But then things cooled down. Treasury note yields and mortgage bond yields came down a little to end the week, signaling that maybe markets weren’t tired of government debt after all and maybe the Fed’s efforts to keep interest rates low still had some punch. And a couple of astute economic observers expressed to me in emails that frankly, the fears were overblown to begin with. Interest rates on long-term Treasuries simply do not point toward a nervous market. Yes, yields are up from the ridiculous lows that prevailed during the darkest days of the financial crisis. That’s to be expected; people wanted to be in the safest harbor available back then and were willing to accept basically nothing in return for the ability to hold U.S. government bonds. But by comparison with basically any other point in the past thirty years, things look pretty solid.

Anyway, if you need more convincing that inflation and debt levels aren’t something to be pulling your hair out over right now, take it from an economics Nobelist:

[I]t’s hard to escape the sense that the current inflation fear-mongering is partly political, coming largely from economists who had no problem with deficits caused by tax cuts but suddenly became fiscal scolds when the government started spending money to rescue the economy. And their goal seems to be to bully the Obama administration into abandoning those rescue efforts.

Needless to say, the president should not let himself be bullied. The economy is still in deep trouble and needs continuing help.

Yes, we have a long-run budget problem, and we need to start laying the groundwork for a long-run solution. But when it comes to inflation, the only thing we have to fear is inflation fear itself.

There you have it.

Several credit card companies have launched a new Website designed to help struggling card users manage their debts amid the economic downturn. The site includes tips to avoid penalties and links to access counseling services. But the fan favorite has to be an interactive tool allowing consumers to calculate the minimum installment required to pay off balances within a given time frame. It’s worth a whirl.

For example, a customer wanting to pay off a card balance of $8,329 — the average credit card debt per U.S. household last year, according to The Nilson Report — at an interest rate of, say, 15 percent within five years would learn that the monthly payment would be $198. If the same customer could afford only $120 each month, she would learn that it would take 161 months to pay down the same balance. Etc. It’s an instant lesson in precisely how long you’ll be tethered to that flat-screen purchase.

The Website arrives as Congress is poised to pass legislation to protect consumers from some of the most commonly abusive tactics used by card companies, such as hiking interest rates on existing balances and advertising “fixed-for-life” rates that are anything but. The companies’ new PR campaign, it seems, is designed to lend a sense that the industry also has the interest of consumers at heart.

Funny, then, that these are the same companies that have fought to water down the consumer protections currently flying through Congress. Funny too that they’re also the same companies that lobbied successfully to delay the implementation of those congressional reforms for at least nine months. Now they’ve launched a tool to “educate customers struggling to make their credit card payments” after they just fought to preserve the right to hike rates on those same customers retroactively?

In light of those efforts, their shiny new Web tool suddenly takes on a duller hue.

The current powers that be — both in Washington and Detroit — can’t be trusted to fix a problem they created, the Republicans say. From the statement out of Rep. John Boehner’s (R-Ohio) office:

The only thing crazier than trusting the same management and union officials who got the Big Three into this mess to get them out is trusting a bunch of Washington politicians and bureaucrats — the very same people who ran up a $455 billion deficit last year.

What the Republicans fail to mention is that they are “the very same people” referred to here. Indeed, when the GOP took control of Congress in 1994, the federal debt was roughly $4.7 trillion. Now it stands above $10 trillion — with nearly $3 trillion of the new debt amassed between 2000 and 2006, when Republicans controlled the White House and both chambers of Congress. (Another $1.5 trillion has arrived in the last two years under the Democratic-led Congress.)

Funny that no one ever forced a pay cut on these lawmakers for reckless management. In fact, Congress has given itself a pay raise nearly every year this decade.

Meritocracy, indeed.

Here’s the question from Lawless, an expert on credit and bankruptcy at the University of Illinois College of Law school: Why?

After two decades in which consumers piled debt on their credit cards without blinking, used their properties like ATMs, failed to save anything for a rainy day and spent in ways that have led to the huge mess in which we now find ourselves – why should we go down that path again?

From Lawless:

For those of us who grew up in the 1970s, the explosion of consumer debt is one of the greatest social shifts for our generation. Our parents borrowed but only episodically. Homeowners planned for a day when they would pay off the home mortgage and perhaps have a celebration where the mortgage document was burned. We were among the first college students who were able to get credit cards, but credit limits were low. As an undergraduate, I remember getting a Visa card so that I would have it for an emergency and being terrified about possibly being responsible for the $500 debt I could incur on it.

