Update on Strike Debt & “Rolling Jubilee”

When I wrote about this Monday, everyone had questions. Some answers, from Ariel Kaminer, in today’s NYTimes:

The group is holding a fund-raiser on Thursday at the Greenwich Village nightclub Le Poisson Rouge, and says it has already raised $129,000 through online donations — enough to buy $2.5 million worth of defaulted loans, thanks to their steep markdowns. The people who incurred the debt in the first place will get a certified letter informing them they are off the hook.

The fund-raising effort has its own name, Rolling Jubilee, a reference to the biblical tradition of a jubilee year, in which all debts are forgiven and all indentured servants are given their freedom. Its more recent origin is the Occupy encampment in Zuccotti Park, where a group of protesters started talking seriously about the problem of burdensome student debt. That conversation eventually broadened to a consideration of the role of debt in American society, and Strike Debt was born.

Since then, some of the group’s projects have been rebellious, like producing the “Debt Resistors’ Operations Manual,” an explanation of the credit industry and how to outmaneuver it, including advice on how to fight, or even ignore, creditors. Rolling Jubilee, by contrast, works within the financial markets…

Since then, the Rolling Jubilee has even won praise from Forbes, the business magazine, which said it was “Finally, an Occupy Wall Street Idea We Can All Get Behind.”…

The group’s first purchase will be medical debt, but it hopes to move on to tuition debt and credit card debt. Members acknowledge that the most wildly successful fund-raiser will not come anywhere near the amount that American consumers owe, estimated at more than $11 trillion.

“This is a long-term thing,” said Christopher Casuccio, who graduated with about $100,000 in student debt. “We all know it’s going to take years to transform the economic system.”

My emphases. The Forbes article answers another question. There’s a specific IRS exemption for “gifts”: “The company [you owe] cannot lower your debt burden without dumping you with a large tax bill. But A.N. Random Individual can indeed lower your debt burden without that tax being due. You or I, OWS, can purchase the debt and then write it off and that’s a gift: no tax is payable upon that debt reduction.”

Hard to imagine a less debatable debt remission than saving people from the ‘bad personal choice’ to get expensively ill under our current insane “World’s Best Healthcare, If You Can Afford It” system. As we’ve all been trying to explain to economic absolutists resisting the Affordable Care Act, the number of individuals who are going to go out and get expensively ill just to ‘freeload’ is so vanishingly small that the question of moral hazard really doesn’t exist here.

42 replies
  1. 1
    Villago Delenda Est says:

    the question of moral hazard really doesn’t exist here.

    Oh, there’s plenty of “moral hazard” in the system. It’s concentrated in the skimmers who profit off the suffering of others. Like the entire health “insurance” industry.

    However, for serious “moral hazard”, you’ve got to be a guy like Jamie Dimon.

  2. 2
    RSR says:

    Speaking of the health care system, Philly cartoonist Signe Wilkinson–whose work was recently frontpaged here–pointed out the following story just a few minutes ago on the twitters.

    It’s about an incident in which a family with a careers worth of experience in the health care system, and what appears to be solid financial footing, still found navigating the health care system burdensome and overwhelming.

    “Karen Heller: Health official finally sees how broken the system really is”

    http://www.philly.com/philly/c.....ly_is.html

    “The system, it’s just broken,” she tells me. How was this news to Swan, with 30 years in health care, professor and now dean of the Jefferson School of Nursing? “I guess I didn’t have a full appreciation of how broken the system really was.”
    She discovered the hard way. Eric, then 53, couldn’t walk or swallow, and suffered from a host of neurological issues. Among her challenges was getting him transferred from a community hospital to an academic health center in Chicago. After 10 days of hospitalization, she had to acquire copies of his records and get him transported from Chicago to an acute rehab hospital in Philadelphia. All proved challenging, and that’s with Swan’s being able to phone Thomas Jefferson University’s president for assistance.

  3. 3
    The Moar You Know says:

    the number of individuals who are going to go out and get expensively ill just to ‘freeload’ is so vanishingly small that the question of moral hazard really doesn’t exist here.

    And even if this were in any way a serious issue, it doesn’t compare to the moral horror of saddling people with debts that they can never repay, condemning them to a life of low-wage semi-employment (try getting a decent job with a bad credit report), wage garnishment, constant harassment and zero hope.

    We’re a nation that punishes all the wrong things and let people who commit real crime off easy. I’d like to see that change before I die.

