Assets & Liabilities: Understanding The Rolling Jubilee Project
Strike Debt, an offshoot of the Occupy movement, recently launched a project called the Rolling Jubilee, which has raised over $350K as I write; the money will be used to buy, and then forgive, around $7 million worth of distressed medical debt. That’s what a “jubilee” meant, in Old Testament times: a period for cancelling debts, and for the manumission of slaves, that came around every five decades: “And ye shall hallow the fiftieth year, and proclaim liberty throughout all the land unto all the inhabitants thereof: it shall be a jubile unto you; and ye shall return every man unto his possession, and ye shall return every man unto his family” (Leviticus 25:10, and someone might mention it to Benjamin Netanyahu.)
The highlight of the Rolling Jubilee so far was a telethon, the “People’s Bailout,” which featured speeches and performances by a passel of alt-notables including Janeane Garofalo, Lizz Winstead, Hari Kondabolu, David Rees, John Cameron Mitchell, Lee Ranaldo, Guy Picciotto, the TV on the Radio guys Kyp and Tunde, several performers and representatives from local Christian churches and a group of nuns, Sisters of St. Joseph, the latter of whom were received with the utmost bewilderment. But the star attraction was undoubtedly the famously reclusive Jeff Mangum of the Neutral Milk Hotel, who is married to Strike Debt organizer and documentary filmmaker Astra Taylor (Žižek!).
This somewhat punishing four-hour event was livestreamed on the 15th, and I watched it in a very noisy bar in Oakland.
Telethons generally make for very weird television and this was no exception, though the homegrown feeling of the production and random appearances of not-so-pro entertainers, including an impossible interpretive dancer and a little kid dressed in a matador costume, lightened things up somewhat. There were speeches, the kind where you feel as if you are trapped at a wedding, then some music, and then things got a bit heavy when Rev. Jacqui Lewis of the Middle Church Choir asked the crowd authoritatively: “How many of you know what sin means?” Well, TOTAL crickets at that point, because big schism there, all set to agree but canna go for the Jesus. O liberals, how liberal are you really.
Rev. Steve Phelps of the Riverside Church had a little better luck with the crowd. He is a smooth guy and a rawking activist. He gets himself thrown in jail as a sort of pastime. “America’s getting drunk on whine,” he said. “What’s mine is mine.” With respect to the recent election: “There was one saying what’s mine is mine, and another one saying (sometimes) something a little more complex than that.” [Fair enough.] “What’s mine is only mine by agreement which we call society. What we want to do is open up the idea that we really are only one people.” I found the Rev. Phelps very exhilarating.
The Elephant 6-inflected crowd seemed to mellow out a bit, and then came Julian Koster, formerly of Neutral Milk Hotel, and John Cameron Mitchell; then Lizz Winstead, who said a lot of baffling things, including: “Ranch dressing is a magical liquid that people ingest epically at Costco.” This seemed false, because so far as I know, you don’t eat it AT Costco.
My favorite by far was from Victor Vazquez, aka Kool A.D. of Das Racist, who performed the song “Dum Diary”: a sad meditation on the futility of U.S. culture, of materialism and the inability to break out of the cultural and political prisons we’re born to inhabit. It’s a beautiful song, weirdly philosophical, rude and savagely funny.
Is Criss Angel effeminate?
Just answer, don’t hesitate
Don’t got love? I guess you better hate
But study your mythology methodically
and tally all the odds of every Odyssey
Meanwhile, as the telethon went on, the natives were getting a little restless on Twitter.
This makes me embarrassed to be a liberal.I’m here for Jeff.#PeoplesBailout #RollingJubilee
— Rustlebones (@rustlebones) November 16, 2012
We you don’t bring out Jeff I will stain your mountaintops #RollingJubilee #StrikeDebt #PeoplesBailout #ILoveJesusChrist
— Jeff Mangum (@Jeff_Swagum) November 16, 2012
#RollingJubilee #StrikeDebt #PeoplesBailout #ILoveJesusChrist How about you pull Jeff Mangum out of thin air?
