Occupy Wall Street’s Good Idea

I’ve been hard on Occupy in the past. Their refusal to participate in our political process was disturbing to me, as was their refusal to offer solutions to their complaints.

This new scheme does not really address either of those complaints on a macro level, however, they may be onto something that other non-government entities could mimic.

Its new initiative, called Rolling Jubilee, is being spearheaded by Occupy’s Strike Debt team to protest a “predatory” lending system, according to its website. The group will hold a telethon and variety show called “The People’s Bailout” in New York on Nov. 15 to raise money for the cause, and the proceeds will be used to buy defaulted debts — such as unpaid student loans and medical bills — and erase them.

“The basic premise is simple: people shouldn’t have to go into debt for an education, because they need medical care, or because they have to put food on the table during hardtimes,”Occupy’s website says.

When a bank, lender or other company deems that it is unable to collect on a debt, it typically sells it to debt buyers or debt collectors — often at a much lower price than the original amount owed since the odds of collecting the money are low. Whoever buys the debt then attempts to get the money from the debtor themselves.

The Strike Debt campaign plans to keep the debts “out of the hands of debt collectors,” by buying them “for pennies on the dollar.” Then, instead of trying to collect the money owed, they’re forgiving the debts.

Not bad, right? Education and medical debts can be crushing. By acting as a debt collector and buying these defaulted loans they accomplish what is effectively a “Main Street Bailout,” except unlike the big banks, Main Street won’t have to pay this one back.

I see this as something other groups could imitate to an extent. When debts are defaulted on, banks sell them to collector for pennies on the dollar. The only risk of a flood of new groups looking to buy bad debt is that the market will push prices up on defaulted loans eventually. Other than that, this is actually a pretty good idea.

Their website is rollingjubilee.org.

UPDATE: Now I remember why Occupy is so annoying:

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4 Responses to Occupy Wall Street’s Good Idea

  1. I’m not entirely sold on this just yet. I can’t quite put it into words, but I’m suspicious this won’t backfire. The reason that distressed debt sells for “pennies on the dollar” is because there is little demand for it, because those who buy it do not expect to recover much of it.

    To the extent that OWS starts doing this on a large scale, they will be bidding against debt collection agencies for the distressed debt, thereby driving up the price, and it won’t be “pennies on the dollar” anymore.

    Also, keep in mind that the money they save does not just magically vanish. The creditors (presumably large banks) still eat a large loss here. If this OWS program is successful, it may create a brand new moral hazard among debtors who figure “Well, if I can’t pay it back, OWS will just bail me out,” which could lead to stricter loan standards. Remember, before the housing bubble collapsed, all the leftists were yelling “GIVE MORE LOANS TO POOR PEOPLE!!!” Then, after the collapse, they started yelling “PREDATORY LENDERS TOOK ADVANTAGE OF THE POOR PEOPLE BY GIVING THEM LOANS THEY SHOULDN’T HAVE GOTTEN!”

    Just some thoughts.

    • Thanks for your comment. I completely your concerns. It seems like a decent idea on its face but when you hear some good arguments against it concerns arise. I’ve posted some other articles that argue against it, for balance. Thanks again.

  2. A novel idea. It’ll be interesting to see how it plays out. I also share the author’s disappointment with Occupy’s non-participatory political stance and their refusal to offer practical solutions to our societal problems. Anarchy is not the answer. However, they did succeed in changing the national narrative in 2011 that awakened America to the issue of institutionalized economic inequality.

    • Thanks for your comment. I have enjoyed reading your blog as well. I thought this was a pretty good idea. I have also explored some arguments against this idea, mostly dealing with unintended consequences. I still think its pretty good on balance. I posted those arguments as well. You might like it. Thanks again.

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