harvest the farmer has claim to goes down. Thanks to compounding interest, no bumper crop can erase the debts of the bad harvests.

That means that, over time, "farmer" becomes a synonym for "debtor." Farmers' productive output is increasingly claimed by the rich and powerful. No matter how badly everyone needs food, the whims of the hereditary creditor class come to dictate the country's agricultural priorities. More ornamental flowers for the tables of the wealthy, fewer staple crops for the masses. "Creditor" and "debtor" no longer describe economic relations – they become hereditary castes.

That's where jubilee comes in. Without some way to interrupt this cycle of spiraling debt, society becomes so destabilized that the system collapses:

https://pluralistic.net/2022/07/08/jubilant/#construire-des-passerelles

In other words: debts that can't be paid, won't be paid. Either you wipe away the farmers' debts to the creditor class, or your society collapses, and with it, the political relations that made those debts payable.

Jubilee is long gone, but that doesn't mean that debts that can't be paid will get paid. Modern society has filled the jubilee gap with bankruptcy, a legal process for shriving a debtor of their debts.

Bankruptcy takes many forms. The most important split in bankruptcy types is between elite bankruptcy and the bankruptcy of the common person. The limited liability company was created to allow people with money to pool their funds to back corporations without being responsible for their debts. This "capital formation" is considered "efficient" by economists because it creates the backing for big, ambitious projects, from colonizing and extracting the wealth of distant lands (Hudson's Bay Company) to spinning up global manufacturing supply chains (Apple).

Limited liability means that companies can take on debt without exposing their investors to risks beyond their capital stake. If you buy $1,000 worth of Apple stock, that's all you stand to lose if Apple makes bad decisions. Apple may rack up billions in liabilities – say, by abusing its subcontractor workforce – but Apple's owners aren't on the hook for it.

Economists like this because it means that you can invest in Apple without having to be privy to its daily management decisions, which means that Apple can accumulate huge pools of capital, "lever them up" by borrowing even more, and then put all that money to work on R&D, product development, marketing, and, of course, "incentives" for key employees and managers.

But limited liability also does a lot of work in the political sphere. Once an individual crosses a certain wealth threshold, they become an LLC. Accountants and wealth managers and financial planners insist on this. For freelancers and other sole practitioners, the benefits of forming an LLC are modest – a few more tax write-offs and the ability to get a business credit-card with slightly superior perks.

But for the truly wealthy, transforming yourself into the "natural person" at the center of a vast pool of LLCs is essential because it allows you to accumulate and shed debts. You can secretly own rental properties and abuse your tenants, accumulate vast liabilities as local authorities pile fine upon fine, and then simply dispose of the LLC and its debts. Plan this gambit carefully enough and the debtor LLC will have no assets in its bankruptcy estate apart from the crumbling apartment building, and its most senior secured creditor will be another of your LLCs. This lets the slumlord move an apartment block from one pocket to another, leaving the debt behind.

For the corporate person, shedding debts through bankruptcy is an honorable practice. Far from being a source of shame, the well-timed, well-structured bankruptcy is just evidence of financial acumen. Think of the private equity looters who buy a company by borrowing against it, pay themselves a huge "special dividend," then wipe away the debt by taking the company bankrupt (which also lets them shed obligations to suppliers, workers, and especially, retirees and their pensions). As Trump (a serial bankrupt who has stiffed legions of contractors and creditors) would say, "That makes me smart."

The apotheosis of elite bankruptcy is found in massive corporate bankruptcies, in which a corporation kills and maims huge numbers of people, then maneuvers to get its case heard in one of three US federal courtrooms where specialist judges rubber-stamp "involuntary third-party releases" that wipe out the company's obligations to it victims for pennies on the dollar, while the company gets to keep billions:

https://pluralistic.net/2021/07/29/impunity-corrodes/#morally-bankrupt

This process was so flagrantly abused by companies like Johnson & Johnson (which spent years knowingly advising women to dust their vulvas with asbestos-tainted talc, creating an epidemic of grotesque and lethal genital cancers) that it is finally generating some scrutiny and pushback:

https://pluralistic.net/2023/02/01/j-and-j-jk/#risible-gambit

But the precarious state of elite bankruptcies has more to do with the personal corruption of the small cabal of judges who run the system than public outrage over their rulings; like that one judge in Texas who was secretly fucking the lawyer whose clients he was also handing hundreds of millions of dollars to:

https://pluralistic.net/2023/10/16/texas-two-step/#david-jones

Certainly, we don't hear much about the "moral hazard" of allowing the Sackler opioid family to keep as much as ten billion dollars in the family's offshore accounts while walking away from the victims of their drug-pushing empire, no matter what bizarre tricks they deploy in pulling off the stunt:

https://pluralistic.net/2023/08/11/justice-delayed/#justice-redeemed

But when it comes to canceling the debts of normal people, the "moral hazard" is front and center. If you're a person who borrowed $79k in student loans, paid back $190k and still owe $236k, we can't cancel your debt, because of the message that would send to other people who want to (checks notes) get an education:

https://pluralistic.net/2020/12/04/kawaski-trawick/#strike-debt

The anti-jubilee side also wants us to think of the poor creditors: who would loan money to the next generation of students if student debt cancellation was a possibility? Of course, these are federally guaranteed loans, risk-free, free money for people who already have money, a kind of UBI for the people who need it least. The idea that this credit pool would dry up if you were limited to only collecting the debts that can be paid – rather than insisting that debts that can't be paid still be paid – elevates the hereditary creditor class to a kind of fragile, easily frightened, endangered species.

But the most powerful arguments against bankruptcy are rooted in the idea of providence. In an efficient market, anyone who goes bankrupt was necessarily reckless. They were entrusted with credit they weren't entitled to, because they lacked the intrinsic merit that would let them manage that credit wisely. Letting them walk away from their debts means that they will never learn from their mistakes, and that their fellow born-to-be-poors will learn the wrong thing from those debts: that there's an easy life in borrowing, spending, and discharging your debts in bankruptcy.

As it happens, this is an empirically testable proposition. If this view of personal bankruptcy as a personal failure is correct, then people who go bankrupt and live to borrow again should end up bankrupt again, too. On the other hand, if we accept the jubilee view – that debt is the result of accumulated misfortunes, often including the misfortune of birth into poor station – then bankruptcy represents a second chance with an opportunity to dodge misfortune.

In a new study from IZA Institute of Labor Economics's Gustaf Bruze, Alexander Kjær Hilsløv and Jonas Maibom, we get just such an empirical analysis. It's called "The Long-Run Effects of Individual Debt Relief," and it examines the lives of people for a full quarter-century after a bankruptcy:

https://docs.iza.org/dp17047.pdf

The study follows Danish bankruptcies following the introduction of continental Europe's first modern bankruptcy system, which Denmark instituted in 1984. Prior to that, the Danes – like most of Europe – did not allow for a discharge of personal debt through bankruptcy. Instead, a debtor who went bankrupt would be expected to have about 20% of their lifetime wages garnished to pay back their creditors, until the debts were repaid or they died (whichever came first).

After 1984, Denmark bankruptcy system imported features of US/UK/Commonwealth bankruptcy, including the ability to restructure and discharge your debts. Not everyone is eligible for this kind of bankruptcy: there's a bureaucratic system that verifies that people seeking bankruptcy discharge don't have a lot of assets that could go to their creditors.

But for the (un)lucky people who qualify for bankruptcy discharges, there's a fascinating natural experiment in which the fortunes of people who see debt relief can be compared to bankrupt people who couldn't get their debts wiped out.

It turns out that the Bronze Age has a thing or two to teach us. Here's the headline finding: people who discharge their debts in bankruptcy experience "a large increase in earned income, employment, assets, real estate, secured debt, home ownership, and wealth that persists for more than 25 years after a court ruling."

After people are given the benefits of bankruptcy, they are less likely to rely on public benefits. They get better jobs. Their families live better lives. Their creditors get some of their money back (which is all they can realistically expect, since "debts that can't be paid, won't be paid").

As Jason Kilborn writes for Credit Slips, "the benefits of debt relief are not only substantial but robust, as debtors learn their lesson (if there was one to learn) about managing their finances, and they capitalize (literally) on their fresh start."

