
Occupy Wall Street activists buy $15m of Americans' personal debt - sdfjkl
http://www.theguardian.com/world/2013/nov/12/occupy-wall-street-activists-15m-personal-debt
======
nostromo
Random idea: If a creditor is about to sell your debt to a debt collector for
pennies on the dollar, what if they were forced, by law, to give you right of
first refusal?

For example: I owe a credit card company $20k, but I have defaulted on the
loan. The credit card company is about to sell this debt to a collector for
$1k, who will proceed to make my life miserable. If there were such a law, the
credit card company would first have to offer the debt to me for $1k. In this
scenario, I could indeed buy my own debt and we all could go on our merry way
(except the debt collector).

Crazy?

~~~
dchmiel
It is better for yourself and the creditor to just bypass the horrible and at
times abusive debt collectors, but this would create a perverse incentive to
ALWAYS default on loans.

Creditors asses your potential for default and base the rate of lending on
that risk. In your scenario the rate of default would always be high therefore
the rate that you borrow at would be extremely high, think loan shark high. Or
you would find that no one is willing to lend money and this would cripple an
important part of the financial system. Think student loans never existing.

~~~
jerf
"but this would create a perverse incentive to ALWAYS default on loans."

Statically, yes. However I'm having a harder time mentally analyzing what this
would do _dynamically_ , which is a much more interesting problem, since the
real world is not static.

My first approximation is that because "everyone" would know this is something
they can do with their debt, that lending would consequently become much more
rare, and lenders would be _much_ more careful about securing their loans. The
initial impact on the economy would probably be sharply negative; what happens
after that is probably a "your guess is as good as mine" situation, even
amongst economists. Attitudes about debt have varied widely throughout time
and space. Some will say tightened lending will wreck the economy longterm,
others would suggest that loose lending has _already_ wrecked the economy and
the initial shock would simply be paying down damage already done, after which
the economy would be much healthier. Which side you fall down on probably has
more to do with ideology than education; given how much trouble economists
have explaining even our _current_ economy I'm not willing to give even
experts much credence for explaining how such a different one would work.

~~~
dchmiel
You're right on that dynamically it is a very interesting problem and
something that from my exposure to economics, economists seem to spend very
little time analyzing.

Changes beget other changes and so on. Finding the steady state level of
change would be challenging yet interesting to model.

~~~
yetanotherphd
I have a PhD in economics and that is the first thing that an economist would
think of (in my case it wasn't, but I did eventually realize it...).

One reason why many of the the "crazy" ideas posted on HN don't make it to
policy, is that there are people trained in economics who are able to see the
flaws in such policies.

EDIT: and in case you were curious, this wouldn't generally be considered a
dynamic problem in economics. Once the policy was announced, interest rates
would immediately change to a new equilibrium, which accounted for people's
higher tendency to default. So the problem is simply to calculate the new
static equilibrium.

~~~
jerf
Yes, in this case I merely mean to bring in the idea that changes are reacted
to. I was using static vs. dynamic more in the physics sense, where "static"
can be looked at as a snapshot of the system you're looking at, whereas
dynamic brings in the concept of time. I agree that all else being equal,
there's every reason to believe that this sort of change would produce a new
static equilibrium, at least in terms of debt itself. (My doubt is more about
the net effect on the economy as a whole, as debt seems to be a matter of some
debate even today. The dominant economic thought seems to be pretty
comfortable with it, I have to admit I'm coming around to more of a "Black
Swan" sort view where I think the dominant consensus is overvaluing it, which
interestingly also accords with a lot of historical thinking on the topic
albeit not with that amount of mathematical backing.)

~~~
yetanotherphd
We usually call the immediate effect (in this case on interest rates) partial
equilibrium, and the "full" effect including all flow on effects, "general
equilibrium". And there are models which include dynamic and random effects
(dynamic stochastic general equilibrium - DSGE - models). Can't tell you much
about them apart from the name :-)

Anyway it seems like messing with debt contracts is a bad way to change the
interest rate, if that's all you want to do, since that is precisely the lever
that the Federal Reserve controls anyway.

------
noonespecial
This demonstrates an interesting thing about medical debt in particular. They
seem to be operating it almost like a market segmentation tool. The richest
people simply pay the stated rate, everyone else pays the maximum rate that
they are able as it travels down the debt staircase.

A more cynical way to look at it? When you get (really) sick, the price for
care is everything you have, whatever that happens to be.

~~~
thatthatis
> the price for care is everything you have, whatever that happens to be.

Still seems preferable to dying.

