Re: This is pretty neat

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Huh, interesting. Here's the website for the project itself (linked from the post linked in the OP, but we all know people don't click links).


Posted by: teofilo | Link to this comment | 11- 8-12 9:10 PM
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In other Occupy news, Occupy Sandy has come up with an innovative way of soliciting in-kind donations.


Posted by: teofilo | Link to this comment | 11- 8-12 9:12 PM
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Ha, that's awesome.


Posted by: nosflow | Link to this comment | 11- 8-12 9:15 PM
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Jeff Mangum! Two tickets bought ($1,000 of debt allegedly taken care of).


Posted by: Mr. Blandings | Link to this comment | 11- 8-12 9:23 PM
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Is this like buying slaves .


Posted by: James B. Shearer | Link to this comment | 11- 9-12 12:29 AM
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||

Barry Rittholz links to a neat Infographic on the demographics of 2008 and 2012 elections. Everything you want to know, or enough

|>


Posted by: bob mcmanus | Link to this comment | 11- 9-12 3:28 AM
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5: Jesus, Shearer, you're really managing to be offensive.

Slavery is illegal everywhere, and people can not own other people for obvious reasons. Debts are legal. This is finding a way to discharge debts which are valid legal obligations,


Posted by: Bostoniangirl | Link to this comment | 11- 9-12 4:49 AM
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... This is finding a way to discharge debts which are valid legal obligations,

Are you sure? Most packages of debt selling for pennies on the dollar will contain lots of debt which for one reason or another (already paid, discharged in bankruptcy, statute of limitations expired, inadequate documentation etc.) is not a valid legal obligation.


Posted by: James B. Shearer | Link to this comment | 11- 9-12 5:43 AM
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What was your point, James? Obviously, it's like it in some respects, but unlike it in others.


Posted by: beamish | Link to this comment | 11- 9-12 6:14 AM
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What was your point, James? ...

It seems funny for you all to be enthusiastic about a program whose clearest beneficiaries would appear to be speculators in near worthless debt obligations.

And I wonder how the exact debts purchased and forgiven were chosen, there seems to be a lot of potential for various forms of chicanery.


Posted by: James B. Shearer | Link to this comment | 11- 9-12 6:26 AM
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5: A little different because the point isn't that debt per se is illegitimate, just that there's too much of it. Simikar problems, though (especually in terms of, as you point out, rewarding spurious claims).


Posted by: Benquo | Link to this comment | 11- 9-12 6:28 AM
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It seems funny for you all to be enthusiastic about a program whose clearest beneficiaries would appear to be speculators in near worthless debt obligations.

Well, they're not slavers. They aren't even con men or pimps. They're more like repo men. And the people whose debt is relieved are equally clear beneficiaries.


Posted by: beamish | Link to this comment | 11- 9-12 6:30 AM
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12: When the debt isn't legal, they are effectively scammers.


Posted by: Benquo | Link to this comment | 11- 9-12 6:33 AM
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And if the debts are legal, you're suppporting the debt market by making risky lendinng more profitable. It's still nice for the debtors, but it doesn't necessarily reduce the smount of total debt.


Posted by: Benquo | Link to this comment | 11- 9-12 6:37 AM
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OF COURSE, they would schedule it for Give To The Max Day, when every nonprofit in Minnesota is scheming to get the biggest contributions possible from its donor base. Otherwise, seems like a great idea.


Posted by: Natilo Paennim | Link to this comment | 11- 9-12 6:42 AM
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I also suspect this is overpaying for debt that isn't actually collectable for either legal or practical reasons. I've mentioned this before, but I think my dad had a relevant story. An elderly woman came to a charity he volunteered at because she couldn't pay her bills. She was living on social security and paying off what had started as few thousand in debt before it ballooned over the years. Without making payments on the debt, she was solvent. Dad wasn't going to take charity and shift it to a bank, so he told her to stop paying, sent them a letter saying he was now representing her for this matter*. After that, they couldn't contact her about the debt and when they contacted him he said he advised her not to pay and that they could have all the fun they wanted trying prove to themselves that the debt was uncollectable but that he wasn't going to waste his or her time/money by formally filing bankruptcy on that small of an amount.

*I think you have to be an lawyer for that part to work.


Posted by: Moby Hick | Link to this comment | 11- 9-12 6:43 AM
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Go easy on James Shearer, he's got a lot to deal with these days and can't be expected to understand why people would be nice to other people quite yet.


Posted by: text | Link to this comment | 11- 9-12 6:55 AM
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12

... And the people whose debt is relieved are equally clear beneficiaries.

Normally when a debt is forgiven the amount forgiven becomes taxable income to the debtor. The article said the program was cleared by the IRS so maybe they have found some way around this but if not the debtor could end up worse off.


Posted by: James B. Shearer | Link to this comment | 11- 9-12 7:02 AM
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As Moby shows in 16, Shearer is asking valid questions.


Posted by: peep | Link to this comment | 11- 9-12 7:20 AM
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18: Debt forgiveness is not taxable if the debtor demonstrates insolvency to the IRS*. A friend of mine went through this process after debt he'd long since forgotten existed was written off by the lender and my friend got a tax bill for it. It took a little effort, but he put together documentation of his indebtedness (substantial) and assets/income and was thereafter not liable for the tax.

* I am not a tax professions. This is not legal advice. This should be treated like any other blowhard on the internet -- iow, if you don't believe me, look it up.


Posted by: Di Kotimy | Link to this comment | 11- 9-12 7:40 AM
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"This is not a pipe."


