Isn\’t this just the most gorgeous fun?

The only time the progressive liberals at Occupy Wall Street have come up with a good idea is when they\’re not being progressive liberals.

And on to a slightly more serious point.

What is the price of distressed consumer debt in the UK?

And what is the tax position on such write offs?

And should we slavering right wing free marketeers copy the idea?

25 thoughts on “Isn\’t this just the most gorgeous fun?”

  1. Well, no, we shouldn’t. Because, if you remember and we are regularly reminded of this, we simply don’t care about poor people.

    Except, of course, when we need the modern day equivalent of indentured serfs or wish merely to sneer at an unemployed person.

  2. Do they claim to have invented the idea?
    Jubilee means debt forgiveness, and if I’m not mistaken originated in ancient Sumeria.

  3. Ironic that the Occupy lot are so against doing exactly the same thing when the EU bails out Greece.

    That aside, the question of what our economy would be like if we had a proper system of biblical debt jubilee is an interesting one. Clearly it would render long-term loans impossible, so it would seem to force lenders to take a greater role as investors as far as any long-term projects go.

    It’s interesting to look at the system laid out in Lev 25 from an economic perspective.

  4. Dave (#3), two huge problems with a biblical jubilee:

    1) It gets increasingly difficult to borrow as you get closer to the jubilee year;

    2) Some things probably should be funded by debt. Do people really want the bank genuinely owning 90% of their houses?

  5. Dave (#3) said “Ironic that the Occupy lot are so against doing exactly the same thing when the EU bails out Greece.”

    Isn’t the problem with the EU bail-outs that they buy the debt at par value rather than market value?

  6. OK, we’ll take $1,000 now in full and final settlement then…..yup, the IRS will want income tax on the $4,000.

    Is this for real?!

    Tim adds: Oh yes, absolutely for real.

  7. Richard>

    I did point out that it’s a whole system, at least in Leviticus. Ownership of land and housing meant something very different when land purchases and most house purchases were also subject to jubilee – effectively, it was only possible to lease most property for a maximum of fifty years. The biblical system also mandated price changes to reflect the time remaining until the next jubilee year.

    “Isn’t the problem with the EU bail-outs that they buy the debt at par value rather than market value?”

    Yes and no. We could buy up the debt at market value and redeem it, but then the banking system would be fucked and would need bail-outs equal to the difference – they can’t afford to sell with their losses at current levels. What’s the difference between buying up all the debt at current value and simply defaulting on most of it?


    “I often wonder what houses would cost if there were no loans available for purchasing them.”

    I suspect we’d see very similar sale prices, but an ownership model much more like the German one except with higher rents. There would be a higher return on residential property investments for those who could afford to make them, since there would be less capital available to invest.

  8. Nice idea in theory. In practice though, it’s relying on the goodwill of people giving donations to a largely anonymous and opaque group of people and I take issue with sensitive details being handed out to crusties – what are the safe guards to stop the money going missing or personal information being misused? Bear in mind that the London Occupy lot were spending their donations on iPads and bolt cutters.

    When you buy a bunch of debts, you’ve no idea of the human story behind them; you’d have a lot of sympathy for the person who through no fault of their own lost their job and fell behind with repayments but less so for the person who borrowed loads and spunked it up the wall, but you won’t be aware of this when you pay off their debt. Buying the cheapest debts won’t make any difference to the debtor because they would have long become untraceable (e.g. emigrated) and won’t know or care what you’ve done. That’s why they’re cheap.

  9. Ian B (#7) “Is this for real?!”

    The UK does the same for companies (“loan relationship” rules).

    Individuals are taxed if the write-off is from their employer or a connected company, and if it’s related to a business it’s complicated. But otherwise I don’t think it is taxable.

  10. This could be self-funding, if you buy debt at (say) 10% of par and then offer to release it for the same amount.

    You then have the money to buy another tranche of debt at 10%. So you release it for 10%, and do it again. And again. And again.

    I suppose at some point you’d do so much that you’d drive up the cost of distressed debt, but that would take a while.

    It would still benefit the borrowers, because they won’t usually be offered that sort of deal.

  11. Even better, buy at 10% and release for 12%. That way the thing will grow exponentially from the initial donation.

  12. Richard, wouldn’t that depend on the distressed debtors having the 10%?

    If somebody ran up £10k on a credit card and defaulted, it’ll still cost them £1k to clear it with your agency, which is £1k more than just hiding below the windows when the doorbell rings, which is presumably the current strategy they’re pursuing. And they’re not going to even get their credit rating back.