~~~
debacle
Wait until you have dependents to care for - then suddenly the choice is
between paying for your medical care and feeding your family.

~~~
thatthatis
That choice doesn't match my understanding of how the bankruptcy system works.

~~~
ubernostrum
Don't worry, the bankruptcy system will catch up and find a way to make
medical debts non-discharge-able just like it did for student debts.

~~~
derleth
> Don't worry, the bankruptcy system will catch up and find a way to make
> medical debts non-discharge-able just like it did for student debts.

Inheritable, too, what with all the old people dying with medical debts their
whole estate can't cover.

(The way it works now is this: When someone dies, their estate is responsible
for paying their debts. Once their estate is gone, however, that's it. The
creditors can try to convince the heirs to pay the debts, but they have no
legal leverage to _force_ them to. Lying about having such leverage is
apparently fair game, however.)

~~~
BillyMaize
This is why I simply will never inherit my parents estate when they die, I
don't want to risk inheriting their debts no matter what I'm told. My mother
inherited her fathers estate with all of her brothers and sisters only to find
out that because Grandpa had a huge expensive operation that the estate
actually owed money. Luckily she was able to somehow get her name off of the
inheritance after the fact.

~~~
derleth
> I don't want to risk inheriting their debts

You can't. Once the estate's gone, the creditors can pound sand because the
person they contracted with is gone and all their assets are gone, too. They
can't come after anyone else.

> Luckily she was able to somehow get her name off of the inheritance after
> the fact.

I seriously doubt this is possible even in theory.

------
pchristensen
Good for them. Markets are working. If the emotional and social value of
forgiving debt is worth more than the expected value of collecting on that
debt, then _capitalism is working_! Who could be opposed to this?

~~~
pan69
And how many people get this debt in the first place is true capitalism as
well?

~~~
dnautics
A systemic (political, not free-market) policy of inflation encourages people
into debt by decreasing the cost of borrowing (minus the increase in risk-
cost, which most people are bad at judging), and by squeezing people by
decreasing their cost-of-life margin versus their earning power.

Not to mention politically motives to encourage debt, by incentivising things
like mortgages, or creating educational debt systems, etc.

The very dollar itself is an instrument of debt, and it is self-perpetuating
-- there has to be a way to pay off the interest on that debt that was the
genesis block for that dollar, of course that's done by "printing" money
(adding a zero on a digital ledger), which creates inflation, which encourages
people into debt, which requires more money to be printed, which requires
interest to be paid off on that dollar, which...

------
ffrryuu
One of things that I was always curious about is why the govt didn't
restructure mortgage debt and re-value property back to pre-bubble levels

It would have cost the government $2 trillion to buy every sub-prime mortgage
and retire it.

But that's Communism

Instead, the government (by way of the private bank known as "The Fed") gave
$16 trillion - free and with no strings attached - to Wall Street, the very
people who engineered the destruction of the American economy in 2008.

That's known as Capitalism

~~~
frezik
US GDP in 2012 was $15.68 trillion. You're saying the US government gave away
more than a year's worth of productive output? You'll excuse me if I say
citation fucking needed.

~~~
cmdkeen
They lent the money, they didn't "give it" to the banks. The difference is
that the Fed got the money back, whereas buying $2tn of debt would result in
the Fed having to create $2tn.

[http://www.forbes.com/sites/traceygreenstein/2011/09/20/the-...](http://www.forbes.com/sites/traceygreenstein/2011/09/20/the-
feds-16-trillion-bailouts-under-reported/)

~~~
pessimizer
Loaning someone money without interest is the same as giving them the market
rate of interest, which in the case of the banks after the housing bubble bust
was somewhere around a billion percent a minute, because all of the banks were
insolvent and completely uncreditworthy.

To make it even more obviously a gift, a good bit of it was used to buy
treasuries. If I loan you $100 at 0% interest, and you loan it back to me for
$5 a day, aren't I just giving you $5 a day?

------
kingmanaz
From Plutarch's "Lucullus":

"Lucullus now turned his attention to the cities in Asia, in order that, while
he was at leisure from military enterprises, he might do something for the
furtherance of justice and law. Through long lack of these, unspeakable and
incredible misfortunes were rife in the province. Its people were plundered
and reduced to slavery by the tax-gatherers and money-lenders. Families were
forced to sell their comely sons and virgin daughters, and cities their votive
offerings, pictures, and sacred statues. At last men had to surrender to their
creditors and serve them as slaves, but what preceded this was far worse, —
tortures of rope, barrier, and horse; standing under the open sky in the
blazing sun of summer, and in winter, being thrust into mud or ice. Slavery
seemed, by comparison, to be disburdenment and peace. Such were the evils
which Lucullus found in the cities, and in a short time he freed the oppressed
from all of them."

