Book of the Week: Bad Paper

05 Dec 2016

This week I read Bad Paper: Chasing Debt from Wall Street to the Underworld by Jake Halpern. I picked up this book after hearing about it on Planet Money: The Buffalo Talk-Off. The book was better than I expected. I found out about a side of the economy that I would probably never experience, debt collection. I always pay my debts, but most Americans owe money. Debt Market Banks are required to take a loss on a loan after 180 days if you stop payments under generally accepted accounting principles (GAAP). They need to get it off their books. To still extract money from defaulted loans, they will sell them for pennies on the dollar to debt collection agencies. Those agencies try to collect debt and make big profits, but sometimes they can’t collect all the debt and resell what’s left for less than pennies on the dollar. This keeps getting passed to the lower and lower rungs of debt collection agencies until it eventually reaches a lawyer, who will try to sue and get judgment to garnish wages. But there is no paper trail other than a spreadsheet. If you actually show up in court and ask the lawyer to prove their case, they will drop the case, because they can’t. So if you borrow money, ignore debt collectors and show up in court to tell them to prove your case, you never have to repay your loans. You have to be careful about not making a payment, because that could reset the statute of limitations. You’ll just have shitty credit, which doesn’t matter if you deal in the cash economy. Some unscrupulous individuals will try to sell paper without a clear line of ownership and sell the same paper to multiple people. Ex-cons can’t find legitimate jobs except through other ex-cons who run debt collection agencies. Debt collection turns out to be more profitable than selling drugs on the corner. Some debt collections will do illegal things like threatening physical harm or making false statements about jail and lawsuits.

When you buy a pound of weed, you know the seeds and the sticks in the weed? You paid for that, right? Well, every account we’re not going to collect. So don’t get discouraged … The buds are the people that want to pay you—that’s what you need to focus on. —Jimmy

Sometimes when these guys get screwed over, they’ll hire hackers.

In retribution, Larry hired a hacker from China to break into the buyer’s e-mail account and obtain his password. Once he had the buyer’s password, Larry had access to his paper. Larry then simply took a portfolio and subsequently sold it to Jimmy

This is how you get paper that multiple agencies are trying to collect on. What is disturbing is that there is often no proof you paid. Having a blockchain for record keeping would help in this. Mark Parsells, a former American Express executive, now the CEO of Global Debt Registry is trying to create nationwide clearing house by associated a universal loan identification number (ULN) to debt. You would think the government should do this. Maybe we should invest in technology infrastructure as well as physical infrastructure. This is a business idea, create a national wide government run blockchain for debt. Banks aren’t all that better. They use robo-signers to get documentation done without verifying the accuracy of what is signed. All transactions of debt come with statement saying that it is being sold as-is and there is no guarantee on the accuracy of the documents. Accuracy costs money. Banks don’t want to spend any more money than they have to.