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Sarah Jaffe, Debtor's Revolution

Debtor's Revolution: Are Debt Strikes Another Possible Tactic in the Fight Against the Big Banks?
Sarah Jaffe

In the gorgeous, purple-and-green-lit Lower East Side headquarters of the Angel Orensanz Foundation, nearly 300 techies, activists and thinkers gathered, shouting out ideas for social justice-minded Web projects that they would break into small groups to attempt to hash out in a day.

A man in a plaid shirt stood up and told the moderator and the crowd, “I want to create a tool for organizing debt strikes.”

The man was Thomas Gokey, an artist and adjunct professor at Syracuse University, and his idea wound up one of the four “winners” at ContactCon, a conference hosted by Douglas Rushkoff that urged people to think of solutions to the problem of the corporate-controlled Internet—and by extension, the world. The project, nicknamed “Kick-Stopper,” is in the works, but Gokey notes that he's far from the only person out there suggesting, especially in the wake of Occupy Wall Street's successes, that it's time for some more serious, organized direct action around the issue of debt.

“I wanted to do this project because I kept having the same basic conversation with everyone at Zuccotti and everywhere else,” Gokey told me. “When I talk to people about what we could do that would really compel Congress and Wall Street to meet our demands or really alter the current system, we inevitably start discussing what non-cooperation with our own oppression would look like. What does it mean to stop cooperating with the banks? What we inevitably end up describing is some variation of a debt strike, simply ending our own participation in a system that exploits us.”

Are debt strikes, then, the next logical step in the fight against Big Finance's domination of the 99 percent?

Republic of Debtors

One of the fascinating things about the media dominance of Occupy Wall Street has been how the conversation has shifted away from the deficit-obsession of the last few years. Suddenly the debt that everyone is talking about is personal, individual debt—student loans, mortgages, credit cards and other ways the big banks control our lives.

“That's one of the things, debt really does tie the 99 percent together. Everyone who is under the 99 percentile saw a debt runup in the 2000s,” Mike Konczal, finance blogger and fellow at the Roosevelt Institute, told me. “You can talk about 'the richest 1 percent makes this much money,' but part of what they're making is debt. Their wealth is a claim on everyone else's future income.”

That debt was for many years a substitute for wages in the pockets of many Americans. As incomes stagnated or even shrank, credit cards and home equity filled the gap—until the housing bubble popped, leaving millions underwater on their mortgages, owing more than their homes were worth, and unable to get more credit cards or even make the minimum payments on the ones they had.

Many have noted that what happened in 2007 and 2008, when the banks were handed billions in bailouts and secret ultra-low-interest loans, was essentially a capital strike. Finance essentially said that if they didn't get bailed out, they'd shut down the system—stop lending, jam up the works, and make life miserable for everyone.

Yet those same banks, once bailed out, have flatly refused to do the same for a nation of borrowers thrown into crisis by their actions. Their argument seems simple—the borrowers knew what they were doing, it's their obligation to pay. Most borrowers agree, and struggle to make payments on credit cards with 20 percent rates and student loans for educations that didn't help them find jobs, on homes that have plunged in value thanks to predatory lending.

Rep. Hansen Clarke, a Democrat from Michigan, recently noted that in fact a record amount of consumer debt is hurting everyone, writing on his Huffington Post blog: “Such high interest rates -- and high levels of household debt more generally -- have more of an impact on most Americans' real disposable income than higher European-style levels of taxation. They reduce Americans' purchasing power, which means they reduce demand for American goods and services and, in turn, worsen our employment situation. The situation is similar with mortgages and student loans.”

So wiping out some of that debt, most of which is owed to the same banks that broke the economy in the first place, would in fact be an economic stimulus. Why has there been no action?

David Graeber, anthropologist and author of Debt: The First 5000 Years, told Naked Capitalism, “If you want to take a relation of violent extortion, sheer power, and turn it into something moral, and most of all, make it seem like the victims are to blame, you turn it into a relation of debt.”


Steven Katz, founder of Debtorboards.com, recently explained to Mother Jones how he's evaded paying $80,000 in credit card debt. His Web site informs debtors of ways they can fight back against the banks; everything from filing suit against collection agencies to shielding your assets from seizure—and it has more than 10,000 members.

A woman recently posted a video to YouTube (which thus far has over 500,000 views) calling for a debtor's revolution. “Had you left me alone I would have continued to make my payments in good faith,” she says, but the hike in her interest rate to 30 percent has changed her mind.

“There is power in numbers,” she notes, and that's where the idea of an organized strike comes in. One person can be hounded, harassed, and scared into submission, but when enough of them work together, could the banks be pressed into backing down?

