Not Everyone is Fond of the Rolling Jubilee

Tomorrow, Strike Debt is holding their fundraiser for its Rolling Jubilee, their project to buy loads of debt for pennies on the dollar, and then forgive it. There is much love for the movement: We’ve mentioned how much we’re into it, Forbes is getting behind it, and the New York Times, which seemed a little resistant when it came to covering the Occupy movement, is even giving the Jubilee some ink.

But there has been some criticism as well, or at least, some questions about what the Rolling Jubilee will actually be able to accomplish in the grand scheme of things (it won’t, for example, actually get the banks to change any of their unfair lending practices, or prevent people from accruing debt again after their debt is forgiven). Bloomberg Businessweek’s new managing editor Janet Paskin (and my former boss) is not impressed. In addition, Dissent has a terrific email discussion about the Jubilee between Andrew Ross, an organizer with Strike Debt and a professor at NYU, and Seth Ackerman, an editor at Jacobin, which has been critical of the project. I do think experiments like these are helpful to do. Will it do anything to fix the system? Probably not. But it’s a starting point.

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11 Comments / Post A Comment

Iglooramous (#1,397)

I donated to the Rolling Jubilee the minute I heard about it. I didn’t think of it as a way to “fix the system,” but as an innovative and impactful contribution to a couple of indebted individuals. My understanding was that RJ would be buying medical and student debt, though I wasn’t sure that they were securitized like consumer debt. The Jacobin article seems to affirm they aren’t. I guess in the end, I consider donating to RJ as equivalent to Reddit’s charity pizza. Ordering a pizza for a hungry stranger isn’t solving global poverty, but it is alleviating a real stress for a real individual.

Hmm, had some thoughts on this. First the whole IRS thing raised in the last post. IE, sometimes the IRS counts discharged debts as income. That would suck if they’re suddenly setting off a whole bunch of tax events for people who couldn’t afford to pay their bills.

Also, I’m no bankruptcy expert but what happens if a person is in bankruptcy procedings and all of a sudden half their debt is discharged? Do they get denied?

@forget it i quit In one of the articles they address that. Apparently debt discharge from individuals (rather than corporations) can be considered a “gift” and is then not considered income by the IRS.

Jon (#2,053)

I have a question about this.

So we’re saying that the RJ can “buy” $500 worth of debt for $25 (5%). So if I have $15k of student loans, then the RJ should be able to buy that for $750 (assuming my math is correct).

Why is it not possible for me to buy that myself? If the debt is available for purchase so cheaply, what’s to stop the debtor (or, more realistically, a third party acting on their behalf) to simply buy (and forgive) the debt directly?

There’s something I’m not understanding, here. Is it because the debt is bundled together and it’s impossible to “buy” individual accounts?

deepomega (#22)

@Jon It’s more that banks don’t like selling debt cheaply. That 5% rate is an aggregate rate – it assumes that some people will default or just hide from the debtor, and some will pay. This is valuable to the banks because they’d rather SOME people pay off their debts – eventually they could maybe figure out who is likely to do it, and that debt is more valuable! But if you just smear it out over everyone, you’ll *still* have people defaulting, and people who might’ve eventually paid the debt off will be paying a lower rate.

This is all separate from the moral hazard involved – lenders want it to suck to default on a loan. Otherwise more people would do it.

Jon (#2,053)

@deepomega Thanks for your reply. I have more questions, that I’m sure that people won’t be able to answer, but I’m gonna type them into the void, anyhow.

I understand that given a choice between getting $750 or $15k, the bank is probably going to choose $15k, but the reality that, whether they like it or not, the bank is taking that deal – they are selling $15k of debt for $750. I understand that the 5% is an aggregate figure, but the RJ is getting that number from somewhere, right? Debt is being sold cheaply, *right now*.

How does someone find out if their student loan is up for sale? If debt is available this cheaply, are these terms being offered to the debtors themselves? Surely getting 6% of the loan direct from the debtor is better than getting 5% from a private debt collection agency?

Also, what’s to stop the following scenario:

A collective of folks, much like the RJ, buys $15k of debt for $900 (6%).

They then contact each individual debtor and asks them if they can afford to pay 8% of the loan (or anything at all).

If so, then any money recovered rolls back into the fund.

If not, then the debt is forgiven.

Now, at this point you might ask why anyone would choose to pay 8% when they could just pay zero, but it could be set up in such a way that (a)it’s not immediately apparent that zero is an option and (b) some folks will pay more than 8% (because that sometimes happens with pwyc models).

Anyway. Because the fund is (ideally) getting 2% more than they’re paying, then that should work toward covering the shortfall that occurs from forgiving the debts of those who can’t afford to pay.

This means that the pot of money that they started with won’t go down that much, and it’ll help a lot more people. It’d also make the banks more money (1% more) than the way things work right now. Win win win?

(For the record, I’m not in the US and this imaginary scenario doesn’t apply to me, as I’m pretty much debt free)

r&rkd (#1,657)

@Jon
Essentially that was my old landlord’s side business. She’d buy a bunch of credit card debt for $1 per account, then call around to see who wanted to pay something to clear it. Just often enough, she’d find a debtor trying to clean up her credit score.

One major challenge is contact information: how do you even find the debtors?

deepomega (#22)

@Jon Giving anyone the option to not pay is, basically, where the debtors find themselves now. (That “option” is, hide from debtors for as long as possible!) This MIGHT work if you eliminate the “you don’t pay anything” option, but then you get into the long-term reason banks don’t like this. Aside from spite, I mean, which I’m sure is a part of it.

The long-term reason banks or original debt-holders would dislike this is because of the moral hazard involved. That is to say: If you were a dude THINKING of racking up credit card debt, would the existence of an organization like this make you any more tempted to over-burden yourself and hope you got it wiped out? If so, then that’s gonna fuck with lenders’ ability to make back their debt money. End result: Banks refuse to sell debt to Occupy or whatever, and you’re back to square one.

Jon (#2,053)

@josiahg That’s fascinating, I never realized such a thing was possible. I wonder if that was a profitable side business or more trouble that it was worth…

@deepomega You make a very good point. The very existence of such an organization changes the way that people would perceive debt and credit. It just seems illogical to me that the bank could be selling someone’s debt without them having the option of “buying” it themselves.

The way I see it, the problem isn’t with the banks, it’s with the debt recovery agencies that buy this debt from the banks and make people’s lives unbearable so that they can turn a profit. Although this is as a result of a market that has been created entirely by the banks – if they weren’t selling the debt cheaply in the first place, then the debt collection agencies wouldn’t have a business model.

@Jon

Student loan debt doesn’t go into this kind of default – nor does anything with a consumer good attached – like a car or a house. So yeah, probably just credit card and medical debt.

I don’t even care if it’s not a perfect way – people are talking about it, it will reduce real anxiety and stress, individual by individual, and it’s turned the conversation to how to deal with these crippling amounts instead of just finger wagging.

WaityKatie (#1,696)

I think this is so interesting, not least because it exposes debt as an artificial construct that can be wiped away by choice. People think of debt as this concrete thing, but it really isn’t. It’s a matter of people agreeing that Person X “owes” Person Y a set amount, to grow at Z rate. And maybe thinking about debt this new way could eventually lead to a restructuring of our society to make it more equitable. The people who get trapped by debt usually start off poor, and become poorer through their experience of debt. Maybe people will start to realize that that’s not right. I don’t know, I guess I’m feeling super optimistic today or something.

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