
The People's Bailout - dorkitude
http://howtosharpenpencils.tumblr.com/post/35285338188/the-peoples-bailout
======
patio11
For the benefit of folks who might not understand how debt collection works,
which may include OWS: if you buy $10,000 of an individual's debt for $500 and
then forgive the debt, they have just incurred income of $10,000 and are
obligated to pay taxes on it exactly as if you had handed them $10,000 in cash
for services rendered. If you don't inform the IRS that you forgave the debt,
via a 1099-C, you're going to get wrist-slapped mightily if they think it is
an honest mistake or, if you're, say, doing it as a political statement, you
will be afforded the opportunity to make your political statement in front of
a judge hearing your case for criminal tax evasion.

This is not accounting advice, by the way. There's some wrinkles if the debt
was caused by your principal residence, due to some of the recovery measures
passed two years ago. If its, say, CC or medical debt, though...

~~~
RollingJubilee
Hi everyone. I want to assure you all that we are aware of the tax
implications. We are working with a pro-bono tax lawyer and have called the
IRS several times. The IRS informed us that we do not meet the requirements to
file a 1099-c (we are not a bank, credit union, etc.)

Our tax lawyer has written some technical langue for our website. The bottom
line is that we will be purchasing debt of people who are most likely
insolvent and if you are insolvent there is no tax implications. Period. Even
if they are not insolvent the chain of events that would have to take place to
result in this counting as taxable income is highly unlikely. It's not
impossible, but it's very very very (lots more verys) unlikely.

The long answer is much longer and more technical but rest assured, we are
aware of the tax implications and it's not a problem.

~~~
philwelch
If these people are insolvent, why can't they just declare bankruptcy?

~~~
logn
Bankruptcy ruins your credit. It disqualifies you from holding certain jobs
(such as in a company requiring people handling cash to be bonded), not to
mention that credit checks are part of background checks these days. Some debt
is difficult to discharge in bankruptcy (student loans). It can hurt chances
of getting security clearance.

What the OP is offering seems to be a nice alternative.

~~~
lifeformed
Isn't this also bad for your credit? Well, I guess maybe it's just less bad
than bankruptcy or not paying anything at all.

~~~
logn
I'm no expert in credit scores, but... If the original creditor already filed
with the credit bureaus, that's definitely a negative on your credit. But I
think the OWS can report that you "repaid" the debt which would be good. They
could also bargain with the creditor to remove the negative report. Also, just
reducing your balance of debt is good for credit. Plus, I don't think there's
anything worse you can do for your score or future hopes of loans than
declaring bankruptcy.

~~~
Millennium
IIRC, if your debt is being sold to a broker at pennies on the dollar -which
is pretty much the only way OWS can get its hands on it- the bank has already
long since given up on getting you to pay, and the credit bureaus have long
since been informed. In other words, the damage to your credit is mostly
already done; an actual bankruptcy would hurt worse, but you're still in for a
world of pain.

~~~
lifeguard
Wrong!

A BK is a unique event from other delinquent accounts on one's credit report
that carries extra weight. As do foreclosure and repo.

------
JumpCrisscross
This is a curious activity - non-performing debt, i.e. notes not generating
any cash for the holder and thus not extracting any cash from the ower, are
being exchanged at market value, thus transferring cash via an intermediary
(OWS) from a donor to the lender. This results in a non-cash accounting change
for the ower and a boon for the lender. Economic activity is boosted if the
lender's investment/consumption is more sensible than the donor's - ower does
not figure into the algebra. This is likely to be stimulative if the lender's
marginal propensity to save excluding risk investing is low.

If these are performing loans, on the other hand, the donor is, via OWS,
acting as a market maker for the lender, providing them with
liquidity/immediacy while granting the ower cash flow. This is like a stimulus
payment to the ower (provided they consume the extra cash flow or invest it in
risk assets). It's also a bail-out to the lender.

This is structurally identical to the Federal Reserve buying banks' assets,
e.g. loans, and Washington increasing high-velocity fiscal spending. OWS's
plan has the downside of being market distorting (via moral hazard) while the
prior is less so (Fed's buying activity can be distorting if not done properly
or if amped up to supplement Congressional inaction).

I came here expecting to chastise this but, economically speaking, it's a
better use of surplus savings than having them sit idly in the money markets.
It is, though, worse than building things, funding research, or helping feed
starving children. Kudos, still, for beating par (the money markets).