Stephen Lerner, a veteran organizer with SEIU, recently was called a terrorist for suggesting that perhaps homeowners, stuck with mortgages that are more than the value of their homes and banks that refuse to write down the principal on those loans, should band together and refuse to pay their mortgages until the banks decide to negotiate. A kind of collective bargaining for homeowners whose wealth was wiped out by the financial crisis, those who cannot pay their bills and those who can (for now) but still would benefit by spending that money elsewhere.

“What is the critical mass?” Lerner asked me. “The beauty of the underwater strike is that it would cause a crisis for the banks, which would mean they couldn't ignore the issue and would be forced to negotiate with homeowners. The big question is what's the number you'd have to hit to force them to negotiate?”

“The problem is that a debt-strike will take a lot of coordination to make it work,” Thomas Gokey points out, “It can't just be one person who is willing to risk their financial life, it only works when there are millions of people who are willing to take that risk together, and they are only going to take that risk if they can feel confident that everyone else has got their back.”

That in part is what Gokey hoped to solve by bringing the debt strike idea to ContactCon, but it's not the only one. Lerner points out that the debt strike also needs targets, demands and an answer to the question, “Who pays?”

“There should be debt forgiveness, but these guys--the student loan profiteers--should eat it, not the government and taxpayers,” he points out. “The banks should pay because they destroyed the economy, they sucked 18-year-olds into predatory loans they are stuck with for life.”

Banks have already, Mother Jones notes, written off some $90 billion in credit card debt since 2008, taking it off their books because it's unlikely to ever be recovered. Some nonpayment is built into the system—as Graeber notes in his book Debt: The First 5000 Years, “A lender is supposed to assume a certain degree of risk. If all loans, no matter how idiotic, were still retrievable—if there were no bankruptcy laws, for instance—the results would be disastrous. What reason would lenders have not to make a stupid loan?”

Aside from the fact, of course, that we wound up with an $8 trillion housing bubble from just those sorts of bad loans, there is in the US one type of debt that cannot be discharged in bankruptcy, that follows you for life and that has the full power of the US government behind its collection.

I'm speaking, of course, of student loans.

The $1 Trillion Problem

The student debt bubble is officially over $1 trillion, and as Lerner noted, it largely consists of loans made to 18-year-olds under the premise that education will help them earn enough money to pay off their loans. Yet the job market is terrible (and nearly twice as terrible for young people as it is for everyone else) and meanwhile cuts to public education, both ideologically motivated, from conservatives, and because of state budget crises caused by the economic crisis the banks created, have made that education much more expensive.

In the spirit of the now-famous WeAreThe99Percent Tumblr blog and inspired by Occupy Wall Street, there is now an OccupyStudentDebt Tumblr, where students and grads post their photos and stories of their debt. “The student loan bubble may not burst with a bang, but it is slowly suffocating us,” the sidebar reads.

But student debt, as Mike Konczal has noted, is literally debt you carry for life. It has no statute of limitations, cannot be discharged under bankruptcy and the government can literally deduct it from your Social Security check. ProPublica recently investigated the struggle of severely disabled borrowers, legally allowed to have their student debts forgiven, to actually get their loans discharged.

Konczal wrote:

"As credit card and housing debt become unbearable, there’s a point at which they get written down. That point is too high, but because of various laws regarding debt collection that shift the strategy and potential end results between the actors, there’s a logic to it. As far as I can tell, there’s simply no equivalent chart, or even logic, for student loans. Because of legal choices we’ve made in how to set up this relationship, it stays forever, is virtually impossible to discharge under hardship, churns fees when it goes bad, and creditors can get to anything, including Social Security, to get it repaid. Meanwhile, we have a Great Depression-like event that is throwing college graduates into a labor market that is far too weak.”

And defaults are up anyway. Phil Izzo at the Wall Street Journal reported in August that 11.2 percent of student loans were more than 90 days past due—and if it kept rising, could pass credit card debt, which is at 12.2 percent but is on a decline.

Obama's new plan to help students with their loans will provide some relief, but only for current students. Those who have already graduated—the majority of the student loan bubble—are ineligible. Rep. Clarke suggested making private student loans, “particularly those written under unfair terms” dischargeable in a bankruptcy, which is a nice sentiment. But right now there's absolutely zero likelihood of this do-nothing Congress taking action, and Occupy Wall Street has proven that a sizable number of Americans are in a mood to do things for themselves rather than waiting for government action.

So a student debt strike might actually be the most powerful statement to make, as there are literally no other options for those stuck with the burden—many of whom form the backbone of the occupations around the country.