  13. @ Richard #5
    No, it does not get more difficult to borrow – just the loan/sales receipt for selling your land becomes a 9-year annuity then an 8-year annuity, then a 7-year and so on.

  14. The concept, which involves cancellation of a selection of debts that lenders believe that the borrower cannot repay is not quite the same as Jubilee which involved an across-the-board cancellation of debts (so if Lord Rothschild or the Duke of Westminster owed money to his tailor that bill would be cancelled). It is, nevertheless, far from new and assorted philanthropists and politicians have been doing it for centuries.
    The really clever thing is that by buying debt at 10c on the $, the buyer confirms a 90c loss for the lender while only suffering 10c loss him/herself. So this is, of course, dependent on the lender accepting a 90% loss – but the borrower never gets the option to pay back only 10% unless *it* is a government (or, very rarely enters an IVA pledging all his/her spare cash after basic living costs for the next five years including any equity in the house).

  15. You’ve forgotten something Tim – gift tax if the debt forgiven as a gift is over $13k. Paid by the giver. Can’t remember the amount off the top of my head but 30% over the threshold rings a bell.

  16. It’s 18-35%, and thus looks like both ends of the transaction will be taxed, once as income and once as gift.

    US tax law is indeed a bizarre thing…

  17. What is to stop the debtors themselves buying their own debts at 10% and writing them off?

    Well, I’d imagine that any debtor getting in touch with the owner of their debt will find that creditor refusing to let them buy it cheap. Hence the need to buy them in anonymous bundles.

    My thought on this is that by the time debts are down to 10% or less in value, that’s the market saying there’s only a 1 in 10 chance of any particular debt ever being repaid anyway. Most of these debts would presumably just never be paid off, so I’m not entirely clear that this is doing any better than just leaving them alone to be finally written off. As I said above, it doesn’t do anything for the debtor’s credit rating, presumably. So what does this actually achieve on behalf of the debtors?

  18. So Much for Subtlety

    And the idea that we shouldn’t ever have to take out debt to afford housing is simply nuts. How on earth is anyone expected to finance a $300,000 purchase of a house without debt?

    Incidentally, some people, those who don’t own houses for instance, might see this as a feature not a bug. Why the hell should houses cost $300,000? Or rather why should houses cost £300,000? From where I sit it looks like we have encouraged women to abandon their children to Third World illegal immigrants (which is admittedly probably an improvement in many cases) so that they can go to a boring job in order to drive up housing prices even more.

    A sensible housing policy would encourage housing prices to return to their historical average of seven times annual income – or even lower – by releasing more land and making planning permissions easier.

  19. Maybe I’m missing a trick, but aren’t the chief (only?) beneficiaries of this the hated bankers?

    If debt is being traded at 5 cents for a dollar’s face value, then that suggests t
    o me it’s essentially unrecoverable – if all the kings horses and all the kings men go after the debtors, they probably only see 6 cents or so back per dollar after covering their costs.

    Buying it up and canceling bad debt surely increases demand for it, which increases the amount bankers get back from their bad debts.

    Getting people to pay it off at the reduced value is unlikely to fly – if it worked, debt collection agencies would follow that model – buy at 5 cents, offer writeoffs at 8 cents and pocket the difference. I suspect a typical bad debtor can’t pay back even 8% as they probably have little by way of assets or disposable income – that’s usually why its become bad debt in the first place.

  20. I’ve had debts in the past dealt with by debt collection agencies.
    You know, offer £1 a month on a £2k debt and get it accepted….
    Every few months the debt collection company used to contact me by phone or send me a letter asking me to get in touch urgently, in order to offer me a cancellation of the debt for just x% of the total owed. 50% was common, one offered 40% (writing off 60%). Great – except when on benefit paying off a grand with one company becomes impossible. ‘You can borrow the money from family’ as I was told merely moves the debt…

    I purchased my house 13 years ago. Companies still send letters addressed to the previous owner chasing him – we started opening rather than merely sending back marked ‘no longer at this address’ after we got on first name terms with a number of bailiffs who came to collect on the debt owed. His may be one of the debts that could be purchased and cancelled by OWS or similar organisation – but would make no difference to him whatsoever.

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