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Defying the Odds

Defying the Odds
New book about the 2016 election.

Monday, July 8, 2019

Warren v. Biden: Bankuptcy Backstory

In Defying the Odds, we discuss the early stages of the 2016 campaign, when many candidates were unknowns.  The update  -- recently published --includes a chapter on the 2018 midterms.  We are now in the early stages of the 2020 race.

At NYT, Emily Bazelon writes of Elizabeth Warren's tenure as a policy adviser to the National Bankrupcty Review Commission.
By 1997, Warren had become a Democrat, but she was battling within the party as well as outside it. In particular, she clashed with Joe Biden, then a senator from Delaware. Biden’s tiny state, which allowed credit-card companies to charge any interest rate they chose beginning in 1981, would become home to half the national market. Individuals who worked for one giant lender, MBNA, contributed more than $200,000 to Biden’s campaigns over the years, according to the Center for Responsive Politics. Biden strongly supported a bill, a version of which was first introduced in 1998, to make it more expensive to file for bankruptcy and more difficult to leave behind debt. He was unpersuaded by Warren’s charts and graphs showing how the change would increase the financial burden on families. “I am so sick of this self-righteous sheen put on anybody who wants to tighten up bankruptcy,” Biden said during a Senate hearing in 2001.
The bankruptcy battles continued, and when Warren testified against the proposed changes to the bankruptcy code before the Senate in 2005, Biden called her argument “very compelling and mildly demagogic,” suggesting that her problem was really with the high interest rates that credit-card companies were allowed to charge. “But senator,” Warren answered, “if you are not going to fix that problem” — by capping interest rates — “you can’t take away the last shred of protection from these families” that access to bankruptcy offers. The bill passed two months later.
Biden’s team now argues that he stepped in to win “important concessions for middle-class families,” like prioritizing payments for child support and alimony ahead of other debt. When I asked Warren in June about Biden’s claim, she pursed her lips, looked out the window, paused for a long beat and said, “You may want to check the record on that.” The record shows that Warren’s focus throughout was on the plight of families who were going bankrupt and that Biden’s was on getting a bill through. He supported tweaking it to make it a little less harmful to those facing bankruptcy, and the changes allowed it to pass.
In the years since it became law, the bankruptcy bill has allowed credit-card companies to recover more money from families than they did before. That shift had two effects, Matthew Yglesias argued recently in Vox. As Biden hoped, borrowers over all benefited when the credit-card companies offered slightly lowered interest rates. But as Warren feared, the new law hit people reeling from medical emergencies and other unexpected setbacks. Blocked from filing for bankruptcy, they have remained worse off for years. And a major effort to narrow the path to bankruptcy may have an unintended effect, according to a 2019 working paper released by the National Bureau of Economic Research, by making it harder for the country to recover from a financial crisis.