Posted by: Moby Hick | Link to this comment | 11- 9-12 7:48 AM
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The thing in the OP sounds mostly stupid to me. It has the problem that James and Moby point out. It's a purely neoliberal solution: there is no solidarity or collective aid, just individuals making donations of money to buy help for people they don't know. The one thing I'll say in its favor is that it might create awareness of the nature of debt as a malleable, constructed reality -- that even within a properly functioning capitalist system a debt is often not worth what it says on its face, and in fact a collective action can make debt go away entirely. If a few well-meaning Brooklynites can disappear some debt using a charity concert and some iPhone credit-card readers, maybe a much bigger collective can disappear, say, all the consumer debt in the United States by deciding it's no longer valid.


Posted by: Bave | Link to this comment | 11- 9-12 7:49 AM
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16 is just jam-packed with good points. If they are buying up debt that would otherwise be noncollectable (or extremely difficult to collect) is it effectively bailing out the lenders? Is that a bad thing? It encourages risky lending, on the one hand, per Benquo's analysis in 14. On the other hand, if reducing the cost/risks to lenders encourages lending, that potentially serves to stimulate the economy -- if people can borrow more money, they can spend more money. Does it reduce the cost/risk to lenders? Is the program substantial enough (or likely to become substantial enough) to have a meaningful effect on the market for buying up debt?


Posted by: Di Kotimy | Link to this comment | 11- 9-12 7:50 AM
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Yeah, if people were buying off real debt and forgiving it, that would be one thing... but if you can spend $500 to forgive $14,000 in debt, it basically means that the lenders have already written off the $14,000 as a total loss.


Posted by: Disingenuous Bastard | Link to this comment | 11- 9-12 7:54 AM
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Is there an application process? I would like my student loans and my mortgage to go away.


Posted by: urple | Link to this comment | 11- 9-12 7:54 AM
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25: If I can buy your mortgage for 3.6 cents of the dollar, I'm keeping it.


Posted by: Moby Hick | Link to this comment | 11- 9-12 7:56 AM
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Heh, of course this event takes places at (the) Red Fish.


Posted by: Mister Smearcase | Link to this comment | 11- 9-12 8:21 AM
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I'm not quite getting what the plan is supposed to accomplish. If it's possible to settle over $10,000 in debt for $500, that means that the creditor has decided that it's not going to be collectible for some reason, right? So how would one be certain that one wasn't paying an unscrupulous lender for something he couldn't collect on?

It might be a good idea anyway from the perspective of the person in debt, but I wonder if it might be better to put that money towards basically retaining Moby's dad to yell at lenders.


Posted by: Cala | Link to this comment | 11- 9-12 8:27 AM
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If it's possible to settle over $10,000 in debt for $500, that means that the creditor has decided that it's not going to be collectible for some reason, right?

It stops the creditor from selling the right to collect the debt to some unscrupulous bottom-feeding debt collector, the attentions of whom can be severely burdensome for a debtor. Sometimes they crop up years after the original debt was incurred, often paying scant attention to legal standards for fair debt collection practices.


Posted by: knecht ruprecht | Link to this comment | 11- 9-12 8:33 AM
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I would guess that it improves the debtors' credit ratings and might save them from financial ruin. For pennies on the dollar. Yeah, why would anyone want to do that?


Posted by: text | Link to this comment | 11- 9-12 8:36 AM
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I presume Youtube asks you whether you want your uploaded video to be one of the ones that might potentially make money from advertising. If you say you do, even if you don't expect it to get more than 500 views, it's right that you then have to pay for licensing if it somehow goes viral and starts actually getting advertising revenue.

Yet the response of "Oh come on! How lazy do you have to be to not make a deal with Rumblefish before you upload one of these things?" is still aggravating.


Posted by: Cryptic ned | Link to this comment | 11- 9-12 8:39 AM
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Oh come on! How lazy do you have to be to not get this on the right thread?


Posted by: Moby Hick | Link to this comment | 11- 9-12 8:42 AM
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28.2: Cala speaks truth.


Posted by: Moby's Dad | Link to this comment | 11- 9-12 8:42 AM
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29: How do you know it stops that? Can you get paper work and give it to them on this? I suspect that if the person claiming to own the debt actually had physical paper, they wouldn't see it for that cheap.


Posted by: Moby Hick | Link to this comment | 11- 9-12 8:47 AM
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33: I don't think he actually knows my pseud.


Posted by: Moby Hick | Link to this comment | 11- 9-12 8:48 AM
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There is a continuum between a debt being "real" and being worthless. It's completely normal, as I recall from a New Yorker article about a company that specialized in this, for credit card companies and other creditors to sell off debt for less than its face value when it gets hard to collect; purchasers buy it on the assumption that they can collect more than the sale value, and per 29, they can get very exploitative in this effort.

So if this group buys a debt for 25 cents on the dollar, for which otherwise professional collectors would have hounded and made miserable insolvent people to collect 50 cents, and writes it off, the debtors are made better off by 25 cents plus all the value of not being hounded. Of course the problem is how good the group is at telling in advance whether more or less than 25 cents is actually collectible, but that just takes competence, not an oracle.


Posted by: Minivet | Link to this comment | 11- 9-12 8:57 AM
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By their own figures, they are buying debt at 3.6 cents on the dollar.


Posted by: Moby Hick | Link to this comment | 11- 9-12 9:01 AM
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It's weird that the bank will sell $10,000 of debt to $500 to some people (debt collectors, Occupy) but not others (the person in debt). By which I mean, it's not weird at all - you want to squeeze the poor sap as much as possible - but it is shitty and not very oh-the-glory-of-free-markets.


