Joe’s interesting post mentions someone advocating the above. Joe seems skeptical. Well, let me tell you — it’s already happening in the market to a large degree.
I work in the consumer-debt “industry.” One of the areas we’ve avoided to date, but are starting to move into, is the business of consumer debt settlement. You’ve all heard and seen the ads on radio and late-night TV. “We’ll settle your debt for less than 50% of what you owe!” etc., etc.
Well, although debt settlement does work, the vast majority of the companies offering it are purely out to rape the customer. They’re crooks, which is why in the past I’ve kept our group of companies from entering the field — didn’t want to be tainted by the stench.
My biggest objection was that the advertised “40-50%” was all too often a fraudulent teaser rate, and debts actually got settled closer to 70% or even 80% of the balance owed. However, that’s now changed.
We’ve just seen some examples of cash-strapped major banks calling their delinquent credit-card customers out of the blue, begging to settle their balances for 25% or less. Bank of America settled with one of our rivals’ clients for 15% of the balance owed. Fifteen percent! I’ll tell ya what, my jaw dropped.
Consumer credit-card debt used to be packaged, “securitized” and sold as a security on secondary markets, so the credit-card companies themselves got rid of the liability quickly. They can’t do that anymore. So those “assets” are now completely illiquid. What to do? Squeeze the blood out of the turnip.
It’s a new world, folks….
On the otherside is Capital One, which just sent out a string of “we’ve just doubled your interest rate” letters in hope of the same.
Citi did that too.
It’s all about what’s collectible and what’s not.
The gudwife is a retired credit collector, and she KNOWS what’s collectible.
Credit card debt is ALWAYS collectible, but the problem for the banks (or their subcontracted collector companies) is that there are built-in delays at every stage, delays which the Obama Administration and a willing liberal Congress show every sign of stretching out even more, and building in even more roadblocks for collectors.
So, it’s a matter of time. Even if the debt is rated collectible, the time it takes to collect it makes it an illiquid proposition for the banks.
The debt-owing citizens of this nation could bring the banks like Citi and Capital One to their knees in a few weeks by simply paying the absolute minimum and no more.
We are about to turn the corner into an inflationary economy, it’s the inevitable result of all this government borrowing. When the inflation happens, it will run up the interest rates quickly, and then it pays EVERY debtor to service debt as slowly as possible, for as time goes on, the value of that debt in inflation-adjusted dollars shrinks.
Personally, I don’t think that the banks can last that long. They will be crashed long before the inflation sets in, and have to be nationalized. In order to pull the nation out of it’s deadly debt-spiral, there will have to be debt forgiveness, which is another reason working against paying off debt.
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I worked as a collector for a few years and specialized in second and third placement accounts.We could settle for 65% on wells and Amex cards automatically and short rate (the agencies got 50% of recoveries) down to 50%.Beyond that,no way.Of course this was almost 20 years ago…