We now live in a society where a segment of America is permanently indebted. Although estimates vary, the best available data suggest a little under half of Americans carry a balance on their credit card. Homeowners have borrowed out of their home equity and no longer plan to retire mortgage debt. As a nation, we now over $13 trillion on our credit cards, automobile loans, and home mortgages. Even after adjusting for inflation and the growth in population, that is more than three times the amount owed in 1980.

Lawless isn’t advocating for a return to the 1970s – there are a lot of advantages to the expansion of credit. But instead of trying to spend our way out of an economic slowdown – again – it might be time for consumers to get used to a different lifestyle. Spending less, saving more. True, that means a lower standard of living in may ways. But the alternative is to temporarily address a problem that will only be kicked on to the next generation.

It’s also worth noting that two days after Paulson’s announcement, Citigroup said it planned to raise interest rates on its credit cards.

The list of major subprime lenders for 2006 and 2007 resembles the casualty roster from the Battle of Verdun in World War I. Only difference: way fewer walking wounded this time.

Of the 30 biggest subprime home lenders in 2006, measured by dollar volume, 22 have gone bankrupt, shut down, been sold or been seized by Uncle Sam. Most of the survivors have scaled back.

I guess the warnings all those years from the housing and consumer groups who regularly testified before the Federal Reserve were right on the mark after all. Too bad no one ever listened. The only bright spot here: It’s not like we’ll miss any of these lenders.

RIP, subprime.

And remember about the door on your way out.

Illustration by: Matt Mahurin

Related Video: Pain on Main Street

As lawmakers continue fighting on Capitol Hill over a $700 billion taxpayer bailout for banks and lenders on Wall Street, the foreclosure machine grinds on and the mortgage crisis at the heart of the problem continues to worsen.

Every day, people show up looking for help at the modest offices of United Communities Against Poverty, a housing counseling agency in Prince George’s County, Md., in suburban Washington. Homes are going into foreclosure at one of the fastest rates in the nation here, and to chief counselor Caprice Coppedge, it’s hardly surprising that the bailout bill doesn’t have much in it to help them.

Illustration by: Matt Mahurin

“I’m not shocked,” she said. “Each one of these so-called rescues hasn’t done much to help homeowners. There has to be a little bit more of a solid plan. I don’t understand why they

Image by: Matt Mahurin

When it comes to the bailout, homeowners understand one thing for sure: They aren’t too big to fail. A long-sought measure that might help some of them — changing federal law to allow bankruptcy judges to modify mortgages — faces tough odds, with the lending industry strongly opposed to it.

Even if gets approved, some borrowers can’t afford bankruptcy attorneys or don’t want to file. Still, housing groups estimate the change would keep some 600,000 families in their homes, which is why they have been pushing the idea.

To help even more, Senate Democrats want the government to modify as many of the loans it buys as possible. But just because the government owns all those bad mortgages doesn’t mean it can do a massive restructuring to make them more affordable.

In taking on toxic loans, the government faces a huge Humpty-Dumpty problem — mortgage-backed securities were sliced into pieces and sold that way to investors around the globe. Spending all that taxpayer money to buy those securities still won’t ensure the government can own or control them all, so it can’t redo loans on a large scale. Even $700 billion won’t be enough to put all the pieces back together again, said Adam Levitin, a Georgetown University law professor and expert on the credit industry.

The small percentage of loan modifications that might get done will be “random and arbitrary,” and not based on the merit’s of a homeowner’s case, he said. Not to mention that second mortgage holders regularly refuse to do loan modifications, and many subprime homeowners took out two mortgages.

Given all this, the bailout ends up rewarding the most egregious of the subprime lenders — the ones who made the most abusive and predatory loans and who disproportionately targeted minority borrowers — since they’ll be the ones with the most toxic securities to buy. Banks that didn’t do as much subprime lending won’t need to sell off as many loans, and they won’t get as much government money, Levitin said.

And don’t count on banks being subject to tighter regulation in return for their bailout, he added. It’s possible that banks and lenders in a few years might use the same taxpayer dollars that rescued them to stave off regulatory reform of the financial markets, the ultimate irony of the bailout effort.

