Buying Debt Just to Forgive It

I feel almost alone in the realm of libertarian bloggers who doesn’t despise everything the Occupy movement does. Many participants in Occupy are hardcore socialists but even hardcore socialists come up with good ideas. One of the ideas recently spawned from the Occupy movement is the Rolling Jubilee project, which is looking to buy up debt just to forgive it:

The Rolling Jubilee project is seeking donations to help it buy-up distressed debts, including student loans and outstanding medical bills, and then wipe the slate clean by writing them off.

Individuals or companies can buy distressed debt from lenders at knock-down prices if it the borrower is in default or behind with payments and are then free to do with it as they see fit, including cancelling it free of charge.

As a test run the group spent $500 on distressed debt, buying $14,000 worth of outstanding loans and pardoning the debtors. They are now looking to expand their experiment nationwide and are asking people to donate money to the cause.

I really like this project because it stands to erase much of the debt currently facing individuals voluntarily. No funds from tax victims is required, no money has to be printed, and no coercion has to be used. Instead individuals can voluntarily donate money to the cause of helping people currently facing crushing debt.

Another interesting potential of this project is the creation of a market for distressed debt relief. One of my friends mentioned that this project could cause the price of distressed debt to increase as demand by the Rolling Jubilee project increased. If that happened the project would effectively be self-defeating because it would raise the cost of buying distressed debt higher than its donors could afford. I see another potential outcome, it could decrease the cost of distressed debt. As a general rule a creditor would rather receive something from one of their debitors than nothing. Losing $90,000 is better than losing $100,000 after all. Because of this it’s possible that creditors could enter a bidding war with one another for Rolling Jubilee’s money. Creditors could try to undercut one another in the hopes that the Rolling Jubilee project will buy their debt. Instead of getting nothing from their debitors creditors could get a portion of what they loaned.

It’ll be interesting to watch if this project gets off of the ground.