~~~
intended
I strongly doubt the bonds/underlying is being sold at market value -

I assume its similar to factoring (? I forget if thats the precise term) but
these are likely Non Performing loans. The original debt would be sold at
fractions of the original price by banks to a collection agency.

From what I remember of economic theory, this is essentially a stimulus
directed at those who have the hardest time dealing with debt. So on a simple
superficial take - not bad at all, it seems even more targeted than a full
stimulus to maintain all aspects of the economy.

Edit: TO be clear - I agree with your final point. Essentially you are saying
that if we invest in growth and growth increases, it would be the best way for
people to get out of their quagmires. In that respect, such a debt forgiveness
is linked with increasing growth from what I recall.

~~~
JumpCrisscross
Market value of a non-performing loan is a fraction of par, often pennies on
the dollar. The lender will likely not sell to OWS for less than what they are
being offered by the market.

If these are NPLs the borrower has not been making payments - they go from not
making payments on an NPL to not making payments on a forgiven loan. The
lender, on the other hand, goes from owning worthless paper to having cash on
hand. The stimulus comes only if performing or distressed loans still being
serviced are bought, but the price for these will be much higher.

~~~
intended
Ah sorry - I thought you were using market value as in terms of the original
value of the loan. Not its impaired value.

edit: I recall that debt forgiveness to consumers was considered a better form
of stimulus - economically speaking.

------
marknutter
How does OWS think this debt accumulated? Debt isn't some random accident like
getting hit by a car while crossing the street. You have to get yourself into
debt. It used to be taboo, but it's acceptable to get into debt these days and
worse yet, walk away from it. OWS, to me, represents an entitled generation.

~~~
narcissus
"Debt isn't some random accident like getting hit by a car while crossing the
street."

Except debt can be exactly due to some random accident like getting hit by a
car while crossing the street and you don't have the insurance to pay for the
medical bills.

I'm not saying that this is true for all of the OWS debts: probably not even
the majority. I'm just saying that it's not as easy as "it's your fault you're
in debt".

~~~
marknutter
This may sound harsh, but medical attention isn't free, and crossing that
street without medical insurance and getting hit by a car and accepting
expensive treatment you can't pay for is still incurring debt which you are
obligated to pay back. This is why insurance of all forms exists; to protect
us from expensive, catastrophic events. So as far as fault goes, you are very
much to blame if you take risks and choose not to pay for insurance,
regardless how expensive it is.

~~~
sliverstorm
The difference in opinion usually winds up being, one party believes medical
attention is a basic human right and should be free for everyone. The other
party does not.

~~~
marknutter
Well, it's beside the point. For now, medical care costs money, and people
rely on that money for their livelihood, and simply walking away from that
debt is wrong.

~~~
potatolicious
The cost of medical care in the US is structured to account for bankruptcies -
the hospitals get paid in aggregate. The real suckers here are people who
actually _pay_ for the care, because they've now paid _several_ multiples of
the real cost of the care to account for the people who couldn't afford this
ridiculous number and went bankrupt.

The morality behind medical finance in the US is not nearly as clear cut as
you think it is.

> _"Well, it's beside the point."_

It really isn't. It comes down to the core of the issue.

What we have is an industry that collectively charges _many_ times the actual
cost of delivering their service and have a monopoly on performing a critical
service (licensing, certification). Whether or not this is acceptable hinges
hugely on whether or not you believe access to this service is a fundamental
right.

There is no way, for example, that we would accept a similar situation if the
product in question was fresh water or air.

------
loudin
So, what would prevent me from going into a massive amount of debt, not
repaying it, and asking everyone else to foot my bill?

This seems like OWS is saying, "Well, corporations got greedy and were bailed
out. Now it's the people's time to do the same thing." Why is something, when
supported by a corporation, immoral when the same thing, supported by "the
people", is righteous?

This seems like it's just encouraging bad behavior all around. Debtors get
some money, people in debt get a massive discount, and people who play by the
rules are even more at a disadvantage.

We need to restore trust in the system by educating people and holding
corporations accountable for fraud - not by undermining the loan system. This
move by OWS sickens me.

