The People's Bailout
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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...
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.
What the OP is offering seems to be a nice alternative.
Student loans is a good cause though, indeed it is very hard to get rid of. But since they carry government guarantees (unless it's a private ones) - why would one be willing to sell it for cents on a dollar instead of just getting the money back from the state?
A BK is a unique event from other delinquent accounts on one's credit report that carries extra weight. As do foreclosure and repo.
There's also the notion of rent - people who've always had good credit don't really know how different renting is like for people who have bad credit. I came to this country a few years ago with zero US credit rating, and even with a high salary, offer letters, etc, had one hell of a time finding a place to live. Many landlords simply will not consider you, while others charge exorbitant deposits to cover the risk.
The recently bankrupt are also the least able to afford a security deposit several times higher than what everyone else pays.
The reality of credit in the US is that your life gets exponentially harder as your credit worsens, and the difficulty in turning that ship around increases dramatically. People who've never had to suffer from bad/no credit really need to examine this before clucking judgmentally.
I guess maybe in the Silicon Valley everybody is used to immigrants so nobody is surprised when the person with no credit shows up, especially if they have the actual money. If you have no money that's different, but then the primary problem is not credit.
If a person with no credit history in the USA (like a naturalized alien) is added as an authorized user to an existing credit account the credit history of this account is 'cloned' to the new addition.
I see your point that a useful thing can be abused.
Some people still have land line phones and don't know how to fire bill collectors.
A BK also costs several hundreds of dollars now.
I think there is a psychological block for a lot of people too. It takes a certain point-of-view and education to be able to enter into lending arrangements with creditors with the perspective: "I believe I am going to make a profit and we will both win. But there is a chance I will not be able to. The lender is self-consciously taking a risk, which they are being compensated for via interest (same basic principle with an investor). If things go badly and I need to declare bankruptcy, then well, yes, it sucks. But I have done nothing morally wrong."
Fun fact: Henry Ford, Abraham Lincoln, and Walt Disney declared bankruptcy.
If that's not what you are getting at, I don't get your comment? Unless we are talking of a foolish lender?
Edit: Durr. Just got it. You are talking about the return the lender receives, the reason he lends instead of consumes. Yes, part of interest is risk compensation.
>Now, after many consultations with attorneys, the IRS, and our moles in the debt-brokerage world...
I'm guessing they know what they're doing.
A bank will make a loan, after 120 (or 180) days of no payment the loan becomes "charged off", this means it's now tax-exempt
The purpose of making such a declaration is to give the
bank a tax exemption on the debt
A debt buyer is a company [..] that purchases delinquent
or charged-off debts from a creditor for a fraction of
the face value of the debt.
Depending on the age and history of the debt, a buyer
typically pays between 3 and 16 percent of the face
value of the debt.
quotes taken from:
http://en.wikipedia.org/wiki/Debt_buyer http://en.wikipedia.org/wiki/Charge-off
The debt collector's tax basis is the price they paid for the debt. If they fail to collect the debt, there is a net loss equal to what they paid for the debt. This tax loss can be set against other debts that are recovered (profits).
If the full face value of the debt is recovered, the debt collector owes tax on the difference between their basis (what they paid for the debt) and the amount collected from the debtor. Of course, this profit is set against the losses on the remainder of the debt portfolio, so the net tax owed is the cumulative debts collected above the basis, less the loss on uncollected debt.
Full value and take an income loss on not collecting all of it.
Income of what amount you DO collect.
So in a sense occupy will have a tax shelter on their hands :-)
1. The executive branch has broad discretion about bringing people to the judiciary branch for sanction. For example, district attorneys do not prosecute every case brought to them.
2. Occupy has excellent legal council. At the local, state, and federal level the few (none?) of the cases that have been brought to court have resulted in a conviction. I cite the victory record as proof of their skill and occupy's integrity, not of a lust for litigation.
Don't hate the players, hate the game.
The IRS has pretty wide latitude in these kinds of cases - I think the tax code is the only area of law where the government pretty much wins unless you prove your innocence.
When the shit hits the fan, suddenly there's nothing under that tablecloth...
And now that OWS has announced they're buying up debt and forgiving it, the IRS is going to have a pretty good idea what's going on...
whom did you talk to at the IRS - what's their seniority and pay grade and did they reply in writing?
This is not our first rodeo.
Or OWS would buy from person A and, by some weird tax provision, doesn't have to pay agency A the entire amount?
Or...how does this actually work?
Yeah, I know nothing about money.
Each time I say "fruitlessly" read "They autodialed them between 2 and 5 times per week plus sent biweekly dunning letters."