Score one for the luck-based theory of wealth, and minus one for the providential meritocracy hypothesis.

Americans should take note of these findings. After all, Danes are insulated from the leading American cause of bankruptcy: medical debts. In America, breaking a bone or getting cancer or even kidney stone can wipe out a lifetime of hard work, careful planning and prudential spending. The US refuses to seriously grapple with this problem. The best we can come up with is the (welcome, but tiny) step of banning credit bureaux from trashing your credit score because of your medical debt:

https://www.whitehouse.gov/briefing-room/statements-releases/2024/06/11/fact-sheet-vice-president-harris-announces-proposal-to-prohibit-medical-bills-from-being-included-on-credit-reports-and-calls-on-states-and-localities-to-take-further-actions-to-reduce-medical-debt/

Millennia ago, everyone understood that debts that can't be paid, won't be paid, and they created a system for discharging debts and freeing productive people from the tyranny of accumulated liabilities, to the benefit of all. Dismantling that system required us to invent an elaborate theological system and dress it up in economic language.

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2024/06/17/lovilee-jubilee/#debts-that-cant-be-paid-wont-be-paid

#pluralistic #debt #debts that cant be paid wont be paid #jubilee #denmark #great danes #bankruptcy #second chances #scholarship #economics #iza #Gustaf Bruze #Alexander Kjær Hilsløv #Jonas Maibom #michael hudson

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lesmissocials-fuckedup · 9 months

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Les Mis socials - official 2023 ranking

Here they are - The results of the "Worst post of 2023" competition and overall an archive for the worst posts the Les Mis social media teams have cursed us with this year.

1- "Who should Marius choose ?" - January 29

That one can be crowned "Worst post of the year" by far - The musical seems to once again have misunderstood three of its most important characters, reducing them to being mere love interests and defining Eponine and Cosette's relationship by a rivalry over Marius.

2 - Cosette at Thanksgiving - November 23

The US competitor also took a very strong stand here - not only because it shows a deep misunderstanding of what the character of Cosette fundamentaly stands for, but also because it can be seen as offensive by many. Putting an abused and starved french child in front of a Thanksgiving meal, really ?

3 - Mother's day - March 19

A picture of Madame Thénardier ? For Mother's day instead of Fantine ? It's more likely than you think. Although on this one the team gets extra credit for acknowledging that Madame Thénardier is not a good mother, which shows an unusual level of understanding when it comes to their own musical.

4 - The Wimbledon post - July 15

Also known as That One Post Where Everything Is Wrong - and for sure not their best use of this promotional picture. From the tennis racket to the editing of Cosette's arms to make her look muscular, it is the proof we never needed that there should not, in fact, be a Cosette for every occasion.Not to mention they somehow messed up the colors of the French flag... not a good look for them.

5 - Christmas Eve - December 24

Just a very disappointing post all around as an adequate way to wrap up this year. On the 200th anniversary of Valjean meeting Cosette in the woods, we got a quality pun and an edited picture that we could, at the very best, consider as inappropriate - would it only be because they added snowflakes to a barricade that was build in June.

Honorable mentions for this year go to :

The Fourth of July post - that surprisingly did not make it in top 5. The US team might win the battle for "Most incorrect use of this Cosette picture" with this one - and it is made even worse by the fact they did not post anything for July 14, the national french holiday.

The World cup one - similar to the Wimbledon post in that it just gets everything wrong overall, from the awful pun to putting Cosette in front of an english flag.

Easter Cosette - not surprising, but still extremely disappointing.

Christmas Cosette - in the same way, it is the exact same post as last year and never fails to disappoint.

Any time they felt the need to put sunglasses on Cosette - which, honestly, was a lot.

A very uncanny use of emojis in every single post, that never gets less disturbing.

Overall a very good year to archive their fuck ups - but they still did not manage to beat the record set last year by the Queen's Jubilee post ! Maybe they will do even better in 2024 ?

#les mis #les miserables #les mis socials fucked up #les mis socials fucked up 2023 #les mis socials fucked up 2023 archive #2023 in 5 posts

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