ONQ's proposal for Universal Debt Forgiveness

[onq]

In other threads you suggest that people need to live up to their responsibilites. See attached. You need to keep a consistent argument here. Why should people live up to their responsibilities when you're suggesting that the most irresponsible move of all could be possible, ie "universal debt forgiveness".

http://www.askaboutmoney.com/showthread.php?t=159486

I am well aware of what I've posted and indeed the article I quoted at the start of this thread was originally part of a longer post in which I tore the basic premise apart because of its divisive nature.
I decided not to post that at this time because I wanted to investigate the premises of debt forgiveness as a matter of principle, not accountancy figures.
I've been assuming most people can understand the benefits that accrue when someone is adopting an extreme position, but I'll have to elaborate.

The importance of arguing both sides of a point is that it brings huge perspective to any debate.

My current proposition takes the concept of debt forgiveness to the ultimate.
It exposes the criminality of the players to date and it questions the viability of the bootstrapping of debt that currently exists.
These issues are accepted as "givens" in any limited arguments, because limited arguments don't question the basic conditions which resulted in the situation we're arguing about.

So I rolled it back to zero with the concept of Universal Debt forgiveness.

So far I've had one poster complain - without any supporting argument - that he will be "Punihsed" for being prudent.
Not so, its just that not having run up any odious debt, he has none to forgive.

But its not only people who have this species of debt - nations do too.
And part of the deal in any debt forgiveness must be an examination in detail of how the debt has arisen.
This should result in a formulation of a methodology to ensure it doesn't occur again.

Several points converge on this.

Debt forgiveness cannot occur in a vacuum - the causes of the debt must be fully investigated and understood.
This includes the inherent inequalities in the finance systems that supports and encourages indebtedness.

You can only justify a full investigation of the part of the system under review fro debt forgiveness as goingforgold's post implies.
If you want a review of the entire system, then you must invoke Universal Debt Forgiveness.
If you only review part of the system, then you perpetuate the problem.

The problem is a system which has seen real wealth and value removed from circulation during boom-bust cycles and a reduction of the overall wealth in circulation in the world economy.
Its akin to the level of damage illegal drug use does to society - it soaks up the disposable of the user and then steals the income of the victims of his thefts.
There are a lot of thieves in capitalist society, many of them operating in plain sight - I believe this is at the root cause of the current economic crisis.

ONQ.

 

[dewdrop]

It will never happen

 

[Sunny]

I despise myself for even bothering to continue to read this thread never mind respond but anyway...

Bet you really hate yourself now! You should have listened to your gut feeling.

 

[onq]

Maybe we have misunderstood how you plan to fund the universal write-off/'all debt set to zero' - can you elaborate? I can only see two ways of funding the write-off of our 115B of mortgage debt (I think that was the number in a different thread on Morgan Kelly's $6B plan). Either the taxpayer picks up the tab or the banks somehow manage to use 115B of deposits to write off the debts. Either way, 'we' (tax payers/depositers) will be punished. Where does your plan envisage the money coming from for universal debt forgiveness?

The great thing about universal debt forgiveness is that only the holders of debt suffer and only for a short time. New debt will arise as soon as someone can fill out an application form. It will reboot the world economy.

As for the incentive, the current scenario shows years of stagnation just around the corner, when the Chinese bubble crashes.

Punishment is also not only the infliction of something bad - it can be the absence of something good. Why should some people who overstretched themselves with eg 500K of mortgage debt be given a house for free (they now own, free and clear, an asset worth a few 100K courtesy of your 'all debt set to zero' plan) while another person who didn't buy at all gets nothing?

Value judgments have no part to play in getting a machine working again, or in this case replacing the machine.

At some point all machines become obsolete - the machine that is our banking and financial system seems to be nearing that point.

ONQ.

 

[onq]

It will never happen

As the system starts to tear itself apart following the unseating of the USD as a world reserve currency of choice, many things will happen that seem unthinkable now.

Universal Debt Forgiveness may be the least damaging of all.

I'm sure any Chinese readers can see the implications.

ONQ.

