Showing posts with label Debts. Show all posts
Showing posts with label Debts. Show all posts

October 6, 2013

Three Ways To Deal With The Debt Ceiling Before Default of The Nation

The United States is in the midst of its first government shutdown in nearly 20 years, and the practical effects on millions of Americans are significant. Even more worrisome: the impending debt ceiling, which the Treasury Department estimates the U.S. government will reach on or around October 17th.
The debt ceiling is the statutory limit of allowable federal debt, currently set at $16.7 trillion. Up until about one hundred years ago, Congress approved every individual new bond issue, but early in the 20th century Congress began to expedite the process by simply creating a debt limit and allowing the Treasury Department to borrow as it sees fit any amount below that. More recently, politicians have been squabbling over the debt ceiling and essentially threatening a default. Nobody is sure what the outcome of a default would be, but financial markets–which depend greatly on U.S. debt as a source of liquidity–would likely freeze up.
The possibility that Congress won’t reach an agreement to raise the debt ceiling has gotten economists and legal experts thinking of ways to get around the debt ceiling without Congress’ approval. Here are three possible strategies:
1. The Trillion-Dollar Coin: This idea, first raised by Jack Balkin, a Professor of Constitutional Law at Yale Law School, takes advantage of a loophole in the law which allows the Treasury to mint platinum coins without limit. The purpose of the law is to allow the creation of commemorative coins, but there’s nothing in the law that would prevent the minting a coin of any value. Therefore, to get around the debt ceiling, Balking suggests minting two platinum coins worth $1 trillion dollars and then just depositing them at the Federal Reserve in order to write checks based on the value.
2. The 14th Amendment: Another potential option is for the President to declare the debt limit unconstitutional because of in the 14th amendment. It states, ”the validity of the public debt of the United States, authorized by law . . . shall not be questioned.” The 14th Amendment was written to prevent Southern congressmen from threatening to default on U.S. debt unless the Confederacy’s debt was paid off too. University of Baltimore Law Professor Garrett Epps has argued that this amendment basically makes the debt limit unconstitutional and would allow the Treasury to continue to issue bonds without Congress’ approval.
3. Premium Treasury Bonds: While the previous two strategies for obviating the debt ceiling were prevalent during the last debt-ceiling showdown, the idea of issuing so-called “premium” Treasury bonds is newer. The idea was first raised earlier this year by Matthew Levine at Dealbreaker. Understanding the idea requires knowing a little bit about how bonds are sold. Bear with:
Bonds have both a “par” value and often times a different price at which a bond is actually sold to the public. Normally this is because interest rates can change pretty quickly: Say I want to issue a bond for $100 at a 4% interest rate, but a few weeks later, when I actually get around to issuing the bond, interest rate rises to 6%. To sell my 4% bond will require selling the bond at a discount to par–somewhat less than $100. The opposite would happen if interest rates falls to 2%. If I’m selling a 4% bond in a 2% environment, I’ll be able to garner more than $100 in that environment.
So how does this apply to the debt ceiling? The debt ceiling law only applies to the face value of bonds issued, rather than the actual value of the money raised. So when past Treasury debt expries, the Treasury Department could simply roll it over into bonds with much lower face values but that bring in higher revenues and pay out higher interest rates, allowing the total debt of the U.S. to continue to rise while still staying within the debt-limit law.
And as Levine points out, this is something that, unlike the platinum coin scheme, governments around the world have resorted to strategies like this before. It was a somewhat similar scheme involving derivatives that allowed the Greek government to hide the true value of its debt from EU officials until its debt crisis a few years ago. In our imagined scenario, however, Treasury wouldn’t be trying to hide the debt from the public. It would simply be looking for a way to skirt a law that doesn’t make a lot sense to begin with.
The brilliance of the premium bond scheme is that unlike the 14th amendment or platinum coin scenario, there isn’t an obvious way that opponents of it could challenge it in court. As former Treasury Chief of Staff told the Washington Postone of the reasons the Obama White House has shunned the 14th amendment strategy is because it could be challenged in the courts, and the reason it avoided the platinum coin strategy is because the Fed might not play along. As for premium bonds, all we would need would be willing buyers for the bonds. And if recent history is any indication, that won’t be a problem at all.

September 13, 2012

What If Americans Behaved Like Banks, A Bklyn Neighborhood Is Going To Find Out

Activists set fire to their debt papers Sunday in Brooklyn in a gesture meant to evoke the 1960s draft card burnings.
A few dozen people gathered in Brooklyn Inlet Park on the Williamsburg waterfront Sunday to talk about debt, have a picnic, and set some things on fire.

The mood was festive -- there was cake and lemonade, the air was crisp and clear, and the towers of Manhattan glittered across the East River.
But the purpose of the assembly was somber: to talk about the ways that different kinds of debt is strangling the people gathered there, and millions more across the nation.