~~~
sliverstorm
_Why is something, when supported by a corporation, immoral when the same
thing, supported by "the people", is righteous?_

Because corporations are _intrinsically_ evil, and people are by inherent
nature righteous, obviously.

I'm being sarcastic, but I honestly believe some of 'em essentially feel that
way.

~~~
lukifer
There is a case to be made that a corporation is not inherently evil, but is
inherently amoral. If it can maximize profits by being socially responsible,
great. But if it fails to pursue a socially harmful action that would maximize
profits, the leadership can be sued by the shareholders. (Obviously, this is
not relevant to privately held corps.)

Division of labor is a beautiful thing, but the division of moral culpability,
not so much.

~~~
sliverstorm
Sure, but amoral is different from proactively evil. An amoral entity can act
morally with the right incentives.

------
cypherpunks01
This is a pretty interesting idea, economically speaking. Does anyone know
what is necessary in order to become a debt broker? Being able to buy your own
debt (by proxy) for pennies on the dollar might have pretty broad
implications.

~~~
HeyLaughingBoy
I think you just need to get a debt collector's license and that's not
difficult. I'd ask my wife (used to be a collector), but she's asleep ATM.

We did discuss starting a collection business years ago so I could learn the
business and write software for it (apparently the tools they use are a royal
pain), but she wasn't interested in getting back in the field and I lost
interest.

Bear in mind, though that to buy debt at pennies on the dollar, the debt is
going to be very old (5+ years old at least probably) and the seller is only
selling it because they're convinced they will never be able to collect.
You're also looking at buying large blocks of it.

~~~
patio11
You dodged a bullet. It is soul-crushing work.

Your mission, should you choose to accept it: you buy $10,000 of, say, phone
bill receivables, with the average in the $250 range, for $500 from the debt
collection company which previously worked them for a year and got nothing.
You use a commercial database and are able to identify phone numbers for half
of the debtor. The "fun" now begins. You begin getting told that the debtor is
deceased, told that the debtor ran out on her three years ago, told that the
debtor owes $300,000 due to uninsured medical expenses, told that the debtor
did not authorize the debt and that was in fact his ex-wife's cell phone, told
that the debtor has to choose between paying for Christmas and paying this
bill, etc etc etc. This is of the 10% of debtors who will speak to you and not
just curse loudly into the telephone.

Some of those debtors are actually telling the truth, by the way.

------
noonespecial
I detect the possibility of a closed debt-like loop. There must be a way in
this system to buy _my own_ $14,000 debt for $500 and forgive _myself_. Its
just a matter of path-finding.

So theoretically, I can travel backwards in debt... Profit!

~~~
kijin
Very interesting possibility.

Perhaps OWS should buy a debt for $500, and instead of outright forgiving it,
sell it back to the debtor for a symbolic amount such as $1. Maybe this will
have different tax implications than what the top comment suggests?

------
rdl
It would be cool if someone created something like prosper, where I could see
bad debt from people, and they could make pitches for why I should extinguish
theirs. For $x, I could purchase and extinguish N x $x in debt, where N is
some function of type, time to maturity, etc.

I personally would be more likely to buy deserving-seeming medical, failed
business, etc. debt than car notes or whatever, but maybe others would have
their own preferences.

~~~
fr0sty
So people list their bad debts on a website and compete for the most
compelling sob story to get them written off.

I actually cannot imagine how this would lead to better outsomes than just
buying and forgiving debt blindly. You would preference the best and boldest
liars over people who can't bring themselves to debase themselves in front of
the world in hopes of your patronage.

Buying blind at least solves the adverse selection problem.

~~~
lizzard
I would not mind buying and forgiving someone's debt blindly. I've been in
situations where $2000 debt destroyed my ability to survive independently.
While now I could pay off 2K instantly without even feeling it. How lovely it
would be to relieve someone of that burden!

------
RollingJubilee
No forgiving. Forgiveness implies someone did something wrong. These debts are
illegitimate and should never have existed in the first place. These debts are
immoral, if anyone needs forgiving it is the banks.

We are not forgiving debts, we are abolishing them.

