Friday, November 9, 2012

For once, an 'Occupy' proposal I can support!

Readers will have gathered that I don't have terribly much sympathy for the protestors of the 'Occupy movement', in this country and around the world.  Nevertheless, I have to admit they've come up with an idea I can support, at least to some extent.  The Telegraph reports:

A group of campaigners linked to the Occupy Wall Street movement is buying-up distressed loans for pennies in the pound and cancelling them to "liberate debtors at random".

The Rolling Jubilee project is seeking donations to help it buy-up distressed debts, including student loans and outstanding medical bills, and then wipe the slate clean by writing them off.

Individuals or companies can buy distressed debt from lenders at knock-down prices if it the borrower is in default or behind with payments and are then free to do with it as they see fit, including cancelling it free of charge.

As a test run the group spent $500 on distressed debt, buying $14,000 worth of outstanding loans and pardoning the debtors. They are now looking to expand their experiment nationwide and are asking people to donate money to the cause.

. . .

A video released to promote the project says: "We shouldn't be forced into debt to cover basic needs like healthcare, housing and education. We need a jubilee, a clean slate. The math is on our side; a little bit of money goes a long way. If we can raise $50,000 we can buy a million dollars worth of debt and abolish it.

"We bailed-out the banks and in return they turned their backs on us. We don't owe them anything, we owe each other everything. It's time for a bail-out of the people, by the people."

There's more at the link, and at the project's Web site.  Here's a video presentation about their idea.

I'd willingly contribute to such a project, provided that the debts it seeks to relieve are appropriate and carefully chosen.  I'm not prepared to bail out those who bought beyond their means, and invested in McMansions that are now worth less than the outstanding loan against them;  nor am I prepared to pay for someone who took out tens of thousands of dollars in student loans to pursue a degree in gender studies or underwater basket-weaving.  On the other hand, a small business owner who desperately needs relief from his debt burden in order to keep his business running, offering employment to his staff and services to his community?  I'm up for that.  A small farmer who needs to pay off loans in order to keep his farm going in the face of pressure from big agri-business?  Ditto.

It'll be interesting to see how this develops.  I'll be hoping for the best.



Anonymous said...

Doesn't sound like they've thought this one thru - cancel the debt and the IRS deems that to be taxable income to the borrower.

joe said...

Better to owe the KGB (I mean IRS) $300 than to owe MasterCard $1000. Forgiven debt is considered income, whether settled with the bank or with an individual. This way they owe only the tax.

The Raving Prophet said...

I'd suspect that such debt bought for pennies on the dollar is going to be unsecured debt- student loans, medical bills, credit cards, etc. Mortgages and vehicle loans would have been handled through foreclosure and repossession.

Even so, this is a neat idea. While I'm not all that eager to jump in on my own hook to do this, it's the first useful thing we've seen out of the Occupy folks yet. Instead of demanding people give them things, they are actually doing favors for others. Good for them.

ruralcounsel said...

Of course, if the debt is more than just forgiven, but is in essence a renegotiation of the amount owed or paid off in non-cash manner???... perhaps by having the debtor perform some service for the new debt holders.

Needs to follow the well-accepted IRS principles of purchase price adjustment... see IRC 108(e)(5).

Or if the debtor pays the third party the market value of the debt (which is far less than the face value)? So long as the third party is disinterested and not related ...

There are ways that it might work.

August said...

I don't think they have the level of control you want them too.
They have to buy something like a mortgage backed asset and then forgive all the mortgages. If they buy the really cheap stuff, it means they are buying the stuff people have already defaulted on.
They will help some good people, but they will help some undeserving people as well.
The coolest thing about it though, is that the government needs these debts on the books in order to continue the charade that we have any money. If they can make any significant amount of it disappear, they are counteracting the FED and the money multiplying that the inflators are counting on.