A Bailout of the People by the People – Will it Work?

From 15 November 2012, a part of the Occupy Movement in the U.S. led by Strike Debt will be op­er­ating a “Rolling Jubilee” which their web­site de­scribes as:

A bailout of the people by the people.

We buy debt for pen­nies on the dollar, but in­stead of col­lecting it, we ab­olish it. We cannot buy spe­cific in­di­viduals’ debt — in­stead, we help lib­erate debtors at random through a cam­paign of mu­tual sup­port, good will, and col­lective refusal.

David Graeber, for ex­ample, has been tweeting about this en­thu­si­ast­ic­ally and the Rolling Jubilee Facebook page has a pic­ture of Slavoj Zizek holding the linked “Strike Debt” logo and a state­ment claiming that he too sup­ports the cam­paign. My ini­tial re­ac­tion to the plan was open-​minded be­muse­ment and a ques­tion which I see keeps re­cur­ring on the Rolling Jubilee FB page: “How does this work?”.

I think this is a ques­tion the people in­volved need to ad­dress, be­cause in­vest­ig­a­tions of their min­im­alist lit­er­ature and promo video sug­gest that some of their own people are not very sure either. Some of the state­ments about se­cur­it­iz­a­tion, bund­ling of as­sets, and hit­ting Wall St., in­dicate this con­fu­sion and frankly mis­lead in­ter­ested parties. After sev­eral wrong turn­ings I think I have worked out what Rolling Jubilee are pro­posing to do, but it is guess-​work so bear that in mind.

I think some people are con­fusing a spe­cific kind of debt syn­dic­a­tion in the U.S. with in­ter­na­tional fin­an­cial syn­dic­a­tion and se­cur­it­iz­a­tion. The U.S. debt “syn­dic­a­tion” Rolling Jubilee seems to be re­fer­ring to, oc­curs with re­spect to un­se­cured debts that are dis­tressed, i.e. the cred­itor thinks it won’t get its money back, or at least not much of it. What hap­pens is that the cred­itor de­cides that pur­suing the debtor will cost it more money than any even­tual re­cov­eries and so dumps the debt on a grey market for dis­tressed debt pop­u­lated by debt col­lec­tion com­panies and small spec­u­lators. There are dis­tressed debt brokers that make these mar­kets. Now either the dumping cred­itor bundles up dis­tressed debt and then un­loads it on the market, or the debt brokers do. This is the meaning of “syn­dic­a­tion” in this spe­cific case. Another more usual meaning is where banks group to­gether to lend money to a bor­rower — they are a syn­dicate. See also in­sur­ance syn­dic­ates. Securitization is more in­ter­ested in rev­enue streams from debt (in­terest). Securities from these schemes are not the debt themselves.

In light of the above, it seems to me that the Rolling Jubilee will be en­tering the grey dis­tressed debt market in the U.S. to buy bundles of dis­tressed debt, at which point they will waive the debt, which cred­itors are en­titled to do. While the debtors af­fected will be random ac­cording to the market, it should be noted that Rolling Jubilee still have to choose the classes of un­se­cured debt they will be buying. Their trial run fea­tured loans re­lated to med­ical costs. I sus­pect they won’t be buying U.S. stu­dent loans which are gen­er­ally better per­forming, but I do not know the market.

Some tech­nical quibbles can be and have been raised:

