Well, you can praise someone one minute, and have to harshly criticize them the next. On the Suze Orman show, Suze advised a highly indebted guest to declare bankruptcy on approximately $70K of credit-card debt. Telling him about the legal benefits of declaring bankruptcy, she went a step further and asked him to tell at least 10 of his friend's that he was declaring bankruptcy, and to be proud of it. Unbelievable. Here's my overview of the episode, and my commentary.
Suze Orman's Motto's
First, here are some of Suze Orman's mottos, all of which are worthwhile:
- People First, Then Money, Then Things
- Self Worth Equals Net Worth
- Truth Creates Money, Lies Destroy It
While I agree with these mottos, I think that in the subsequent advice I overview from Suze' show, she is going against those mottos.
An Oveview of Mark's Situation
Orman claims that credit-card debt occurs when we want to please other people by doing things for other people, which is really hyperbolized when we're in a relationship.
Mark is not currently in a relationship, but he was in several relationships with women, during which he racked up credit-card debt. Wanting to please his girlfriends, he would spend lots of money on them, which got him into credit-card debt. Prompted by Orman, Mark reluctantly said the reason that he's in such a large amount of debt is because he tried to help out with his ex-girlfriend's, one of whom was going through a divorce.
Having heard that, Orman asks Mark if he feels that it's the other people's fault that he has. Orman explains that if he hadn't been with his former-ex's, he wouldn't have been in any debt. Prior to these relationships, Mark didn't have any debt; after getting into the relationships, he spent money trying to please these women, after which they left him. After that, Mark started using the credit-card for himself, to fill up the natural emptiness that occurs after breakups. Now, Orman notes that individuals try to find fulfillment with the things money can buy, but that such is hollow.
Now, Mark would like to clean up his situation: get rid of his credit-card debt and start saving for retirement. Lets take a look at Mark's credit-card debt:
Card APR Owed MBNA 22.98% $21K Discover 14.99% $9.8K Discover 14.99% $8.6K CitiBank 14.90% $12.8K Cap One 14.90% $728 Chase 13.24% $2.9K Visa 12.90% $4.9K First USA 11.90% $5.5K Credit Union 6.0% $2.8K Net -- $69.03K
Mark hasn't been paying off any of his credit-card debt for two years. He owns no real-estate, has very little money in a retirement account, and does not own a car. Since Mark only makes $50,000 a year, his credit-card debt is larger than his annual income.
Suze Orman's Advice
Orman refers to a common rule of thumb: when you make less than what you owe, you are already bankrupt, because it is "impossible" to ever pay down that credit-card debt. Thus, Orman suggests that if there is ever a time to declare bankruptcy, now is the time for Mark. Suze tells Mark that he should not worry about what other people think about him because he declares bankruptcy, but should consider how it wouled make him feel.
Since Mark hasn't been paying off this debt for 2 years, his credit-report is already ruined; he isn't going to do any more damage to his credit-report by claiming bankruptcy. The advantage of declaring bankruptcy is that his creditors cannot legally come after him; e.g., cannot send him letters orgarnish his wages. Because his credit-reports are already ruined, it would take just as long to fix them without declaring bankruptcy as it would if he did declare bankruptcy.
Orman says that it is Mark's self-destructive nature that allowed those women to take advantage of him. Orman then claims she doesn't suggest her clients declare bankruptcy lightly; she even says it is inexcuseable to claim bankruptcy twice (most people that claim bankruptcy once claim it twice).
Casting Mark in a positive light, Orman talks about Mark's history: Mark was robbed twice and during one of those robberies, he was shot at. Orman tells Mark to tell 10 people, who are his closest friends, that he's going to claim bankruptcy. Orman wants Mark to jubilantly yell out that he's going to claim bankruptcy, and not only that, but also to be proud of it.
Analysis of the Morality of Declaring Bankruptcy and Natural Law
As you might be able to guess, by the end of the interview, I was about ready to regurgitate. Proud to declare bankruptcy on $70K of debt? Why don't we tell successful bank-robbers to be proud that they've gotten away with stealing? That's exactly what this is. Declaring bankruptcy is morally no better, and would be no different under natural law, than stealing $70K from the facilities of the credit-card companies.
Furthermore, I'd have to argue against the "rule of thumb" that Orman states. Since this guy makes $50K a year, and has $70K in credit-card debt, he can start paying down his debt; it's just not going to be easy. How much money does one need to "survive" in the modern world? Well, I don't know the precise answer, but I do know that graduate students in pHD programs survive on around $20K a year. If they can do it, so can anyone else. That leaves $30K for Mark to pay off debt each year. He could pay off the entire balance on his MBNA card and the entire balance on one of his Discover cards. That would knock his current debt down to about $38.23K, which would grow to $43.37K by the next year. Again, the next year, he pays down $30K of debt, paying off the highest APR card, which reduces his net debt to $13.37K.
Mark's situation is hardly "impossible". It is very difficult. Doing the right thing isn't always easy, but one always has the choice to do the right thing. Furthermore, he can negotiate with these credit-card companies to get exceptions to the annual interest rates, or even get some of the debt knocked off. A credit-card company would rather get some of its money, or get all of its money at a smaller profit than get none of its money. So, what's the deal with this "rule of thumb" stuff? Well, this is really a "rule" for when it is financially better for you, personally, to declare bankruptcy. In other words, it is a rule for when it is financially beneficial to steal.