 

[goingforgold]

So far I've had one poster complain - without any supporting argument - that he will be "Punihsed" for being prudent.
Not so, its just that not having run up any odious debt, he has none to forgive.[\QUOTE]

I'm beginning to feel I may be wasting my time responding too but I too have given you lots of reasons as to why your suggestion of universal debt forgiveness makes no sense. I'll try and make them simpler:

1. The very notion of it will encourage and is already encouraging people to be wreckless, thus making a terrible situation worse. I've given lots of examples of this.

2. All debt cannot simply disappear without dire consequences. We cannot function as a capitalist society afterwards - does the world become communist overnight for instance? Or do we just start again in a capitalist manner but in a different way?

3. Socially and morally it cannot work. People with massive houses cannot simply retain them and prosper at the expense of those who lived prudent lives. This would create huge social issues. Even if ones mortgage was being reduced by 200K in a debt forgiveness scheme they would have to give up their property for something that reflects their current means and reflect the fact they have had debt forgiven.

4.The only way any debt forgiveness can work is through the courts where people would have to be financially scrutinised like they would in bankruptcy proceedings. At the end of the process their house would have to reflect the amount of debt they have had written off and their current means. If there is universal debt forgiveness then of course there is no need for bankruptcy proceedings as everyone will be asset rich and debt free. With those who were most wreckless being the most asset rich!

 

[goingforgold]

So far I've had one poster complain - without any supporting argument - that he will be "Punihsed" for being prudent.
Not so, its just that not having run up any odious debt, he has none to forgive.

I'm beginning to feel I may be wasting my time responding too but I too have given you lots of reasons as to why your suggestion of universal debt forgiveness makes no sense. I'll try and make them simpler:

1. The very notion of it will encourage and is already encouraging people to be wreckless, thus making a terrible situation worse. I've given lots of examples of this.

2. All debt cannot simply disappear without dire consequences. We cannot function as a capitalist society afterwards - does the world become communist overnight for instance? Or do we just start again in a capitalist manner but in a different way?

3. Socially and morally it cannot work. People with massive houses cannot simply retain them and prosper at the expense of those who lived prudent lives. This would create huge social issues. Even if ones mortgage was being reduced by 200K in a debt forgiveness scheme they would have to give up their property for something that reflects their current means and reflect the fact they have had debt forgiven.

4.The only way any debt forgiveness can work is through the courts where people would have to be financially scrutinised like they would in bankruptcy proceedings. At the end of the process their house would have to reflect the amount of debt they have had written off and their current means. If there is universal debt forgiveness then of course there is no need for bankruptcy proceedings as everyone will be asset rich and debt free. And those who were most wreckless will be most asset rich!

PS Apologies for duplicated post!

 

[onq]

With universal debt forgiveness there is no cutoff point.

That's why it can't work. Every debt would have to be forgiven. I believe the only option is as per my thread above. Very selective forgiveness through the courts. We cannot just wipe the slate clean. You are effectively arguing that capitalism has failed, which is true, but we cannot just start all over again. The consequences would be catastrophic.

This is the crux of the matter.

Capitalism - unregulated markets, the fractional reserve banking system, unlimited interest on debts, boom-and-bust market cycles creating and then totally undermining virtual values - has been exposed for the racket it is.

You say we cannot just start over again because the consequences would be catastrophic.

I say we must start over again, with a clean slate, because the consequences already ARE catastrophic.

From what I can see in new reports, these consequence only seem held at bay by gossamer thin webs of words and written agreement and "laws" which can be torn up at any moment or repudiated to stop sovereign nations descending into chaos.

Perhaps I am more of a realist than you.

-----------------------------------

We need to build better financial instruments than what we have, more equitable rewards for work done, and more accountability in business and government.

In short, we need a system that is sustainable at any level we choose to remain at - we don't need a system that requires exponential growth to satisfy wall street traders or bankers or estate agents chasing bonuses.

That way lies bankruptcy for us all.

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Once you get over the concept of wiping the slate clean, exposing the criminality and croneyism at the heart of Big Business and Finance, the rest sort of falls into place.

