Coronavirus Consequences: Evictions Expected to Spike

"Large populations of educated under-employed people are very very dangerous to the social order" while "Jeff Bezos is having a very good crisis" —  Krystal Ball, Saagar Enjeti and Joel Kotkin discuss how screwed people will be, especially young people, when the active coronavirus era ends.

by Thomas Neuburger

"What will we break if the next thing that breaks is us?"
—Yours truly

As regular readers know, I've been concerned about the "coronavirus endgame" in this country for quite some time. "What will we break if the next thing that breaks is us?" is a question that's always on my mind (see "Covid by Country — America Leads the Pack"). People are going stir-crazy; I see it all around me and I live in one of the saner cities. Yet we're looking at a relentless 20,000 new cases per day, every day like a clock, while other, saner nations, France for example, are seeing drops of up to 90%.

Readers of this site already know what the medical outlook will be if the country opens too soon or too quickly (for example, check out "You May Think/Wish You Are Done With The Pandemic... But That Is Not How It Works").

But the financial consequences of a prolonged coronavirus closure will be even more devastating. In the video above, futurist Joel Kotkin discusses the problems that will be faced by the young, by those in the inner cities, and especially by those who work in hard-hit industries like hospitality. Put simply, a great many people who are currently sustained by unemployment benefits, will lose those benefits while also losing the jobs they expected to return to when the crisis ends.

But the biggest worry isn't lost current income; it's the additional overhang of massive private debt, a burden that weighs heavily on almost every adult in the country. How will out-of-work or newly part-time Americans pay their mortgages, their rent, their student debt, their credit card debt, their medical debt? Again, put simply, they won't.

And if they don't, what then? It's a core principle of the Obama era that "no creditor shall be harmed by an economic crisis." Millions lost their homes in the foreclosure crisis of 2008, but after the collapse of Lehman Brothers, no banker or holder of worthless casino-like derivatives was not made 100% whole, not Goldman Sachs, not AIG, not any of them.

This time round, the government, with bipartisan approval, is already throwing cash at big businesses to keep them afloat — David Dayen calls it a "money cannon" — and this is especially true in the bond market, where the Fed is backstopping almost all corporate borrowing (see this excellent analysis, "Corporate Rescue: How the Fed Bailed Out the Investor Class Without Spending a Cent").

Dayen: "Boeing, the basket-case aircraft maker with a sketchy record of keeping planes in the sky 'rejected' a federal bailout after issuing $25 billion in bonds. But that bond issuance was entirely made possible by the Fed’s implicit guarantee of corporate bond markets."

No non-connected human with unpayable debt will be treated like Boeing when the viral wave recedes or the economy opens.

Yet millions will need help. For example, under the headline "Evictions expected to spike as states end moratoriums that offered relief during COVID-19," USA Today writes, "Twenty-four states are processing evictions again, and that number is likely to climb to at least 30 states by the end of June."

Not all renters in those jurisdictions are vulnerable. Nearly 30% continue to be protected by a federal moratorium under the Coronavirus Aid, Relief and Economic Security Act that will remain in place until July 25. The rest ... live in properties that are either not subsidized by the federal government or are owned by landlords with loans that are not federally backed.

For these unprotected renters, the threat of eviction is very real – especially for those at the bottom of the economic ladder. Tens of millions of workers are unemployed, and the economy is likely to remain shaky until there’s a vaccine and consumers feel safe enough to travel, dine out and go to theme parks and movies again. Homelessness could come at any time. [emphasis added]

July 25 is close, a lot closer than this year's election in fact. Millions of "unprotected renters" — and many protected ones — will face eviction by September. Will the government treat these victims like they treated Boeing and backstop their debts by opening the Fed money window often and wide? Or, like the Obama government before them, will the good people in this government keep just the donor class afloat?

The government faces a problem. One solution, an obvious one, is to declare a debt jubilee. After all, it's rightly said that "debts that can't be repaid won't be repaid," and the economist Michael Hudson has written often that in times like these, the alternative to debt forgiveness is a depression. But there will be no debt forgiveness for actual humans if the "no creditor shall suffer" rule still holds true, and it looks from this government's actions — Congress and the administration alike — that it does.

