OWS’s Debt Forgiveness Rolling Jubilee: A New Idea that was a Long Time Coming

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Wipe our Debt (Photo credit: Images_of_Money)

Occupy Wall Street has found a very interesting new cause to pursue, and are rolling it out on November 15th (which happens to be my dad’s 80th birthday. Happy birthday, Daddy!). They are raising money to buy up debt for pennies on the dollar and forgive it. It’s called Rolling Jubilee and there’s a good editorial by Douglas Rushkoff about it on CNN here.

Rushkoff brings up the ‘moral hazard’ issue and deals with it pretty well, simply by equating personal debt forgiveness with the business debt forgiveness that has already been done by government on a massive scale. There’s more to it than that, however.

First, the Occupy’s Rolling Jubilee is entirely privately funded. That means that if you don’t want to participate, you don’t have to. If you find it offensive that people are being forgiven debt that has ballooned to tens or even hundreds of times the original amount borrowed, you can stop reading here and find something you agree with to read.

Here’s another piece. It is illegal to buy up your own debt and forgive yourself, but it is not illegal to buy up debt in aggregate and forgive all of that debt, even if some of it is debt you owe. So this movement stands the very real chance of directly benefiting those who contribute to the cause, should they have debt of their own.

But won’t this operation drive up the cost of buying debt and make it more expensive for those who aren’t lucky enough to be in the lots being forgiven to pay theirs? Nope. At least, not at these levels. Currently, the total raised by Rolling Jubilee

is just under $180,000. We’re not even in ’rounding error’ territory. Unless this movement gets a whole lot bigger, this won’t even make a drop in the puddle… except in the lives of those whose debt suddenly and anonymously is forgiven.

And if people are getting their debts forgiven willy-nilly, isn’t this going to encourage people to take on more debt than they can handle? Again, nope. Most debt that crushes families comes from one of two sources: 1) medical debt and 2) putting regular expenses on a credit card after a reduction in circumstances that the debtor believed to be temporary. Neither of those is the result of people going hog wild at the mall.

Do you know what those people are going to do with the money they were sending to banks and creditors? They’re going to buy clothes for their kids, and better food, and medicines, and occasional dinners at restaurants. They might spend it on cigarettes, booze and a baggie of weed. They might even (horror of horrors) accrue new debt and create a new cycle. In any case, though, whether they spend that money wisely or not, they will be spending it at the end of the economic scale where the multipliers are highest (well, except maybe the weed. Someone with a better knowledge of the underground economy will need to speak up here).

So Occupy’s new idea not only helps those who are hardest hit right now, people whose debts have gotten so underwater that they’re being shopped around on the open market, but it also helps the larger economy. Granted, the effects will be very small, at least at first, but they will be real, and real people will have improved lives as a result.

Cover of Alice’s Restaurant

And here’s the kicker: No one loses. The debt collection companies don’t lose, because they still have plenty of debt to buy. Banks and other lenders don’t lose, because they have already written off the debt and any money at this point is pure windfall.  This is working within the system at its very best. The worst consequence is that the former debtor is charged taxes on the forgiven debt. But you know what? I can live with that. I bet most debtors can, too.

Anyone remember Alice’s Restaurant? If one guy walks in and starts singing, he might just be crazy. If two people walk in and sing just a bar or so, they might both be crazy (or ‘faggots’ as Arlo Guthrie says, with apologies to my gay friends and neighbors). If a lot of guys walk in and sing ‘You can get anything you want at Alice’s Restaurant’ it’s a movement. (It’s below. Feel free to skip the ad.)

Folks, Occupy Wall Street is already a movement. The Rolling Jubilee is promising to be a game changer. I don’t know how this is going to end, but I know I’m sending a bit of money of my own, and watching closely. I suggest you do the same.

ETA: Firedoglake has an excellent discussion of the legal and tax implications here.

  • OWS’ Rolling Jubilee Seeks to Buy and Forgive Debt (news.firedoglake.com)
  • Occupy Wall Street is buying up debt and forgiving it immediately (howtosharpenpencils.tumblr.com)
  • Occupy, this time for the people’s debt (cnn.com)
  • The deliciousness of Rolling Jubilee (blogs.reuters.com)
  • To Forgive Is Divine (Then Comes the Tax Bill) (businessweek.com)
  • These Guys Want to Buy Up Your Debt and Set You Free (motherjones.com)
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Maureen O'Danu

Maureen O'Danu is the webmistress of Am I the Only One Dancing? where there is a new discussion every day on any one of dozens of topics and ideas, as well as reviews, geekery, family, fun, and enough politics to season the pot.
  • Bill Gawne

    Thanks for passing the word. I sent these good folks some money. It’s a good thing they’re doing.

  • The tax issue is not a minor issue. If Bob owes General Memorial Hospital $100,000 because he lost his job, had no health insurance, and got sick, that debt is a problem, but it can be discharged in bankruptcy if necessary, it can be ignored in his day-to-day struggle to survive, and it’ll wait. His credit rating will suffer, the hospital will write it off and/or sell it, and there are other hassles, but it’ll wait.

    If I buy his debt for $1000 and forgive it, then Bob no longer owes General Memorial Hospital $100,000; he owes the IRS $25,000, possibly more than liquid assets and annual cash income, combined. And the IRS won’t write it off, won’t sell it, won’t let him discharge it in bankruptcy, and can (at last resort) throw him in jail for not paying.

    If I were Bob, I might very well prefer owing General Memorial Hospital $100K I don’t have than the IRS $25K I don’t have.

    The Rolling Jubilee’s FAQ says that because they are not making a profit from owning the loans, they don’t have to file a 1099-C. If Bob doesn’t tell them of the debt forgiveness, it might slip past the IRS, but he might still be lying on his tax forms, with legal consequences if caught.

    • odanu

      That’s a fair point. I wonder how OWS intends to address it.

    • Buddha, I did a bit more research. They are primarily forgiving mortgage debt and medical debt. Mortgage debt forgiveness on a primary home is non taxable under the Mortgage Forgiveness Act of 2007. Also, the insolvency exclusion may apply to people whose indebtedness is greater than their assets, which will likely apply to a lot of people with medical debts. So if you have total assets of $50,000 and liabilities of $60,000, $10,000 of the forgiveness is tax free. I think. In any case, perhaps OWS’s snowball will lead to scrutiny and amendment of some of these tax laws. Or perhaps a tax jubilee to go along with the debt forgiveness jubilee.