— Alex Mayer (@AlexMayer50) November 16, 2012
JEFF MANGUM!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!DO IT #RollingJubilee
— Andrew Junker (@HowToBeAndrew) November 16, 2012
Could you have more annoying hosts? #PeoplesBailout #RollingJubilee
— Andrew Junker (@HowToBeAndrew) November 16, 2012
Then came Sarah Ludwig of NEDAP, the Neighborhood Economic Development Advocacy Project, a fine speaker on the serious subject we’d all gathered for.
“This is about a financial system that is predicated on poverty and segregation. 400% payday loans. Student loans to attend sham trade schools. The failure of the state to ensure that people have the means to live.”
Jeff Mangum finally arrived, his face plunged deep in a beard so luxuriant that I thought he might bust into an acoustic version of “She’s Got Legs,” now that would have been radical, but no. All the same, it was lovely hearing him sing, I must say.
IS THERE TAX ON THAT? AND OTHER QUESTIONS
In a recent appearance on “Up with Chris Hayes,” Astra Taylor claimed that there is both a practical and a symbolic value to the Rolling Jubilee.
Hayes asked Taylor: “Are you just running a charity here, people give money, donate it, and then you forgive the debt and people will say, [about those] whose debt is being bought for five cents on the dollar — collectors have basically given up on it anyway, and can you even find the people whose debt you’re forgiving?”
The actual question went unanswered; the mechanics of the secondary market in distressed consumer debt are clear as mud, a point we’ll return to in a moment. But Taylor responded: “One of the beautiful things about this project is that it actually has concrete effects, the money raised will go to abolishing people’s medical debt […] so there will be a very concrete effect on people as a consequence. But I think an equally important part of this project is the public education campaign, and that’s where it is more radical, because our analysis is deeper.” She went on to say: “The American Dream is getting out of debt, now.”
A pithy phrase. But I can’t agree with Taylor as to the depth to Strike Debt’s analysis — at least not that part of it that has been presented to the public. There are some thorny unresolved questions with respect to the Rolling Jubilee project that none of the CPAs, lawyers or financial experts I consulted could clarify absolutely.
Let’s start with Strike Debt’s flagship publication, The Debt Resistors’ Operations Manual, an amalgam of half-baked rhetoric and non-revolutionary, standard-issue practical information for dealing with debt — order a copy of your credit report! demand corrections! and so on.
It seems to me that the authors of this document aren’t quite on the same page; partly, it seeks to encourage a wave of politically-motivated defaulters, and partly to offer immediate help and information to those who want to deal with their debts lawfully. The result feels a little seasick to me, the product of an uneasy compromise, as in this paragraph: “If you are about to default on a student loan, remember you are not alone. There are approximately 4 to 5 million other Americans that have already done so. While default can be a political act (especially when done en masse), these are the consequences you may be subject to:” (This is followed by the usual warnings of collection agencies, liability for court costs and attorneys’ fees, and so on.)
Then, The Debt Resistor’s Operations Manual fails to deliver the one piece of information its likely readership might need most: there is a real chance for debtors in bankruptcy to have some or all of their student loan debts discharged, provided they can prove “undue hardship.” The authors content themselves with this observation: “Unfortunately, bankruptcy is not an option for student debtors, except occasionally in cases of permanent disability or ‘undue hardship.’”
The conventional wisdom is that there is no discharging student debt in bankruptcy, and there’s no doubt that the odds are at present stacked against debtors. But writing in The Times in August,
Ron Lieber reported
on a 2008 study demonstrating that “57 percent of bankrupt debtors who initiated an undue hardship adversary proceeding were able to get some or all of their loans discharged.”
Now that there are 37 million student loan borrowers struggling in a tough job market, whose future prospects are very much dimmed by the specter of debt, it seems clear that these provisions are well worth revisiting — not only as a potential avenue for helping those in need, but in order to pressure Washington and the courts to refocus and amend existing laws.
Then there are the tax problems. There is a not insignificant danger that the beneficiaries of the Rolling Jubilee’s largesse will wind up owing tax on the forgiven debt. I spoke with a number of accountants and tax attorneys, and not one of them was able to give a definitive answer to this question. It is true that IRS Form 4681 states quite clearly that “generally, you do not have income from canceled debt if the cancellation or forgiveness of the debt is a gift.” Another wrinkle: there is a $13,000 tax-free limit to the amount an individual may receive as a gift; after that one pays tax. Would those who benefit from debt relief have to do so in this instance? Unknown.