That very real possibility could be avoided by having Congress fast-track approval of a bailout but insist on regulatory reform within a short time frame, and specify that it can’t be filibustered, said economist Dean Baker, co-director of the Center for Economic and Policy Research. Otherwise, as the bill now stands, banks seem to be escaping the consequences of their past lending behavior.

“It’s pretty insidious,” Levitin said. “We’re bailing out banks that got us into this mess because of years of abusive and predatory loans. And there’s no price to pay. I find that deeply troubling.”

No where is it more troubling than places like Prince George’s County, the nation’s wealthiest black suburb, which has been hard hit by subprime loans and foreclosures. Credit scores here rank at or above the national average, but the community has more than its share of subprime loans, with almost twice as many homeowners holding high-cost mortgages as the national average.

That pattern holds true elsewhere. In majority black and Latino communities nationwide, nearly half of all mortgages made in 2006 were subprime loans. All during the housing boom, racial differences became more pronounced as income increased — so middle-to-high income black and Latino borrowers were more likely than non-minority borrowers with modest incomes to have subprime mortgages.

Iris Pulliam, 51, a social worker in the District of Columbia public schools, refinanced her Prince George’s County home with a 9.5 percent Countywide loan three years ago. She tried to do some research before refinancing and refused the adjustable rate mortgage the lender first offered.

Looking back, Pulliam said she wasn’t aware she could have had a real estate attorney with her at the closing, and didn’t comprehend all the additional fees included in the loan before she signed. Still, she kept up the payments until her husband died almost two years ago, leaving her with just one income to pay the mortgage and take care of her 15-year-old son.

Pulliam began falling behind on her mortgage, and tried working out a loan modification with Countrywide. But the lender agreed only to a repayment plan that would increase her monthly payments.

She stood in a long line in the July heat to try to get a loan restructuring through the Neighborhood Assistance Corp. of America, a housing advocacy group. But Countrywide still hasn’t approved it. A Countrywide representative called her recently to discuss her case, but she called back again and again and couldn’t get through to anyone.

At this point, Pulliam has taken on a part-time job in addition to her full-time position and has dipped into most of her retirement savings to keep up with the mortgage. Her day starts at 5 a.m., and she gets home around 8 p.m. She’s thinking of trying to refinance again, if possible. One thing she’s well aware of: The bailout plan isn’t going to do a thing for her.

“It’s not taking the average homeowner into consideration, to me,” she said. “I feel that they’re putting all this money out for all these big money industries, investment companies and firms, and they should do something more for the average homeowner, to try to make sure we keep our homes.

“I think the scales are tipped toward the mortgager who has billions of dollars. For the little person, we might as well be off the scales.”

Modifying bankruptcy laws won’t help her, Pulliam said. She wouldn’t be able to afford a bankruptcy attorney. Congress could make a difference by forcing subprime lenders in future to be “upfront and above board,” she said. She’s not convinced that will happen.

To Coppedge, the housing counselor, part of the problem is that people need the sort of help neither Congress nor the Treasury Dept. is talking about. Coppedge, a former mortgage banker, is well aware that keeping credit flowing will help people in the long run to buy homes or take out loans — in that sense, she sees the need for a bailout.

But the people who come to her could use help too, like emergency assistance to cover even a month or two of mortgage payments to stay in their homes. For along with subprime loans, Coppedge noted, higher gas and food prices are cutting into the ability of the elderly and other homeowners on fixed incomes to pay their mortgages.

“I see a lot of clients who are not your typical five or six months behind on their mortgage,” Coppedge said. “I see some individuals, especially the elderly and the handicapped, who were preyed upon and asked to refinance their mortgages to make repairs or whatever the case may be. And these people just need one or two months of mortgage assistance to catch up, and catch their breath, and be able to get back on track.”

As part of the bailout, Democrats in the House and Senate want government agencies like the Federal Housing Admin. to expand their lending programs and help more homeowners, building on an effort included in the mortgage rescue bill. Under that program, the FHA will provide $300 billion in guarantees for lower-rate mortgages refinanced by lenders willing to accept a loss on the loans.

The program, which begins Oct. 1, is voluntary, and no one seems sure how well it will work. Coppedge noted that most of her clients either don’t have enough income or owe so much more on their mortgages than their homes are worth that they usually don’t qualify for FHA or other government programs.

