Morally Bankrupt

Steven D over at the Frog Pond has a great article on one part of the economy that he's had personal experience with that's expected to do very well over the next several years: Bankruptcy Law.

...The credit card companies did want to kill off consumer bankruptcy lawyers, but more as an added benefit. What they really wanted to do what cut the costs and losses they incurred when people who were maxed out on credit filed bankruptcy. You see most banks and credit card companies wanted people in debt, they just didn't want them to be able to walk away from that debt. What the bankruptcy code revisions did was force many people to use the equity in their their homes as a means to pay off their credit cards, rather than file bankruptcy.

And it worked, too. That is, it worked so long as the real estate bubble lasted. Banks earned fees from home equity lines, and banks and credit card companies earned fees from consumers (and retailers) who continued to use their credit and debit cards (often branded with the Visa or MasterCard logos) to buy, buy and buy some more. It was a great little racket they had going -- until the bubble burst and the housing market collapsed, triggering the Fall of the House of Greenspan and with it the Bush Economy.

Of course, consumer bankruptcy attorneys are just the small fry. The real money to be made is representing debtors, or their creditors, in corporate bankruptcies, especially in Chapter 11, the reorganization chapter of the bankruptcy code. And wouldn't you know that corporate Chapter 11 reorganization filings are expected to boom this year, as well...

And the real stinger is that bankruptcies at this level will only beget more bankruptcies down the line as creditors get screwed out of their investment and have to settle for pennies on the dollar. I've talked about America's biggest mall owner, General Growth Properties before. It's on the edge and has been for some time now, and the wave of retail store closing across America's shopping centers almost assures that GGP is done for. Commercial real estate will be the next economic disaster Obama will have to face. He's going to want to hold on to that second half of the TARP fund.

Indeed, General Growth Properties may be filing for Chapter 11 any day now, which can't make Tommy Friedman very happy, seeing his billionaire status put at risk. However, when big commercial real estate firms go under, guess what? They don't pay their local taxes. And the stores that go out of business in the malls they own don't generate any sales taxes. Which means many local municipalities lose a large amount of the revenues they depend upon to finance schools, fire fighters, police and other essential services.

Which again brings the financial hurt back to you and me. Tom Friedman will manage just fine, trust me. It's our jobs, our families livelihoods and the future for our kids which are really in danger today. Which makes you wonder why any Democrat would continue to support extending Bush's tax cuts for the rich. I sure don't see any reason for letting the people who profited and partied off the decline of the middle class in America over the past three decades getting away scot free with their often ill earned gains.

In other words, the pain is just beginning. 2009 and 2010 are going to be a tidal shift in America...and millions of us are going to drown in the financial currents as a result.