Posted by: heebie-geebie | Link to this comment | 11- 9-12 9:02 AM
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Well, 25 cents on the dollar is 7 times the amount bragged about in the link in the OP.


Posted by: Disingenuous Bastard | Link to this comment | 11- 9-12 9:05 AM
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25 cents was for illustration. I have no idea what the going rates are.


Posted by: Minivet | Link to this comment | 11- 9-12 9:07 AM
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The bank is just an agent for its depositors, who are themselves in principle widows and orphans hoping to live on the interest of their capital.


Posted by: lw | Link to this comment | 11- 9-12 9:07 AM
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The bank is people.


Posted by: Moby Hick | Link to this comment | 11- 9-12 9:12 AM
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Soylent green is banks!


Posted by: heebie-geebie | Link to this comment | 11- 9-12 9:15 AM
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29: Right. So I can see good reasons for someone to settle just to get unscrupulous types off their case, but I'm not confident that they generalize to the aims of a social movement (which presumably wants to do more than make it profitable to be a threatening type with undocumented debt to collect on.)

30: I'm pretty sure that getting someone to write off debt ends up being hell on your credit rating anyway. And if it's really just pennies on the dollar, that suggests it's not debt that the creditor had a lot of hopes of collecting through more legit means. Again, it might be beneficial all things considered.


Posted by: Cala | Link to this comment | 11- 9-12 9:15 AM
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It's really hard to get money out of people who won't pay it. We don't have debtor's prisons. So debt gets discounted when it's sold to third parties. This is true of all debt, even very legitimate debt. So this system takes advantage of that -- consumers help other consumers pay off their debts, rather than banks passing on the debt to other debt handlers. The benefit to consumers seems pretty obvious to me. Maybe I'm missing something.

If the debt is truly illegitimate, the consumer can probably continue to challenge it. If not, that's an error in this model that could be fixed.


Posted by: text | Link to this comment | 11- 9-12 9:34 AM
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From what I understand, this system prevents anyone from having to write off the debt. They're selling it to a third party -- which is a consortium of consumers who have no plans to collect it. No write-off.


Posted by: text | Link to this comment | 11- 9-12 9:35 AM
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Despite not knowing the going rates, though, I wouldn't automatically assume it's completely infeasible to collect just because it's sold for pennies on the dollar.


Posted by: Minivet | Link to this comment | 11- 9-12 9:38 AM
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I would be surprised if the OWS people are ignorant of the sorts of things people are pointing out here, but there isn't actually a ton of information about the way the program is supposed to work.


Posted by: nosflow | Link to this comment | 11- 9-12 9:38 AM
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It's not infeasible. There's an entire industry of debt collectors who are in the business of collecting debts that other people can't. This type of charity would directly eat into that sector.


Posted by: text | Link to this comment | 11- 9-12 9:40 AM
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It's weird that the bank will sell $10,000 of debt to $500 to some people (debt collectors, Occupy) but not others (the person in debt). . . . [i]t is shitty and not very oh-the-glory-of-free-markets.

I have a semi-relevant link, let me see if I can find it.

. . .

Nope, can't find it. But I remember years ago reading a column by an owner of a game store who commented that when he had to sell old stock at a discount he would never sell to his own customers, but would sell in bulk to another retailer or on eBay.

It caught my attention because in High School I was the sort of person who spent a lot of time browsing discount bins at the game and comic book stores, and so my first reaction was, "why not reward your customers." But his explanation made sense to me -- you don't want your customers to learn that if they don't buy a new product line that eventually the price will drop. You want them to learn that if they don't buy a product line eventually it will go away.

That's probably less clearly a good strategy now in the days of internet retailers, but it was an interesting column.

The closest I can find is this.

I don't bother with more than 70% or sometimes 80% off. It's not worth the effort at that point. The dollar or two you get isn't worth the storage space or sales effort. At some point, you're financially better of throwing dead product away and using that space to sell items of greater value.

... Blow stuff out at a convention and don't worry about poisoning your own customer base with deep discounts. If you have off-site storage, you can hold products there until the next sales opportunity.


Posted by: NickS | Link to this comment | 11- 9-12 9:42 AM
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46: Debt that gets sold at a discount* is written off when it is sold or before if the bank is honest (which it isn't). If a bank sells debt worth $1,000 for $36 dollars, they write off that difference.

The credit rating hits have happened prior to it being sold also. They start to happen as soon as the debtor isn't current on the debt.

* A discount above time/interest.


Posted by: Moby Hick | Link to this comment | 11- 9-12 9:42 AM
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46. Works for beer money, which is after-tax and not deductible, but not for anything organized well enough to have filed paperwork, I think.


Posted by: lw | Link to this comment | 11- 9-12 9:42 AM
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Guess who said it!

The question you have to ask yourself here is "why is this a better idea than just giving money to poor people"?


Posted by: Cryptic ned | Link to this comment | 11- 9-12 9:47 AM
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So let's say that I am a person in debt. There is probably some advantage for me in a third party buying the debt and erasing it, rather than buying it and trying very hard to collect it from me, right?


Posted by: text | Link to this comment | 11- 9-12 9:48 AM
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We don't have debtor's prisons.

Well, maybe not technically.


Posted by: potchkeh | Link to this comment | 11- 9-12 9:49 AM
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So let's say that I am a person in debt. There is probably some advantage for me in a third party buying the debt and erasing it, rather than buying it and trying very hard to collect it from me, right?

Oh, I don't see any reason why you would benefit more from somebody spending $1,000 for your $20,000 debt and erasing it, when they could just give you $1,000.