"In the first place, he ordered that the monthly rate of interest should be
reckoned at one per cent., and no more; in the second place, he cut off all
interest that exceeded the principal; third, and most important of all, he
ordained that the lender should receive not more than the fourth part of his
debtor's income, and any lender who added interest to principal was deprived
of the whole. Thus, in less than four years' time, the debts were all paid,
and the properties restored to their owners unencumbered. This public debt had
its origin in the twenty thousand talents which Sulla had laid upon Asia as a
contribution, and twice this amount had been paid back to the money-lenders.
Yet now, by reckoning usurious interest, they had brought the total debt up to
a hundred and twenty thousand talents. These men, accordingly, considered
themselves outraged, and raised a clamour against Lucullus at Rome. They also
bribed some of the tribunes to proceed against him, being men of great
influence, who had got many of the active politicians into their debt.
Lucullus, however, was not only beloved by the peoples whom he had benefited,
nay, other provinces also longed to have him set over them, and felicitated
those whose good fortune it was to have such a governor."

[http://penelope.uchicago.edu/Thayer/E/Roman/Texts/Plutarch/L...](http://penelope.uchicago.edu/Thayer/E/Roman/Texts/Plutarch/Lives/Lucullus*.html)

------
biot
It would be interesting had they sent letters to those whose debt they bought
and explained exactly what they were doing. Then offer them one of three
options:

    
    
      1. Pay 10 cents on the dollar. This covers their family's
         debt and they pay it forward for two other families.
    
      2. Pay 5 cents on the dollar. This covers them and they pay
         it forward to one other family.
    
      3. Pay nothing. Their debt is forgiven thanks to another
         family having paid it forward.
    

If enough people opted for #1 or #2, the fund could be self-renewing and they
could purchase ever-larger amounts of debt and keep it going.

~~~
kansface
This could never be self sustaining because it would increase the cost of debt
(if the debtors could pay, it wouldn't have been sold).

~~~
avalaunch
If the debtors could pay 100% of what they owed it wouldn't have been sold.
But the OP is suggesting that some of the debtors might be able and willing to
pay 5 cents or even 10 cents on the dollar, which I think is a reasonable
assumption.

~~~
e12e
Also, with the assumption that the project isn't for profit (ie, everyone
choosing #3) -- someone choosing to pay more (donate) -- would help the
project. Even if they only did that after a year or two (when the debt
would've been defaulted under "normal" circumstances).

------
harryh
Did they ever figure out of the beneficiaries of this plan were going to have
tax problems? When the idea was originally floated 6-12 months ago I remember
that being a potentially large problem.

~~~
saraid216
Their lawyers said it wouldn't be an issue, IIRC. I don't know the details.

~~~
byoung2
[http://www.irs.gov/publications/p4681/index.html#en_US_2013_...](http://www.irs.gov/publications/p4681/index.html#en_US_2013_publink1000192015)

 _In most cases, you do not have income from canceled debt if the debt is
canceled as a gift, bequest, devise, or inheritance._

------
LukeWalsh
After my behavioral economics lecture this morning this is where my mind
immediately went:
[http://ase.tufts.edu/econ/papers/separability.pdf](http://ase.tufts.edu/econ/papers/separability.pdf)

As much as people would like this to refute capitalism and standard economic
models, it really just confirms that the models are incomplete and can be
updated with continuing research in to human behavior.

~~~
mrow84
As someone who is being educated in the area, perhaps you can offer me some
some answers to a few of questions I have:

1) What are the specific claims of capitalism that actually _could_ be refuted
by evidence?

2) Is there any evidence that does seem to refute those claims in any way?

3) Where would we most likely find evidence that the claims were innacurate?

I think the main thing that confuses me is that, from a layman's perspective,
we just seem to adapt our picture of what capitalism includes every time
something new comes along.

Model refinement is great in principle, but where is the proof that the basic
theory is actually _correct_? There are such a terrifying number of
confounding variables...