~~~
wavesounds
I think this is really awesome what you're doing. Can you provide some
examples of the kind of debts you're talking about?

------
heyrhett
The problem that I see with this is that once your debt is sent to
collections, that mark is already on your credit report for 7 years, even if
you pay off the debt.

So, "forgiving" the debt is pretty meaningless. People still have their credit
report tarnished, which leads to higher interest rates, higher car insurance,
and is basically another way to oppress people who are already poor. The only
advantage to the debtors in this case is that they won't get phone calls from
collection agencies. It's a nice idea though.

~~~
MattGrommes
This is "a" problem, not "the" problem. For a large number of people, getting
$5k or $10k of debt erased would at the very least a large weight off their
back, at the most a life changer. Living paycheck to paycheck means cherishing
every extra dollar you get to keep. Getting to keep $50 or $100 a month in
your pocket instead of sending off to some credit card or debt collection
agency is a big deal sometimes. Most people who would probably take advantage
of this don't even keep track of their credit because they're so behind
anyway.

~~~
justindocanto
But if theyre making payments on the debt, the debt collector won't sell it
because theyre actually getting their money. The only debts OWS is going to be
able to buy are the ones not making payments and the ones that havent made
payments in a very long time. So, as cool as not having to pay 50/100 a month
sounds, that wont happen to anybody because the ones paying are not the kind
of people that would be getting relieved of their debt.

Also, the people who havent paid their debt in years hardly benefit from this
too (this might even make it worse in a way) because not only have they had an
unpaid debt sitting there, they now have a new mark on their credit saying
somebody gave up on collecting on them and that they sold their debt to
somebody else. This is even worse, from my understanding of credit, for your
credit score then it is to just let the debt sit there. The person in debt
obviously isnt making any payments if it's up for sale, so it's not like it
saves them any money. All this does is modify their credit score.

This all sounded awesome skin deep, but as you look into it more... it doesnt
really do much for anybody affected by Sandy or anybody in financial crisis in
general. They're saving just a few people a few hundred bucks that wouldn't be
coming out of their bank account for years to come... if at all, ever.

They would be more productive just giving money to people affected by sandy
then paying off debt that people have ignored for years anyway. People need
food, shelter, clothes, toiletries, warmth... not a 'hey we paid off a debt
you havent cared about for years and you dont get to see any of the money we
just spent on you, but sorry your cold and good luck'.

~~~
stickfigure
This seems like the key insight about this issue. The debts OWS buys on the
cheap are debts that were never going to be paid off in the first place. The
net practical effect of this action is to transfer money from well-meaning
people into the hands of debt collection agencies.

Seems like the only people being bailed out are debt speculators. Doesn't
sound like a worthy cause to me.

~~~
elemenohpee
You're still only thinking in terms of the market. This action is about
raising social capital.

~~~
justindocanto
The action is people donating money that is going to be put to waste in
comparison to their immediate needs. They should change the entire event to
fundraising more food, generators, shelter, clothes & necessities for these
people.

If they want to do something extraordinary, which it seems they're trying to
paint this event as, they should do something extraordinary like take all the
money they raise and start building people new houses. That's real 'social
capital'.

~~~
elemenohpee
This is not necessarily connected to the Sandy relief efforts, and there's
nothing wrong with different parts of the Occupy movement working on different
problems.

There's already enough houses, we don't need to build more. What needs to
change is peoples' tacit acceptance of the current debt relations, which is
precisely what this action is challenging.

I'm not sure why you put social capital in scare quotes, it has an accepted
definition: <http://en.wikipedia.org/wiki/Social_capital>

~~~
justindocanto
They dont need more homes? Are you not familiar with all the homes that burned
down during sandy?

There's nothing wrong with them moving onto other things... but those other
things are a waste of time and are not beneficial. If youre going to act like
youre trying to make the world a better place, at least do something that
supports that. Paying somebodies old debt from 5 years ago is a freebie that
teaches nothing. It didnt save anybody money this month. It didnt teach
anybody a lesson. It gave some one a free way out of a debt that havent paid
in years, which was more than likely their own fault for over borrowing.
Meanwhile, people are living in unsafe conditions in NYC & Jersey with very
little to their name right now in the present tense. Helping Sandy victims is
the first productive thing OWS has ever done, and they should stick to that.

And for the record, I'm quite aware that social capital has a definition. I
put quotes around it because the original usage didn't match up with the same
definition you linked to and I was mocking it.

------
bmccormack
After OWS forgives random debt, is it also going to help teach people how to
avoid debt again? By avoiding keeping a balance on credit cards? By saving up
an emergency fund for a rainy day? By saving for retirement?

A one-time forgiveness of debt is a generous gift to be received, but unless
you have the habits to avoid debt again, it will just grow back again over
time.

