Joe’s interesting post mentions someone advocating the above. Joe seems skeptical. Well, let me tell you — it’s already happening in the market to a large degree.
I work in the consumer-debt “industry.” One of the areas we’ve avoided to date, but are starting to move into, is the business of consumer debt settlement. You’ve all heard and seen the ads on radio and late-night TV. “We’ll settle your debt for less than 50% of what you owe!” etc., etc.
Well, although debt settlement does work, the vast majority of the companies offering it are purely out to rape the customer. They’re crooks, which is why in the past I’ve kept our group of companies from entering the field — didn’t want to be tainted by the stench.
My biggest objection was that the advertised “40-50%” was all too often a fraudulent teaser rate, and debts actually got settled closer to 70% or even 80% of the balance owed. However, that’s now changed.
We’ve just seen some examples of cash-strapped major banks calling their delinquent credit-card customers out of the blue, begging to settle their balances for 25% or less. Bank of America settled with one of our rivals’ clients for 15% of the balance owed. Fifteen percent! I’ll tell ya what, my jaw dropped.
Consumer credit-card debt used to be packaged, “securitized” and sold as a security on secondary markets, so the credit-card companies themselves got rid of the liability quickly. They can’t do that anymore. So those “assets” are now completely illiquid. What to do? Squeeze the blood out of the turnip.
It’s a new world, folks….