On Capitol Hill, some lawmakers and economists are questioning whether the bailout plan will do enough to ease the credit crunch and to hold off a recession. But to groups like the Center for Responsible Lending, they are asking the wrong questions. Unless any bailout also deals with the problems of people facing foreclosures, it can’t fix the economy.

“The bailout will not solve our economic problems because it will do virtually nothing to stop the foreclosure epidemic,” the center said in a statement. “Continuing foreclosures will drag down the economy even further.”

John Taylor, president of the National Community Reinvestment Coalition, which represents housing advocacy groups, called it “unconscionable” for Congress to approve a plan that never addresses the underlying problem behind the crisis. His group met with Federal Reserve Chairman Ben Bernanke on Monday to complain that the government should first help homeowners facing foreclosure, before shoring up Wall Street.

Pulliam says the bailout for Wall Street mostly means that she’s on her own to save her home. Does anyone in power understand what she’s going through?

“The CEO of Countrywide wouldn’t know,” Pulliam said. “Or the vice president of Countrywide; or the Bank of America. They’re all out buying up other banks while the consumers have trouble keeping their houses.”
Pulliam grew up in a house with a white picket fence, and she wants that same sense of the benefits of homeownership for her son. She’s thinking about taking in a roommate to help pay the mortgage. Her sister is also facing foreclosure, and they’re considering sharing a household to solve both of their difficulties.
“I’ll do everything possible that’s legal and above board to keep my home,” Pulliam said. “That’s what I want for my son — a stable neighborhood environment.”

Like other troubled borrowers dealing with a crisis that seems far removed from the political posturing on Capitol Hill, Pulliam seems willing to pay whatever price it takes to keep it.

U.S. Department of Treasury (U.S. Department of Treasury)

Part 1: U.S. Failing to Defend Dollar

The U.S. national debt is rapidly rising. If Congress signs off on the Bush administration’s $700-billion rescue plan for Wall Street’s troubled financial markets, the debt ceiling will have to be raised to $11.3 trillion. The debt was $9.4 trillion in March. An immediate response to the bailout plan was a falling dollar, which so far has lost half its summer gains in trading this week.

A big chunk of U.S. debt is owned by foreign investors whose currencies’ values are rising relative to the dollar. Already, many have sustained investment losses because of the dollar’s fall in value. With the dollar now losing ground because of the financial crisis on Wall Street, at what point will foreign investors stop buying U.S. Treasuries entirely and throw the country into a debt crisis? Indeed, why hasn’t Washington experienced a sovereign debt crisis before?

The real reason the United States has avoided such a fate is that it finances its debt in dollars. That means Washington can literally print dollars to service and repay its obligations.

America’s special status derives in part from the fact that the dollar is the world’s major reserve and trading currency. The dollar was also once pegged to the gold standard, though that peg, of course, is long gone. But the aura of stability created by the strength of U.S. economic and military power has continued to support the dollar.

But the dollar’s dominance in world markets may be coming to an end. Even when the dollar was rising this year, there was talk of re-denominating trade flows and pricing commodities like oil and agricultural produce in other currencies. Now, with the greenback reversing course, such talk is likely to return.

Illustration by: Matt Mahurin

They is no shortage of signs that the dollar has fallen out of global favor. In the early 1970s, Japanese exports were invoiced almost exclusively in dollars; today only 50 percent are. The Taj Mahal does not accept payment in dollars for its admission fee — only rupees, India’s currency. Some supermodels, even drug dealers, want to be paid in euros, not dollars.

Foreign investors, including central banks, have reduced their dollar-based investments. The percentage of dollars in total world reserves has fallen from a high of 72 percent to around 60 percent. Dollars held outside the U.S. have declined from 1.83 percent of world trade in 2002 to 1.22 percent in 2006.

Foreign investor demand for U.S. Treasury bonds has also softened. Low nominal (negative real) interest rates and the weakness of the dollar are to blame. So is the declining credibility of the Federal Reserve and U.S. Treasury.

For example, foreign investors in Fannie Mae and Freddie Mac debt had long regarded it as “implicitly” backed by the U.S. government. They, as well as more than 60 central banks, hold more than $1,400 billion in debt securities issued by of U.S. agencies, including Fannie Mae and Freddie Mac.