1. The agreement to enter into Universal Debt forgiveness.

2. The analysis of the problem, or non-problem.

3. The resolution.

-----------------------------------

Many posters to this thread have decried this whole approach because they can think only in terms of the ground rules that currently support the existing system.

The most telling sign of lazy thinking is the promotion of an either/or solution as "the only solution", but that need not be the case.

For the sake of it, let's liken it to the history of a proprietary computer operating system under a paid license we all know and love.

This went on for years, with the producer of the operating system forcing changes on the customer who knew they were being pressured into buying things they didn't want but couldn't find an alternative.

Someone, one particular someone considered the problem and conceived of a collaborative method of information exchange and a new software system resulted.

People didn't pay for the system, which was free, but the setting up and the performance of the system, which generated revenues.

It took a sea-change to embrace the open-source model and it didn't replace the existing model - it exists side-by-side to this day.

-----------------------------------

The parallel translates to the subject under discussion in this way - there could be others, but I'm not clued in enough to think of them today.

All it needs is for one person to conceive the new system and offer its benefits to someone suffering under the old system.

In real terms this could entail simply taking over the debt or part of the debt - the older sees a lower write off, and the newer one has a grateful customer.

-----------------------------------

Think of this as a half-way house for people who cannot contemplate Universal Debt forgiveness.

Think of it also as a warning to those who think that public servants don't to ANY good work, and that the majority of people are drawing the dole because of a "lifestyle choice".

We need to value all people in our society, not just the capitalist high-flyers and the social butterflies.

ONQ.

 

[onq]

So far I've had one poster complain - without any supporting argument - that he will be "Punihsed" for being prudent.
Not so, its just that not having run up any odious debt, he has none to forgive.

I'm beginning to feel I may be wasting my time responding too but I too have given you lots of reasons as to why your suggestion of universal debt forgiveness makes no sense. I'll try and make them simpler:

1. The very notion of it will encourage and is already encouraging people to be wreckless, thus making a terrible situation worse. I've given lots of examples of this.

2. All debt cannot simply disappear without dire consequences. We cannot function as a capitalist society afterwards - does the world become communist overnight for instance? Or do we just start again in a capitalist manner but in a different way?

3. Socially and morally it cannot work. People with massive houses cannot simply retain them and prosper at the expense of those who lived prudent lives. This would create huge social issues. Even if ones mortgage was being reduced by 200K in a debt forgiveness scheme they would have to give up their property for something that reflects their current means and reflect the fact they have had debt forgiven.

4.The only way any debt forgiveness can work is through the courts where people would have to be financially scrutinized like they would in bankruptcy proceedings. At the end of the process their house would have to reflect the amount of debt they have had written off and their current means. If there is universal debt forgiveness then of course there is no need for bankruptcy proceedings as everyone will be asset rich and debt free. With those who were most wreckless being the most asset rich!

In order of delivery.

1. Universal debt forgiveness requires as part of its delivery examination of all debts - you can write failsafes in here if you wish, because we certainly wouldn't want to forgive criminals their debts. Your argument has some merit.

2. Who would suffer if all debt disappeared? The creditors. But since in Europe the creditors are also borrowers, the dislocation may not be as catastrophic as people fear. Your argument has some merit.

3. People with massive houses are already retaining them. Those who lived prudent lives will be paying through the nose for the debts incurred by our banks and the imprudent borrowers for five generations. Your argument has little or no merit.

4. I confess my own thought is still developing but in my mind, debt forgiveness does not necessarily mean asset rich.

I posted previously about the need to bring debt into line with current values. I posted about universal debt forgivness. That is a different thing to clearing away all contracts. Even Morgan Kelly didn't suggest that, nor did I.

----------------------------------------------

How the debt is rolled down to zero is the big issue, the devil is in the details and all that jazz, and I have only begun to think about it.

But I started off thinking "this can be done, we can find a way because we have to."

I didn't start off thinking "this cannot be done."

I think that's the main difference between our positions.

Once you consider that it can be done, and that there are ways it may appear fair to people, then you can discover ways to do it.

The initial departure from received wisdom is the hardest thing.

