Posts Tagged ‘Debt Relief’

The case for a global debt writedown

November 18, 2015

Debt that can’t be repaid, won’t be.
==Michael Hudson

Since the 1970s, every economic recovery has been weaker than the one before.  Michael Hudson, in his new book, Killing the Host, said the reason is that, with each recovery, there has been a greater overhang of debt, which drains resources from the real economy of tangible goods and useful services.

The current economic recovery has been a recovery of the financial markets, not a recovery of jobs and wages of ordinary people.   United States and European Union economic priority has been to protect bond-holders and creditors from loss.

HudsonKillingtheHost41Jz7lQkwrLHudson argued that this is unsustainable.   Either there will be a planned write-off or write-down of global debt, or there will be a financial collapse, like the one that began the Great Depression of the 1930s.  Either way, the debt will be wiped out.

His preference is for what he called a Clean Slate, as was done in West Germany in 1947 as part of a currency reform.  Basically, most German debts were canceled, except for employer wage contracts and bank accounts below a certain maximum amount (since wiping out bank debt means wiping out bank savings).

This, together with tax reform, the lifting of wage and price controls and the 1953 forgiveness and restructuring of German public debt, made possible the German economic miracle.

As Hudson admitted, this is pretty strong stuff and unlikely to be accepted.  An alternative is the enforcement of an old New York law, going back to Revolutionary times, against fraudulent conveyance.  This means that a debt is void if the lender knew in advance that it couldn’t be paid back.

If Snidely Whiplash lends money to Mrs. Innocent Goodbody, a poor widow living on Social Security, with her $250,000 house as collateral, with the expectation she won’t be able to keep up the payments and he’ll be able to foreclose on the house—that’s an example of “fraudulent conveyance.”

This applies to the subprime mortgages and “liar’s loans” prior to the 2008 financial crash.  Another concept, “accounting fraud,” applies to the bad loans that were given high debt ratings, securitized and sold to the unwary.  Canceling debt originating in fraudulent conveyance and accounting fraud would have a huge impact.

Hudson said that home mortgages could be scaled back to what is necessary to amortize a property based on its assessed value.  Or mortgages could be scaled back to 25 percent of the borrower’s income, which is what conservative lending practices require in the first place.

Congress in fact authorized a program to do just that as part of the 2008 bank bailout.  But Timothy Geithner, Obama’s Treasury Secretary, declined to implement it.

All this disrupt the financial markets and the economy generally, but Hudson wrote that it would clear the way for a good economic expansion, based on investment in the real economy, as happened in Germany.

Anyhow, he wrote, the alternative is more foreclosures, more economic hardship, more government bailouts until it becomes absolutely clear that that the debts are unpayable.   In the end, debt that can’t be paid, won’t be.


Rolling Jubilee: A people’s bailout

November 17, 2012


An offshoot of the Occupy Wall Street movement has launched a practical movement to help debtors.  It is called the Rolling Jubilee, named for the 50-year Jubilee decreed in the Book of Leviticus, in which all debts are forgiven and all Hebrew slaves freed.

Banks and other creditors sell off bad debt to collection agencies for pennies on the dollar, who try to get their investment back by hounding the debtors unmercifully.  Supporters of the Rolling Jubilee buy up that debt, and forgive it.

So far the Rolling Jubilee program has raised about $330,000 and managed to cancel more $6 million worth of debt.  I don’t know of any other form of charitable giving that is so highly leveraged.

I must confess that six months ago, I wondered about the future of the Occupy movement.   I liked what I saw of the Occupy Rochester people.  I gave them an old sleeping bag and some books for their library, and my church, which adjoins the public park where they were camping out, invited them in for supper one night a week.  But they seemed to me to be bogged down in their internal processes, and overly focused creating a model for an ideal anarchist society and in defending their right to camp out in public parks.  Still, with their slogan, “We Are the 99 Percent,” they got journalists to talking about the issue of concentration of wealth.

But the Occupy supporters did good work, along with other groups, in organizing help for victims of Tropical Storm Sandy.  If you’re trying to build a grass-roots movement among poor people, this is the way to do it—to be their friend all the time, and respond to their concerns rather than expecting them to support yours.  The old-time political machines understood this; modern political parties do not. And Occupy’s networked organization, based on anarchist principles, may have been more effective than a hierarchical organization would have been.

The Rolling Jubilee will do a lot of good, although it will not in and of itself solve the U.S. debt problem.   In fact, the nation’s moneylenders may try to put a stop to it before it can get started.   A group called American Homeowner Preservation tried to buy up defaulted mortgages, then allow the former owner to live in the house and pay rent, or take out a new mortgage based on the house’s lowered value.  Banks and the Federal Home Loan Mortgage Association wouldn’t cooperate.  Although they didn’t lose financially, they objected on general principles to foreclosed debtors being able to stay in their houses.   This was “moral hazard,” they said.

David Graeber, one of the original Occupy Wall Street members, says this reflects an assumption that needs to be challenged.  I agree.  If you borrow money, you are obligated to make a good-faith effort to pay it back, but the obligation to repay debt at compound interest is not the highest moral obligation.  Your moral obligation to provide for your loved ones comes before your obligation to moneylenders.  You are responsible for your own actions, but you are not responsible for the economic crash.  In fact, many of the individuals whose actions brought on the financial crash are the ones now trying to squeeze money out of unemployed students and underwater homeowners.  Strike Debt will have accomplished much if it gets us to questioning our assumptions about debt.

Click on Rolling Jubilee for Strike Debt’s home page.

Click on The Debt Resistors’ Operations Manual for a link to Strike Debt’s free on-line book, which informs debtors of their legal rights, suggests survival strategies and explains what’s wrong with the system.  I haven’t read it the whole way through, but what I’ve read is good information.

Click on Local Churches Partner With Occupy Sandy In Grass-Roots Relief Efforts for a report on the Occupy movement’s role in helping victims of Tropical Storm Sandy.

Hat tip to Making Light.