~~~
potatolicious
[http://www.washingtonpost.com/wp-
srv/politics/documents/amer...](http://www.washingtonpost.com/wp-
srv/politics/documents/american_journal_of_medicine_09.pdf)

~62% of all bankruptcies in the US have a direct medical cause. Credit card
debt and debt from overconsumption is certainly a problem, but if 62% of the
debt forgiven arises from unexpected medical bills, I'd call that some pretty
good work.

Though I'm somewhat uncomfortable with the everyman shouldering the fiscal
brokenness of America's thoroughly inhumane and downright barbaric health care
system.

~~~
greedo
Then set up a charity where people with medical bills can submit them and ask
for some assistance. That way they stay out of debt/bankruptcy, have a cleaner
credit report, and can focus on their health issues not financial issues.

~~~
potatolicious
So... universal health care then :P

An organization that receives all your medical bills, keeps you out of
debt/bankruptcy, and charges you an amount that it determines would not cause
undue hardship? Like insurance, except everyone qualifies!

Slight side note: this whole discussion is somewhat depressing, but I've come
to expect this from HN lately. This whole thread is divided into two rough
parts: people addressing legitimate questions about the legalities of this
venture, and people clucking derisively at the stereotypical straw man of the
poor.

Whether it's sexism in tech, racism around the world, or the plight of the
American poor re: medicine, there are always a ready army of the privileged
ready to attack people for imaginary and insultingly intellectually lazy
stereotypes.

~~~
hnal943
The difference is that in universal health care, the government puts a gun to
your head and forces you to "help."

~~~
mkr-hn
National government using its superior capacity for organized action to ensure
that its most vulnerable citizens are taken care of is truly the greatest
crime of this century.

------
johnx123-up
Not sure why the OP's title _Occupy Wall Street is buying up debt and
forgiving it immediately_ was changed to _The People's Bailout_ (that was more
meaningful, IMHO).

------
joe_the_user
The reason that any bank that sells debt would attempt to avoid this kind of
thing happening should obvious. Moral hazard. If a debtor can refuse to pay
and then only pay what the bank really then thinks the loan is worth (with few
if any penalties), then _every debtor is going to do that_.

Obviously, OWS is doing this as a political statement that the debt system in
the US is corrupt, unjust or something. It does seem like things such as
education shouldn't throw a kid into life-long debt from the get-go or the
benefits should be more, uh, clear.

The student loan system today generates a huge number of defaults. The
contradictory situation where the banks naturally write down this debt but
work hard to keep the written-down out of the hands of the debtors may be an
Achilles heal of the system.

~~~
zanny
> The student loan system today generates a huge number of defaults.

Too bad you can't default on student loans. I'm lucky I have 7k in the bank
and 10k in student loans to pay off since I'm unemployed. I've heard horror
stories of people working minimum wage service jobs with 40% of their wages
garnished for student debt for an art degree.

It is their faults they did it, but its also the faults of colleges and
institutionalized higher education creating a culture of dependent debtors
when young people leave high school.

~~~
MordinSolus
And the federal government for encouraging such behavior as well.