For your added edification, while MegaBank, Agency X, and Agency Y all have no interest in the debt after it is sold to Z, many of them have very terrible recordkeeping practices, so it is entirely possible that e.g. Agency X will attempt to collect on the debt even after selling it, and potentially even after it is cancelled by OWS. Person A may not notice that this has happened, because Person A is likely a) delinquent on more than a dozen similar debts and b) Person A very likely has a very different level of personal responsibility as compared to many people in your reference set.
Now I'm wondering what kind of business model Agency Y and Z operate on
So in that subset of cases no one even legally owns the debt, (but the banks still tried to assert control. IIRC the judicial system didn't take too kindly to their assertion)
It could alternatively be characterized as a gift, in which case it is not income to the recipient (but could incur gift taxes to the "gifter").
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.
No. If it is treated as a gift--gifts under a certain size do not need to be declared. If it is not treated as a gift, only a creditor that is a financial institution is required to file a Form 1099-C. loan. 1099-C is only required for financial institutions or entities engaged in the business of lending money. http://www.irs.gov/pub/irs-pdf/i1099ac.pdf. Moreover, the IRS does exercise discretion over pursuing cases--as the OP has already indicated, they have provided their blessing to these transactions and it is unlikely that any negative tax consequences will accrue (especially in this political environment).
(CPA in Texas)
Alternatively, OWS would purchase the loan itself and then forgive the loan. OWS is a non-profit entity, so there would not appear to be any tax issues arising from this (or at least, if there are, the IRS has already indicated that such issues will ignored).
If this doesn't happen then the government loses revenue and it also opens up the possibility of people using loan forgiveness to dodge taxes.
Well, yes. And the IRS will certainly pursue cases where it is clear that loan forgiveness is used to dodge taxes. But that is not what is happening here. OWS is purchasing loans to help people get out from crushing insolvency. The alternative is the debtor's declaring bankruptcy, in which case no one--not the government, nor the private creditors--gets anything. Note also that OWS is a non-profit entity, so issues of tax revenue loss are generally irrelevant.
Rule of law. Who needs that old thing anyway?
You have to admit that the upside of this is greater than the downside. Lets focus on that.
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).
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.
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.
edit: I recall that debt forgiveness to consumers was considered a better form of stimulus - economically speaking.
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".
That's why we have bankruptcy laws.
From what I heard at the time, the big hobby horse for the OWS people was student debt, which can't be forgiven in bankruptcy. And that kind of debt is entirely optional.
That's why we have bankruptcy laws.
It was widely claimed by advocates of BAPCPA that its
passage would reduce losses to creditors such as credit
card companies, and that those creditors would then pass
on the savings to other borrowers in the form of lower
interest rates. These claims turned out to be false.
After BAPCPA passed, although credit card company
losses decreased, prices charged to customers
increased, and credit card company profits soared.
And that kind of debt is entirely optional.
That's a self-refuting argument. If your degree was really the ticket to a "vibrant middle class" job you'd be able to pay off your student debt.
The reality is not all degrees are created equal, and people should think a little bit before they go $200k into debt for a degree that's going lead to a $40k job. Granted, 18 year olds aren't very good at this kind of reasoning, but that's what parents are for.
On top of that, for a lot of fields a degree from a public university is just as good as one from an Ivy. Nobody is entitled to a pricy private college education. Either you go on family money or you think very carefully about how those loans are going to get repaid.
That's a self-refuting argument. If your degree was really the ticket to a "vibrant middle class" job you'd be able to pay off your student debt.
You just failed at basic logic.
Saying that jobs of type X require a degree IS NOT saying that getting a degree guarantees that you will get a job of type X. As an example, a law degree is required to become a lawyer. But only something like 70% of people graduating with law degrees will pass the bar, and be put on a track to a job where they can reasonably expect to pay back their debts.
I also see that you are happy to blame the victim. Yet many victims are not to blame. Let me take a real example, my wife. She got an MD. She went into residency. She got injured, had to take time off then leave residency. She is in another residency now. She still does not make enough to contribute towards her debts, I've been doing it instead.
She did nothing wrong. Yes, the degree was expensive, but an MD is generally a worthwhile investment. Yes, she got injured. But that was not her fault. There are no guarantees in life. Bad luck will happen to a certain fraction of people. It happened to her.
Now you have a lot to say about planning. Well back when she took on that debt, bankruptcy could discharge it. It was not until after she had the MD that the rules changed on her. Thanks to me, she's not in trouble. But when she took on the debt, the bank agreed to one set of risks, and then Congress changed the terms of the contract out from under her later. In what world is it fair that you sign one thing, and then because the right politicians got bribed, you're bound to a different thing?