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I suggested that debt forgiveness has to be applied universally because everyone has to be a winner or society as we know it will explode. This is the only way Morgan Kelly's hugely divisive suggestion can be made to work.

People who have debts in the tens of thousands see it - because of the nature of the beast - in much the same light as people who live life at a larger scale.

There seems to be some suggestion creeping in here that I intended that ALL debt be totally written off. I am sorry if I gave that impression. I only meant that all debts would come under the remit of debt forgiveness.

Some of this may be written off, some of it may be bought on favourable terms, and it cannot be limited to property debt.

Everyone has some form of debt - apart from property debts - and all debts should be taken account of and some level of debt forgiveness should be applied.

----------------------------------------------

You own suggestion then kicks into play, with formal investigation of the debt and levels of debt forgiveness being reached.

Personally I doubt that the Courts are the place to do this, although it will require input from people trained in law, accounting, contract and investment.

I trust this clarifies what I see now was a significant misunderstanding created unintentionally by me.

For the record, I couldn't bear communism - I visited Russia in 1988 and say Prestroika at work, the fag end of communism - terrible.

People need incentives to work.

Equally I cannot bear unfettered capitalism - coked up traders making decisions that beggar nations and devalue currencies - unconscionable.

We need a better monitored, better regulated, better balanced system than what we have, that works to improve the quality of life of individuals in a sustainable manner, not to generate paper profits for multinationals to justify unsustainable CEO and Trader salaries and bonuses.

ONQ.

 

[goingforgold]

3. People with massive houses are already retaining them. Those who lived prudent lives will be paying through the nose for the debts incurred by our banks and the imprudent borrowers for five generations. Your argument has little or no merit.

Disagree completely. One cannot be rewarded for their careless behaviour and ignore those who were sensible. Yes they are retaining their properties currently but they are also retaining the debt, that's the difference.

But I started off thinking "this can be done, we can find a way because we have to."

I didn't start off thinking "this cannot be done."

I think that's the main difference between our positions.

I also think this can be done so we don't differ at all. See my other posts on how debt forgiveness can be administered as fairly as possible

There seems to be some suggestion creeping in here that I intended that ALL debt be totally written off. I am sorry if I gave that impression. I only meant that all debts would come under the remit of debt forgiveness.

ONQ.

When I asked you to define universal debt forgiveness you stated and I quote "I thought "universal" was a big enough word.

All debt is reset to zero."

Now you are saying otherwise. I'm really confused now!

 

[onq]

Disagree completely. One cannot be rewarded for their careless behaviour and ignore those who were sensible. Yes they are retaining their properties currently but they are also retaining the debt, that's the difference.

I understand that the developing position of banks is that they are writing down some debts. I understand that the developing position of the courts is that they are taking this into accounts when banks are prosecuting debtors.
But many of the larger home owners are already bailed-out developers.
Ergo.

I also think this can be done so we don't differ at all. See my other posts on how debt forgiveness can be administered as fairly as possible

Whereas I'm concerned that (i) this doesn't address all kinds of debt and (ii) it still leaves a rancid system in place where this can happen again.

No one learned in Wall St. from the Savings and Loan Scandal of the 1980's-1990's.

Recently I read that the previous reserve limits set by the BIS had been "got around" by clever instruments of finance.

This shouldn't still be happening.
We should have failsafes in place.

When I asked you to define universal debt forgiveness you stated and I quote "I thought "universal" was a big enough word.

All debt is reset to zero."

Now you are saying otherwise. I'm really confused now!

I'm not deliberately trying to be slippery on this - perhaps I'm learning from your posts goingforgold about the realities involved.

However I posted -

"How the debt is rolled down to zero is the big issue, the devil is in the details and all that jazz, and I have only begun to think about it."

I' suppose I'm thinking about my own situation, where I owe money to some institutions but clients own me money and were it all netted out, I would be in a much better position.

ONQ.

 

[goingforgold]

I'm not deliberately trying to be slippery on this - perhaps I'm learning from your posts goingforgold about the realities involved.

However I posted -

"How the debt is rolled down to zero is the big issue, the devil is in the details and all that jazz, and I have only begun to think about it."

