Wednesday, September 16, 2009

Check, It Out

In the Middle Ages, it was common to lock men and women together in a large, dank and ugly cell when they failed to discharge their debts. They rotted there until their families found a way to pay off. Wikipedia: “Debt prisoners often died of disease contracted from other debt prisoners. Conditions included starvation and abuse from other prisoners. If the father of a family was imprisoned for debt, the family business often suffered while the mother and children fell into poverty. Unable to pay the debt, the father often remained in debt prison for many years. Some debt prisoners were released to become serfs or indentured servants (debt bondage) until they paid off their debt in labor.”

Jolly Olde England wasn’t so jolly if you owed money and did not pay it. But even in debtors’ prisons, the British had a class system: “[D]ebtors' prisons varied in the amount of freedom they allowed the debtor. With a little money, a debtor could pay for some freedoms; some allowed inmates to conduct business and receive visitors; others (for example, the Fleet and King's Bench Prisons) even allowed inmates to live a short distance outside the prison — a practice known as the 'Liberty of the Rules' — and the Fleet even tolerated clandestine 'Fleet Marriages'.

“Some debtors prisoners were less fortunate, being sent to prisons with a mix of criminals. Petty criminals, debtors, vicious criminals, convicts and many more were confined into a single cell…The father of the English author Charles Dickens was sent to one of these prisons (Marshalsea Prison), which were often described in Dickens' novels…The Debtors Act 1869 abolished imprisonment for debt, although debtors who had the means to pay their debt, but did not do so, could still be incarcerated for up to six weeks.” Wikipedia

But America was also stained by this practice. “In 1833 the United States reduced the practice of imprisonment for debts at the federal level. Most states followed suit. It is still possible, however, to be incarcerated for debt, but only in those circumstances in which the court finds that the debtor actually possesses the money or means available to pay the debt, however, in the case of child support, if you are unable to pay the amount set by child support enforcement you will be incarcerated even though you may not have the actual means to pay it through no fault of your own. The constitutions of the U.S. states of Tennessee and Oklahoma forbid civil imprisonment for debts.” Wikipedia

People argued that putting debtors in prison took away their ability to work and earn money and that lenders always assumed a risk of non-payment. Further, as investors pooled money for business ventures – as a part of the evolution of the modern capital aggregation structures (like corporations and, today, limited liability companies) – business failures made punishment difficult and resulted in disruptions of commercial activity such that bankruptcy laws became the remedy for an inability to pay debt. All this is great for those legal systems that track modern commercial law, but for those nations that modeled their statutes on religious laws or simply adopted legal codes from other less-evolved legal systems, debtors’ prison remains “the way it’s done” today… even if there isn’t a special jail for that offense.

Bounce a check in that Middle Eastern, mega-growth nation of Dubai, and guess what? Yup, jail. In the States if you write a check knowing that you have no money, well, the results can be the same, but in Dubai, that “knowing” isn’t necessary. Just failing to pay a debt when due is a criminal offense. Dubai’s sophisticated financial systems fall in the arena of debt. There is zero tolerance for missed loan installments, and bankruptcy restructuring is simply not available.

The September 12th New York Times: “The risk is compounded by Dubai’s unusually heavy reliance on checks. Banks request signed checks when giving out personal loans, and small and medium-size businesses often require them to guarantee payment for large purchases. Landlords sometimes insist on more than one postdated check from tenants as a security deposit…. Dubai’s laws are largely based on Egyptian civil law and Islamic law, or Shariah, with no real effort to encompass the tremendous volume of its commerce.”

So as we watch this crisis of debt shatter the American economy, at least we aren’t facing the need to build a whole slew of debtors’ prisons to accommodate the inability of Americans to meet their debt obligations. But the cruelty of being in hopeless debt is still a harsh sentence to so many of us.

I’m Peter Dekom, and I approve this message.

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