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Debtors' Prisons Return to the US

The poor get imprisoned for debt, the middle class gets foreclosed, and just in time a major paper points the way. We trim, blend, and append three 2012 articles from: (1) CBS MoneyWatch, Apr 23, on debt by A. Sherter; (2) Los Angeles Times, Apr 30, on ownership by T. Hsu; and (3) Globe and Mail, Apr 28, on taxing by D. Saunders.

by Alain Sherter, by Tiffany Hsu, and by Doug Saunders

Although the U.S. abolished debtors' prisons in the 1830s, more than a third of U.S. states allow the police to haul people in who don't pay all manner of debts, from bills for health care services to credit card and auto loans. In parts of Illinois, debt collectors commonly use publicly funded courts, sheriff's deputies, and country jails to pressure people who owe even small amounts to pay up.

Under the law, debtors aren't arrested for nonpayment, but rather for failing to respond to court hearings, pay legal fines, or otherwise showing "contempt of court" in connection with a creditor lawsuit. That loophole has lawmakers in the Illinois House of Representatives concerned enough to pass a bill in March that would make it illegal to send residents of the state to jail if they can't pay a debt. The measure awaits action in the senate.

"Creditors have been manipulating the court system to extract money from the unemployed, veterans, even seniors who rely solely on their benefits to get by each month," Illinois Attorney General Lisa Madigan said last month in a statement voicing support for the legislation. "Too many people have been thrown in jail simply because they're too poor to pay their debts. We cannot allow these illegal abuses to continue."

Illinois isn't the only state where residents get locked up for owing money. In five states -- Georgia, Louisiana, Michigan, Ohio, and Washington -- people were being jailed at "increasingly alarming rates" over debts. Cases ranged from a woman who was arrested four separate times for failing to pay $251 in fines and court costs related to a fourth-degree misdemeanor conviction, to a mentally ill juvenile jailed by a judge over a previous conviction for stealing school supplies.

According to the ACLU: "The sad truth is that debtors' prisons are flourishing today, more than two decades after the Supreme Court prohibited imprisoning those who are too poor to pay their legal debts. In this era of shrinking budgets, state and local governments have turned aggressively to using the threat and reality of imprisonment to squeeze revenue out of the poorest defendants who appear in their courts."

Some states also apply "poverty penalties," including late fees, payment plan fees, and interest when people are unable to pay all their debts at once.

Such fees create new paths to prison for those unable to pay their debts and make it harder to find employment and housing as well to meet child-support obligations.

To read more

JJS: People being dunned by bill collectors can’t even dream of having a high enough credit score to qualify for a mortgage. And ironically, mortgages have in recent years impoverished people! While reading the following, be forewarned that most people do not distinguish between people trying to pay off a mortgage vs. people who’ve already paid off their mortgage, perhaps even long ago -- both are labeled “owners” eventho’ one is in effect “leasing” the home and land from the bank.

The homeownership rate in the U.S. fell to 65.4% in the first quarter, hitting a 15-year low amid still-high foreclosure rates and a stronger market for rents.

The rate is lower than the 66% from the fourth quarter and the 66.4% from the first quarter of last year. The rate hit a high of 69.2% in 2004, before the housing bubble burst.

Now foreclosure rates are still high (and may continue to increase following a landmark settlement with loan servicers earlier this year).

Vacancy rates at rental properties fell to 8.8% -- their lowest level in a decade. Rents, which are at a median $721, are at a post-recession high.

The median sales prices for vacant units -- a number that spiked in 2007 but has slipped steadily since -- is $133,700.

To read more

JJS: Fortunately, there are at least some sane voices in the media who speak up against speculation in locations and for public recovery of location value.

If there is a global problem, this is it: There is not enough housing, to rent or to buy, at a price that people with decent but ordinary employment can afford.

If there is a large demand, and people are willing to pay, shouldn’t there be plenty of people who want to make a buck by creating it? It should be one of the world’s more basic markets.

Mind you, people do want to go into the real-estate business: The buying and selling of property is a red-hot market in most countries. It’s just that people don’t want to put more housing on that land.

We have come to see property as a portfolio investment rather than as a basic amenity.

“Every time house prices fall, the national newspapers say there is a housing crisis,” says Alan Gilbert, a housing-policy specialist at the University College of London. “I would argue otherwise -- the housing situation is better when house prices are stable or falling -- because that means that demand is being outstripped by supply.”

Those fast-rising (and occasionally fast-falling) property values are a big root cause.

If we really wanted housing to be profitable and plentiful, we’d tax owners on the annual rise in value of their property -- a Land Value Tax. When buyers and sellers know the tax exists, property values stop rising. This makes it easier for newcomers to enter the property market, and for homeowners to buy and sell based on the desirability of housing.

It also means that investors make their profits from increasing the quantity or quality of housing.

When people can live fairly well, in large numbers, close to their places of work, the economy functions far better. When a few of us are making useless paper profits from our homes and the rest are stuck outside the market, it hurts everyone.

To read more

JJS: When owners must pay “land dues”, then the monetary incentive to speculate evaporates. Without speculation, there’s no boom / bust cycle, so there’s no recession. When economies keep themselves lively and productive, then there's plenty of investment and job opportunity. And when there’s ample opportunity to make money, people don’t fall into unpayable debt and thus keep themselves out of jail. Finally, lawyers and debt collectors would have to become useful members of society.


Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .

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