Posted by: Cryptic ned | Link to this comment | 11- 9-12 9:51 AM
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53: Is his question "Why would someone want to get rid of a dollars worth of debt and debt collectors when they could have 25 cents?"?


Posted by: Eggplant | Link to this comment | 11- 9-12 9:51 AM
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54: Probably, but you could probably get the same advantages with some legal advice without creating a bad incentive for creditors to never, ever give up on collecting a debt.


Posted by: Moby Hick | Link to this comment | 11- 9-12 9:52 AM
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Cryptic pwned, and he got a better rate.


Posted by: Eggplant | Link to this comment | 11- 9-12 9:55 AM
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Yiggles says "Well, it's a pretty great idea..." so I think we can assume I'm right.


Posted by: Moby Hick | Link to this comment | 11- 9-12 9:56 AM
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58 is my point. I'm not agreeing with Yglesias (though to be fair, he is asking not "why is it not better to give someone $1000 than wipe out their debt?" but "why should I prefer charity to someone in debt over charity to someone who is struggling just as much but not in debt?") And maybe the OWS people have done the math and figured out that this is a better way to get a lot of people out of debt faster even with the risk of the bad incentives.


Posted by: | Link to this comment | 11- 9-12 9:58 AM
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Oh, I don't see any reason why you would benefit more from somebody spending $1,000 for your $20,000 debt and erasing it, when they could just give you $1,000.

The reason would be that they, as a third party, can erase the debt for $1,000, while you, as the debtor, cannot.


Posted by: text | Link to this comment | 11- 9-12 10:00 AM
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61: If the OWS people are getting enough information to price the debt correctly, it might be worth it. I still think the money would be better used working to stop bad collection practices and remind people of their rights.


Posted by: Moby Hick | Link to this comment | 11- 9-12 10:02 AM
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I think it's an ingenious way for debtors to pool their resources to eliminate debts that would otherwise stay on the books.


Posted by: text | Link to this comment | 11- 9-12 10:07 AM
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Let's say we all have credit card debt that we can't individually pay. But we could pay it if it were offered on the same terms that it would be offered to a debt collector. We create a separate entity to compete with the debt collector, and fund it. Only this entity doesn't collect. Win.


Posted by: text | Link to this comment | 11- 9-12 10:09 AM
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You'd have to be really secret to do that if you wanted the bank to cooperate. The reason a bank won't sell your debt back to you for partial value is that the information disparity hurts them. You know more about how much money you have or are likely to get than they do. Banks selling still-pool debt to a disconnected third party like OWS are fairly certain that they know more than the buyer.

For example, if the debt is worth 10 cents on the dollar, they mean that in an aggregated statistical sense. Most of those debts are worth nothing because the person who owes the money doesn't have it and has no reasonable prospects of getting it. Some are worth a dollar or close to it. If a bank suddenly announces they'd take ten cents on the dollar for those debts, nearly all of the people who could actually pay them back would take the deal and nearly all of those who never expect to have any money would bother. The bank would in the end collect far less than ten cents on the dollar.


Posted by: Moby Hick | Link to this comment | 11- 9-12 10:18 AM
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I worry that even in the best of circumstances, any program like this that got big enough to be some use would have the effect of driving up the price of discounted debt.


Posted by: LizardBreath | Link to this comment | 11- 9-12 10:38 AM
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I'm going to start my own debt collection agency, refuse to pay my debt, then buy my debt and forgive myself.
I wonder if debt collectors ever actually do that.


Posted by: SP | Link to this comment | 11- 9-12 10:48 AM
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Called myself up on the phone, just to see if I was home. Asked myself out on a date, told myself not to be late. Walked myself to the picture show, sat myself in the second row. Wrapped my arm around my waist, got so fresh I slapped my face.


Posted by: heebie-geebie | Link to this comment | 11- 9-12 10:50 AM
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Lost a bet, bought my own debt?


Posted by: SP | Link to this comment | 11- 9-12 10:51 AM
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Got so big, let myself renege.


Posted by: heebie-geebie | Link to this comment | 11- 9-12 10:52 AM
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Doubled down, fuck you clown.


Posted by: JP Stormcrow | Link to this comment | 11- 9-12 10:53 AM
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You'd have to be really secret to do that if you wanted the bank to cooperate.

Or you would just have to start a charity that performs this function and then get lots of consumers to contribute to it.


Posted by: text | Link to this comment | 11- 9-12 10:59 AM
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would have the effect of driving up the price of discounted debt.

It's just one additional market participant. If it improves consumers' finances it might ultimately have the opposite effect, putting them in a better position in negotiating for new debt.


Posted by: text | Link to this comment | 11- 9-12 11:02 AM
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Interestingly, this charity seems to kind of encapsulate in microcosm the problems with the Occupy movement.


Posted by: Robert Halford | Link to this comment | 11- 9-12 11:03 AM
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I AM MY OWN DEBTOR


Posted by: OPINIONATED GRANDPA | Link to this comment | 11- 9-12 11:03 AM
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fuck you clown was doubled down on quite a while ago.


Posted by: text | Link to this comment | 11- 9-12 11:03 AM
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You said, "we all have credit card debt we can't pay individually" making me think of a pure combination of debtors.


Posted by: Moby Hick | Link to this comment | 11- 9-12 11:04 AM
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78 to 73.


Posted by: Moby Hick | Link to this comment | 11- 9-12 11:04 AM
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Interestingly, this charity seems to kind of encapsulate in microcosm the problems with the Occupy movement.

