What really gives the government and the banks the heebie geebies is the following scenario.
The trickle of people using the bankruptcy courts starts to swell. Somebody on Trisha or Jeremy Kyle mentions how good it was just to get rid of the negative equity house and the credit card and the consolodated loan. Suddenly the chav minions collectively decide they like the sound of this and the queue around the block for the bankruptcy courts are longer than for the bank run.
The Judge can see that some are genuinely bankrupt but also that a lot have made themselves this way. But if he tries to fine or imprison those in front of him who are attempting fraud he knows that, 1) they have no money, and 2) there are only 982 prison places spare this week in the prison system. The Courts will have no viable sanction against tens of thousands of bankruptcy claims.
The hard pressed but solvent population will soon cotton on to the fact that the reckless, feckless and lazy are exploiting bankruptcy to escape the debt treadmill scot free and they will be enraged. Politically this is difficult and their rage will encourage them to max their credit cards, lose their job, go bust, and spend more time with the kids they barely have time to see.
By this point the banks and creditors are in real trouble as they are havig to write off millions of loans and the assets being seized are worth zip. Property auctions are ALREADY flooded with repossessed properties that are not making their reserve set at half peak valuations. I could show you hundreds of catalogues.
Quite quickly the whole system of capitalism, of banking and debt finance collapses. A whole section of society will have cottoned on that there is no debtors prison and that they can recklessly borrow with impunity. Therefore the banks will have to go back to 1950's style lending practice and this will only support an economy a fraction of the size we are used to and politicians are used to taxing.
The whole edifice of 'the system' is currently swaying because the fundamental debt instrument - house prices - are crumbling. Until those prices stop falling the walls will continue to crack and Mr Darlings expensive plaster work will never set.
In the end its all about the house prices.
WWW