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

[Editor’s note: A few months ago, I wrote enthusiastically about the possibilities of Strike Debt, Occupy Wall Street’s new initiative that seemed to promise a shift in the conversation to the dynamics of the neoliberal political economy, and a greater class consciousness. After releasing a Debt Resistor’s Operation Manual, the main focus of Strike Debt has shifted to a Rolling Jubilee, an anarchist-inspired “mutual aid” fundraiser that claims to have raised over $87,000 in donations in order to buy up and cancel distressed debt. While The North Star has been strongly supportive of Occupy, this current direction raises some new questions. The following article is reprinted to give an overview of the current initiative and encourage discussion – BC]

Originally posted here.

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 Magazine 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.

[Update: A comment posted on the original article by David Graeber reads: “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…”]

Tagged as: David Graeber, Ida Ince, Occupy Wall Street, Rolling Jubilee, Strike Debt