To use an example from my own field: when ocean models get to a high enough
resolution you start seeing a lot of mesoscale eddies. It turns out they are
really important in all sorts of processes, and their effects can feed back to
larger scales.

For us it's not too bad; running models at sufficient resolution is expensive,
but we can use higher-resolution runs to parameterise lower-resolution ones
(and better comprehend our ignorance when that doesn't work). My point is that
without a pretty good understanding of those fine-scale dynamics you can miss
important things in the bigger picture, and I suggest that the economy-society
coupled system has many more horrible to understand feedbacks than the ocean-
atmosphere system.

Thanks in advance to you, or anyone else who takes the time to answer.

~~~
LukeWalsh
To start off, the definition of capitalism is simply private ownership of
goods, and the ability to trade those goods. A society in which even ONE good
was tradable would be considered somewhat capitalistic.

Specifically you could refute the efficiency of a free market reaching an
equilibrium price (one that maximizes total surplus for buyers and sellers).
However the experimental data suggests precisely the opposite, even in
monopoly markets (double auction, perfect information) when tested in
laboratory experiments.

Many issues people think they have with capitalism are actually the result of
a system that definitely does NOT inherently take in to account all hidden
costs. This is often used by government officials to make policy decisions
that add costs or incentives to a market to correctly account for all factors
(environmental, public good preservation, etc.).

Hope this is helpful!

~~~
e12e
> To start off, the definition of capitalism is simply private ownership of
> goods, and the ability to trade those goods. A society in which even ONE
> good was tradable would be considered somewhat capitalistic.

Which definition of capitalism is this? I believe the core of capitalism is
private ownership of means of production, not merely ownership of goods?
Communism doesn't eschew all private ownership (this is a common
misconception). Communal/worker ownership of factories, farms and housing are
core tenets -- but not necessarily communal ownership of all goods (eg:
clothing, computers, tvs and radios etc).

~~~
chalst
I think capitalism also needs the existence of capital markets (e.g., bonds,
shares, commodities, speculative financing, reinsurance) that are dominant in
financing business.

------
wil421
Seems like a good idea...

How can I purchase my own debt? Rather than have someone else buy my debt at a
reduced rate and abolish it, how about I buy my own?

~~~
twoodfin
Debt is priced based on the debtor's expected ability to repay. If you have
the means to purchase your own debt, it's probably selling at very close to
its face value.

~~~
dragonwriter
> If you have the means to purchase your own debt, it's probably selling at
> very close to its face value.

If you have the means to purchase your own debt _at its face value_ , its
probably selling at very close to its face value.

But the market value of your debt should be approximately (the amount the
pricing algorithms expect you to be able to pay) _minus_ (the amount the
pricing algorithms expect to be expended in extracting payment from you).

So, IOW, for the average debtor (assuming that the algorithms involved are
correct on average), the market price of their debt should be significantly
_less_ than they are able to pay.

~~~
twoodfin
You forgot the value of interest, which invalidates your calculation.

If the market price of consumer debt was, on average, lower than its face
value, nobody would make loans to consumers.

~~~
aetherson
Well, there was recently a negative real shock to debt value.

So the time sequence here is:

time 0 = Creditor A thinks that lending $10,000 to debtor B will create an
asset worth $20,000

time 1 = Horrible things happen.

time 2 = Creditor A thinks that the asset thought to be worth $20,000 at time
0 is now worth only $100.

It is possible -- though perhaps not likely -- for it to be the case that the
average value of all loans made at time 0 to be worth less than their face
value at time 0, now that we are at time 2. That doesn't mean that consumer
lending at time 2 would become impossible -- it means that lenders would set
rates and choose debtors such that they think that new loans have values
exceeding their costs.

------
krupan
Nice to see people organizing and doing charitable things of their own accord.

------
downandout
That's all well and good until the IRS comes after these people for taxes on
the value of the forgiven debt. Occupy essentially just indebted them to a
much more formidable foe than a bill collector that must play by strict rules:
the IRS.

------
jbnelson
The Occupy Wall Street movement is frequently criticized as ineffectual,
especially when compared to the Tea Party. (Here, ineffectual refers to their
ability to induce legislative or regulatory change aligned with their
respective movement; it is not a normative statement.) Adherents of OWS often
state that it is a consequence of their movement's organic character or that
it is intentional. (I find the later argument incredulous, kind of like
saying, "I lost, but I wasn't really trying that hard.") In either case, this
tactic could be highly persuasive.

Ross says,

    
    
       Our purpose in doing this, aside from helping some people along the way – there's certainly many, many people who are very thankful that their debts are abolished – our primary purpose was to spread information about the workings of this secondary debt market.
    

I suspect that spreading information about the "workings of the secondary debt
market" is a very tall task. Certainly, they are getting a great deal of
publicity, but I'm not convinced it will produce a lasting response. Yet, they
have also purchased what I expect would be an atypically strong allegiance
from almost 3,000 direct beneficiaries at about $5,000 each. They transmuted
economic indebtedness for social obligation, by way of the rule of
reciprocity. When you consider how vehemently, vocally, and persistently these
individuals are likely to support OWS and their objectives, the influence
purchased may be cheaper than traditional means (e.g. TV ads, direct mail,
etc). And, it could be indirectly translated into more influence through
votes.

------
Symmetry
They still have to pay income tax on the abolished debt, but for someone in
trouble like this that's probably at a pretty low marginal rate. The IRS
doesn't want me paying for things by loaning the seller the price and then
forgiving the debt as a way of getting around taxes, though that policy ends
up being unfair in this situation.

