The Problem with (Strike) Debt

Rolling Jubilee (RJ) has certainly gotten a lot of attention in the few days since it was launched. An initiative of Strike Debt!, an offshoot of Occupy Wall Street, the Jubilee describes itself as

a . . . project that buys debt for pennies on the dollar, but instead of collecting it, abolishes it. Together we can liberate debtors at random through a campaign of mutual support, good will, and collective refusal. Debt resistance is just the beginning. Join us as we imagine and create a new world based on the common good, not Wall Street profits.

Anything that attracts attention to the burden of debt and the potential of liberation from it is admirable. But it will not surprise regular readers to learn that I’ve got some serious reservations about the project.

A few words first on the mechanics. Banks and other creditors typically try really hard to collect delinquent debts, but when they give up all hope, they write them off and typically sell the claims for pennies on the dollar to collection agencies and other financial vultures. The new holders are often relentless and ugly in their pursuit of debtors in default. If they bought the bad debt for two cents on the dollar, they’re happy to get five — they’ve more than doubled the money, though they do have to pay the call centers that do the ugly work of harassment. The tools of the trade are relentless threatening phone calls. Many of these techniques are technically illegal, but the law rarely stops a collection agency. According to Strike Debt!, about 15% of Americans are being pursued by collection agents, and there’s no reason to doubt their numbers.

Strike Debt!’s strategy is to raise money from generous sympathizers and buy the debt from the collection agents and then just wipe it away. Debtors might not even know what’s happened — they tell me they’re reluctant to track down the debtors they’ve delivered from harassment, and in many cases might not even be able to — but the phone calls will at least stop.

Sounds great, right? And the scheme has gotten some great buzz. Blogger Alex Moore writes that it’s “a great new answer to all the doubters who ripped on them over the past year for not having a specific enough plan.” To Guardian blogger Charles Eisenstein, it’s a “genius move” with “significant transformative potential.” Celebrants, though, are rather vague on the mechanisms by which the transformation will occur.

So far, both Rolling Jubilee and the commentators have been rather light with numbers. As I’m writing this, RJ has raised $137,688. Since they figure they can buy bad debt for about five cents on the dollar, that means they could “abolish” (the evocation of the anti-slavery movement is no accident) $2,758,584 in debt. Though they don’t say, it’s almost certain that the debt they aim to buy is the credit card kind. Student debt, even if delinquent, isn’t sold into the secondary market. Debt backed by things — as auto loans are by vehicles and mortgages by houses — aren’t generally sold that way either, because lenders can seize the underlying assets. Though there are other kinds of unsecured personal loans (those backed by pledges only, and not things), the bulk of them are credit cards, so we’ll do the math on them.

According to the FDIC, there was $664.3 billion credit card debt outstanding in the second quarter of 2012. Of that, $16.5 billion was 30 days or more past due. Banks had charged off $8.5 billion. They’re required by regulators to do that once an account is 180 days past due, but that doesn’t mean the debt is extinguished. Though the bank removes the asset from its balance sheet and takes a (tax-deductible) loss, the debt still exists. The bank can try to collect it on its own, or sell the bad debt to the vultures described above.

Let’s think about that $8.5 billion. The people who owe that money are probably getting threatening communications from the banks or whoever now holds the claims. If RJ could raise $1 million — they’re more than one-eighth of the way there now — they could buy $20 million in debt, or 0.2% of what’s been charged off. To buy all the charged-off debt at five cents on the dollar, they’d need to raise $423 million. But of course if any more than notional amounts of money were put to this task, the price of the debt would rise dramatically. To buy a tenth of it at ten cents on the dollar they’d need $85 million. In other words, given those sums, the monetary angle for RJ is purely symbolic.

What about larger political points? Strike Debt! says its aim is:

to build popular resistance to all forms of debt imposed on us by the banks. Debt keeps us isolated, ashamed, and afraid. We are building a movement to challenge this system while creating alternatives and supporting each other. We want an economy where our debts are to our friends, families, and communities — and not to the 1%.

Totally marvelous. No argument from me about the goal. But why the intense focus on debt and its relief? Debt could be an excellent point of entry into a discussion about many other things. Why so much personal debt? Because wages are stagnant or down, unemployment is high, yet the cost of living continues to rise. Why so much mortgage debt? Because until sometime in 2007, housing inflation (meaning tax-subsidized homeownership) was practically the American national religion. Why so much student debt? Because higher education is too expensive — in fact, it should be free. Etc. But Occupy has inherited a lot of American populism’s obsession with finance as the root of all evil, without connecting it to the rest of the system.

And their call for debt repudiation also seems not to have been fully thought through. The world economy nearly collapsed a few years ago because maybe 10% of debtors were unable to service their debts. If we were to return to something like that, we’d return to the verge of collapse or beyond. And such a collapse wouldn’t hurt just the 1%. Workers’ pensions would be jeopardized. Banks would fail, and millions could lose their savings. Unemployment would rise towards 1932 levels of 25%. If you’re jonesing for systemic collapse in the hope of building something better out of the rubble, then be honest about it. But don’t expect to get much support for the agenda.

A more fruitful approach to lightening the burden of the heavily indebted would be to proselytize on behalf of filing for bankruptcy. Another project of Strike Debt! is their Debt Resistors Operations Manual. Here’s their description of the manual:

You’ll find detailed strategies and resources for dealing with credit card, medical, student, housing and municipal debt. Also included are tactics for navigating the pitfalls of personal bankruptcy, and information to help protect yourself from predatory lenders. Recognizing that individually we can only do so much to resist the system of debt, the manual also introduces ideas for those who have made the decision to take collective action.

There’s a lot of good stuff in there. But the chapter on bankruptcy is larded with unnecessary warnings and complications. I know, because I wrote the original draft and watched it get deformed by group editing. The opening sentence is a fine example: “Bankruptcy, for some people, sometimes, can be a way to fight back against the creditors and escape a life of indebtedness.” No, bankruptcy is much better than that. My original opening read: “Unlike the other chapters in this manual, which are organized around ways the rich screw debtors (and how debtors can get back at them), this one is almost entirely about how debtors can screw the rich — filing for bankruptcy. To get right to the point: if you have a serious problem with credit card debt, there is absolutely no reason you shouldn’t think seriously about doing that.” Much better, I think.

And the chapter concludes by saying that it’s an unsatisfactorily individualist solution to a collective problem — which is true in some sense, but not of much help to millions suffering from credit card debt today. Many people are unaware of what a deliverance a bankruptcy filing can be, and many others are inhibited by shame. They shouldn’t be. And filing for bankruptcy has a lot more to offer than some lightly funded scheme to buy bad debt on the secondary market. Why the Strike Debt! collective chose to tone down my exhortations mystifies me.

I feel somewhat bad writing this critique. There are a lot of fine people trying to do good things with this initiative. But as long as it focuses on debt without using it as a portal to a larger discussion, it’s not going to do much more than generate some publicity.