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Econtalk "Zywicki on Debt and Bankruptcy":

I had the privilege of recently sitting down with my colleague and friend Russ Roberts for his podcast "Econtalk" to discuss issues of consumer credit and consumer bankruptcy. The interview is here along with some excerpted highlights.

Russ's podcast is great and he is a marvelous interviewer, so check out some of his other podcasts while you are there.

A. Zarkov (mail):
Econtalk is a great show and Russ does a superb interview. Time spent listening to his podcast is time well spent. Be sure to listen to prior interview with Melzer on inflation.

While Melzer gives a great interview, he's still stuck in the efficient markets box as pointed out by Steve Hsu here. As Steve says listen really carefully at -45 minutes. Russ is asking the right questions but Melzer fails to respond.

Sorry Todd, but inflation is more important then bankruptcy, which is why I'm plugging the Melzer interview. But I will surely get to yours today and I'm sure I will learn a lot.
3.2.2009 12:05pm
Sammy Finkelman (mail):
..but mostly people will use much less attractive forms of credit. Even Tony Soprano is willing to offer you credit if you can't get it somewhere else.


Some sattes have these Payday loans and some don't, and the ones that don't have it, don't miss it.

..Old days, 2 or 3 credit card offers a day; that has slacked off...

How many magazines did he subscribe to and where did he live that he was getting 2 or 3 offer A *day* ?? Every day?

...Permanent income hypothesis: Milton Friedman's idea, when you are planning your life you try to average out your consumption over the span of your life.

I don't think that's the permanent income hypothesis, or at least I don't think that people have so much foresight. I would say this extends over a smaller period of time, say one year or two. Perhaps people may buy a house or some other purchase that raises minimum level of expenses over a long time, based on a rough estimate or feeling or how much income they will have. But people are notorious for not saving.

The permanent income hypothesis is very good - but what this means is that people don't sopend according to this week's or this month's income - but they spend at a level that they feel is sustainable.

... in the old days, you go to jail.

Very old days. 17th century England maybe. It is still true, though in Abu Dhabi - and on top of that foreigners without a job for a month lose their residency permits.

..The easier you make it to walk away from your debt, the harder it will be to borrow

As far as mortgage cramdowns go, that may be a good idea - if banks start watching housing prices and don't appraise only axccording to current value, but factor in the possibility that prices may be in a bubble. If banks are rational, and that is a big if, they would slow down lending as prices climbed but nit cut back if they were low.

...For most debt, bankruptcy creates a cleavage in time, after which you are born anew. For some debts, you jump the gap. Why those rules?

Historical accident.

...Memphis won't take an out of state check.

What state? Arkansas?

That's not because of bankruptcy law but would be because people write checks on closed accounts.

Or would it be because merchants don't want to wind up with accounts receiveable? People in Arkansas writing bad checks might cause more bankruptcies in Memphis, Tennessee
Bankruptcy is a federal law so this would not seem to have anything to do with Tennessee directly. Or would this have to do with merchants not wanting to have out of state accounts receiveable?


... In 1980s and 1990s, low inflation, high prosperity, yet bankruptcy filing rate quintupled--

This is called a secular trend. In spite of this bankruptcy statistics can be avery good economic indicator.

... Most of the loans that defaulted did so in the first 12 months.

Now, or in past decades?

... Bankruptcy law: anti-deficiency clause is in 8 states.

A very important distinction - I didn't know this. How much of bankruptcy law is federal or is this not technically bankruotcy law but commercial law?

...When these have been bundled and tranched and sliced and resold to a Swiss pension fund, there is no individual owner of the stream of payments

Apparently sometimes they even neglected to do the proper paerwork, so some foreclosures have been stopped becaus ethe holder in due course can't priove they own the mortgage.
3.2.2009 12:06pm
Jim Manley (mail):
+1 for EconTalk. I have not listened to this episode yet, but I was excited to see Prof. Zywicki is the guest.
3.2.2009 4:15pm

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