  4. 4
    jeffreyw says:

    @The Moar You Know:

    And even if this were in any way a serious issue, it doesn’t compare to the moral horror of saddling people with debts that they can never repay, condemning them to a life of low-wage semi-employment (try getting a decent job with a bad credit report), wage garnishment, constant harassment and zero hope.

    Debt peonage is considered by the MOTU as a feature of the system, not a bug.

  5. 5
    Narcissus says:

    Holy crap, how do I sign up for this.

    I would totally trade making like, continuous small donations to a jubilee fund to clear my student debt

    Not just to clear that debt, but also to fuck the Oligarchy good and hard

  6. 6
    jeffreyw says:

    @jeffreyw:
    See also: Medical Debt

    Medical debt is an especially notable phenomenon in the United States – the US being the world’s only developed country not to offer universal health care. In less developed nations those on low income in need of treatment will often avail themselves of what ever help they can from either the state or NGOs without going into debt, but in the US medical debt has been found by a 2009 study to be the primary cause of personal bankruptcy.

  7. 7
    giltay says:

    I’m worried that commenter Jon at Making Light might be onto something, in that this really benefits the vultures who buy and sell lists of debtors to harass, drives up the value of debt, and might lead to increased speculation in the debt market.

    (Note: He didn’t know that debtors would be notified of the cancellation of their debt when he wrote his comment.)

  8. 8

    I don’t want to hear about those fucking petitions to secede any more.

    It’s all fake, Astroturfed, probably. Just fucking cut it out.

  9. 9
    Face says:

    Slighty OT, but:

    Did anyone else see the Cobert Show last nite and leave jaw agape? Can we get a front page post on his convo with his lawyer w/r/t SUPERPAC money, so others with knowledge can explain it better?

    The gist, as I understood, is that any remaining SuperPac $$ can be moved to a “secret” PAC entity, which can be washed further by a move to another “secret” PAC, which can then be recevied and used (“stolen”?) by the SuperPac owner. No taxes to be paid on it. IRS cannot even find out about it. Like winning a lottery without any taxes paid.

    This seems impossible, but the lawyer confirmed it. Anyone understand this?

  10. 10
    Belafon (formerly anonevent) says:

    @giltay: Well, we know no good deed goes unpunished. No reason to stop trying, though.

  11. 11
    Captnkurt says:

    From a Salon piece on this comes this particular bit of assholery: buying debt in order to forgive it may result in the creditors refusing to sell you any more debt.

    The New Statesman’s Alex Hern noted that despite the “legal mechanics” of the Jubilee idea working in Occupy’s favor, the effort may face other obstacles. “Debt collectors really can cancel the debt if they want. The problem is that if you try to actually do that, you may find very quickly that people stop selling you debt.” Hern explained a similar plan concocted by a group called American Homeowner Preservation, in which they would buy a foreclosed house in a short sale at the market price, and then lease the home back to the ousted homeowner until the homeowner had the ability to get a mortgage and buy it back at a pre-set price. Felix Salmon wrote about the effort:

    The idea might have been elegant, but it didn’t work in practice because the banks wouldn’t play ball: they (and Freddie Mac) simply hated the idea of a homeowner being able to stay in their house after a short sale and often asked for an affidavit from the buyer saying that the former owner would certainly be kicked out.

    The banks’ behavior here, as Hern points out, was telling: They have no reason to care what happens to a house once they’ve sold the mortgage, but they did care when it came to the American Homeowner Preservation project. “The best explanation for their stubbornness is that they fear that organizations like American Homeowner Preservation are creating a sort of moral hazard by reducing the penalties for defaulting on mortgages.”

  12. 12
    PeakVT says:

    @giltay: I doubt that Rolling Jubilee will do much to affect the market. It would have to start spending millions of dollars on debt (the market price, not outstanding principle) each month AND convince other players that it could sustain that level of purchasing. OTOH, as a PR effort to highlight to the burdens of debt from medical care or to highlight the predatory nature of debt collectors, it could have a significant effect. OWS didn’t have much of a direct effect on banks or WS but, as others have noted, it probably did change the public conversation from a complete emphasis on the federal budget deficit to one that included the issue of jobs. That was important.

  13. 13
    The Moar You Know says:

    I’m worried that commenter Jon at Making Light might be onto something, in that this really benefits the vultures who buy and sell lists of debtors to harass, drives up the value of debt, and might lead to increased speculation in the debt market.

    @giltay: It does all those things. It is still the morally right thing to do, helping those who can’t help themselves.

    That people are sick enough to profit off the backs of the least fortunate is not something I can do anything about. Helping to pay off the debts of someone whose life is truly fucked is something I can do. And just did.