------
cjdrake
When did HN become reddit /r/politics?

~~~
saraid216
Last Tuesday.

------
aristus
Careful; debt forgiveness can be treated as taxable income. The lucky winners
may end up with a nasty unforgivable tax bill.

------
lifeisstillgood
For me the big question is whose debt do you forgive first?

You are making a political statement here - great.

You are making an even bigger one if you choose to forgive the debt of White
folks before black, black before White, republicans and democrats, short v
tall and fat v thin

even a lottery seems to send the wrong message

And doing it blind by just buying anonymous tranches will reveal the biases of
the original moggage sellers.

A mess I would not like to sort through

ps at 30:1 anyone have an idea total needed to be raised to forgive everyones
debt? Even ignoring Market reproving to take this into account?

------
mkr-hn
I see a few people coming at this discussion from a disturbing place.

They seem to exist in a world of absolute rights and absolute wrongs, where no
leniency can be granted based on the circumstances of the wrong, and no
sympathy, empathy, or support is granted to account for the life that led to
the wrong.

It sounds like a sad and hostile world.

------
abdurraheem
someone should write a guide on how to buy up your own debt for 1/30th of the
cost

~~~
canadiancreed
Indeed. I know that if I can buy a dollar of debt that I owe for a nickel, I
want in on that. It'd make things a lot easier on my pocketbook.

~~~
malandrew
More interestingly, how would the 1099-C work in such a case. Wouldn't it be
like matter and anti-matter colliding wiping each other out since you would
simultaneously incur a tax-deductable loss and a taxable gain of equal value?

~~~
patio11
_sigh_ No.

If you buy $10k of debt for $500, the debt buying business' basis in the debt
is $500. If they cancel it, they can deduct $500.

If $10k of your debt is forgiven, you get 1099-C'ed for $10k in income.

Net-net, this would cause $9.5k in income if you went through with it.

~~~
Firehed
Still, taxes on $9500 are way lower than the $10000 you originally owed, so it
sounds like a win.

Until everyone starts doing this and the whole system collapses, at least.
That money isn't coming from thin air.

~~~
ChristianMarks
Sure it is: it's called fractional reserve banking.

------
chmike
I really don't understand the principle. Is it possible a bank would sell a
10K$ dept for 500$ ?

The root of the problem is that banks or credit companies sold loans to people
who were unable to pay back the loan. The banks and credit companies new it
but didn't care. This is criminal. The people who took the loan weren't
educated enough or in proper control of their impulsions. In don't see much
difference with selling drugs in the open.

I've been told that in Belgium each loan of the citizen are registered in a
national file. If that person become insolvent, any loans to that person not
registered or given when he was above 33% may be erased by a judge.

This is to provide a natural incentive to loaners to avoid screwing people.

Buying loans is like trying to emptying a sinking ship with a spoon. Fix the
hole first !

~~~
saraid216
> Buying loans is like trying to emptying a sinking ship with a spoon. Fix the
> hole first !

Mass sit-ins didn't seem to fix the hole. Why not relieve what they can, and
possibly build some story-ammo for their next attempt?

Or are you actively working on fixing the hole and have useful suggestions on
going about it?

------
mkr-hn
I wasn't surprised by the examples of the just-world fallacy running amok in
this thread, but I was surprised by how many people made counterarguments. Is
HN finally getting a broader worldview?

------
SeoxyS
Instead of operating this as a charity (doesn't scale), why not sell the debt
back to the original lendees at face value. (Buy back your $15k loan for
$500.)

I guess that wouldn't be legal, though?

~~~
malandrew
Personally I think they should try to recoup the face value from the debtor.
If my debt was among the debt bought by OWS and they contacted me giving me
the option to pay it off at face value so they could move forward with helping
others, I'd pay it off in a second.

~~~
lmm
Which means you're probably not the kind of person who gets into this kind of
debt.

~~~
malandrew
Actually I am. In fact, you'd be amazed at how many people are in this kind of
debt who has learned their lesson and would love to be able to get out the
debt once and for all.

------
patrickgzill
What if the person contests the debt in some way, but OWS buys it and forgives
it anyway? Would the IRS agree that contested debt should be treated
differently come tax time?

------
corkill
Actual wall street gets bailed out by government (taxpayers).

OWS wants taxpayers to voluntarily bailout private individuals.

I understand the human side of it, helping relieve people of debt seems like a
noble cause. But the economics of it seem so warped to me, can someone explain
why allocating money to forgive private debt is a good thing economically?

~~~
logn
When the markets dropped and wealth "vanished" the government fixed it by
adding back that wealth by printing money and giving it to banks. Same concept
with giving it to people. OWS and like-minds oppose corporate welfare when
it's not afforded to common people.

------
oscilloscope
If this happens on a large scale, will it cause deflation? It seems like it
would reduce the money supply.