But the travails brought on by the housing meltdown in the United States raised questions about the two mortgage giants’ ability to met their debt obligations. On July 23, the Financial Times reported that the U.S. embassy, after Kuwait’s minister of finance announced that the fund was no longer planning to invest in the agencies’ debt, called the Kuwait Investment Authority, the world’s sixth-largest sovereign wealth fund, to reassure it that bonds issued by Fannie Mae and Freddie Mac were sound. As it turned out, foreign-investor concerns that the mortgage companies would default on their debt in part triggered the U.S. government’s takeover of Freddie and Fannie.

That was in early September. As October nears, Washington needs an estimated $1 trillion to complete its rescue of troubled financial institutions weighed down by toxic mortgages and mortgaged-backed securities. Will foreign investors continue to step up and buy U.S. debt at a time when the creditworthiness of the world’s biggest borrower is under a cloud?

Scrooge’s nightmare, described by Charles Dickens, in which “solid” British assets are changed into “a mere United States security” may become a reality.

At a minimum, Washington will probably have to pay higher interest rates to finance its insatiable borrowing. Ultimately, it may even be forced to finance its debt in a foreign currency. This would expose Washington to currency fluctuations. But, most important, it would not be able to service its debt by printing money. Like all borrowers, Washington would face the discipline of its creditors.

For the moment, however, the dollar is hanging on -– barely. To a degree, this reflects weakness in the euro and yen because of Europe’s and Japan’s economic slowdowns.

The dollar is also a beneficiary of the “too big to fail” syndrome. Foreign investors — especially central banks and sovereign wealth fund investors in East and South Asia, Russia and the Persian Gulf — hold substantial dollar investments that would sustain catastrophic losses if the U.S. were to default on its debt.

The International Monetary Fund estimates that the Gulf Cooperation Council — Saudi Arabia, the United Arab Emirates, Qatar and other Gulf States — could lose $400 billion if they stopped pegging their currencies to the dollar.

So what must the U.S. do?

In 1989, economist John Williamson described a set of economic prescriptions, which he coined as the Washington consensus, that became the “standard” reform package that the International Monetary Fund imposed on countries wracked by economic crisis. The controversial–and highly criticized–package included calls for more fiscal policy discipline; less public spending on subsidies; tax reform; market-determined interest rates; competitive currency exchange rates; trade liberalization; reducing barriers to foreign direct investment; privatization of state enterprises; and deregulation. While many regard this formula as discredited, others still attest to it.

These prescriptions were intended for emerging markets. But, certain aspects of the package could be seen as appropriate for the world’s leading economic power — and premiere borrower.

Some of these elements–fiscal discipline, for example–will be politically difficult to achieve in Congress. Moves to cut farm subsidies face deep-seated opposition. Tax reform seems unattainable. And welcoming more foreign investment is politically dicey. Surveys show that most Americans want U.S. companies to remain in U.S. hands.

But the weak dollar has triggered the “closing down sale” of U.S. assets. On Sept. 29, shareholders of InBev, a Belgian-based brewer, will vote on the company’s $52 million bid for U.S rival Anheuser-Busch, the brewer of Budweiser, the quintessential American beer. Abertis Infraestructuras, a Spanish company teamed with Citigroup, bid $12.8 billion to lease and operate the Pennsylvania Turnpike, America’s oldest major toll road, for the next 75 years. And sovereign wealth funds have provided much of the capital needed to re-capitalise the U.S. financial system buffeted by the housing meltdown. In return, they have acquired major stakes in U.S. companies.

Stephen Schwarzman, head of Blackstone, a private equity firm, put it this way in an opinion piece in the Financial Times in June: “The U.S. is the world’s largest debtor nation and we are now in an uneasy relationship with our creditors. … If we were forced to rely mostly on domestic borrowing, we would have to pay very high interest rates. The consequences would be increased inflation, a dollar falling even faster and very slow [or negative] economic growth. If the investment climate for [sovereign wealth funds]is poor in the U.S., the countries with large dollar reserves (which are the owners of most of the sovereign wealth funds) could … look for alternatives.”

The “adjustment” may be under way. The dry, measured economic prose of the Washington consensus does not capture its human elements. It would require reductions in U.S. real wages and living standards on a scale unfathomable to most Americans.

If you doubt this, just ask the average citizen of any country that has taken the IMF’s “cure.”

Despite its gargantuan appetite for borrowing, there is much to admire about the United States. It remains far wealthier than the new economic titans China and India. It is peerless as a science and technology powerhouse, accounting for 40 percent of total world spending on research and development. Between 1993-2003, America’s growth rate in patents averaged 6.6 percent a year, compared to 5.1 percent for the European Union and 4.1 percent for Japan. America’s economy, with its growing population, secure legal and property rights and well-developed financial markets, remains highly attractive to investors.

