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.