So what will the country, its actual people, do then? Your guess is as good as mine, but it may not be pretty to watch — or easy live surrounded by.

What will we break if the next thing that breaks is us? We might break everything we can get our hands on, the collective, stretched-to-the-limit, breaking-point we. And that's before people go to the polls to vote.
  
 

Bernie Sanders and the Crisis of Unpayable Medical Debt

Tears in the eyes of many at @BernieSanders medical debt town hall in Des Mones [sic]. As attendees tell their stories about ICUs, debt collectors, and coverage denials almost all have said that Sanders is “the only one I can trust” to alleviate their financial emotional burdens pic.twitter.com/rpWWgIXYdU

— Cara Korte (@CaraKorte) September 22, 2019

by Thomas Neuburger

Bernie Sanders' new medical debt plan is called "Eliminating Medical Debt," but that title is a bit misleading. The plan does aim to erase the burden of past-due medical debt through a government buy-down. But the plan does a whole lot more.

There's no doubt that, for many families, medical debt is at least as heavy a burden as student debt. As David Sirota writes in his newsletter Bern Notice, "Today, roughly 79 million Americans are struggling to pay their medical bills or are paying off medical debt — and last year alone, 8 million people were pushed into poverty due to medical expenses. Health insurance is no protection: One in six patients with insurance incurred a surprise medical bill in 2017."

Families that are in trouble due to medical debt are in trouble now, and the relief they need is also now. This plan offers it.

Sirota also notes that Sanders' plan directly challenges "lawmakers like Biden who spearheaded legislation that made it so much more difficult to reduce medical debts in the first place."

So the plan is more than a simple debt cancellation or pay-down. It rewrites the Biden-pushed "bankruptcy protection" act of 2005. (Who did the act protect? Creditors, of course.) And, as an added feature, Sanders' plan restructures the credit reporting market, creating a new government agency to replace the private market dominated by for-profit players Equifax, TransUnion and Experian.

The Sanders medical debt plan is truly ground-breaking, both in its scope and its effect, and it's important that it be widely disseminated and understood. Few in the nation's struggling middle class or boot-stomped poor would fail to cheer its enactment. And, I dare to add, few of Sanders competitors for the presidency would dare to endorse its full breadth.

Here are the plan's main goals and the measures it will enact to achieve them.

Eliminate Existing Past-Due Medical Debt

One source of the medical debt problem is past-due debt. Hospitals often aggressively pursue collection of past-due debt from low-income (i.e., uninsured and underinsured) patients. In addition, they frequently resort, in an attempt to recoup at least something from uncollectable debt, to selling that debt to aggressive collection agencies for pennies on the dollar. Those agencies then turn on patients attempting to get repaid in full if at all possible.

Those patients, of course, have no recourse. They are at the end of their rope financially — after all, these aren't people who spent optionally on a house or car. They bought medical treatment, often life itself. They had literally nowhere else to go, have no resources to turn to when bills are due, and no way to turn off the harassment of the wolves surrounding them when they cannot pay.

Here's the Sanders plan to address the debt and collection part of the problem (emphasis mine):

As president, Bernie will:

• Eliminate the $81 billion in past-due medical debt.
  • Under this plan, the federal government will negotiate and pay off past-due medical bills in collections that have been reported to credit agencies.
     
• End abusive and harassing debt collection practices.
  • Prohibit the collection of debt beyond the statute of limitations.
  • Significantly limit the contact attempts per week a collector can make to an individual through any mode of communication, regardless of how many bills are in collection.
  • Require collectors to ensure information about a debt is fully accurate before attempting to collect.
  • Substantially limit the assets that can be seized and the wages that can be garnished in collection to ensure consumers do not lose their homes, jobs, or primary vehicles and will be able to financially support their families.
     
• Instruct the IRS to review the billing and collection practices of the nearly 3,000 non-profit hospitals to ensure they are in line with the charitable care standards for non-profit tax status, and take action against those who are not.

For people constantly hounded by hospitals and debt collectors, this alone would be a godsend.

Reform the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

Joe Biden bears substantial responsibility for the inability of patients to discharge medical debt through bankruptcy.