~~~
akamel
the debt was already downgraded from say 14k to 500$ so the loss was already
taken; in relative terms an extra 500$ loss is meaningless.

------
pmorici
What are they talking about when they say, "As you can see from our test run,
the return on investment approaches 30:1. That’s a crazy bargain!"

Is that a joke or are they actually making a return on the investment?

~~~
aidenn0
I think the theory is that it's 30 times better than giving $500 to people who
are broke.

~~~
greedo
I bet if you asked the broke person, $500 would be far more useful than
abolishing a long ignored and never to be paid debt.

------
washedup
Won't a result of this be an increase in the "cost" of debt, and hence
interest rates on variable loans would raise for everyone else while other's
are being paid off? Seems bad..

~~~
wavesounds
No by buying bad debt that nobody wants to buy you are adding liquidity to the
market, its a win win for everyone involved.

------
conductr
Do these people still get stuck with a crappy credit rating? Doesn't seem fair
to everyone else if their score stays good due to OWS picking up the slack

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pooyak
How does buying debt from creditors work? Would something like this actually
cause buying debt more expensive and thus benefit creditors instead?

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scrumper
Generally, any time there is more demand for something the will increase. OWS
entering the market for certain kinds of distressed debt would be expected to
increase the price of that debt - the group of buyers in the market has
increased by one, so there is more competition for the asset.

There is absolutely nothing wrong with this at all. The creditors are simply
selling the debt to try and recover something from their original loan;
getting more back than the would have a week ago is great. It doesn't matter
to them whether the buyer is going to forgive the debt or collect it with men
in leather jackets and hammers; they've sold, they've got back a few cents on
the dollar and it's not their problem anymore.

How does it work? The debt is an asset belonging to the original creditor. To
use the $14,000 example in David Rees's post, creditor XYZ made a loan to
debtor ABC for, say, $10,000 a few years ago. They made that loan expecting to
receive $14,000 back over time - that's why they did it. Now, ABC looks unable
to repay the debt. The obligation still exists, but it's no longer practical
or profitable for XYZ to try and recover it. XYZ has no men with hammers, no
provision for accounting for irregular payments or special arrangements and no
real interest in hanging on to this now-useless asset. Luckily for them, there
are other companies which do want that asset, but because of the difficulties
in collecting on it they're not willing to pay a lot. $500, in this case. It's
worth spending $500 with the hope of collecting $14,000; if you spend $500
enough times then you'll eventually get back a few $14,000s and now you have a
business. The price reflects the probability of getting that money back. In
this case, very, very unlikely indeed, and if something's that cheap on Wall
Street then you can be sure nobody wants it.

So that debt is bought and sold like anything else, according to the business
needs of the various people involved. Your old neighbour's beaten old '68
Mustang might have been a piece of junk to him - it was too rusty to pass
inspection - so he sold it for a few thousand, happy to get rid of a problem.
To a specialist in vintage Fords, though, that car is worth a lot after they
put the work in.

In this case there is an opportunity for a body with a bit of spare cash to
benefit individual debtors by forgiving their loans, while helping creditors
stay in business - and their employees feed their families - by buying their
crappy assets at market rates. They are adding both charity and liquidity to a
gummed-up market with very real people suffering in it.

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malandrew
Question:

If OWS does this often enough to the point it becomes expected by debtors
(i.e. "I won't pay because maybe I'll win in the OWS debt lottery"), wouldn't
that in effect reduce the number of people that would actually pay back the
$14k? And assuming it does have a global effect that should depress the market
value of distressed debts further, right?

How can OWS depress the probability that creditors will get their money back
enough so that the cost of buying debt becomes cheaper?

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pmorici
At the point that OWS is buying the debt it has likely already effected the
individuals credit record and score which would make it much more difficult
for the person to get additional credit for some number of years.

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gmkoliver
Does anyone have a number for the size of the consumer distressed debt market?
Not getting much luck searching so far.

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thezoid
Won't this run the risk of causing out of control inflation?

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brianbreslin
This is awesome beyond words.

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mynameishere
How to design a shit website . com

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mkr-hn
Graypost is the penalty for sassing howtosharpenpencils.