  14. 14
    nanute says:

    @Captnkurt: I saw that article too. So, why couldn’t the short sale buyer agree to kick out the owner, and let him back in after the transfer?

  15. 15
    The Moar You Know says:

    OWS didn’t have much of a direct effect on banks or WS but, as others have noted, it probably did change the public conversation from a complete emphasis on the federal budget deficit to one that included the issue of jobs.

    OWS didn’t do squat to the banks or Wall Street, but I can easily make a case that without them, we’d be swearing in President Romney in January.

    Put simply, they changed the way we talk about class, privilege and money in this nation.

    The wingnuts know it too. Ask one about OWS sometime. The utter rage with which you’ll be answered is “the tell”.

  16. 16
    Trinity says:

    @The Moar You Know: Well stated! I will be contributing as well. It is about time we worked together to help one another. The 1% doesn’t give a damn about us.

  17. 17
    Birthmarker says:

    Why does the Forbes writer have to include so much snark, sarcasm and disdain? Plus quote Burke? Then claim credit for the whole thing for his side?

    As far as “little platoons,” isn’t the government just…us???

  18. 18
    JenJen says:

    @The Moar You Know: “The wingnuts know it too. Ask one about OWS sometime. The utter rage with which you’ll be answered is “the tell”.”

    It’s unbelievable the way they react to OWS. It’s one of the many reasons I enjoy bringing it up to wingnuts at every possible opportunity.

  19. 19
    Fred Fnord says:

    Why are we still talking about moral hazard? I mean, I know why THEY are, but why are WE?

  20. 20
    giltay says:

    @PeakVT: Fair enough. And to be honest, OWS doesn’t get enough credit for its work. My uneasiness with the Rolling Jubilee (and with Occupy in general) is mainly because it’s so experimental—that none of this has been done before. That said, even small acts by them have drawn a great deal of attention on the misdeeds of the ruling classes.

  21. 21
    shecky says:

    @Fred Fnord: The reason is that it exists. That being said, it seems a good way to steer away from moral hazard is to prioritize what kind of debt to forgive, as Strike Debt/Jubilee seems to understand. Medical debt seems a much safer bet than, say, consumer debt.

  22. 22
    PeakVT says:

    @Captnkurt: Or, perhaps, the banks were worried about giving support to the Right to Rent proposal from Dean Baker at CEPR, which calls for essentially the same thing.

  23. 23
    Omnes Omnibus says:

    @Fred Fnord: I would it is because moral hazard is real. It just does not work the way the assholes say it does.

  24. 24
    shecky says:

    @giltay:

    My uneasiness with the Rolling Jubilee (and with Occupy in general) is mainly because it’s so experimental—that none of this has been done before.

    Indeed, this kind of surprises me. I’m no authority on the history of finance or anything, but it’s surprising to me that this hasn’t been done before.

  25. 25
    Sir Nose'D says:

    I find myself in the extremely fortunate position of being mid-career and debt-free (except a mortgage and home improvement loan), and I am thrilled at the prospect of being able to contribute to the Rolling Jubilee.

    Will the RJ fix the world? Afraid not. Will it morph the zeitgeist? It already is.

  26. 26
    ericblair says:

    @shecky:

    Indeed, this kind of surprises me. I’m no authority on the history of finance or anything, but it’s surprising to me that this hasn’t been done before.

    “Debt: The First 5000 Years” by Graeber has a history of this. According to him (and it looks pretty solid, but I’m not a historian), debt peonage like this has been a pretty reliable way to start peasant unrest and overthrow governments. Either the debt records and land deeds get deliberately destroyed in the uprising, or the new boss declares some sort of jubilee and things calm down.

    Don’t remember anything about grassroots efforts to buy up debt and destroy it; history seems to show a lot of lenders getting whacked and going directly to widespread civil unrest.

  27. 27
    Supernumerary Charioteer says:

    @The Moar You Know: I think the funniest thing about the Tea Party response to OWS is that they think that they’re the populist, salt-of-the-earth response to the 2008 crisis, rather than the unholy mixing bowl of wingnut billionaire money, confused and conflicting policy statements, and vanity candidates that they actually are, still tenuously grasped by the GOP establishment’s tentacles.

    Of course, we’d be better able to disabuse them of that notion if our elites weren’t a bunch of cash-worshipping hos, but.

  28. 28
    Jay in Oregon says:

    @Southern Beale:

    Soonergrunt retweet this gem this morning:

    http://twitter.com/KagroX/stat.....3278636032

    Do you have to show photo ID to sign a secession petition?

