Rolling Jubilee: can a crowdsourced bailout of personal debt work?

A new spin-off of Occupy Wall Street wants to cancel debt. Can it?

This is an interesting thing. The Rolling Jubilee:

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.

So how does this work? Distressed debt – debt which is in default – is frequently more trouble than it is worth for banks. Those institutions specialise in making money from money they hold, not recovering money they are owed. So if they have too much trouble getting that debt repaid, they sell it on. Someone pays less than the full value of the debt, and hopes to profit by recovering it and pocketing the difference

For really troublesome debt, sometimes that value can shrink to pennies in the pound – hence the Rolling Jubilee's plan, to buy $16,000 of debt for every $500 they raise (that is, $32 for $1).

That's how it works. But will it work? Maybe.

The legal mechanics of what they are doing are pretty clearly in their favour. Debt collectors really can cancel the debt if they want.

The problem is that if you try to actually do that, you may find very quickly that people stop selling you debt.

A similar idea was proposed a while back by an organisation called American Homeowner Preservation. It also deals with distressed debt, but focuses exclusively on mortgages, buying up pools of bad loans, and restructuring them to make it easier for the homeowners to pay them off.

But the original plan was simpler still. Felix Salmon explains:

Investors would buy a house in a short sale at the market price, and then lease the home back to the homeowner until the homeowner had the ability to get a mortgage and buy it back at a pre-set price.

The idea might have been elegant, but it didn’t work in practice, because the banks wouldn’t play ball: they (and Freddie Mac) simply hated the idea of a homeowner being able to stay in their house after a short sale, and often asked for an affidavit from the buyer saying that the former owner would certainly be kicked out.

There's not really any cold hard economics at play here. The banks have no reason to care what happens to a house after they've sold the mortgage for it, but they do. The best explanation for their stubbornness is that they fear that organisations like American Homeowner Preservation are creating a sort of moral hazard by reducing the penalties for defaulting on mortgages.

Will the debtholders be similarly reluctant when it comes to playing along with Rolling Jubilee? We'll see, but I don't have high hopes for a change in tactics any time soon.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Jeremy Corbyn's Labour conference speech shows how he's grown

The leader's confident address will have impressed even his fiercest foes. 

It is not just Jeremy Corbyn’s mandate that has been improved by his re-election. The Labour leader’s conference speech was, by some distance, the best he has delivered. He spoke with far greater confidence, clarity and energy than previously. From its self-deprecating opening onwards ("Virgin Trains assure me there are 800 empty seats") we saw a leader improved in almost every respect. 

Even Corbyn’s firecest foes will have found less to take issue with than they may have anticipated. He avoided picking a fight on Trident (unlike last year), delivered his most forceful condemnation of anti-Semitism (“an evil”) and, with the exception of the Iraq war, avoided attacks on New Labour’s record. The video which preceded his arrival, and highlighted achievements from the Blair-Brown years, was another olive branch. But deselection, which Corbyn again refused to denounce, will remain a running sore (MPs alleged that Hillsborough campaigner Sheila Coleman, who introduced Corbyn, is seeking to deselect Louise Ellman and backed the rival TUSC last May).

Corbyn is frequently charged with lacking policies. But his lengthy address contained several new ones: the removal of the cap on council borrowing (allowing an extra 60,000 houses to be built), a ban on arms sales to abusive regimes and an arts pupil premium in every primary school.

On policy, Corbyn frequently resembles Ed Miliband in his more radical moments, unrestrained by Ed Balls and other shadow cabinet members. He promised £500bn of infrastructure investment (spread over a decade with £150bn from the private sector), “a real living wage”, the renationalisation of the railways, rent controls and a ban on zero-hours contracts.

Labour’s greatest divisions are not over policy but rules, strategy and culture. Corbyn’s opponents will charge him with doing far too little to appeal to the unconverted - Conservative voters most of all. But he spoke with greater conviction than before of preparing for a general election (acknowledging that Labour faced an arithmetical “mountain”) and successfully delivered the attack lines he has often shunned.

“Even Theresa May gets it, that people want change,” he said. “That’s why she stood on the steps of Downing Street and talked about the inequalities and burning injustices in today’s Britain. She promised a country: ‘that works not for a privileged few but for every one of us’. But even if she manages to talk the talk, she can’t walk the walk. This isn’t a new government, it’s David Cameron’s government repackaged with progressive slogans but with a new harsh right-wing edge, taking the country backwards and dithering before the historic challenges of Brexit.”

After a second landslide victory, Corbyn is, for now, unassailable. Many MPs, having voted no confidence in him, will never serve on the frontbench. But an increasing number, recognising Corbyn’s immovability, speak once again of seeking to “make it work”. For all the ructions of this summer, Corbyn’s speech will have helped to persuade them that they can.

George Eaton is political editor of the New Statesman.