Furthermore, I must comment on Orman's attempts to justify this suggestion and make Mark seem like a sympathetic and likeable guy: namely, they are irrelevant. The fact that Mark was stolen from and shot at doesn't give him the right to steal from other people. I was robbed of $20 at gunpoint; that doesn't give me the right to steal $20 from anyone. The fact that Mark's ex-girlfriend's took advantage of him also doesn't give him an excuse to steal. He had a choice: either to buy many expensive things for them, or not to do so. People always have a choice. Even if someone has a gun to your head and is telling you to kill someone else, you still have a choice. Again, it isn't always easy to do the right thing; in fact, a lot of the time, it is very difficult to do the right thing. I must also state that the attempt to shift blame for Mark's action from Mark and to his ex-girlfriends is about as convincing as "she told me to do it"; a modern reoccurrence of Adam blaming Eve because he ate the Apple of Knowledge, simply because she encouraged him to.
Declaring bankruptcy is both immoral and criminal by natural law: it constitutes the initiation of aggression against the shareholders of credit-card companies. The morality of the entire situation can be clarified and easily understood if we instead stipulate that Mark owes $70K to his best friend, or his brother, and reflect on our emotional response to refusing to pay a debt owed to a close friend or family member.
Praxeological Analysis of Bankruptcy
It should be unsurprising to Austrian economists and libertarians that bankruptcy is extremely common today. Why wouldn't it be? The State is subsidizing bankruptcy; as anyone who's read the works of Austrians knows, when you subsidize something, you produce more of it, whether it be bankruptcy, obesity, poor health, poverty, or crime. How does the State subsidize bankruptcy? Precisely by allowing it! You go to court, and all of the sudden, your creditor's can't pursue you anymore asking you to pay the money you owe. Aside from allowing this highway robbery, the State subsidizes the costs of defaulting on one's debt. Credit-card companies cannot consider your credit-history more than 10 years ago. Let's clarify exactly what's going on here: the State is telling credit-card companies that they have to loan their money to people that they otherwise wouldn't loan their money to, if they could consider the time-frame that they wanted to consider. This is also highway robbery. It gets even worse than that, though. Those declaring bankruptcy don't even lose all of their assets to their creditors: the money in their 401K plans, 403B plans, RothIRA's, and Traditional IRA's is shielded from their creditors (provided that they were solvent when they made the contributions to these plans, and provided they weren't doing it as part of a systematic plan to defraud creditors).
Thus, given the enormous subsidization of bankruptcy -- and other kinds of financial irresponsibility -- by the State, it is completely unsurprising that there is lots of financial irresponsibility and bankruptcy. It is also completely unsurprising that the same people tend to declare bankruptcy again and again: the naturally irresponsible have less motivation to change their ways if they can declare bankruptcy over and over again.
The State also subsidizes other forms of financial irresponsibility, which lead to higher rates of bankruptcy indirectly. As Suze Orman herself documents in The Road to Wealth (an overall good book for financial advice), there are numerous ways in which the State subsidizes financial irresponsibility. Many restrictions are placed on collection agencies: they cannot demand immediate payment, as that violates the Fair Debt Collection Practices Act; they cannot call you frequently, call before 8AM or after 9AM, call you directly if they know you have an attorney representing you, call you at work if they know your employer prohibits such calls, and cannot call your friends, neighbors, or the people you work with to reveal your financial criminality and immorality; they cannot obtain information on your whereabouts from government records. Finally, if collection agencies do these things, you can actually sue them for demanding that you repay your debts. Most atrocious of all, there is a statute of limitations on credit-card debt: if you stop making any payments on a debt, and manage to slither away into the night and avoid the credit-card companies for a certain number of years (varies from State to State), you're off the hook!
Can anyone feign shock at the consequences of these types of policies? They encourage people to act immorally and criminally by natural law, and to find ways to avoid doing the right thing. They allow individuals to externalize the costs of their irresponsible behaviour onto the credit-card companies and fellow debtors. Interest rates on credit-cards would be lower, ceteris paribus, if not for all of these regulations transferring wealth from creditors to irresponsible debtors. Ceteris paribus, there would be less bankruptcy and less financial irresponsibility if the State stopped subsidizing those things.
Suze doesn't view these with the same scorn that I do, because she thinks of them as helping her clients. She should know better. Indeed, by even telling her clients about these things and encouraging them to use them when appropriate in her books, she is encouraging financially irresponsible behaviour by telling people how they too can misbehave and get away with it. I assume the quality of character of those reading this article is such that I am not doing the same.
Returning to Suze Orman's Mottos
While I agree with Suze Orman's mottos, I certainly think her advice on this situation is flatly contradictory to those worthwhile mottos. Stealing from creditors isn't putting people first: it is putting yourself first, and to hell with everyone else. How can one have self-worth if one runs away from and hides from the natural consequences of his actions? And it hardly seems truthful and honest to default on one's obligations.