  29. 29
    Rafer Janders says:

    @Sir Nose’D:

    I find myself in the extremely fortunate position of being mid-career and debt-free (except a mortgage and home improvement loan),

    Similarly, I find myself in the fortunate position of being available for a relationship (except for my girlfriend).

  30. 30
    AnnieJo says:

    My tax-economist husband tells me that there’s a $13,000 annual limit on the gift-tax exclusion, a limit that’s not mentioned in the Forbes piece — so that, if you were forgiven of more debt than that, you’d still have to pay income tax on any forgiven amount beyond $13,000.

    I love the idea of the Rolling Jubilee, but I do hope that they’re talking to good tax attorneys.

  31. 31
    Don says:

    Moral shmoral, the nature of the original debt doesn’t really matter. This stuff is almost all “zombie debt,” stuff that has been charged off by the original creditor and then sold on the collection market. If Jubilee/OWS pays the pennies on the dollar for it that the original creditor wants for what they view as this uncollectable debt then the piper has been paid as much as he ever would have been.

    Further, the original nature of this stuff is largely irrelevant from a moral standpoint. By the time this enters the market this way it’s mostly past the statute of limitations on collections. The only reason it’s profitable to buy this stuff and go after it is that most people don’t know to raise the required affirmative defense needed for a SoL to apply.

    Sadly, if someone comes after you for something that’s time-barred against being collected it’s not immediately invalid. They can call and harass you for payment and even file suit and win in court if you fail to raise the issue.

    In my opinion that’s unconscionable, regardless of whether you got that debt from a ruptured appendix or because you bought a flat-screen. There’s a few states where SoL debt is discharged but in most the people trying to get you to pay up can just shrug and say okay… and then sell it again to someone else for a few pennies. There’s theoretically no limit for how long that can go on, requiring the person to defend themselves against these vultures every year and hope some summons doesn’t go unnoticed, resulting in a default judgment.

    In a just world we’d have gotten rid of zombie debt as part of the huge bankruptcy giveaway that congress handed creditors; it’s pro-consumer and the secondary market is chump change in the scope of things anyway. It preys on folks ignorant of their rights so that boilerrooms can stay busy when they’re not making sleazy push-poll calls on election season.

    Since we don’t have congress looking out for us I’m glad OWS is going so. I gave them $20 and it might be my most productive contribution this month.

  32. 32
    Don says:

    By the way, I wouldn’t put too much stock in this concern that RJ won’t be able to buy debt. The market for this crap is so shady and slapdash that you see bundles listed on shitty web forums. The idea that any of these clowns selling this stuff (a) would turn down a buck and (2) could tell RJ from any of the other little fly-by-night mom and pop vultures buying up this stuff is laughable.

  33. 33
    pseudonymous in nc says:

    @Birthmarker:

    Why does the Forbes writer have to include so much snark, sarcasm and disdain? Plus quote Burke? Then claim credit for the whole thing for his side?

    Because snide glibertarian bullshit is what Tim Worstall does. (He’s not a Forbes staffer, just a contributor.)

  34. 34
    Older says:

    I am working as a process server, and based on what I am told by the people I serve, almost all of the papers I handle trace their existence back to medical expenses. That includes most of the foreclosures. (I’ve had a very few non-residential foreclosures, but for all I know, they may have had their origin in medical debt too.)

    If this works, it will put me out of a job, but I can’t help being delighted and hopeful anyway. It seems to me to be the way democracy ought to work. I am reminded of the foreclosure sales during the great Depression that I heard about. A bunch of the farmer’s friends would attend the sale, buy the land, the stock and the tools, and give them back to the farmer after the sale. Even if it only happened once, it is the solution we should strive for again.

  35. 35

    @AnnieJo:

    My tax-economist husband tells me that there’s a $13,000 annual limit on the gift-tax exclusion, a limit that’s not mentioned in the Forbes piece—so that, if you were forgiven of more debt than that, you’d still have to pay income tax on any forgiven amount beyond $13,000.

    I’m not a lawyer, but back in another lifetime, I was a estate and gift tax paralegal.

    Take this with a grain of salt, but here’s what I remember:

    1) There is an annual limit on the gift tax exclusion. And while I’m too lazy to look it up, it’s currently either $13K or close to it.

    But
    2) The gift tax is paid by the giver, not by the recipient, just as the estate, not the beneficiary, pays any Federal estate tax due. (Estates and gifts have an essentially unified treatment under tax law.)

    So if I ‘give’ you $50,000 by forgiving a debt of that amount, I might have to pay tax on the excess over $13K, but you wouldn’t.