No, but he was talking about the majority of jobs. I understand people get unlucky. That's life. But there's a huge disconnect between what the population of college students is paying for degrees and what the job market is paying for labor. This isn't a question of some small percentage of people getting unlucky. It's a fundamental overestimation of the value of what they're buying.
>I also see that you are happy to blame the victim.
People who make dumb decisions are not victims. Like I said, not everyone is in that position because they made a dumb decision. But most of them are.
You're making the exact same logic error, but this time talking about majorities, so in addition to failing at logic you're failing at statistics.
Let me point you again at the law student example. All jobs as a lawyer require law school. About 70% of people who get law degrees will successfully pass the bar, and get a high paying job they otherwise couldn't and be able to pay their debts. About 30% will fail to pass a bar, and be put on that track, with the result that their best available jobs are much lower paying and they are hosed.
Did that 30% make a bad decision to go to law school? If so, then so did a lot of the other 70%, because it is not obvious going in who will and won't succeed. Most of the time, law school is a good choice. Some of the time it is a terrible choice.
Complicating the issue even farther, very few people going into law school are aware of how high the odds are of getting into serious debt problems. Until recently there was little public awareness of it, and marketing materials from law schools certainly make no mention of the issue.
(I'm pulling up this particular example because unsuccessful law graduates make up a high portion of seriously distressed student debt, and there have been lawsuits about false advertising around this issue.)
One of us is being stupid, but I don't think it's me.
The assertion is college is necessary for a middle class lifestyle. What I'm saying is 1) it's not and 2) when you add up lost opportunity costs, direct costs, and interest on student debt many people (maybe even most) are losing money by going to college. Now, that's their choice, but I don't want to be on the hook for someone else's personal enrichment.
>Did that 30% make a bad decision to go to law school?
Yes. Anyone who goes to law school right now is an idiot, unless that law school is Harvard or Yale. The 70% in your example are either lucky or have been shunted into jobs that don't require a law degree or they're working as lawyers and making less than they would have made teaching Social Studies to the local second graders. The number of newly minted lawyers far, far exceeds the number of jobs for newly minted lawyers.
The exception, of course, being people who got in to the very, very top schools.
You also have proven unable to parse English.
The assertion is college is necessary for a middle class lifestyle.
Your continued inability to parse English is getting old. Here, for the record, is the original assertion.
Not when the majority of jobs that create a vibrant middle class in the post-industrial United States require at least a college degree.
Now why do I say that you failed to parse this correctly? Because "majority" does not mean "all". So the majority these jobs could require a college degree but there could still be lots of them that don't require a college degree.
Going back to what you wrote...
Yes. Anyone who goes to law school right now is an idiot, unless that law school is Harvard or Yale. The 70% in your example are either lucky or have been shunted into jobs that don't require a law degree or they're working as lawyers and making less than they would have made teaching Social Studies to the local second graders. The number of newly minted lawyers far, far exceeds the number of jobs for newly minted lawyers.
Can you cite a source?
According to what I can find now, until 2009, law school had a fairly stable economic outlook. Then the bottom dropped out. Median starting income for newly graduated lawyers has dropped 35% since then. (See http://www.nalp.org/classof2011_salpressrel for a source.)
However stop and think for a second. Law school takes 3 years. People graduating this year into the dismal market entered in 2009, with decades of history of law being a good economic choice. The lifetime income for someone with a law degree averaged DOUBLE the lifetime income for someone with a bachelor's degree. In retrospect, the law degree was likely a mistake. But when they committed to it, based on the data that then existed, it looked like a good choice.
So, were all of the people who are walking around with useless newly minted law degrees demonstrating poor decision making abilities when they chose to do that? I don't really think so. They didn't spot the oncoming macro-economic train, but these things tend to be much clearer in hindsight than in advance. (I knew about the oncoming problem, but only because my brother was selling stuff to lawyers, and he told me how the financial crisis was impacting law firms.)
http://www.motherjones.com/politics/2011/09/gi-bill-for-prof...
"Last winter, the Department of Veterans Affairs tasked its newly hired blogger, a cantankerous Iraq vet named Alex Horton, with investigating the website GIBill.com, one of many official-looking links that come up when you Google terms like "GI Bill schools." With names like ArmedForcesEDU.com and UseYourGIBill.us, these sites purport to inform military veterans how to best use their education benefits. In reality, Horton found, they're run by marketing firms hired by for-profit colleges to extol the virtues of high-priced online or evening courses. He concluded that GIBill.com "serves little purpose other than to funnel student veterans and convince them their options for education are limited to their advertisers."
http://www.motherjones.com/media/2012/08/explosive-growth-pr...