  • The test run used US$500 to buy US$15,000 of debt. This is a great write down, but this dif­fer­en­tial is be­holden to market forces. As soon as Rolling Jubilee start buying great chunks of dis­tressed debt the price must surely rise, if not be­fore as market par­ti­cipants mark up. After all, they want the best re­turn for their debt. This might pro­duce a rather strangely shaped re­turn curve on the in­vest­ments, with the worst debt ac­tu­ally get­ting x cents in the $ re­turn as better debt is written off. Rolling Jubilee may well start get­ting less bang for their buck over time.
  • There is a pos­sible tax issue, in that in the U.S. the waiving of debt counts as in­come in the hands of the be­ne­fi­ciary. A cursory reading of the tax law sug­gests there is an ex­emp­tion for don­ative waivers, but let us hope the IRS don’t re­quire any spe­cial forms to be filled out or be­ne­fi­ciaries may be caught out. I hope the Rolling Jubilee makes this issue clear to beneficiaries.
  • This isn’t really hit­ting Wall Street. This is more about con­sumer credit com­panies and debt col­lec­tion agen­cies. Even if JP Morgan ori­gin­ated the debt in ques­tion, their whole model re­lies on being able to of­f­load even be­fore money has been trans­ferred. If there will be an ef­fect with re­spect to Wall St., it will de­rive from the wider so­cial res­ults of the Rolling Jubilee in lib­er­ating debtors. Some act­iv­ists may feel that this just turns the Rolling Jubilee into an­other charity, mit­ig­ating cap­it­alism and so up­holding the status quo. That de­pends on the ef­ficacy with which debt for­give­ness raises con­scious­ness (see below).
  • Matt Yglesias at Slate Magazine1 has stated that it would surely be easier just to give this money to the poorest dir­ectly, so that they could pay debts or better es­sen­tials. It seems to chime with a Keynesian ar­gu­ment that money in people’s hands is what will get the eco­nomy going again, com­bined with the view that cash should not be going to cred­itors who should be forced to write off and take the hit. I agree with Strike Debt that this misses the point about the way in which debt shackles human freedom and is a sig­ni­ficant part of so­cial con­trol, but more on this later.
  • Moral Hazard I — that waiving debts just en­cour­ages people to get back into debt be­lieving wrongly that they’ll be saved again. This is a red her­ring; the debts the Rolling Jubilee are tar­geting tend to be of the type (med­ical care) which people don’t whim­sic­ally take on board, and are in any event dis­tressed such that the debtors are already being pur­sued as de­faulting and have a bad credit rating.
  • Moral Hazard II — the Rolling Jubilee will just be buying dis­tressed debt taxi rank style. I see no evid­ence that they have con­sidered whether any of the debt is void. For ex­ample, if debtor was mis-​sold a loan by cred­itor, then a court might hold that the loan is void, es­pe­cially if the cap­ital that has been re­paid but the debtor is la­bouring under us­urious in­terest pay­ments. If Rolling Jubilee pay off the wrong­fully acting cred­itor when they could have funded legal ad­vice and ac­tion, are they en­cour­aging mis-​selling of loans?

A bigger issue, which has been raised by sev­eral people, is the ques­tion of pos­sible anonymity. Debts are waived at random, but will the be­ne­fi­ciaries know that the Rolling Jubilee was re­spons­ible and more im­port­antly, why they were waived — what were the polit­ical reasons for this act of solid­arity and mu­tual aid? I think this is a very im­portant issue as it links in to why the Rolling Jubilee is a good idea.

David Graeber’s Debt: The first 5,000 years (Melville House, New York 2011) broadly aims to show how the fabric of so­cial struc­tures are built on debts in the broad sense and that there is an un­happy con­fla­tion between owing someone a fa­vour and owing a bank a spe­cific sum of cap­ital. Graeber, drawing on the found­a­tions of Modern Monetary Theory, shows how debt re­la­tions already can be found in the first ag­ri­cul­tural civil­isa­tions and con­sti­tute the basis for ex­change sys­tems and sub­sequently money.