The Rolling Jubilee website claims unequivocally that they will not have to issue 1099-Cs, a form that would definitely raise the possibility of tax liability for Rolling Jubilee beneficiaries. One accountant told me that the tax liability might hinge on whether or not recipients were legally indigent; it might vary considerably from case to case.
But some experts are entirely convinced that any Rolling Jubilee beneficiaries will have to pay income tax. New York tax specialist Robert Willens told Bloomberg Businessweek: “There’s not any doubt about the tax outcome at all. That’s almost always the case with debt discharges — you wind up with this tax problem that almost always mitigates the benefit of the discharge.”
Had the IRS issued a letter to the Rolling Jubilee organizers letting their beneficiaries off the hook for this potential mess, it stands to reason they would have shown it to the press. When I asked Strike Debt organizer Ann Larson directly about the tax issue, she replied, “I’m withholding comment.” I was told that I’d be unable to speak with anyone on their legal team.
HOW DISTRESSED CONSUMER DEBT WORKS
An excellent capsule analysis of how distressed consumer debt works appeared recently in a comment thread on MetaFilter. I recommend reading it in full but here are some highlights.
There are portfolios out there of debts reduced to judgment that sell for .5¢ on the dollar. Yes, that’s right, half a cent on the dollar amount. Not the dollar amount with interest, mind you, half a cent on the dollar for the amount of the judgment at the date the judgment was entered, and some of these judgments are a decade old, and have awarded interest at rates as high as 25%. The statute of limitations on money judgments in many states is really long, often 20 years or more, and they can often be renewed.
Who are these people that have these judgments entered against them that are being sold at such an absurd discount? Mostly the elderly and disabled, people with income that can’t be garnished, but there are also lots of people who have had these judgments chasing them for years, and they are afraid of participating in the legitimate economy, because as soon as they do, a skiptracer will find their employer and any disposable income will be garnished. As a result, these people hide. They stay living uncomfortable lives on disability benefits that they thought were temporary, say after a bad car accident that left them insolvent in the first place, afraid that if they try to find work again, they will just be working for their creditors forever. They remain a dependent of their common-law spouse, afraid to get married or start working for fear whoever owns the judgment now will find them. They work crappy, exploitative jobs under the table like an undocumented immigrant.
My favorite part: the real benefits of integrating fugitive debtors back into the economy.
Just $50 can buy a $10,000 judgment on someone like this who has spent every day for years hiding from life. It would cost more for the filing fees on the assignments and satisfactions of judgment than to buy these debts. Forgiving these debts would be good for the economy, removing some of the debt overhang that is like an anchor on the economy and bringing people back into the workforce, raising tax revenue and putting more money in the hands of the people most likely to put it right back into circulation.
THE MURKY, NOT-SO-LUCRATIVE MEDICAL DEBT MARKET
The secondary market for distressed consumer debt is hard to understand, in part because the rules for debt collection vary from state to state. In the case of medical debt in particular, there are weirdly interconnected relationships between hospitals and debt collectors, as evidenced by the big players in the distressed debt markets who saw the explosion of health care costs in the mid-aughts, dove into those markets expecting to see huge returns, and then leaped back out again when collections rapidly became way too complicated and unprofitable.
As a director of patient accounts for Cincinnati, Ohio-based TriHealth, Inc., put it here: “[E]xperience in the collections business did not necessarily equate to understanding the health care collection business. The niche was not a bad one — just not perhaps the easy money many appeared to think it could be.”
In order to illustrate these complexities, consider the case of a publicly traded company, the black-comically-named Accretive Health, whose board of directors boasts such luminaries as Edgar Bronfman Jr. Accretive was recently fined $2.5 million by the Minnesota state AG’s office for illegal collection tactics, “including embedding debt collectors in emergency rooms and pressuring patients to pay before receiving treatment,” The Times reported.
Their 10-K annual report is a laff riot, may I say, full of the most turbid, Orwellian doublespeak you’ve ever seen. It’s largely concerned with “managing revenue cycles,” or what would be called in English, “putting the squeeze on sick people.”