"The for-profit higher education industry was the target of a bruising report issued last week. Based on a two-year effort, the report detailed high rates of loan default, aggressive recruiting, higher than average tuition, low retention rates, and little job placement assistance. It was spearheaded by Sen. Tom Harkin, D-Iowa, a longtime critic of the industry. (ProPublica has written a number of pieces looking more closely at the explosive growth sector, including questionable recruiting and marketing.)"
And finally -
http://www.motherjones.com/politics/2009/11/university-phoen...
"After federal regulators accused the University of Phoenix of systematic enrollment abuses in 2004, the school's parent company paid out nearly $10 million to resolve the allegations.
Phoenix allegedly had broken the law by tying recruiters' pay to enrollment numbers, U.S. Department of Education investigators found, creating pressure to sign up unqualified students.
In the years since, Phoenix cemented its stature as the nation's largest for-profit school and the single biggest recipient of federal student aid. But some of the school's recruiters have continued to use high-pressure, deceptive tactics, according to a dozen current and former students and two former recruiters who spoke to ProPublica and Marketplace as part of a joint investigation."
The difference is nobody goes into $200k debt studying at the University of Phoenix, whereas people who go to lower tier Ivies on student loans and get less marketable degrees have literally sold themselves into debt slavery.
And talking about parents isn't helpful. Parents are the ones watching the State of the Union address where the President talks about higher education and competing with China and then go out in the town and talk to the other parents about where their children are going to college and what their children are doing with their degrees. Thinking that only 18-year-olds can be fooled into saddling themselves with excessive debt is nonsense.
Yes.
>And those people who sold themselves into debt slavery, by going to an extremely good school, may actually still hold jobs that will allow them to repay their loans eventually.
Well then, there's no problem, is there?
>Thinking that only 18-year-olds can be fooled into saddling themselves with excessive debt is nonsense.
At some point people have to think for themselves.
It is a dangerous assumption to think it is the place for a parent to judge if their children should incur the equivalent of half a decades debt when they themselves may have no comprehension of the value of a degree their kid is thinking of.
At some point people have to be treated as adults. If your parents aren't up to advising you on financial matters you have to get outside help. Or you figure it out yourself.
I refuse to accept the notion we should alter agreements freely entered into by adults in an effort to protect them from themselves.
I agree you should not alter open agreements, but those agreements are already biased by federal dollars in the form of guaranteed stafford loans. We need to get rid of federal loan and grant guarantees that are not merit based limited funding that happens after acceptance (so that schools can't focus target anyone getting a federal scholarship).
Imagine if you went to the local car dealer and he told you "Every car on the lot is $200k. But give me a detailed listing of your assets and income and I'll adjust the price such that you can barely afford to buy one if you take out as much financing as possible."
That kind of price discrimination is illegal for your local car dealer, but it's exactly what happens when your kid goes off to college. Not only that, colleges collude so that you can't play one college off against another.
Of course what they say is they're just making sure they have a "diverse" student body by cutting the less well off students a deal. But the net effect is the college takes in the maximum amount of money in tuition.
It's the biggest driver of ever-rising tuition, and were I in Congress I'd go on the freakin' warpath against this industry.
It's like saying "stock market returns 8% annually long term, so I'll put all my life saving into Shady Gadgets Inc. that was touted to me by some guy I don't know on the phone". That's not how rational investment is made.
This. It's not at all clear people make more money as a result of college or if people who are generally more likely to make more money are also more likely to go to college. There are certainly some very famously high earning college dropouts.
Now obviously the theater industry is very competitive, especially in NYC. So while trying to do various theatrical activities to get her foot in the door, she's a dog walker. She doesn't make much money, so she's qualifying for assistance.
She could move back home, get a job in a different field (her dad has lined up several paying jobs), but she wants to stay in NYC. She's unable to make any payments on her loans, so those are going to build up quickly.
This is what drives fiscal conservatives crazy. And when groups are asking for student loan debt forgiveness/bailout, it's doubly frustrating. She's making multiple choices that are fiscally imprudent, and expecting to be subsidized both in assistance and loan forgiveness.
TLDR, basketweaving degrees aren't worth going into debt for, but an entitled generation wants to "pursue their dreams" on someone else's dime.
Now, they're thinking, "What the fuck?" and society is acting like it didn't push them headlong into this. By the time they've realized the narrative failed them, it's too late.
I'm obviously just commentating from the outside, but are you sure she is aware of her options in the same way you feel you are? What exactly are the options of someone who is trying to pursue her dreams? Do you step in and crush them, telling her it's time to give up and get practical? She'll be bombarded with anecdotes from the narrative that tell her to never give up. It's all-consuming. That's what cultural narratives do.
The narrative tells people to become self-actualized. The economic realities of a capitalist marketplace don't really have much room for that. The narrative has placed her in the disheartening place of having followed it and wound up unable to realize her dreams. That can be a very difficult place to move on from.