That by eliminating collective action problems, consumers have a real opportunity to fuck over banks?


Posted by: text | Link to this comment | 11- 9-12 11:05 AM
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Let's say that, of the people who contribute to the charity, a significant number also have credit card debt. Is that impossible?


Posted by: text | Link to this comment | 11- 9-12 11:06 AM
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I'm going to start my own debt collection agency, refuse to pay my debt, then buy my debt and forgive myself.

This probably doesn't work. However, if you and a friend both start debt collection agencies, and then buy each other's debts, you're golden.


Posted by: urple | Link to this comment | 11- 9-12 11:11 AM
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80: I don't think it is a collective action problem as I think most of these debts are not collectable as a practical matter. That is, the cost of the recovery of the debt times the odds of recovery is greater than the amount owed. I think it is free money to banks or a real opportunity to fuck over the charitable.


Posted by: Moby Hick | Link to this comment | 11- 9-12 11:11 AM
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"Fucking over the charitable" would be a great name for a rent-by-the-hour motel with a Goodwill store on the ground floor.


Posted by: Moby Hick | Link to this comment | 11- 9-12 11:14 AM
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This is hardly a new concept. Corporate entities are often (read: constantly) in the business of buying and selling each other's debt. That creates an incentive for a corporation to create a shell entity to buy its own debt from a third party at better terms than it could pay off the debt itself. That's illegal. But if the companies are distinct but related -- if they are separate entities with the same overall financial interests -- it wouldn't be. It happens. This charity is just a way for consumers to do the same thing.


Posted by: text | Link to this comment | 11- 9-12 11:17 AM
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Wow, 80 to 90 percent of you are totally full of shit.


Posted by: text | Link to this comment | 11- 9-12 11:18 AM
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Possible outcome: Occupy buys up a lot of debt, and does not seek to collect, freeing the debtors from their obligations. Then Occupy is hit with a massive expense, probably a fine for demonstrating without a permit or something like that. Occupy can't pay the fine, so it is forced to liquidate. A debt collection agency buys up all of the debt that Occupy had held . . .


Posted by: unimaginative | Link to this comment | 11- 9-12 11:18 AM
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Yes, but this is buying and selling debt at the bottom end of the barrel where the debt is worthless in all but a statistical sense. This is debt that somebody couldn't collect that was sold to a debt collector who also couldn't collect. Paying on it is just free money for the debt collectors and will encourage them to never ever just write a debt to zero.


Posted by: Moby Hick | Link to this comment | 11- 9-12 11:20 AM
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Interestingly, this charity seems to kind of encapsulate in microcosm the problems with the Occupy movement.

For the record, I don't think there was a problem with the Occupy movement. The complaints about them not having an agenda, or whatever else, were just more of the system being rigged against them - which is their entire complaint. That the system is rigged to reward the top.

Furthermore, for the first time in my entire life, inequality registered on the mainstream media as a political issue. That's huge.


Posted by: heebie-geebie | Link to this comment | 11- 9-12 11:23 AM
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Paying on it is just free money for the debt collectors and will encourage them to never ever just write a debt to zero.

This is where you commit yourself to the 80-90 percent. The charity buys debt from banks, not debt collectors. Debt collectors already have the incentive never to write a debt to zero -- they pay for the debt up front, and whatever they collect is income. And you know both of those things.


Posted by: text | Link to this comment | 11- 9-12 11:24 AM
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87: presuambly they've set up a bankruptcy-remote special puropse entity for this charity, so even if "Occupy" were forced to liquidate (nb: it's unclear to me that "Occupy" a legal entity, rather than an assembly of persons, but I haven't paid close attention to that) it wouldn't impact this charity.

I mean, that's a simple and obvious solution. It would indeed be stupid if they hadn't done that, but I've seen no reason to assume OWS is stupid.


Posted by: urple | Link to this comment | 11- 9-12 11:24 AM
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90: I'm the 47%, not the 80-90 percent.

Also, link please on where they say they are buying the debt from banks.


Posted by: Moby Hick | Link to this comment | 11- 9-12 11:26 AM
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special puropse entity

Sorry, I meant special purpose entity. Or maybe special porpoise entity, I'm not sure.


Posted by: urple | Link to this comment | 11- 9-12 11:27 AM
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If anything, debt at the consumer scale is worth more in real terms than corporate debt -- in means more in the debtor's life and there are fewer ways of getting out of it.


Posted by: text | Link to this comment | 11- 9-12 11:28 AM
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I think this is a fairly stupid idea. But at least its innovative. If they have 10 stupid ideas like this, maybe one will turn out to be not so stupid.


Posted by: Spike | Link to this comment | 11- 9-12 11:28 AM
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Maybe we should have just conditioned the bank bailout on forgiveness of some amount of debt.


Posted by: Di Kotimy | Link to this comment | 11- 9-12 11:29 AM
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I'm not in the business of providing links for people for whom I have no respect. If you want me to try to amuse you, Moby, you should probably try to amuse me first.


Posted by: text | Link to this comment | 11- 9-12 11:30 AM
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85: if you buy the debt at close to 100 percent of face value, then you may as well give the money directly to the person in debt. If you buy the debt at 3 percent of face value, the bank is acknowledging that they had virtually no chance of collecting the debt anyway, but you get to brag about a 30:1 return on your investment.


Posted by: Disingenuous Bastard | Link to this comment | 11- 9-12 11:30 AM
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Interestingly, this charity seems to kind of encapsulate in microcosm the problems with the Occupy movement.

To wit?


