The Big Sellout
Mounting consumer debt cripples Americas and prevents America’s economic recovery. How did we dig ourselves into that hole? It began when debts became a marketable commodity. When the markets went haywire, the crisis was born.
The American economy is crumbling beneath a crippling level of debt. While the pundits focus much of their energy discussing the mortgage crisis and the national debt, most ignore the problem of consumer credit debt which has reached over $3 trillion dollars. And yet, it is the personal debts which are impacting people on the most tangible level. When people are not able to pay off their credit cards, student loans or medical bills and they go into default this has an immediate impact on their lives. It creates pain, chaos and impedes people ability to financially recover from their personal crisis. This is who we see now in the streets of America. These are the people who are part of the “Occupy” movement. These are the people who are demanding change because it is their lives which have been falling apart and despite the government’s efforts to shore up its financial crisis it has paid no attention at all to the very real personal crisis of the average American.
What is behind the massive consumer debt crisis is ironically a debt buying market which was created to solve the problem of the saving and loans crisis in the 1980’s. America’s Federal Deposit Insurance Corporation (FDIC) needed to find a way to deal with the high rate of bank closures and their assets. The debt market was created so that these assets could be sold to institutions, organizations and private investors to recoup some of the losses and take over both the performing and non-performing (delinquent) accounts.
But what has happened is that this has turned into as “easy out” for lenders who want to recoup losses without the hassle of collecting money on delinquent debts.
Lenders write the debt off as a loss and package all of the debts into bundles called “portfolios” which are then put into this market for a fraction of their worth from 7 cents on the dollar down to just fractions of a penny. Once the debt is purchased by a “debt buyer” it is then either sold or given on consignment to debt collection agencies. This is a system which gives very little incentive for lenders to work with borrowers who are in trouble or temporarily unable to make their payments and puts all the power to decide people’s financial future into the hands of the collections industry which is notorious for its corruption and abuses.
Once a debt has been purchased it no longer has any relationship to the original lender and there is no accountability or recourse for the consumer. Strict laws have been put in place to regulate the collection agencies but the reality is that when most people find themselves in debt they are economically weakened and particularly vulnerable.