She seems disheartened by her lack of success in the last five years, but I know from personal experience that it's hard to change direction without a huge outside catalyst.
I don't think it's necessarily wrong to encourage people to follow their dreams, but I think that society in general and parents specifically should do a better job of raising kids with the ability to critically evaluate themselves. Parents are often blind to the flaws of their children (at least I am), and the business world loves to encourage the idea of following your dreams. Expecting teenagers to have this self-awareness isn't realistic though; some do, but the majority need to skin their knees a bit. Parents need to help with this.
It's a tough nut to crack; we glamorize sports and celebrity when the chances of succeeding in those arenas are miniscule. We celebrate working with our minds and denigrate those who work with their hands.
Even today only 40% of the population gets a college degree. That other 60% is doing something to make ends meet.
Student debt has risen in tandem with the codification of the narrative. An entire industry of loan operations has exploited the inexperienced eighteen-year-olds of the last few decades, saddling them with lifelong debt in the pursuit of the supposed "dream" the American narrative has been selling them their whole lives.
Suffice to say, when one talks about options available to people, one should talk deeply of the real viability and potentiality of those options on a person and his/her life, and refrain from rattling off platitudes of the things someone could do other than follow the narrative. Those things typically aren't qualitatively better, and usually wind up being part of the greater narrative as how we ease our consciences and wash our hands of people we allow to systemically fail.
You know who I envy? The electrician who came out last week to install a whole home surge protector. He makes excellent money, in a relatively safe work environment, and has reasonable hours. There's a whole world of "skilled" trades that offer gainful employment without a four year degree, but as a society focused on bling, we don't give those careers our blessings.
Exactly this.
Not only that, nobody's going to send his job to China.
I had an appendectomy when I was in college and I had insurance and I still received a bill for something like $8000 after the insurance paid out. I managed to have half of that removed due to my very low income, and I luckily was able to pay the rest of it, but this was literally the simplest possible ER visit and surgery you can have and I was lucky to have savings to cover it. If anything worse had happened to me (say, if I got hit by a car) then I could easily have ended up with more than $10k in debt after insurance and after the follow up negotiations with the hospital.
Some insurance would certainly have covered this better, but I had the more expensive of the 2 choices insurance plans that were offered to students at my school. Anyone who is buying their own insurance if it's not provided by their employer isn't going to do much better.
The world is complicated and now more than ever everything is interdependent.
you are very much to blame if you take risks and choose
not to pay for insurance, regardless how expensive it is.
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.
The common public loves to simplify problems, as it makes things easier to comprehend. I think this leads us to this huge partisan gaps in beliefs in this country. Both sides are guilty of boiling down complex problems to a level where people think they "understand" the problem. Unfortunately, there are many more actors, causes, and effect behind the scenes that must be accounted for. It's not a simple cause and effect, Doctors must get paid, argument.
If this group would focus on debt incurred from medical cases then I would be all for it. I want something where I feel good contributing, there are far too many dead beats out there who have hands out but never have a helping hand out for others.
No matter the moral judgment ("he shouldn't be driving without insurance"), the underlying point was that random debt does happen :).
Take a look at your local newspapers mugshot section. Ours publishes them online, and when bored, it's a fun diversion. The majority of the arrests are for DUI, or driving on a suspended license from a prior DUI. A great cross section of people who don't even care about their impact upon others.
EDIT: Here's a link for people who think that anything coming from Fox should be dismissed out of hand immediately:
http://security-today.com/Blogs/REACTION/2012/11/Woman-Sente...
Edit on your edit: Selecting a single extraordinary instance to support your case isn't helping your case. This is no different from someone looking at the idiotic things on Fox News' prime time shows and saying they represent all conservatives.
I know many decent conservatives who think Fox News is for idiots, just as I know many poor people who are completely responsible and still struggle.
[1] http://usatoday30.usatoday.com/news/nation/story/2011-09-11/...
Debt isn't some random accident like getting hit by a car
while crossing the street.
OWS, to me, represents an entitled generation.
- This entitlement thing. I don't see what's entitled about giving one's own time or money to a cause you believe in, to go camp out for weeks or whatever. It seems like a lot of criticism of OWS centers on them acting like they deserve to be given jobs, but I have trouble taking this seriously when the same pundits complain about slow growth in their stocks/financials due to decreased consumer spending and unemployment, and want to know what the government's going to do about it.
- Civil liberties and free speech are supposed to be the cornerstone of American democracy and yada yada, but people suddenly feel extremely threatened when people want to exercise them. Who cares, let the hippies have their say and their signs. Why let it bother you?