But as Warren Buffett 2006 letter to shareholders observed, “Foreigners now earn more on their U.S. investments than we do on our investments abroad … In effect, we’ve used up our bank account and turned to our credit card. And, like everyone who gets in hock, the U.S. will now experience ‘reverse compounding’ as we pay ever-increasing amounts of interest on interest. …. no matter how rich you are, borrowing on top of borrowing is not a great long-term financial plan. I believe that at some point in the future, U.S. workers and voters will find this annual ‘tribute’ (of interest payment on the debt) so onerous that there will be a severe political backlash … How that will play out in markets is impossible to predict– but to expect a ’soft landing’ seems like wishful thinking.”

And here’s what Economist magazine said: “[P]ublic credit depends on public confidence…The financial crisis in America is really a moral crisis, caused by the series of proofs …that the leading financiers who control banks, trust companies and industrial corporations are often imprudent, and not seldom dishonest. They have mismanaged…funds and used them freely for speculative purposes. Hence the alarm of depositors and a general collapse of credit…”

Those words appeared in the Nov. 2, 1907, issue of the magazine in response to the Panic of 1907, when a crashing stock market led to a run on banks and trust companies.

The U.S. faces a challenge to reestablish its economic credentials. Without drastic and radical action, America’s ability to continue to borrow from foreign investors to finance its escalating debt is likely to become ever more difficult.

Satyajit Das is a risk consultant and author of “Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives.”

At the time of publication the author or his firm did not own any direct investments in securities mentioned in this article though he may be an owner indirectly as an investor in a fund.

The percentage of credit card delinquencies rose in the first quarter to 4.51 percent, up from 4.41 percent a year earlier, The Journal said. Revolving debt, which mainly consists of the balances on credit cards, rose in July at a 4.8 percent clip, a jump from June’s 3.5 percent jump.

Credit card companies, in turn, are trying new tactics to get their money, even to the point of going after people late on just one payment,

The Journal said:

For their part, banks are under tremendous pressure to shore up their balance sheets amid an onslaught of bad loans and mortgages. Financial institutions are responding by working past-due accounts more aggressively. They are putting their best collectors on their toughest-to-collect accounts (those that are at least 60 or 90 days past due), hiring outsourcing firms to supplement their internal efforts and putting new hires on accounts that are in the early stages of delinquencies.

These moves comes are banks are being stung by losses on bad loans and mortgages. It’s another example of how the credit crunch is becoming something consumers are dealing with in their everyday financial lives.

As we explained in our story today, both presidential candidates so far have avoiding dealing with the credit crunch as a campaign issue. With more people having trouble paying their credit card bills, and facing newly agressive collections efforts because of it, they may not be able to for much longer.

The August figures show bankruptcy filings have reached a post-2005 high of 4,476 filings per day, notes credit expert Robert Lawless, a University of Illinois law professor. That milestone is significant because, in 2005, lawmakers approved a new bankruptcy law aimed at making it harder and more time-consuming to file bankruptcy, and more difficult to discharge debts.

But instead of slowing filings, bankruptcies are “staggeringly high,” Lawless said. If filings keep growing at this pace, Lawless expects a return to the era of more than 1 million bankruptcy filings annually. High numbers of bankruptcies prompted the 2005 law in the first place.

From Lawless:

People often ask me why I think bankruptcy filings are rising. My answer is that it is both simple and complex. The simple answer is that hard economic times obviously contribute to rising filing rates. Tightening consumer credit markets also lead to short-term increases in bankruptcy filings as consumers find it difficult to borrow more to stave off the day of reckoning. That is the simple part. The more complex part of the answer is that we know people do not file bankruptcy immediately upon the onset of financial distress. Typically, consumers struggle for a long time–often two or more years–before filing bankruptcy. The job loss today or the harassing calls from creditors may precipitate a bankruptcy filing, but the seeds of that bankruptcy filing were sown long before it shows up as a statistic in the bankruptcy filings.

During the bankruptcy reform fight, consumer advocates warned that the reforms – supported largely by the lending industry – would do little to curb bankruptcies, and would mainly benefit creditors. As filings continue to increase, it’s evidence that they had it right.