Posted by: nosflow | Link to this comment | 11- 9-12 11:32 AM
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Following links, this is an initiative of the group Strike Debt, whose Debt Resistors Operations Manual looks both interesting and not un-serious. Here's their page to learn more about goals and methods of the organization.


Posted by: urple | Link to this comment | 11- 9-12 11:32 AM
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If they have 10 stupid ideas like this, maybe one will turn out to be not so stupid.

You're thinking of the 90% movement.


Posted by: heebie-geebie | Link to this comment | 11- 9-12 11:32 AM
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I might be easily baited, but I'm not going to respond substantively to someone who admits directly to being what I would only be showing him to be.


Posted by: text | Link to this comment | 11- 9-12 11:33 AM
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I think Occupy was great in its moment, but this kind of thing (I think) is why they felt so ephemeral, and why one wishes they were more directly linked to policy and a more specific agenda. But Spike in 95 has a good point -- hopefully this is just one of a bunch of different ideas.

Anyhow, it's nice to know that the leading left-wing academic specialist on consumer debt is now a US Senator.


Posted by: Robert Halford | Link to this comment | 11- 9-12 11:33 AM
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heebie is definitely a member of the 90%


Posted by: text | Link to this comment | 11- 9-12 11:34 AM
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What are they doing to get the forgiven debt off credit reports? By the time debt gets really deeply discounted it is more about the credit score than the money. Not sure what the ability/rules/procedures are for that.

For the record, I don't think there was a problem with the Occupy movement.

My feeling is that Occupy was a big success for what it was/is, but you need more organization and hierarchy than what Occupy has to get over the top to enacting change. That doesn't mean Occupy wasn't a major success in influencing the debate.


Posted by: PGD | Link to this comment | 11- 9-12 11:35 AM
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I think this would work better if, after buying the debt, Occupy tried to sell it back to the individual debtors at the cost that they paid, plus a very small premium. Then they could re-invest the proceeds to buy more debt, and it could be a self sufficient enterprise, rather than having to rely on contributions that will only last for as long as people find this approach to be a novel thing.


Posted by: Spike | Link to this comment | 11- 9-12 11:36 AM
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Anyhow, it's nice to know that the leading left-wing academic specialist on consumer debt is now a US Senator.

This. (And she happens to be a vocal supporter of OWS, as you probably know.)


Posted by: urple | Link to this comment | 11- 9-12 11:37 AM
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Mostly unrelated, but the company Jammies works for has a depressing debt story. Basically the company turns a profit each quarter, but is saddled with something like 11 billion dollars in debt that it will never be able to pay off.

2006 you have a nice, somewhat profitable, public company. Some venture capitalists decide to buy it and take it private. They buy it for $4 over the share price. They pay 2 billion and borrow 11 billion on the company's tab. All the CEOs are bought off with 10-50 million dollars to leave the company.

The company is private. It's doing basically fine-ish, except for the 11 billion in debt. The venture capitalists need to take it public because debt is coming due. It lists for about $15 lower than it was listed for when they over paid for it (largely because the economy tanked).

They somehow recoup their $2 billion and bolt. Now this company somehow refinances this 11 billion whenever they can, because they'll never be able to pay it off.

The whole thing is mind-boggling to me.


Posted by: heebie-geebie | Link to this comment | 11- 9-12 11:37 AM
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I'm not going to respond substantively to someone who admits directly to being what I would only be showing him to be.

Oh yeah, I would hardly want to distract you from your unpleasant performance art trolling. Please carry on with God's work good sir.


Posted by: Disingenuous Bastard | Link to this comment | 11- 9-12 11:37 AM
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105 is pretty much what I was trying to say.

100 is also interesting.


Posted by: Robert Halford | Link to this comment | 11- 9-12 11:38 AM
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Maybe somebody should have a bake sale for them.


Posted by: Moby Hick | Link to this comment | 11- 9-12 11:38 AM
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I think this would work better if, after buying the debt, Occupy tried to sell it back to the individual debtors at the cost that they paid, plus a very small premium/

And if the individual debtors don't pay up... sell it back to the debt collectors?


Posted by: urple | Link to this comment | 11- 9-12 11:39 AM
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113

111 to 108.


Posted by: Moby Hick | Link to this comment | 11- 9-12 11:39 AM
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And if the individual debtors don't pay up... sell it back to the debt collectors?

Of course some wont, but in many cases you could work with the individual debtors to refinance, and by doing so help people rebuild credit.

I think you would get a lot of takers, given that people can now clear their debt at 4% of the original debt, rather than 100%.


Posted by: Spike | Link to this comment | 11- 9-12 11:47 AM
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108: Sounds like a good candidate for a going-concern bankruptcy (I think that's called chapter 11).


Posted by: Benquo | Link to this comment | 11- 9-12 11:50 AM
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108: That's leveraged buyouts in a nutshell, right? (See also "Bain Capital, practices of")


Posted by: Nathan Williams | Link to this comment | 11- 9-12 11:52 AM
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Yeah, the situation in 108 is exactly what Chapter 11 is supposed to be there for (in addition to its lovely "fuck over the employees" features).


Posted by: Robert Halford | Link to this comment | 11- 9-12 11:52 AM
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Yeah, I don't really know. I just think it's bizarre that people who do not really know the product can (erroneously, in Jammies' opinion) that the stock is undervalued and the company needs to be reorganized, can massively fuck over a company, and then say "oops!" and skedaddle.

I'm not that heartbroken over the current situation, because everyone seems more or less okay, but venture capitalists sure are shitheads.


Posted by: heebie-geebie | Link to this comment | 11- 9-12 11:53 AM
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108: ah, the famous private equity bust-out. .