- Loan forgiveness, bank bailouts. This is the one that really annoys me because criticisms of OWS on this front tend to be so inconsistent. If a student gets over their head in debt trying to earn a degree, we shouldn't think of helping her out because that's a terrible case of moral hazard, and we'll only encourage that sort of risk-taking behavior. But if bank executives commit fraud and bet against their customers, then get multi-billion bailouts for their companies and multi-million severance checks for themselves, well, you know how business is, these things just happen, there's no help for it.
Anyway sorry for the rant, but I just think if you disagree with what OWS proposes, you should make an argument against it (or even better, just ignore it) rather than resorting to personal attacks or condescending catchphrases like "entitlement".
Notice the government doesn't get their panties in a bunch over the Westboro church, or Tea Party townhalls, but turn your attention towards the plutocrats and suddenly there's riot police in the street. The fact that the government feels threatened lends credence to their critique.
Also keep in mind that the Tea Partiers were carrying around assault rifles.
Yeah I'm not buying it.
But in the case of the Mortgage Market prior to the crash I can't - simply because it wasn't an equal/level playing field.
In brief
1) CDOs => Mortgage Origniators no longer held back by their risk levels. CDOs can just offset it.
2) MOs incentives are now drastically different - Incentive now entirely to generate as many mortgages as possible, whatever the risk profile.
3) With no incentive to care who was signing, as long as they signed - MOs sold to people they knew were incapable of understanding the terms, nor ever meet the conditions, creating things like NINJA mortgages/loans.
The MOs held the information advantage, and then abused it (look at the marketing material of the time) while now including people that they KNEW were out of their depth.
It was like stealing candy from a baby.
Edit: Formatting, point placement and flow
Heck de facto end/death of Glass Steagal was when Citi went ahead and merged with Travelers, even when they knew it would precipitate in a court case and most likely an end to the regulation
I get the feeling that there is disruption possible in this industry but I don't know enough about it to speculate how it could be disrupted.
So the mob will start buying debt from targeted individuals and have a "chat".
Short answer: various methods of systematic trickery and financial booby-trapping perpetrated by, you guessed it, the 1%.
One of the reasons OWS isn't more popular is that 99% of the 99% understands that the vast majority of personal debt was and is incurred by regular people living beyond their means, and not by nefarious schemes by nefarious monocle-wearing capitalists. Unsympathetic as it might be, they merely provided the rope.
http://www.washingtonpost.com/wp-srv/politics/documents/amer...
62% of all bankruptcies in the US have a direct medical cause, a sharp rise from only 8% in 1980.
"Vast majority" of debt incurred by lavish living indeed!
It must be a surreal world for you, one where it's okay to heap blame upon tens of millions of Americans without seeing one single shred of evidence against them.
$1 trillion of student debt. 64% of all bankruptcies caused by medical debt. 5 million homes foreclosed already, another 5 million in default or foreclosure. Credit card debt is $800 billion, generating an average 16.24% interest on money banks borrow at 3.25%.
First, they seem to fail to understand that the reason credit card debt is marked up from bank debt is that there's a fairly significant risk it's not getting paid back. Later on the same page, they state that 10% is written off as irrecoverable.
Second, "Vast majority" might have been artistic license, and I meant to refer to distressed debt - plenty of people use credit for completely reasonable things and service those loans, or have them restructured in good faith. Student debt is also mostly in that category. In other words, those loans will never be available for OWS to purchase for cents on the dollar.
That said, I'm not at all sure bankruptcies are a meaningful proxy for what kinds of debts are outstanding. Certainly, loans bankrupted on aren't included in this project, as they will already have been "forgiven". I couldn't find a good source (indeed, any source), but I would be very surprised if various bits of consumer credit (credit cards, car loans, store credit etc) aren't a very major chunk of the debt available for OWS to buy.
If OWS singled out medical debt and perhaps even some student loans, or made some other effort to review them to make sure they fit a moral prerequisite for having been screwed by "the 1%", I'd be sympathetic to the project. Instead, they are paying off random strangers credit card bill, while honest people who pay off their credit cards, even when it hurts, are passed over.
And I say this as someone with no debt whatsoever and a reasonable income each month that I live within. You are talking nonsense.
No, but distressed debt can be.
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.
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.
Division of labor is a beautiful thing, but the division of moral culpability, not so much.
To be able to rack up significant debt, one much have great credit for several years in a row so that your line of credit can be expanded upon year after year. I reckon it takes 3-7 years to be able to get to a credit line of $30k because you choose to default. In that time, the creditor is likely to make a bunch of money on that assuming you maintain rolling debt because of interest in the interim. Only in the case where you keep upping your credit line, but don't use any of the money until you plan on sucking it dry to you maximize the take on a scheme like this. Even then you get at most $30k and then have to wait another 10-12 years to be able to try that scheme again.