Nick Mirzoeff, an NYU professor, explained that the Strike Debt group grew out of the Occupy movement over the summer.
"Over the course of the movement we came to a set of realizations that debt was a way to organize people and to clarify what the movement itself is," Mizroeff said. "Because it connects a very direct lineage between us as individuals -- the way we as the 99 percent have debt, whether it be student debt, mortgage debt, credit card debt, medical debt, or worst of all, the person who can't get into debt. if you can't get into debt you can't get any of those things: you cant be educated, you can't buy a car, you can't buy a house, you can't go to school."
Between his mortgage and credit card debt, Mirzoeff said,"I'm out debt when I'm dead. My daughter will close that up. And that's not a life that I want to bequeath to her."
Sarah Quinter, another organizer with Strike Debt, said that after months of weekend meetings in Washington Square Park, the group was ready to debut its first public action.
"We wanted to do a debt burning reminiscent of the draft card burning of the 1960s to demonstrate our refusal to be conscripted into a life of debt, which is becoming a ubiquitous feature of American life," Quinter said. "Since debt is such an isolating experience, we wanted to create an experience that could be the beginnings of community, where we could listen to each other's stories and be together and talk with one another. We're hoping this is just the first of many actions."
Amin Husain burns a statement from the IRS sent after he raided his 401k to help pay for treatment for his father's pancreatic cancer treatment.
So after mingling and chatting for a half an hour, the group gathered in a circle to tell their stories and burn the symbols of their debt.
Madeline Nelson told the circle that she has worked hard to avoid going into debt.
"But there's one thing that I can't really get out of is medical debt," she said. "Why is that? I pay for health insurance every single month. And yet I keep getting these statements that say 'We can't pay for that procedure, because the doctor didn't ask us beforehand.' Or 'We can't pay for that one because you were out of town when that illness happened.' And this builds up."
Nelson brandished a medical bill.
"Here we have something from Easy Choice Healthcare," she said, setting the bill on fire. "Fuck you, Easy Choice Healthcare!"
A recent college graduate described plunging into debt after discovering that she has a potentially fatal genetic blood disorder.
"I had health insurance, but I had to pay copays," she said. "When you have to go to the doctor three or four times a week, that's about my rent payment. There were times I didn't go to the doctor, because I couldn't afford to go."
Soon, she said, she was putting medical bills on her credit card.
"My husband and I began having conversations like 'Which one of us is going to eat lunch this week, because we don't have any more money," she said. "I didn't have any bills to bring with me [to burn], but I do have this referral from a doctor. It's a referral to see a specialist that wasn't in my health insurance plan, so I couldn't afford to go see him because the cost of seeing him was more than my rent. So that's what I'm burning."
Brad Young, facing $150,000 in education debt, described discovering his passion for research and teaching. "But to get that education and pursue what I'm passionate about, I'm punished with $150,000 in debt," he said, as he set fire to a statement from his student loan company. "The society doesn't want people to be educated. And I think that's wrong. As a society we should work together to educate each other. That's what being in a society is about."
Strike debt has more projects in development. This week they're releasing a Debt Resistors' Operations Manual, and, much further down the line, they're planning a "Rolling Jubilee" to buy cheap debt, forgive it, and pay the gesture forward.
In the meantime, organizers hope others facing debt will adopt the symbolism of the debt burn, which they designed to be easily replicable. They've already got more planned: The next debt burns are scheduled for September 17, the anniversary of Occupy Wall Street, and will take place both in Manhattan and California.
On Sunday, after about a dozen people had told their stories and burnt bills and collection notices to cinders in a coffee can, the group walked down to the rocky shore and tossed the ashes in the East River.
(Complete video of Sunday's debt burn can be seen here courtesty of livestreamer StopMotionSolo.)

By Nick Pinto

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September 12, 2012

When Collection Agencies Use The Court As Their Assistant. Name} Sewer Svce

Court Certifies Consumer Class Fighting “Sewer Service” by Debt Buyers

Last week, a Manhattan federal court certified a class of consumers who are victim of “sewer service” tactics by debt buyers and collection agencies. The case has brought to the fore long-used abusive consumer debt-litigation tactics that prevent individuals from contesting their cases in court.

On 5th September, U.S. Circuit Judge Denny Chin certified a class of thousands of potential plaintiffs who had been sued in New York City civil court over unpaid debts and had default judgments entered against them. Plaintiffs in the lawsuit claimed that Leucadia National Corp, a company that purchases consumer debts, and the law firm of Mel S Harris Associates, which specializes in debt collection, uses methods to prevent defendants from contesting cases.

One of such methods includes “sewer service” or causing notices to be improperly delivered or never served at all. The judge said that the plaintiffs had provided “substantial support” to their claims against the law firm and the consumer-debt company.
However, Brad Scher, an attorney representing Harris Associates, said, “It’s important to note that this decision in no way addresses the merits of the case, and has no bearing on liability, but simply allows the case to move forward as a class.”