I' suppose I'm thinking about my own situation, where I owe money to some institutions but clients own me money and were it all netted out, I would be in a much better position.

ONQ.

You did subsequently post as per above but I guess I was just poining out that it didn't creep into this discussion it was more stated by yourself. I think people were thrown by you stating that ALL debt be written off and start with a clean slate. If that were to solve this problem it would be great but I'm afraid it won't.

 

[goingforgold]

However I posted -

"How the debt is rolled down to zero is the big issue, the devil is in the details and all that jazz, and I have only begun to think about it."

I' suppose I'm thinking about my own situation, where I owe money to some institutions but clients own me money and were it all netted out, I would be in a much better position.

ONQ.

You see there in lies the problem ONQ. Not everybody owes money. There are loads and loads of people who have 100K+ in savings and are waiting for the right time to purchase property etc. These people have to be taken into account also. They were wise, the rest of us were not. That sums up capitalism. Sometimes you win, sometimes you lose. When you lose you have to face the consequences. You can't just ask for a clean slate.

 

[onq]

goingforgold,

• Perhaps Universal Forgiveness *is* totally unworkable, but then so is the rising sovereign debt of countries.
• Perhaps it is inequitable, but so is a situation where 1% of the population controls 25% of the wealth.
• Perhaps we can't foresee an extreme event before it occurs, but the echoes of 1929 are disturbing.

I read a lot of what you, sunny, Jim2007, chris, Brendan and others post to AAM.
I don't claim to have any great expertise in Finance or "isms" - Capitalism, Communism, Socialism.
I do have an instinct for some things, and its telling me that Capitalism cannot continue the way it is going.
If we don't so pool our resources to devise something creative to address the current situation, then I fear for our future.

ONQ.

 

[ontour]

Selective debt forgiveness can work in the context of a reformed fast tracked bankruptcy. People would then have the option to clear all their debts by giving up their assets. They would be able to retain assets up to an amount, such as €20k. There would be an impact on their credit rating but it would be as close to hitting the reset button as is possible.

Only a fraction of people in negative equity would take this option which could mean that this option would be feasible/ affordable.

 

[onq]

This was researched by a client of mine to address his problems but was put on the back burner because the Irish process at the time was very lengthy and cumbersome sign significant restrictions for over a decade IIRC. The English process seemed far more useful as a process but he was ineligible. Apparently in America its a given that such things occur, reflecting the risks entrepreneurs take starting a business.

 

[Chris]

Your species of logic escapes me Chris.

Someone else getting assisted equates to you being punished? How?

When debt is written off someone has to lose out. In a massive debt forgiveness scheme it would be the taxpayer and anyone with no debt and savings.

You are effectively arguing that capitalism has failed, which is true, but we cannot just start all over again.

While I agree that the current economic system has failed, it is not correct to say that capitalism has failed. Our economic system is nothing even remotely like free market capitalism, but rather a form of corporatism or cronyism aided and made possible by governments.

Capitalism - unregulated markets, the fractional reserve banking system, unlimited interest on debts, boom-and-bust market cycles creating and then totally undermining virtual values - has been exposed for the racket it is.

We do not have unregulated markets or anything even remotely like it, so capitalism has not failed. Boom and bust cycles are artificial government and central bank created phenomena, and neither fractional reserve banking nor central banking have any resemblance of free market capitalism; they are creations of government interference and force.

 

[onq]

Neither goinforgold nor I referred to some ideal form of "free market capitalism" if I recall correctly.

Referring to some ideal system may be fine for distracting philosophical debates on monetary or political systems, but human failings brings them all down to earth.

Following the flag of free market capitalism, American and the West ended up with what the corrupt croney banking and monetary system we have today, just as following the flag of communism resulted in a paranoid bureaucracy that absorbed all free energy and stifled enterprise in any country it took root it - just look at North Korea today.

Both communism and capitalism had great ideals and some very strong points but fell afoul of human greed, paranoia and corruption.