Eileen Appelbaum at CEPR has been doing good research on this .

[WARNING: BOTH OF THE ABOVE LINKS MERE RUMOR AND INNUENDO]


Posted by: PGD | Link to this comment | 11- 9-12 11:55 AM
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Yeah, the bust out gets it right.

AFAICT, most of corporate finance is a way to funnel money from productive enterprise and suckers into the hands of rich insiders, who then fight over the spoils.


Posted by: Robert Halford | Link to this comment | 11- 9-12 11:57 AM
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I have to get back to work, but on a quick glance 119.2 is really really really worth reading.


Posted by: Robert Halford | Link to this comment | 11- 9-12 11:59 AM
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118: The theoretical justification here is that if the company can almost service $11bn in debt, then before the buyout it was effectively sitting on a tremendous amount of cash that belonged to the shareholders. The LBO is a way to forcibly extract that cash, and the premium over the share price was the cut of the benefits that went to the shareholders at the time.

Basically they were trying to do the financing version of just-in-time inventory: your net debt should never be much below your maximum sustainable load.

This would be fine, if it really were just speculation on future cash flows, and were easier to convert debt back into equity (and come to think of it, a big equity issuance could also help solve this problem). But in practice it's not easy or smooth, and it puts companies that are operationally profitable at risk of going out of business if they don't handle things right.

The lawyers here probably know better than I do what the actual probability of going out of business in this scenario is.


Posted by: Benquo | Link to this comment | 11- 9-12 12:01 PM
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This is one of the reasons Apple's share price basically doubled because of their dividend. It means that management isn't just treating the company's money as their own piggy bank any more.


Posted by: Benquo | Link to this comment | 11- 9-12 12:02 PM
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Or at least, doing so a bit less.


Posted by: Benquo | Link to this comment | 11- 9-12 12:03 PM
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125

119.2 to 122.


Posted by: Robert Halford | Link to this comment | 11- 9-12 12:06 PM
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your net debt should never be much below your maximum sustainable load
Why?


Posted by: Eggplant | Link to this comment | 11- 9-12 12:07 PM
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118: venture capitalists or private equity types? Venture capitalists seem to me to play a semi-useful role.


Posted by: Bostoniangirl | Link to this comment | 11- 9-12 12:08 PM
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Venture capitalists are a slightly different form of fuckbag, but make no mistake: they are fuckbags.


Posted by: Robert Halford | Link to this comment | 11- 9-12 12:14 PM
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I was going to say. They also run an "extract as much cash in a limited timeframe as possible, regardless of what that does to future business viability" game.


Posted by: Sifu Tweety | Link to this comment | 11- 9-12 12:17 PM
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Right.


Posted by: Robert Halford | Link to this comment | 11- 9-12 12:20 PM
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Yes, the economist who wrote 119.2, Eileen Appelbaum, is one of the best and most thoughtful 'real world economists' in the country. She wrote another piece that is also quite responsive to 122. Shorter version: agency theory says that LBOs prevent managers from extracting value by breaking their contract with shareholders, but could it be that LBOs are designed to help buyers extract value from workers, suppliers, and communities by breaking implicit contracts with them?


Posted by: PGD | Link to this comment | 11- 9-12 12:21 PM
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They also run an "extract as much cash in a limited timeframe as possible, regardless of what that does to future business viability" game.

But at least they're first giving companies much needed growth capital, at a stage before the companies could get it from banks or public markets. So, that's something useful up front. (Unlike PE types.) Only later do they start fuckbagging.


Posted by: urple | Link to this comment | 11- 9-12 12:22 PM
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Also extremely worth reading: Lynn Stout's new book The Shareholder Value Myth . If you have been educated in the whole 'shareholders are the owners managers duty is to maximize shareholder value' ideology then that book will blow your mind.


Posted by: PGD | Link to this comment | 11- 9-12 12:23 PM
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132: eh, yes and no. They fund companies with an eye towards getting them to either profitability or salability inside of three years or so (sometimes less), which means extremely rapid growth; you might have a lot of capital but you will also have a much higher burn rate out of necessity. A lot of times that's really not the best way to build a business, and if you guess wrong about being able to pull it off in under three years you are generally completely out of luck and forced to liquidate.


Posted by: Sifu Tweety | Link to this comment | 11- 9-12 12:24 PM
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134 is right. But the only companies going to VCs are those that need money and can't get it elsewhere. (I suppose a few are flatly duped about the nature of the game, but that's got to be a small minority.) So, they're fuckbags, but they're filling a need.

PE, in contrast, preys on perfectly healthy companies--sometimes by hostile takeover, sometimes by bribing senior management with payouts.

(Painting with an unfairly broad brush in both cases, of course.)


Posted by: urple | Link to this comment | 11- 9-12 12:29 PM
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I mean, it's vastly, vastly more common for startup businesses to fail for lack of adequate capital than to fail from overaggressive growth plans.


Posted by: urple | Link to this comment | 11- 9-12 12:31 PM
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Gotta stop procrastinating now, but here is a great lecture by Lynn Stout explaining her views on shareholder ownership. One of the things that drives me nuts about claims our current system is doing the best it can is that there are so many brilliant, ultra-qualified, charismatic, eloquent people like Lynn who are nowhere in the political system. Not a chance in hell you would ever see her mentioned by the Democratic party for SEC chair. Instead we get that mediocrity Mary Schapiro. I see her as kind of a corporate law Liz Warren, and believe me Liz Warren got nothing from the Obama administration she didn't take herself. Of course when you try to appoint someone like Liz or Lynn to any position with actual power big business screams bloody murder.