It is in­structive to op­pose this ana­lysis of the ori­gins of money through debt with cer­tain Marxist views that it is the ab­strac­tion of reason in an­cient Greece which leads to the cre­ation of money and it is this latter mo­ment that is om­phalos of human eco­nomic his­tory. Graeber makes a good case that it is debt that cre­ates money, not vice versa, and that in the earliest cities the debt was con­sti­tuted and gov­erned by the temple, which held a pre­cious metal that formed the ref­er­ence point but not ac­tual ob­ject of ex­change. Farmers paid their dues in the form of grain but by ref­er­ence to the metal price, and this grain could be re­cir­cu­lated as needed. The duty that con­sti­tuted the “dues” came from the func­tion of the temple it­self in en­suring good gov­ernance, the plan­ning for the flood, and di­vinely se­cured fer­tility. They are hy­po­thes­ised as ori­gin­ating in earlier so­cial in­ter­ac­tions of varying form­ality in which ob­lig­a­tions such as good will, re­cog­ni­tion, mar­riage were the glue that bound people and groups to­gether and pre­vented conflict.

One can see how this so­cial ob­lig­a­tion would be­come an en­forced legal ob­lig­a­tion, and farmers whose har­vest failed were still ex­pected to submit tithes, this time de­term­ined in ab­sentia as a debt, pay­able within the year or if not than by giving up goods, slaves, land, chil­dren, and ul­ti­mately one’s own freedom. On this ana­lysis, Graeber treats the Greek in­ven­tion of money as sec­ondary to the in­ven­tion of a de­mand for taxes which must be paid in a spe­cific money form. The tax debt, en­forced, cre­ates the cir­cu­la­tion of the money form.

The study of early ag­ri­cul­tural civil­isa­tions is in­structive as has been noted on these pages be­fore. Graeber in­forms us that in the years of gen­eral drought or sim­ilar calamity great num­bers of farmers would de­fault on their dues, and over time more and more mem­bers of a so­ciety would fall into debt pe­onage, while many others would simply run away, per­haps joining the Scythian nomads in central Asia. In short, the burden of debt be­came so great that cities would col­lapse into re­volt or simply wither like modern Detroit as eco­nomic activity ceased and the pop­u­la­tion mi­grated. To pre­vent this, over hun­dreds of years, the Mesopotamian peoples de­veloped the ju­bilee — a great for­giving which undid all the harm caused by debt and re­stored so­cial bonds to zero. The Babylonian prac­tice of ju­bilee was ex­tended to the Hebrews by a courtier named Neremiah, who had been sent to re­build Jerusalem (then part of the empire).

It is the idea that debt founds so­cial struc­tures and more deeply so­cial con­scious­ness, but that in­sti­tu­tion­al­ised and en­forced debt can (will) over time build up and strangle that very same so­ciety, which is the prin­cipal mis­chief that the Rolling Jubilee is trying to remedy with its cam­paign of mass debt lib­er­a­tion. It is not just a ques­tion of set­ting an­other person’s net debt to zero, but of set­ting the dis­tor­tion of their per­ceived onerous ob­lig­a­tions to our warped, over-​leveraged so­ciety to zero so that person can help re­found their so­ciety again. I see the greatest merit in this intention.

What strikes me, how­ever, is this ques­tion of pos­sible anonymity: will Rolling Jubilee be telling in­di­viduals that it was they that have waived the debt, and if so, the reasons for this act as it arises from within Occupy. If one fol­lows Graeber’s logic about the width of the debt concept in so­ciety, then one can readily see an ana­logy between the kind of so­cially pos­itive, in­formal ob­lig­a­tion that arises from helping one’s neigh­bour — a debt need not be re­paid save in amity — and the don­ative mu­tual aid of the Rolling Jubilee. In short, the Rolling Jubilee is not really can­cel­ling debts; it’s con­verting them into a new kind of so­cial debt which binds the be­ne­fi­ciaries to Occupy but which need not be re­paid save in solid­arity. It is ironic to me, as someone re­searching fin­ance, that the Rolling Jubilee has set up a spe­cial pur­pose vehicle which at­tracts out­side in­vest­ment so that it can pur­chase as­sets (debts owed), bundle them up and con­vert them into a di­vidend stream of polit­ical good will. It is, dare I say, mu­tual aid securitized.