Returning to The Times report, “Carol Wall, a 53-year-old Minnesota resident, said ‘a woman with a computer cart’ told her she owed $300 as she was ‘vaginally hemorrhaging large amounts of blood’ at an Accretive-affiliated emergency room in January, according to court records.”
The point being: it’s only after the Accretives of the world get through shaking down indigent patients that their distressed debt is repackaged and sold on the secondary market. According to a 2008 Harvard study, some 62% of U.S. bankruptcies originate in medical debt.
WHO’S PROFITING OFF DEBT? A CONVERSATION WITH A STRIKE DEBT ORGANIZER
If you envision the country’s politics and policies as a radio with different channels, you might say that both the radical left and the radical right are actively seeking to snuff out all other channels but their own. But if you believe in equal rights, in the Enlightenment principles the country was founded on, then what you are protecting is the radio. Not just “your” channel. By this reckoning, Strike Debt’s stance toward conventional political activism is noticeably less hostile to a plurality of voices than many earlier anarchist movements have been, as I learned from Ann Larson, one of the aforementioned organizers of Strike Debt, and a speaker at the Rolling Jubilee. She is an adjunct English prof at Hunter College who has some student debt of her own; she’s also seeing firsthand how her students are being railroaded into an unfair debt burden. Ann’s history with Strike Debt began in the Zuccotti assemblies.
We spoke recently by phone.
Maria Bustillos: What is the ultimate goal of the Rolling Jubilee?
Ann Larson: It’s happening now. We want to start a conversation and to reveal something about the predatory debt system. Important questions about the debt market, how it works, and who it affects are now being asked. The questions are obvious. WHY does the secondary market exist? It only began in the economic context of the 1980s with the relaxation of financial regulations. People need to ask, who benefits from these circumstances? Who’s profiting?
We’re hoping to create a movement: this is one of many projects to that end. We’re provoking a conversation while at the same time doing something concrete to help people in debt.
We are asked about the moral aspects of this question: the personal responsibility that is at issue. Why does the onus fall only on the borrower here, never on the lender? People suffering under our financial system have to put groceries on credit cards because otherwise, they can’t buy food. The burden of our failing economy falls on those least able to pay. They are the most exploited. If we want to pose this in moral terms, why can’t we ask what kind of society puts people into debt when they get sick?
We don’t want to lose sight of the fact that Wall Street, the big banks, drive the debt economy. They issue credit lines in the first place; those banks then write off loans, and then they issue credit lines to buyers of the distressed debt. This is about Wall Street’s control of our lives.
Maria: Is there a fixed next step? Having started the conversation, is there a suggestion for what people might do next? A way to pressure our congressmen, for example?
Ann: There’s no script, no rules. We want to maintain the radical edge, the critique of capitalism. We’re not cutting off the possiblity for legislative reform, we’re not opposed to that, but it’s not our focus. If that happens, great. Personally, I think the solutions lie elsewhere.
THE ALLEGED LUXE LIFE OF THE 47%
Let’s be very clear. The debt the Rolling Jubilee proposes to buy and then forgive has already been written off by the issuing creditor; it no longer exists on a balance sheet anywhere. We have thus for all practical purposes already forgiven it. It’s nobody’s asset, and therefore, in a sense, it’s nobody’s liability.
Mike Konczal, the scintillatingly brilliant financial blogging wizard elsewhere known as @rortybomb, has produced what is by far (FAR) the best analysis of debt relief I’ve read anywhere in the course of these investigations, in a fantastic series at the Boston Review. So I called him up to discuss the meaning and repercussions of the Rolling Jubilee, which he’d already written about a little bit at the Roosevelt Institute blog, The Next New Deal.
“A lot of this worthless debt is skewed toward people who are at the margins of the economy,” Mike said, “and is impacting how they can live their lives. It’s functionally worthless, but has harassment value. It’s evocative to point that out.”
“That wasn’t done in the election,” I noted.
“Not at all; they don’t want to run on it. Conservatives ran on the idea that 47% have it too good. People cruisin’ by on Easy Street. Meanwhile President Obama wanted to distract from his terrible record on the housing market and housing debt in this recession.”