~~~
smsm42
If forgiven debt is counted as income, one can unexpectedly get into a much
higher marginal rate bracket than usual. Not sure if IRS allows to amortize it
over multiple years or something like that...

~~~
encoderer
That is true. And no, much like income, it's reported in the current year.
It's very much just income. No different than if they gave the guy a check to
pay his own debt.

------
thatthatis
Can anyone explain where to go to buy debt like this?

~~~
jes5199
[http://rollingjubilee.org/](http://rollingjubilee.org/)

------
tehwalrus
way to put your money where your mouth is. My respect for the Occupy movement
just went up by an order of magnitude.

------
brianbreslin
Here is an idea, to steal from their idea I guess. What if we kickstarted a
campaign to raise $50-100M to buy off random people's debts this same way they
did? Target areas where people are hardest hit financially, softening the
burden in those places a teeny bit?

Could also be used for buying up grossly underwater properties and issuing new
loans to help people? Just a thought.

~~~
insaneirish
Great idea. Why should people have to be held responsible for their actions?

~~~
rurounijones
Damn straight! If someone in the US gets sick or is in an accident[1] they
should suck it up and be responsible for things they cannot control / were not
their fault; even if it bankrupts them.

[1] RollingJubilee pays mainly medical debts.

------
tete
Wow, did you see that chart in their manual (page 32, PDF-wise or page 24
printed):

[http://strikedebt.org/The-Debt-Resistors-Operations-
Manual.p...](http://strikedebt.org/The-Debt-Resistors-Operations-Manual.pdf)

------
malandrew
The biggest problem with this is that they just generating a taxable event and
these people now owe taxes on the "income" they received from being pardoned.

~~~
saraid216
AFAIK, their lawyers checked to make sure this wouldn't happen beforehand.
During the discussion of this when it started, I saw a mention that they had
actually consulted the IRS directly on the matter and were told it would not
do so.

A quick search yielded me these statements:

[http://my.firedoglake.com/phoenix/2012/11/18/will-ows-
rollin...](http://my.firedoglake.com/phoenix/2012/11/18/will-ows-rolling-
jubilee-cause-tax-issues-for-debtors-irs-says-no/)

------
knodi
Where can an individual go to buy debt. I would love to buy some debt and
forgive it for Christmas this year.

~~~
kevin_rubyhouse
[http://rollingjubilee.org/](http://rollingjubilee.org/)

------
mathattack
The unintended consequence of this activity is that if people start
negotiating their debt down, the collection firms will pay less for it. As a
result, the least credit-worthy are going to have to pay even more for credit,
or will be less likely to get credit at all.

------
nerfhammer
so can't I take out $36750 in loans, buy the debt for $1000, rinse and repeat?

~~~
gdulli
No, you can't. Can you think of why this wouldn't be possible?

------
brianbreslin
what percentage of personal debt is medical related? That is typically the
clearest case of "life threw them a curve-ball" situations where it was
completely out of their control (usually).

------
kirbyk
Why can't we scale this? Why aren't there nonforprofit's that allow people to
donate and alleviate peoples debt?

------
evan_
I wonder how long until we find out that this is actually being operated by
the very banks that own the debt.

------
bdcravens
I wonder what the legality of a consumer debt collective would be.

------
jlgreco
There's a joke about bailouts in here somewhere.

~~~
MrZongle2
Unfortunately, the bailout joke is on us.