Did you know that the USSR despite being "hampered" by communism actually spent more on the arms race than America in the last decade of the cold war by some accounts (haven't got the citation)
That's not evidence of a system that intrinsically was destined to fail, that's what can be achieved with single-minded central management.
Mind you, the disaster Chernobyl is at the other end of that spectrum!

I don't want to derail us here, merely point out that no system is implemented in an ideal form and all systems have pros and cons.

Capitalism, like the democracy, is just the best of worse alternatives.
Taken together with a system of finance fuelled by debt, it now appears to be crushing individuals and sovereign countries alike.
The only winners are the heads of private corporations, who designed the system to benefit them from the start and financiers, without home any system of finance fails in whatever incarnation it may reveal itself.

My original suggestion recognizes that such systems fail, the the few regularly extract energy from the system (through hoardrindg wealth, funding wars, etc.) and over time the system clogs up and runs down.
I suggested resetting the debt to zero because most well run companies and organizations would not be hugely indebted and those who prospered most from the finance world would take a one time hit.

New debt would arise the next day, but crushing historical debt would be forgiven.

As for moralizing about the appropriate nature of this debt - lets take a real world view - banks love people who have huge appetites and ambitions because these fit the profile of many entrepreneurs, people whose endeavours open up new markets and generate new wealth.
This concept of debt forgiveness would cut out their years in the doldrums and get them into new enterprises without an enforced decade of relative idleness.
This is turn would be likely to result in a quicker return of the markets to health and vibrant growth.

Any responses should speak to the arguments raised as I'm deliberately arguing against type to get a better understanding of the issues raised, but equally to escape my own hide-bound morality on these issues.

ONQ.

 

[Gekko]

I would be absolutely sickened by such a universal debt forgiveness; so much so that I would immediately pack up and leave the country. Any kind of debt forgiveness will reward making mistakes, and set a detrimental precedence for future generations. At the same time someone like me, who bought a modest house on a low LTV and sold when things started turning down and never accumulated any significant debt, i.e. did everything right, would be punished for having done so. This is like reverse Darwinism!

Posts like yours make me want to vomit. The "moral hazard" argument is morally bankrupt. You were lucky...end of story. There are people on their knees in this country and they require society's assistance. If there are opportunistic freeloaders out there who will try and abuse any rescue package then we should devise a plan to weed them out. But the existence of such people isn't an excuse to not help those in difficulty. And if people can't be compassionate enough to help others, they should think selfishly about those who are drowning in debt. If there is large scale debt forgiveness, people will re-enter the economy and start spending which should benefit us all.

As for those questioning where the money will come from to fund this debt forgiveness, the money's generally already been provided. The debts have been recorded as bad debts in the financial statements of the banks and written off. The banks' balance sheets have already taken the hit.

 

[ontour]

Posts like yours make me want to vomit. The "moral hazard" argument is morally bankrupt. You were lucky...end of story.

In 2008 it was reported that Ireland had a higher rate of Mercedes owners than Germany. There were people who were lucky in the property market and people who were very unlucky. There were also people who were prudent and others who were reckless. There was a lot of 'keeping up with the Jones' during the boom years rather than living within means. If you want to remove all personal responsibility for financial decisions then we will become a nanny state where credit will only be provided to the privileged few.

If there is large scale debt forgiveness, people will re-enter the economy and start spending which should benefit us all.

More spending will boost the economy but only if you ignore where the money comes from. If it comes from income from exports then it is net positive. If it is money that we must pay back then we are making the same mistake that many individuals made during the boom by living beyond their means in the hope that a big pay day is on the way.

As for those questioning where the money will come from to fund this debt forgiveness, the money's generally already been provided. The debts have been recorded as bad debts in the financial statements of the banks and written off. The banks' balance sheets have already taken the hit.

I am open to being better informed about the banks bad debt write offs. My understanding is that they have written off huge amounts but the majority pertains to commercial property, development land and investments. While there has been write offs of individual mortgages, the majority of the people who are desperately struggling have not had their debt written off. If it is written off, someone will have to pay for it, as half the banks are now in control of the state, it will be the taxpayers who are hit. Higher taxes will depress that magical consumer spending that is the holy grail for national recovery.