    3) Charities are a whole different thing. Charities give to people; that’s what they do. I don’t know if a charity can encounter tax consequences for giving too much to a particular individual, but I doubt it if it’s an arm’s-length gift, i.e. no other connection between the giver and the recipient.

    4) Not to mention, fair market value, where a market exists, is a valid measure of the value of a gift. Since we’re talking about distressed debt here, whose market value is 4-5¢ on the dollar, forgiving a quarter-million dollar debt under such circumstances should get in under the $13K annual gift tax exclusion, which is per donor-recipient pair, rather than per donor.

    So if I was doing this as a private citizen, I could give $13,000 annual gifts to as many people each year as I could afford to, without incurring any gift tax liability.

    5) And of course, contributions to a charity are tax-deductible. Hopefully Rolling Jubilee has been set up as a charity, so that we can get some of our contributions financed by Uncle Sam.

  36. 36
    Fred Fnord says:

    Mentioning moral hazard is a way of making the point that ‘some poor people are poor because it’s not their fault and some poor people are poor because they’re bad.

    As soon as you start making that point, you have put yourself on the wrong side. If some people aren’t responsible about spending money, it’s because we as a society have decided that we should not educate people on how to be responsible about spending money. (Seriously. How hard would it be to have classes on this in junior high?) If some people don’t understand compound interest, it’s because we have no interest in teaching them. If some people spend all the money they get as soon as they get it, it’s because we as a society have no interest in teaching them self-control. (There is now a massive body of evidence that it can be taught, and that teaching it is vitally important in improving the lives of poor people. Yet that kind of instruction isn’t even on the radar screen anywhere that I know of, and parents seem quite hostile to the very idea in a lot of cases.)

    Moral hazard is a lie by which we tell ourselves that we’re better than ‘those people’.

  37. 37
    Another Halocene Human says:

    @Birthmarker: I’m tired of people throwing around that name “Burke” as if he’s some sort of serious thinker instead of Andrew Sullivan with better PR.

  38. 38
    Another Halocene Human says:

    @Fred Fnord: Poor people don’t have moral hazards. They just have hazards. They have no way to profit from the slings and arrows of outrageous fortune and usurious credit contracts. Rich people have moral hazards. Like the government insuring their beachfront property. That shouldn’t even have because it should be a protected wetland/surge region with public access. Criminals have moral hazards. Like the gangs of lawyers and doctors who con car insurance co’s out of millions and protect each other with professional courtesy. I mean, no-one thinks it’s odd that in universal healthcare states like Norway, Sweden, whiplash is exceeding rare, but in the US..?

  39. 39
    Another Halocene Human says:

    @giltay: Fair enough. And to be honest, OWS doesn’t get enough credit for its work. My uneasiness with the Rolling Jubilee (and with Occupy in general) is mainly because it’s so experimental—that none of this has been done before. That said, even small acts by them have drawn a great deal of attention on the misdeeds of the ruling classes.

    Really? In the 1930s tenants refused to move out of apartments and judges experimented with cramdowns for delinquent homebuyers.

    And in rural areas, neighbors used to buy foreclosed farmers’ stuff back at auction and return it to them. (They also tried to create their own ‘picket’ line to prevent goods from going to market, like King Canute trying to prevent the deflationary tide from coming in, but with pitchforks. Thankfully the government stepped in to make the market.)

  40. 40
    Another Halocene Human says:

    @ericblair: “Debt: The First 5000 Years” by Graeber has a history of this. According to him (and it looks pretty solid, but I’m not a historian), debt peonage like this has been a pretty reliable way to start peasant unrest and overthrow governments. Either the debt records and land deeds get deliberately destroyed in the uprising, or the new boss declares some sort of jubilee and things calm down.

    So that parable in the bible about the steward writing debts off isn’t just a story?

  41. 41
    JustMe says:

    My uneasiness with the Rolling Jubilee (and with Occupy in general) is mainly because it’s so experimental—that none of this has been done before.

    Well, if everyone else is so darn clever, how come they haven’t solved the problem?

    That said, I’m a scientist, and what we do when we have an unsolved problem is try lots of different things that haven’t been done before.

  42. 42
    satby says:

    I’ve contributed and Facebooked the Rolling Jubilee; I think we all should so it goes even more viral than it has already. Medical debt being wiped for people is a GOOD thing; unless you’re a Teabagger. And they may move on to student debt, which would be wonderful, if they can keep this going. So I intend to do my part. I know too many young people just trying to start out who are saddled with both kinds of debt and won’t get clear till their 40s in our current system.

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