As Sirota writes, "One of the major drivers of the debt crisis was the 2005 bankruptcy legislation that Bernie fought — and that Joe Biden helped Republicans ram through Congress. A 2018 study found that the legislation made it far harder for patients to discharge medical debt through bankruptcy after a hospital stay, especially for uninsured patients. Biden split with then-Senator Obama to become just one of only three Democrats to vote against an amendment that would have exempted those with serious medical debt from the harshest parts of the bill. Bernie’s plan would roll back the key provisions of Biden’s 2005 legislation, to make it easier to reduce medical debt."

Here's the part of the Sanders plan that addresses bankruptcy protection (emphasis mine):

Reform the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 to use the existing bankruptcy court system to provide relief for those with burdensome medical debt.

• Eliminate means testing requirements to file for bankruptcy.
• Allow for the adjudication — including potential discharge — of debt, including interest and penalties, stemming from direct payments to providers and insurers for medical expenses. Assuming documentation, this includes medical debt incurred on credit cards or any other consumer debt product.
• End the onerous and regressive “credit counseling” required before filing to discharge medical debt.
• Include broad “automatic stay” protections, placing an immediate prohibition on any evictions, utility (heat, electric, etc.) interruptions, foreclosure proceedings, wage garnishments, driver's license suspensions, and other actions.
• Prohibit requiring the disclosure of medical debt discharge on housing, loan, or other applications.

I hope in the next debate this gets fully discussed. It's both just and Christian (in the real sense) to handle people who are drowning in debt, some of whom may die of it, with mercy. It's also just to expose Joe Biden for who he really is and was — the "senator from MBNA," the senator from Credit Card America.

Replace For-Profit Credit Reporting Agencies

The for-profit credit reporting industry, a near-monopoly dominated by just three companies, does enormous damage to consumers in all of its dealings, but none moreso than in its dealings with consumers who carry large medical debt.

Sirota writes, "Bernie’s plan ends the corporate control of Americans’ credit scores by creating a public credit registry to replace for-profit credit reporting agencies, and by excluding medical debt from credit scores. That is a direct threat to the three corporations that currently control the financial destiny of 140 million Americans. Those three companies — Equifax, TransUnion and Experian — reported more than $10 billion in revenue and more than $1.4 billion in profits last year, while paying their CEOs more than $91 million."

Credit data collection and reporting is an industry that should be treated as a utility and run by government in the public interest instead of by corporations as a profit center. (The argument that Facebook is another is compelling.) After all, U.S. citizens are not this industry's customer — the nation's creditors are — and that's where its loyalties will always lie.

Needless to say, credit reporting inaccuracies and data hacks disproportionately punishes those most in need of good and accurate reports — including and especially the poor and middle class. Including medical debt in credit reports only compounds the problem.

Here's what Sanders will do to restructure this industry:

• Remove and exclude medical debt from existing credit reports.
   
• Create a secure public credit registry to replace for-profit credit reporting agencies.
  • This registry will use a public, transparent algorithm to determine creditworthiness that eliminates racial biases in credit scores.
  • Allow Americans to receive credit scores for free.
  • Prohibit medical debt from being included.
     
• End the use of credit checks for rental housing, employment, insurance and other non-lending practices.

Another godsend, not just for those in medical debt, but for all American consumers.

To paraphrase Joe Biden, I would consider this proposal a very big deal, one that, if widely understood to be part of Sanders' platform, could be a game-changer. It's been clear for years that one of the greatest of our nation's ills is the massive, uncollectable consumer "debt overhang" that sucks life from our lives and hope from each generation — from seniors who retire into poverty, to new college graduates who can't find work in their profession and will still carry student debt far into middle age.

The overhang of consumer debt and the capture of government by wealth — the government's determination to protect creditors even if it destroys the economy for the rest of us — are the reasons most of us have never recovered from the recession of 2007-08. These are the causes, ultimately, that produced the last Donald Trump and will certainly bring the next one to center stage.

If our policy of radically protecting creditors doesn't change soon, we may never escape the trap of fake populism. Proposals like this one offer hope, and a real way out.