But Konczal warned that it's also very hard to win a battle with the government, which backs the student loans even if they are held by private banks. “The way game theorists think about bargaining is that it's very important to understand how patient each side is. The side that's more desperate will lose out. In theory the government has an infinite amount of patience. It has no kind of fidicuary cash logic, it also has people with guns and boots and jail cells and the ability to literally take out of your paycheck,” he told me.

Risking Your Financial Life?

Even without the power of the federal government behind your debts, damage to your credit rating can have long-term consequences that anyone thinking about a debt strike should consider.

Kate Sternwood (not her real name), who defaulted on her student loans after leaving the University of Massachusetts before completing her degree, told me, “My credit is so bad that I can't even do things to get good credit.” Collection agencies hounded her for private loans within the first year of leaving school; she noted that it took 5 years for the Department of Education to do the same, to tell her “We can garnish your wages.”

Colleen Williams explained what happened when she couldn't pay her loans: "When I went into default, the government began by confiscating my tax returns - if you have any outstanding debts with the government, including student loans and child support, they will keep your tax return money & supposedly apply it towards your debt, which I don't think they do, ever."

She continued, "So after years of this happening, they finally sent my defaulted loans to a collection agency. Two years after that--it does take quite a while for them to catch up to you, but they will definitely catch up to you--they started legal action to garnish my wages. Most people think that's not that big of a deal, but it is absolutely humiliating to explain to your work that you let your student loan debt go because of unemployment and now you can't even make payments on it, they want the full $35,000 (or whatever amount you owe) or they will just forcefully take it from you."

“I actually started a rehab program that brings you out of collections and puts you with a regular bank,” Sternwood said. “I paid six of the nine months of the rehab program before I got laid off in the middle of 2009.”

A report from the Consumer Financial Protection Bureau in July of this year [PDF] said of credit ratings:

“Credit scores can have a significant impact on a consumer’s financial life. Lenders rely on scores extensively in decision making, including the initial decisions of whether to lend and what loan terms to offer, for most types of credit, including mortgages, auto loans, and credit cards. Credit scores also influence the marketing offers that consumers receive, such as offers for credit cards. Further, credit scores affect account-management decisions, like raising or lowering credit limits or changing interest rates. A good credit score can mean access to a wide range of credit products at the better rates available in the market, while a bad credit score can lead to greatly reduced access to credit and much higher borrowing costs.”

The report also notes that rating consumer credit and selling access to those ratings is a $1 billion business—one quarter of which is selling consumers' ratings back to them.

Elizabeth Warren, Senate candidate, inventor of the CFPB, and bankruptcy law expert, wrote in 2009 that credit card companies had effectively gotten bankruptcy law changed in 2005 to make credit card debts harder to discharge in a bankruptcy filing as well, and pointed out the power of the other side: “Credit card companies can hire lawyers and develop extensive debt collect departments.”

Asked about the idea of a debt strike, Sternwood said, “I think the people who would be the first to strike would be the people who have already defaulted.” Once your credit is already tanked, perhaps the idea of giving it another hit isn't quite as threatening.

Making It Happen

At ContactCon, the debt strike group discussed what would be necessary to help organize debt strikes, and debated whether the best plan was to hold money in escrow or to funnel it back into the economy when not paying. The group wound up growing, and was nominated as one of the ideas people would like to see happen. Attendees voted on four, and Kick-Stopper was selected as one of Contact's “Most Actionable” ideas.

“We've tentatively planned on holding a 54-hour hackathon later in November or in early December to start building the platform and continue to work out the idea,” Gokey says. “I don't think there is any need to re-create campaigns like Move Your Money. A debt strike takes things to the next logical level and would have a much bigger impact than just moving our personal savings accounts, it would stick a wrench in the gears of capital and bring everything to a grinding halt. It would give us tremendous power to back up our demands, but it would take a complex grassroots democratic organization to succeed.”

Many ideas were discussed for the platform, which would act as a sort of social network for horizontally organized, networked strikes. Users could possibly share their personal stories as well as which banks hold their debt, and coordinate with other debtors in their area or who owe money to the same bank or for the same problem to maximize impact.

In many ways, the combination of online/offline activism is the hallmark of the Occupy Wall Street movement, organized with the help of hacker groups like Anonymous and promoted through citizen media like livestreams, camera phone videos and Twitter, but solidly grounded in real-world action. Creating a Web application to organize something like a debt strike would be another step in marrying direct action with the ability of the Web to connect people across the country.

“Contact is about unlocking the potential of the networked era, and a strong networked organizational structure is what we will need to maintain a large-scale debt strike of millions of people,” Gokey said. “In a lot of ways, a debt-strike is a low-tech thing, but our networked technology can help us organize it.”