I have said for many years that ef­fective polit­ical activity starts on the ground —To The People as it was called in C19th Russia — building net­works of sup­port and a wide base of people who know from per­sonal ex­per­i­ence that polit­ical act­iv­ists are nothing like the media ca­ri­ca­tures they are fed. A problem has al­ways been the supply of un­con­di­tional funds to provide the ne­ces­sary sup­port (edu­ca­tion, health­care, fixing someone’s roof, legal ad­vice) as vo­lun­teers can only do so much. In one stroke the Rolling Jubilee may have found both a solu­tion and a way of ap­plying that solu­tion dir­ectly to a pressing so­cial problem.

But these com­ments are ir­rel­evant if the be­ne­fi­ciaries of the Rolling Jubilee were to re­main ig­norant of the work being done and the reasons why: both how we got here and where we want to go. I think only the most Stirnerian of an­arch­ists would want to cancel debts in a com­plete in­form­a­tion black hole in the hope that no bonds of so­cial ob­lig­a­tion be felt by anyone. I do not sense this is Graeber’s fla­vour of an­archism and the “mu­tual aid” watch­word of the Rolling Jubilee sug­gests that the spon­tan­eous vol­un­tary coming to­gether of people in free or­gan­isa­tion is at the heart of this im­portant ex­ten­sion of Occupy’s work.

Show 1 foot­note

  1. http://​www​.slate​.com/​b​l​o​g​s​/​m​o​n​e​y​b​o​x​/​2​0​1​2​/​1​1​/​0​9​/​r​o​l​l​i​n​g​_​j​u​b​i​l​e​e​_​o​c​c​u​p​y​_​w​a​l​l​_​s​t​r​e​e​t​_​s​_​b​a​i​l​o​u​t​_​o​f​_​t​h​e​_​p​e​o​p​l​e​_​b​y​_​t​h​e​_​p​e​o​p​l​e​.​h​tml

  4 comments for “A Bailout of the People by the People – Will it Work?

  1. David Graeber
    12 November 2012 at 5:23 am

    Of course the idea has al­ways been to alert those whose debt is can­celed. First of all, you ac­quire the names and basic con­tact info so it’s quite pos­sible. Second of all, how could anyone not want to be able to call and say “hi, Mrs, Fenwick? We’re OWS and we just can­celed your debt…”

    Obviously we can’t pub­li­cize the names though

    • Ida Ince
      12 November 2012 at 6:21 am

      Thanks for the clearing that up David; it seemed ob­vious, but some of these key de­tails aren’t easy to es­tab­lish from what RJ and Strike Debt are put­ting out. In a way I can see why: the Rolling Jubilee idea has the mark of genius that is at once being in­cred­ibly simple and yet im­plic­ating a huge amount of polit­ical and the­or­et­ical work — no one wants to swamp the sim­pli­city with tech­nical dis­cus­sions of the “in­debted sub­ject” or whatever.

      I hope this piece helps to spread the word and provide at least a sketch of some pos­sible back­ground thinking.

  2. 12 November 2012 at 9:09 pm

    In a way, though, I do un­der­stand the ques­tion the au­thor is asking. While ac­know­ledging that we have to start some­where, I too have the same mis­giv­ings, mainly stem­ming from my ‘some­what’ frus­trated at­tempts to ex­plain debt and money, what it is, and how it works, to those around me. I don’t blame them, be­fore I read Debt:, I knew money was a fic­tion, but I didn’t get the mech­anism by which it de­rives its value. And I have had close to zero luck com­mu­nic­ating any of those im­ages rat­tling around in my head to anyone else, the sole ex­cep­tion maybe being when I told my neighbor across the street that money was a sub­sti­tute for trust. All can say is hope this makes a real dif­fer­ence, be­cause I don’t want to see any re­pe­ti­tion of the last major ‘debt ju­bilee’ we had.

  3. Ben
    12 November 2012 at 9:27 pm

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