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.
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.
So theoretically, I can travel backwards in debt... Profit!
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?
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.
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.
The security is structured in such a way that only the p2p company has the right to collect on the debt should the debtor default.
We are not forgiving debts, we are abolishing them.
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.
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'.
Seems like the only people being bailed out are debt speculators. Doesn't sound like a worthy cause to me.
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'.
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
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.
I've managed to avoid paying the debt collectors for whatever reason, and I have this low value debt out there. It's par value might be $10k, but it's sold to Rolling Jubilee for $500. Rolling Jubilee discharges this debt.
In practical terms, my credit is already shot. I wasn't able to pay off this debt anyways, so it's not as if I have more money in my pocket. Sure I might be able to rebuild my credit a bit faster depending on how Rolling Jubilee reports the handling of this debt etc etc. Maybe not. Even if it persists on my credit score, rebuilding credit isn't as hard once you get a decent steady job. If I don't have that, I have no business getting more credit, no?
The old rules that you say no one wants to play by are still there at the end of the day.
Oh, and "hey can count on their fellow citizens to help them out when they are down on their luck" doesn't seem to be the very definition of social capital from your link.
Lets say 700 people go this event because the capacity of the venue is a maximum of 700. Let's also say they all donated $50 bucks. Let's be real, most people will only pay $25 each because they're they're psuedo-anarchostic punks who just want to see the bands they love for as cheap as they can. But hey, maybe a few people felt the need to go big on this one. So, let's say 700 people donated an average of $50 each.
That's $35,000 raised from the event and if no artists get paid, if the venue doesn't take a chunk, if the promoter doesn't take a chunk, if the flyers were printed for free, if security doesn't get paid, etc. then that's $35,000 that can be used to buy $700,000 in purchased debt. It's worth noting that in the real world, even Non-Profits have to pay to use a venue, security, promoters, etc. Something with a capacity of 700 in NYC is probably a few thousand at least, based on prices over here on the west coast in LA and San Diego. But hey... let's just be generous since thats the spirit of the whole thing anyway. Let's say they get all $35,000 without a single expense. Not even a penny.
Now lets look at some normal unpaid debt that this will probably go to. The average public college student pays $30,000 over 4 years, so lets say a few kids racked up $30,000 in debt each. Usually college kids also take out loans for textbooks, sneak in a little for groceries & supplies, but again... Let's do the super generous thing and say it's only $30,000 and not a penny more. Keep in mind we're not even counting interest! That's super generous!
$700,000 in purchased debt, at $30,000 for 4 years of school = 23 kids get a free ride. That's really cool. Really awesome. YAY! But wait... they graduated 5 years ago and they dont get to see this money. Since it's being paid for by buying the debt, this means they werent making payments anyway... SO it didnt even benifit them at all. The only thing it did was modify their credit score and give the lending industry $35,000 they didnt have before.
I thought this was supposed to be about putting the man on his ear and teaching him a lesson? Hmmmmm. Reality is calling.
Not only did we not help 23 kids but we also forgot about interest, late fees, attorney fees and all the other other debt this $700,000 would have accumulated over the 5 years of not being paid. You're probably looking at more like... $1.4 million when all is said and done. If you've ever been in collections that long, you know the amount can EASILY double. So really, even with a free venue, and no textbooks or supplies... You really only saved about 12 or 13 kids from paying a debt they weren't paying already in the first place.
12 kids, 23 kids... either way it's $700,000 in debt that the lenders still collected $35,000 on. Do you know how much debt there is owed to lenders and collection agencies?? Do you seriously think even something as attractive sounding as $700,00 will teach the lending industry anything? Keep in mind... You didn't give them $700,000. You gave them $35,000.
Let's look at real numbers here. In just credit card debt alone, and this is based off 'average' numbers, there's at least $1.4 trillion dollars owed just in credit card debt right now that is unpaid. And that is just in credit card debt alone. It's well known that there's $1 Trillion dollars unpaid in student loans right now.
Lets say you paid a ton of credit card bills because that would help more people since the amount is less, per case. You know how much the credit card companies still are looking to collect? $1,369,199,300,000. Yup, that number is still in the trillions. Man this is really hard to put in a positive light.
Hmmm, ok I give up. Now, back in 'real life' land, we forgot all about business loans, house loans, construction loans, medical bills, school loans, the interest, the late fees, the attorney fees... and so on. I'm sure that number is in the tens of trillions of dollars at least. And you think you're going to put an industry on its ear by putting on a concert that will max out at 700 and by giving them $35,000? Even if you did a national tour for every day of the year with no expenses, you wouldn't even break the billion mark in PURCHASED debt. You would have only given them $12.7 million in actual cash... after 365 events... with no expenses whatsoever.... that people paid $50 to get into.
