Every economic crash brings with it demands for debt relief. The income with which the loans were to be repaid evaporated, while the property pledged lost its value. Creditors are looking for their pound of flesh, debtors are looking for help. Check out Strike Debt, an offshoot of the Occupy movement, which calls itself "a national debt resistance movement in the fight for economic justice and democratic freedom." The organization claims on its website that people "with stagnant wages, systemic unemployment and cuts to public services" are being forced to take on debt to cover life's most basic needs, forcing them to "hand over their future to the banks".
One of their initiatives is the Rolling Jubilee, crowdfunding buyouts and debt write-offs, in a process they call "collective dissent." The success of this group is impressive, as it has so far raised over $700.000 and bought out nearly $18,6 million worth of debt. Such a cheap purchase of debts is possible thanks to the existence of the secondary market of debt obligations. Financial institutions that doubt their debtors' ability to repay their debts sell the debt to a third party at a discounted price, often as low as 5 cents on the dollar. Buyers then try to profit by collecting part or all of the amount from the debtor. US student loan firm Sallie Mae has admitted to selling repackaged debt for as little as 15 cents on the dollar.
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But that's a drop in the ocean. In the US alone, students owe over a trillion dollars, or about 6% of GDP. And that population is just one of many social groups that live by borrowing. Around the world, the economic crisis of 2008-2009 increased the burden of private and public debt - to the extent that the public-private divide became blurred. In a recent speech in Chicago, Irish President Michael Higgins explained how private debt was converted into national debt: "Due to the need for the government to borrow to finance current expenditure and, above all, as a result of the guarantees given to the big Irish banks on their assets and liabilities, Ireland's total debt rose from 25% of GDP in 2007 to 124% in 2013."
The Irish government, of course, wanted to save the banking system. But an unintended consequence of the bailout was the collapse of confidence in the state's solvency. In the Eurozone, Ireland, Greece, Portugal and Cyprus had to restructure their national debt to avoid bankruptcy. The increase in the debt-to-GDP ratio cast a shadow over fiscal policy and became the main excuse for austerity policies that prolonged the crisis. None of this is new. The conflict between creditors and debtors has been an integral part of politics since Babylonian times. Established structures have always stood for the sacred right of the creditor, political necessity often required help for the debtor. Which side will prevail in the given circumstances depends on the depth of the debtor's distress and on the strength of the rival creditor-debtor coalition. Morality has always been the intellectual measure of these conflicts. Creditors, asserting their right to be paid in full, have historically created as many legal and political obstacles to bankruptcy as possible, insisting on harsh punishment - suspension of income, for example, or in the last resort, imprisonment or even slavery - if the debtor does not respects his obligation. States that went into debt in costly wars were expected to set aside annual funds for repayment.
But morality is not entirely on the creditor's side. In New Testament Greek, debt means "sin." But even though it may be sinful to go into debt, the Gospel according to Matthew 6,12:1835 supports forgiveness - "forgive us our debts as we also forgive our debtors". Widespread social resistance to the idea that the creditor owns the debtor's property in case of default has meant that "asset seizure" is rarely carried out to the end. The debtor's position is additionally strengthened by the prohibition of usury - the charging of unreasonably high interest. Interest restrictions were abolished in Britain only in 2009; the near zero percent central bank interest rates that have dominated since XNUMX are today's example of efforts to protect borrowers.
The real truth, as D. Graeber points out in his masterful book Debt: the first 5.000 years, is that there is no steel law of morality in the relationship between creditor and debtor: it is a social relationship that must always be negotiated. When quantitative precision and an unyielding approach to debt obligations become the rule, conflict and misery soon follow. In an effort to curb regular debt crises, traditional societies adopted the "law of forgiveness," the ceremonial cancellation of all debts. "The law of forgiveness," writes Graeber, "stipulated that all debts would be automatically written off in the 'sabbatical year' (that is, after seven years), and that all those who had been in slavery because of such debts would be freed."
The Rolling Jubilee is a good reminder of the importance today of one of the oldest laws of social life. The lesson of the story is not, as Polonius taught his son Laertes, "don't borrow or lend to anyone." Without both, humanity might still be living in caves. Instead, we should limit both the supply and demand for credit to what the economy is able to produce. How to do this and preserve the freedom of entrepreneurship is one of the great unresolved issues of political economy.
(Social Europe Journal; Peščanik.net; translated by: Ivica Pavlović)
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