OBSERVERS SAY “!” AND ALSO “?”
Writers on economics and the financial markets in general crowded round the idea of the Rolling Jubilee wonderingly, as if it were a financial spacecraft or unicorn that had suddenly appeared in their midst. In the main, the pundits were tickled by the idea. Delighted by it, even. One of the most enjoyable parts of the research for this story was hearing the wonder and excitement in the voices of various accountants, economists, journos and tax lawyers as they were asked to question the most basic foundations of their own ideas about debt. Would such a contribution be treated as a gift? Would it be taxable? What did the Rolling Jubilee signify and/or portend?
Reactions varied widely. Felix Salmon appeared to become quite giddy with the implications of this project:
It’s a group of ordinary people who are perfectly happy to help banks lose 95 cents on the dollar by paying them the other 5 cents, and then forgiving the loan entirely. Of course, the banks know that some percentage of their loans will go bad, and, especially in the case of credit card debt, they will often have made a net profit on the account long before they sell off the dregs for 5 cents on the dollar. But even if the banks aren’t being hurt at all, it still feels great to have the opportunity to be an anti-bank for once. There’s something very good about forgiveness.
And then there was a Marketplace story by Sally Herships, couched in terms calculated to appeal strictly to the 1%. “Ken Smetters, an economics and public policy professor at Wharton says the [idea of the Jubilee] dates back thousands of years. The Jubliee was a time when the rich were expected to forgive the debt of the poor,” Herships exclaims pearl-clutchingly. “Smetters says people used to take out loans in the form of goats, grain or sheckel and that debt was only taken on to alleviate poverty.” (Not like now, by golly, when debt is taken on mainly for kicks, or maybe to stick it to The Man.)
This Smetters manages to pique himself on his own financial virtue, explaining to Herships that if people generally were to get the idea they didn’t have to repay their debts, he himself would never have risen out of poverty, because no bank would ever have taken the risk of loaning him, Smetters, any money. And that would be bad! There’s a “moral hazard,” he says.
Maybe I shouldn’t be so surprised that some Wharton guy appears not to get the starkly obvious fact that everybody already knows that debts, whether corporate or personal, don’t always have to be repaid. (I’m assuming the professor is not opposed to the existence of Ch. 11?) We don’t have debtors’ prisons in this country; it is exactly the flexibility of our system that allows poor ambitious guys such as Smetters once was to borrow money. If we weren’t prepared to write off bad debts, if we had no provision for bankruptcy — THEN no one would ever feel confident in taking risk, in starting a business; then we’d never be able to run an economy as complex, efficient, and daring as the one we have, with all its admitted flaws.
Later, Herships went over to the “other side” for a comment.
“When asked if a potential ethical complication was a concern for the project, Laura Hanna, an organizer with the Jubilee, had some questions of her own. ‘I guess I would ask, whether our financial market makes any sense for the majority of the population at this point. The question becomes why are we in so much personal debt?’”
Can we take it as read that business is supposed to serve the needs of society, rather than the other way around? Seriously, how hard is this?
AS WE FORGIVE OUR DEBTORS
I don’t want to give the impression that I’m not a supporter of Strike Debt: I am, very much so, and was happy to kick in a wee donation to the Rolling Jubilee. It was a fantastic, exhilarating idea and, I believe, will start a lot of balls rolling. But it will take a lot more talk, a lot of patience with one another’s opposing ideas and a lot of detailed work in order to achieve positive results. I’m looking forward to helping, where I can. There’s such big tasks ahead, in restoring fairness to the medical system, in restoring education, and the right of hard-working young people to graduate from school free of crippling debt.
In the end it was Strike Debt organizer Amin Husain, who appeared with Taylor on the Chris Hayes show, who put his finger on the real problem, the one most worth focusing on, the one pretty much everybody, on the leftish side at least, can agree on: “No one should go into debt for basic needs.”
Related: The Livestream Ended: How I Got Off My Computer And Onto The Street At Occupy Oakland
Maria Bustillos is the author of Dorkismo and Act Like a Gentleman, Think Like a Woman.