You're talking about playing with $35,000 in monopoly money like it's going to make a difference. You are so sadly mistaken. This is the same misdirected anger I see all over OWS. There's good ideas, that sound great at first, but when you do the Math.. it doesnt add up. All I can say is please stop wasting your time and go back to the drawing board. $35,000 of imaginary money could do so much better. $35,000 could go to helping real people right now, today, that need it. $35,000 doesnt need to be spent paying 20 kids school loans that they were never going to pay anyway. People in our country need real life food, real life shelter, real life water and real life clothes while thinking of donating all that money to the same industry youre tring to make play by new rules. It's so irresponsible and wrong that it's almost offensive.
That's exactly what Occupy Sandy provided, in some cases better than the Red Cross or FEMA could: http://interoccupy.net/occupysandy/
This is an action by Strike Debt. OWS didn't go away, it's evolved into these different platforms.
Forgiving the debt is not meaningless: it's a big chunk of money you don't have to pay off. Granted, it's better to work with the creditor and get them to settle for a smaller amount, but a $15k debt removed from your record is not likely to cause you $15k of increased expenses over 7 years.
The original debt holder could erase that statement, but they have absolutely no incentive to, since they took a 97% loss on your debt.
A single late payment like that will probably drop your FICO score 150-200 points.
I walked away from my primary residence because it lost over $100K in value. My credit score only dropped from ~705 to 655 (per Creditkarma.com). Also, only one of my creditors lowered my credit limit (Citibank). American Express didn't even blink, and I've got a Platinum card with them with a $75K+ limit. To date, I've missed over 22 payments on my mortgage, and my credit score still remains fairly usable (I may complete a short sale, or may let it forclose. Depends on how amiable the noteholder is to both scenarios).
You've been lied to. The risks of walking away from most debt is highly overrated.
Most of the major credit bureaus require that you own the debt of 5,000 or more people before they will accept payment history records and/or delete requests from the debt owner. That's the only restriction.
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.
~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.
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.
This isn't LN, it's HN. Where both the methods and the motives can be discussed. My opinion is that OWS is aiming more for a political statement with this program as opposed to helping people. They may believe that this political statement will do more to help people than just acting as a charity; I'm not ascribing cynical motives in any way.
I'm also not advocating that a charity charge in any way. For example, when I had cancer, my church, without any prompting gave me a cash payment to help with my bills. I had been fired two days before Christmas, and unable to work during my surgical recovery and post-op chemo. It was immensely welcome, though as many are, I was intensely embarrassed to need the $$.
For a hobby, I kept all my bills and tallied up the cost I'd be responsible had I not been covered by my wife's group policy. I stopped after it hit the $600K mark. So I know first hand how staggering my debt would have been.
But I could have discharged all that medical debt in bankruptcy. But that wouldn't have put fed my daughters, nor helped keep a roof over my head. That check from my church did. I know the fine line between being privileged and being out of work and afraid of dying. The old straw about the difference between middle class and poor being one paycheck is really one malignant cell.
So be careful when you start calling people privileged or sexist, or racist. And when you start to decide whether a question is "legitimate" or not.
Once again - my post was written poorly, please separate the two halves, the latter of which was not in any way intended to be aimed at you.
Specifically regarding your medical history - the difference between a universal health care system and charity in this case seems like luck. You were fortunate that in your hour of need someone extended their hand to pull you up - universal health care takes the guesswork out of this. The hand is available to everyone.
I am unconvinced that relying on charities is an acceptable alternative to government assistance in areas such as medicine and poverty. The stakes are far too high for people to receive help via dice roll.
I was very lucky with my medical stuff. My wife has excellent, I mean excellent group insurance. Even with that, I still had a lot of out of pocket/copay expenses; and getting canned sure didn't help since I was the primary breadwinner. Universal healthcare wouldn't have helped me with my lost job however; only something like a short-term disability plan (which I have now) would. So I think there's a place and need for charity and non-governmental aid. The US is population is pretty generous, but it's hard to know where to ask for help, and if you can count on it when needed.
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.
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.
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?
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.
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.
Until everyone starts doing this and the whole system collapses, at least. That money isn't coming from thin air.
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 !
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?
I guess that wouldn't be legal, though?
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?
Is that a joke or are they actually making a return on the investment?
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.
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?
In the end creditors want to get rid of risk, so if someone isn't paying the loan, getting 1/30th of that money is better than 0.
I don't see how this could create a competitive (and thus drive prices up) situation.
(If you loan money to someone, and they don't pay you back, with this program there's a tiny chance that OWS will, lowering your risk. Curious to see OWS bailing out bankers as well as debtors.)