YBK [The Bloody Aftermath]: Good article in this morning's New York Times about the visitation of the Law of Unintended Consequences on the credit industry. Apparently now, they realize they got scammed by their lobbyists:

For more than eight years, big banks lobbied aggressively to make it harder for consumers to file for bankruptcy.

Now that the new bankruptcy law has taken effect, was the investment worth it? The early data suggest that sometimes, you have to be careful what you wish for.

Bankruptcy filings were supposed to snowball in the months before the tough new law went into effect on Oct. 17. But the avalanche of petitions, and the lines of debtors streaming out the courthouse doors caught even the credit card issuers who supported the new law by surprise.

In recent days, the five biggest bank issuers of credit cards have said that the unexpectedly large flood of filings shaved hundreds of million of dollars off their earnings in the third quarter.

But with tens of thousands of petitions still being processed and Hurricane Katrina's impact on cardholders still being sorted out, the bankruptcy rush is likely to result in well over a billion dollars worth of losses by the end of the year.

"We thought it would cause a bubble," James Dimon, the president of J. P. Morgan Chase, said last week. "The bubble is just bigger than we thought."

Sallie L. Krawcheck, the chief financial officer for Citigroup, said, "It's clearly done some short-term earnings damage to the card industry."

Of course, most banks projected a tidal wave of filings in anticipation of the new, more restrictive rules. They weighed the long-term benefits of a bankruptcy overhaul against the short-term costs of the expected surge of bad, uncollectible debts. What they misjudged, however, was the extent.

More than 500,000 Americans filed for bankruptcy protection in the 10 days before the law took effect on Oct. 17, according to estimates by Lundquist Consulting, a research firm in Burlingame, Calif. That is roughly a third of the total number of bankruptcies filed in 2004. And though the number is expected to soon slow to a trickle, some bankruptcy courts were so inundated with filers that thousands more could be counted this week.

As a result, many banks have found themselves warning that the bankruptcy rule changes would have a big impact on fourth-quarter profits. And executives concede the bottom-line benefits of the new law will now take longer to materialize.

Understand, the estimate that it will cost "well over a billion dollar in losses" is definitely on the low side. The overwhelming number of late filings included many debtors who would have otherwise continued making payments on their past-due bills, and would have never contemplated taking the steps necessary to file bankruptcy, were it not for the sense of urgency set by the October 17 deadline. Since the average amount of credit card debt in Chapter 7 cases is approximately $20,000, the flood of last-minute filings (btw, it will be weeks before all the new petitions are counted by the undermanned courts) will probably push the immediate losses over the $10 billion mark. As I noted last week, YBK may have created the greatest transfer of wealth from the haves to the have-nots since the Great Society.