What is the expert consensus on the Rolling Jubilee project?

[ainster31]

I am looking for the opinion of an expert in economics on the Rolling Jubilee project. If you do not have any formal education in economics, I would kindly request you to please make clear that your opinion is layman speculation.

Website: http://rollingjubilee.org/

Warning: layman speculation below

I don't understand how this could work. How do you just erase debt? Who is losing money here? The banks? How can the banks just afford to erase the debt? Isn't this just encouraging the banks to give more bad loans?

 

[Pythagorean]

I think this might fit under the sociology subforum. I'm a laymen, but my thoughts were that Rolling Jubilee is a political statement, not an economic one. From the site you linked:

Strike Debt is an offshoot of Occupy Wall Street. First started in New York City, but inspired by movements around the globe, Strike Debt now has affiliates across the country. We believe people should not go into debt for basic necessities like education, healthcare and housing. Strike Debt initiatives like the Debt Resistors’ Operations Manual offer advice to all kinds of debtors about how to escape debt and how to join a growing collective resistance to the debt system. Our network has the goal of building a broad movement, with more effective ways of resisting debt, and with the ultimate goal of creating an alternative economy that benefits us all and not just the 1%.

 

[edward]

I am looking for the opinion of an expert in economics on the Rolling Jubilee project. If you do not have any formal education in economics, I would kindly request you to please make clear that your opinion is layman speculation.

Website: http://rollingjubilee.org/

Warning: layman speculation below

I don't understand how this could work. How do you just erase debt? Who is losing money here? The banks? How can the banks just afford to erase the debt? Isn't this just encouraging the banks to give more bad loans?

Without any formal education in economics I would be the first to say that a person does not need a formal education in economics to understand debt purchase. Debt that can be purchased for pennies on the dollar is usually ZOMBIE debt.

http://money.msn.com/debt-management/attack-of-the-zombie-debt

It looks like the former occupiers at least latched on to a cause this time around.

 

[Pythagorean]

Without any formal education in economics I would be the first to say that a person does not need a formal education in economics to understand debt purchase. Debt that can be purchased for pennies on the dollar is usually ZOMBIE debt.

http://money.msn.com/debt-management/attack-of-the-zombie-debt

It looks like the former occupiers at least latched on to a cause this time around.

While a lot of the lower ranks were aimless anarchists, my impressions was that the central cognizant occupiers were largely against financial institution being too big to fail, against the legal status of corporations as a person, and against money in politics (lobbying and PACs). It's all the same theme of money guiding policy (rather than public well-being guiding policy).

 

[ThomasGokey]

I am not an economist, but I am one of the people who is working on the Rolling Jubilee project so I have gained a considerable amount of knowledge about the secondary debt market.

For the single best study on how the debt buying system works (and why it is so rotten) I highly recommend this report: http://www.nedap.org/pressroom/documents/DEBT_DECEPTION_FINAL_WEB.pdf

Who is losing money here?

When the Rolling Jubilee abolishes debt it is literally keeping money in the hands of debtors who need it most, and by doing so it is keeping profit out of the hands of investors who buy debt. The debt buyer in question is not so much losing money on the deal (they bought it for pennies on the dollar from someone else and sell it to us for pennies on the dollar) as they are losing the profit they would have made if they had tried to collect on the debt. Debt buyers buy and resell debt all of the time. We buy it the same way any other debt buyer would, the one main difference is that we are abolishing the debt, not collecting it.

The banks? How can the banks just afford to erase the debt?

This answer is a bit tricker. We've given a more detailed answer here: http://strikedebt.org/caq-worthless/
The short answer is that the banks are required by law to sell non-performing debts after 180 days. This is a law written for the benefits of the banks themselves. The banks have created all kinds of toxic debt, sort of like a factory that creates pollution, and the government has mandated that the banks sort of dump that pollution in the river and let it flow downstream. This gets the toxic assets off of their balance sheets and allows the bank to keep making more loans (some of which they have good reason to believe will go bad). The big banks actually finance the largest debt buyers. It's crazy really. In other words the bank creates a bad debt, gets to write the debt off (for which they get a tax write off since it is counted as a "loss") and then they lend money to a debt buyer to buy the toxic debt they just wrote off. The debt buyer makes a killing collecting on the debt (it is a MASSIVELY profitable industry) and then pays the loan back to the bank plus interest. Everyone wins (except the debtor of course).

Isn't this just encouraging the banks to give more bad loans?

I think there are actually two questions hiding behind this one.

1) By abolishing debt the Rolling Jubilee certainly is not encouraging banks to make more bad loans. We are, in the big scheme of things, a very very small fish. We've abolished almost $15 million dollars worth of a $100 billion dollar industry. The Rolling Jubilee is not a solution to our debt crisis, instead it is a way of undermining the supposed legitimacy of this debt. We are told that we have a moral obligation to pay 100% of these debts. Yet what moral obligation do we really have to pay an investor who we never borrowed money from to begin with and who purchased our debts for a tiny fraction of the price? And what moral obligation do we have to pay a debt we were forced into to pay for a basic need? The Rolling Jubilee might not be able to solve our debt crisis, but hopefully it can serve as a spark to spark a debt resistance movement which can, using other tactics, take a moral stand and refuse to cooperate with an immoral debt.

2) but I sense behind this question a different one, and this is the question that I think is very interesting and would be good to ask some professional economists. The federal government changed the law after the savings and loan scandal to allow for debts to be bought and sold in this way. At first the secondary market was quite small, but over the last two decades has grown into a multi billion dollar industry. By allowing banks to sell bad debt aren't we just encouraging risky lending by the banks? It would seem so to me, but I'm not an economist. What would happen if we made it illegal for banks to sell toxic debt? What if a bank had to eat every bad loan it made? It seems to me that it would incentivize more responsible and less predatory lending practices.

But it would also mean that there is less available credit. A certain measure of credit is needed in a modern economy, and when that dries up we all suffer. But the bottom line for me is that we should not force people into a situation where we need to take on massive amounts of debt just to meet our basic needs. 62% of all bankruptcies have medial debt as a contributing factor. That is just immoral. We shouldn't force students to mortgage their futures to get a quality education. Credit should be there for taking risks, like starting a new business, or buying a luxury item. To force someone to take on debt to put food on the table (42% of all credit card debt comes from meeting basic needs like food) is just immoral. The underlying issue is that people are simply not being paid enough for their work. Check out this chart which shows the gap between worker productivity and real wages: http://thecurrentmoment.files.wordpress.com/2011/08/productivity-and-real-wages.jpg The costs of our basic needs like medical care, housing and education have skyrocketed, meanwhile our wages have flatlined. This, in a nutshell, is why we are in debt. The real answer is to pay workers better, and to provide basic needs through single-payer healthcare, and free high quality education: http://strikedebt.org/how-far-to-free/

For more on Strike Debt's analysis of debt, and how we can start to build a debt resistance movement, I encourage you to read our "Debt Resistors' Operations Manual" which you can download for free here: http://strikedebt.org/The-Debt-Resistors-Operations-Manual.pdf