How Rolling Jubilee Erases Debt
Rolling Jubilee works by buying distressed debt from banks and other lenders, but instead of collecting the debt from struggling families, it will cancel it. Rolling Jubilee cannot seek out individual debts to cancel, because distressed debt is bundled and sold in bulk [source: Rolling Jubilee]. So, you can't contact the organization and ask them to buy and cancel your credit card debt. However, Rolling Jubilee will contact individuals if it finds their personal information included in one of the debt bundles it purchases. The idea is for the beneficiaries of debt relief to give back to the cause; hence the "rolling" part.
Rolling Jubilee gets its money from donations made on the Rolling Jubilee website and from the proceeds from fundraising events like benefit concerts. The idea seems simple enough, but the realities of buying bad debt are more complicated.
For large banks, debt that is way overdue isn't worth the cost of collecting. Instead, they sell the distressed debt for bargain basement prices to investors that are willing to take on the high-risk proposition of tracking down debtors and collecting cash.
Because debt collection is such a big investment risk -- you might recover a portion of the outstanding debt, but rarely the entire amount -- banks are willing to sell distressed debt for as little as a 1:32 ratio. In other words, $1 could buy you $32 worth of debt [source: Hern]. It sounds cheap, but it's still a risky investment unless you have a proven system for collecting money from people who are deeply underwater.
The Rolling Jubilee works by hijacking the debt-selling process in a legal way. Distressed debt attracts a very specific kind of investor, and banks typically shop their debt around to an established list of clients. It is unlikely that Rolling Jubilee could convince a large bank to sell it bad debt in place of the bank's loyal investors. Instead, Rolling Jubilee is using sympathetic "moles" inside the debt-buying market -- sheep in wolves' clothing, if you will -- to buy debt for the nonprofit organization, then erase it [source: VanderMey].
In essence, the Rolling Jubilee will use the very mechanisms of capitalism that it despises to lift the burden of debt for thousands and potentially millions of Americans. Sounds good, but will it really work? We'll run the numbers on the next page.