A spinoff of the Occupy movement, the rolling jubilee, has a really interesting idea. They are buying bundles of debt for pennies on the dollar – 7 million $ of debt for 350 thousand $ so far – and then erasing that debt. For good. No questions asked. Nothing in return.
I can’t figure out if this is a clever loophole, a publicity stunt or revealing of a serious oddity in our financial system. Either way, the question of course is: will it scale? And who, if anyone, will actually be affected by it? This i where i think things get murky.
I am assuming that the debt they are buying now is the most unsecure (and thus most heavily discounted) and that a lot of the defaulted debt therefore stands little chance of getting repaid. It is also bundled, and therefore distributed, so they are not buying the entirety of one persons debt, but rather bits and pieces of thousands of mortgages.
If this holds true, will recipients ever notice? In order to make a difference, the relief provided must bring the recipients total debt lower than what they could repay in the foreseeable future. But if the debt relief is spread across innumerable mortgages, and those mortgages are already unsafe, they are merely cutting debt that would never really be realised. That won’t make a difference to either lender or borrower. Then the only beneficiaries would be the banks who sell the debt; the very 1% they are protesting against.
I hope i am wrong (and there are plenty of assumptions that could be), because at face value, this might be the best idea this year.