Pro: It’s Really Nice
The most obvious benefit is that buying up this debt and getting rid of it wipes the slate clean for at least a few Americans. Instead of getting harassing calls from collectors, losing sleep and trying to shield the reality from the kids, these borrowers just get a letter saying, in essence, “Hey, it’s all good. We’ve got this one.” Those who donated get positive karma, and the recipient of the letter won’t see their credit rating tank even further because they won’t have to declare bankruptcy after months of accumulating negative marks all over their credit report.
Con: It Encourages Irresponsible Behavior
No one would argue that bankruptcy is a week at the spa. After all, your credit report is severely penalized. But the consumers getting their debt erased will never pay–literally–for their bad behavior. This could incentivize behavior from consumers (buying more than they can afford and hoping they would get bailed out) that would hurt the economy. That’s why many see forgiving consumer debt, or bailing consumers out, as immoral. In fact, readers on LearnVest have previously gotten into a fierce debate over the morality of declaring bankruptcy instead of paying the debt you are responsible for. Without learning the lesson that comes from slogging their way through, debtors might just rack up more debt.
Pro: It Could Be an Economic Stimulus
Debt, especially in the form of underwater mortgages, is holding back the economy from full recovery. Because consumers can barely scrape together payments, they aren’t spending on other things like meals out, vacations or clothes. Telling someone their debt is all taken care of might incentivize them to go out and spend a little more (responsibly, hopefully) and rev the economy up again.
Con: $5 Million Is a Pitiful Amount
Honestly? Discharging $5 million in debt isn’t going to be a huge economy stimulus. Total household debt has dropped since the recession, but consumers still have $2.7 trillion in outstanding debt, according to the Federal Reserve. What if the debt bundle Occupy buys is all mortgages? Then they’ve discharged 20 or fewer families’ debt, or .000185% of all consumer debt. Even buying up a bundle of credit card debt, each chunk worth on average $20,000, would let just 250 people off the hook. It would only really make a difference if people consistently paid it forward to pay off more debt, like Occupy hopes.
Con: It’s Totally Random
The thing is, it’s not like you can apply to have your debt discharged. Because the bundled loans are anonymous, it’s just a random lottery (though Occupy says it will focus on geographic areas that have been hardest hit by the recession).
Hey, we know that you and your hard-working family could use a leg up. But it’s possible Occupy could discharge the debt of that single dude down the street who irresponsibly bought a second home that was way out of his budget.