Posted by: PGD | Link to this comment | 11- 9-12 12:53 PM
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136 -- Yes, that's all correct, but perhaps less so in Silicon Valley-style startup land, so the VC fuckbag ravages feel worse.


Posted by: Robert Halford | Link to this comment | 11- 9-12 12:54 PM
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137 -- I haven't read the book yet, but based on reviews I believe that Lynn Stout book should be 100% mandatory reading for all law students. Probably business/finance students as well.


Posted by: Robert Halford | Link to this comment | 11- 9-12 12:55 PM
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125: I didn't follow the links because they are mere rumor and innuendo.

I think that the POV summarized in 131 is plausible. But how do we test for a difference between the hypothesis that employees and management conspire to consume the wealth that rightfully belongs to shareholders, and the hypothesis that management honors implicit unwritted agreements with employees that were a necessary and legitimate part of their total compensation?


Posted by: Benquo | Link to this comment | 11- 9-12 1:48 PM
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In either case you would expect to see management and labor indignant when what they thought was theirs is taken away.


Posted by: Benquo | Link to this comment | 11- 9-12 1:49 PM
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You could judge by outcomes, but the existence of risk and uncertainty makes that hard to do. It could just amount to saying that the luckier you are, the more legitimate your business model is.


Posted by: Benquo | Link to this comment | 11- 9-12 1:51 PM
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the hypothesis that employees and management conspire to consume the wealth that rightfully belongs to shareholders

Isn't this too divorced from reality to be a plausible hypothesis?

(With, ironically, the only exeptions being the PE firms themselves (and possibly other finance players--investment banks like Goldman Sachs), where arguably management and employees of the firm do conspire to steal what is rightfully their investors'. But that's a ridiculous model of the broader economy.)


Posted by: urple | Link to this comment | 11- 9-12 2:18 PM
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to the OP, Natasha Lennard thinks the problem is just that the banks won't play ball, and points to a similar case where that was the result. She doesn't mention, for instance, creating incentives to never give up on debt.


Posted by: rob helpy-chalk | Link to this comment | 11- 9-12 2:46 PM
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I'm trying to figure out where we stand one whether this is a good idea. The question is whether this actually helps people in debt, or whether it is just free money for banks who have given up hope on collecting this money. It seems like these are cases where the debtor is identified--not hidden in a bundled asset--and is still being harassed by someone. Doesn't that make this a good thing, at least done in conjunction with the other debt-resistance tactics listed in 100, which seem on a par with what Moby's dad did?


Posted by: rob helpy-chalk | Link to this comment | 11- 9-12 2:52 PM
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I think the consensus (OK, just my view) is that this might lead to less harrassment in a few cases but that the Moby's Dad approach is a better means to do that, and that it's unlikely to provide meaningful "debt relief" (since these are mostly debts that have been written off anyway). While being free money for debt collectors and possibly banks. And, if this got to be a big deal it would create a peverse incentive for banks and debt collectors.

So that on balance this is kind of a gimmicky and not-that-well-thought-out idea for people who would probably be better served by more conventional tactics (including just telling debt collectors to fuck off and informing them of their current legal rights, which is a lot of what the stuff in 100 is about).

I could be wrong!


Posted by: Robert Halford | Link to this comment | 11- 9-12 3:04 PM
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17

Go easy on James Shearer, he's got a lot to deal with these days and can't be expected to understand why people would be nice to other people quite yet.

Thanks for your concern text but actually I wasn't badly affected by Sandy. I wasn't even in New Jersey when the storm hit and when I returned on Sunday things were pretty well cleaned up where I live. I was worried about my basement which has a sump pump but apparently the power wasn't out long enough to cause a problem. It helped that there wasn't as much rain as predicted and that the ground wasn't already saturated.


Posted by: James B. Shearer | Link to this comment | 11- 9-12 7:35 PM
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Glad you weathered well, James.


Posted by: Turgid Jacobian | Link to this comment | 11- 9-12 7:41 PM
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I don't want my dad to do it all. I want debt collection practices better controlled (especially documentation requirements and expiration dates) and reasonable bankruptcy laws.


Posted by: Moby Hick | Link to this comment | 11- 9-12 7:51 PM
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143: Not really. I've expensed stuff of dubious value to my employer (work-related conferences, tuition for a relevant degree). My manager approved the expenses, but she probably wouldn't have done so if she owned the company and it were her own money at stake. And I don't work for a PE firm or investment bank.


Posted by: MecBeth | Link to this comment | 11- 9-12 10:30 PM
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CEPR and Applebaum are great, as is R/o/s/e B/a/t/t, who co-authored the linked articles. (This is a new focus for her research; I've consulted with her on her previous work on why treating customer service workers like shit is counterproductive.)


Posted by: Sir Kraab | Link to this comment | 11-10-12 4:29 AM
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Furthermore, for the first time in my entire life, inequality registered on the mainstream media as a political issue. That's huge.

This propensity to blithely claim to be leading the way on things which other institutions have been doing for years makes people in the trenches fighting the good fight on these issues want to kick Occupiers in the nuts. Talk of inequality on a national level is only new if you weren't alive in 1992 during the Clinton campaign, see this speech he gave at Wharton as an example.


Posted by: gswift | Link to this comment | 11-10-12 9:23 AM
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Talk of inequality on a national level is only new if you weren't alive in 1992 during the Clinton campaign

Or Edwards in 2004. And 2008.


Posted by: apostropher | Link to this comment | 11-10-12 9:35 AM
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