Susan Shin, a staff attorney with the Neighborhood Economic Development Advocacy Project, which represented the plaintiffs, said that such “sewer service” tactics are being used by debt buyers for a long time.

Improper service of notices allows ex-parte decisions or default judgments against the debtors, and the creditor can seek to freeze the bank accounts of debtors or seek to garnish the defendant’s wages. Shin said it was an old method used by debt buyers “using the courts as an arm of their collection efforts.”

Carolyn Coffey, another attorney representing the plaintiffs noted that the same abusive tactics are also used in many unfair mortgage foreclosures.

The case would be moving forward as a class action on alleged violations of the Racketeer Influenced and Corrupt Organizations Act, the Fair Debt Collection Practices Act, and the New York General Business Law.

The case is Sykes v. Mel S Harris and Associates, U.S. District Court for the Southern District of New York, No. 09-8486.

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December 19, 2011

Astronomical Newt’s Financial Debt’s A Long Time Tradition

Former House Speaker Newt Gingrich. Photo: AFP.
By Stephen C. Webster 

Newt Gingrich, who suddenly finds himself near the front of the ever-shifting GOP pack, is also finding that his finances are yet again in the cross-hairs.
Multiple outlets are reporting that financial woes within the campaign means they’re skipping contests in key states and foregoing traditional campaign stops, even as Gingrich is taking early repayments of personal loans to the campaign. Meanwhile, long-time creditors fret about when they’ll get paid.
In the key swing states of Missouri and Ohio, which President Barack Obama won in 2008, the Gingrich campaign has lagged behind other candidates in filing key paperwork. Just this week he nearly missed the filing deadline for Ohio, but ultimately succeeded in posting most of the required paperwork at the zero-hour. Similarly, he skipped filing in Missouri due to the cost — a mere $1,000 — simply because the Missouri GOP primary isn’t the most important selection process for the state party.
In addition, prior reports indicated that the campaign did not have cash on hand for the $25,000 Ames Straw Poll filing fee, or $30,000 for a list of previous Iowa caucus attendees. Meanwhile, Gingrich had his own campaign pay him a $125,000 reimbursement for travel expenses and a mailing list that he could have simply donated.
He repaid himself even as he’s being hounded by his creditors, who are owed over $1.2 million in long-term debts. The campaign says they’re beginning to pay those down, too. By contrast, former Mass. Governor Mitt Romney’s campaign has carried no debts, opting to pay out of pocket right away.
Scrutiny of Gingrich’s finances began earlier this year, after reports surfaced that he had an unpaid $500,000 line of credit with jewelry company Tiffany’s. Facing the ever-growing mountain of campaign debts and reports that the candidate was on a Mediterranean cruise, 18 members of team Gingrich — including his top finance aides — quit en masse. After all, for months he wasspending $3 for every $2 raised, according to reports.
For Gingrich, this type of fiscal mismanagement appears to be a pattern stretching back years.
Gingrich’s personal finances have reportedly been in various states of disarray for decades — a love for costly private air travel and expensive jewelry barely even scratches the surface.
A profile in Esquire last year described how Gingrich let his wife Marianne take over management of his personal budget, because he found it “too stressful.”

But it’s not just stress in running budgets or refusing to pay his debts: it’s also his apparent ignorance of financial matters in general that will likely have conservatives doing a double-take.
Similarly, a profile of the former Speakerpublished by Vanity Fair in 1995 noted that his first wife, Jackie, was also in charge of his personal finances. Even then, the couple took 13 years to pay off their debts, and once they divorced, she had to sue Gingrich to get him paying alimony. Testimony in hearings on the case ultimately shed even more light on his liberal personal spending, even as his first ex-wife was struggling to keep her home’s utilities turned on.
As Speaker, Gingrich was fined $300,000 by the House for an ethics violation after he was caught using tax deductible groups to finance and support his political agenda. The scheme ultimately helped Republicans wrestle control of the House back to their side during the Clinton administration.
During the investigation, Gingrich reportedly lied to the ethics committee about using tax-exempt, ostensibly non-partisan organizations to further Republican causes — although he was not alone in committing these violations. Donors to these groups were simultaneously supporting their favored Republican causes and gaining a tax rebate, which is patently illegal.
Gingrich ultimately admitted that some of his statements to the committee were “inaccurate,” insisting his real crime was ignorance and that he simply had not consulted a lawyer about the tax code.
If the former House Speaker manages to secure the Republican nomination to challenge Obama in next year’s election, Democrats are guaranteed to have a field day with his long history of ethical scrapes, underhanded dealings, repeated infidelity and record of saying, well, pretty dumb things.
But it’s a long way until August, and Gingrich’s long-term lack of fiscal discipline could be the inroad — or Christmas present — Romney is looking for, especially when the GOP is singing the praises of financial austerity and fiscal discipline.

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