News & Analysis
Roman Disaster Redux: Private Sector Collects Debts
Obama seeks debt collector proposal ... To the dismay of consumer groups and the discomfort of Democrats, President Barack Obama wants Congress to make it easier for private debt collectors to call the cell-phones of consumers delinquent on student loans and other billions owed the federal government. The change "is expected to provide substantial increases in collections, particularly as an increasing share of households no longer have landlines and rely instead on cell-phones," the administration wrote recently. – AP
Dominant Social Theme: Government is owed money and should "partner" with the private sector to collect it.
Free-Market Analysis: One of the signals that Rome was failing was when the emperors began to use private debt collectors to harvest government taxes and fines. Once the private sector made common cause with the public sector, the velocity of mercantilism increased dramatically. Private enterprise, being efficient, married itself to the public purse and endless viciousness ensued.
That was then. This is now ... but the patterns are unfortunately reoccurring. As Rome failed, the differentiation between what the public sector sought and the private sector could deliver increasingly blurred. Instead of creating viable and valuable enterprises, the private sector now created wealth through public sector debt collection, and drove the public sector to create even levies. Here's some more from the article:
The little noticed recommendation would apply only to cases in which money is owed the government, and is tucked into the mammoth $3 trillion deficit-reduction plan the president submitted to Congress. Despite the claim, the administration has not yet developed an estimate of how much the government would collect, and critics reject the logic behind the recommendation ...
The Education Department [already refers debts] to 22 private debt collection companies. The firms collected $685 million outright, and another $1.7 billion was recast into agreements that are designed to be paid monthly, according to the report.
According to written responses the department provided to questions, it hires private collection agencies in part so the government can gain "the benefits of greater collections" through the use of new technology that is developed by private industry. Collection agencies can receive a fee of as much as 17.5 percent of the amount they recover.
A different federal agency, the Federal Trade Commission, collects extensive records about the private debt collection industry in general. "The FTC receives more complaints about the debt collection industry than any other specific industry," according to an annual report to Congress, more than 100,000 in 2010. The complaints fall into several categories, citing alleged harassment, demands for impermissibly large payments, failure to provide required consumer notice and threatening dire consequences such as jail time.
Of course, this is just the point. Once private enterprise is married to government monopoly demands there is no end to the harassment that citizens can experience. Government officials will try to justify their use of private collections via a number of subdominant social themes about the need for government to collect its "fair share," etc., but the perception created by such activities will likely be extremely negative.
Mainstream historians often wonder out loud why Rome fell but the answers seem fairly clear. Rome disintegrated because her citizens did not wish to live under the Roman system anymore. In the end, the barbarians came and looted Rome without much resistance. Relentless harassment over taxes and unjustifiable garnishment were one reason.
The rich were endlessly attacked, and often given notice that they ought to take their own lives before the emperor commanded their deaths. They were told to rewrite their wills to leave everything to the empire. The preferred method of death included a sharp knife and a warm bath. One slit one's wrists and bled to death fairly painlessly. So revenue was harvested 2,000 years ago.
Today, of course, Western governments are not nearly so brutal. And yet ... the pressure to collect revenue is building relentlessly, along with people's resentment. And in countries like Greece where austerity is married to soaring taxes and expanding garnishments, resentment has long since turned to violence.
Thanks in large part to the Internet, people are increasingly aware of how little "bang for the buck" they get from their tax dollar. Government does not do a very good job of making things work. From infrastructure to education to public utilities, bureaucrats lack the competitive discipline of the Invisible Hand and thus are not very effective, and neither are government services.
A great deal of money is simply wasted. Most people become aware of this at some point in their lives, especially in the era of the Internet Reformation where information on the way the world really works is increasingly available.
As government grows bigger, people grow more cynical – and in some cases rebellious. When government reaches out to the private sector for help in collecting debts, then the potential for increased antagonism rises significantly.
Conclusion: People perceive the debts are illegitimate or extortionate and that private sector efficiencies are making matters worse. It is a recipe for increased social tension and ultimately for either violence or apathy, or both. Private debt collection of public levies is a sign of a failing empire. Will the lessons Rome can teach be internalized? Or will history simply repeat itself? ...
Posted by John Danforth on 10/05/11 12:14 PM
This might be a sincere attempt by government to improve collections.
If this is so, then it will have the opposite effect, as always.
And if they carry this out, the blowback will likely result in legislation allowing this debt to be discharged in bankruptcy.
At the very least, the way things are structured now, a student loan is a Bad Deal for the student. And a Good Deal for the universities, who suck up the proceeds like an insatiable tapeworm.
Posted by Dave Jr on 10/05/11 12:04 PM
An elder can be kept alive long enough for expensive care to eat up the estate. If there is no estate... ..then, we're sorry, there was nothing else we could do.
Posted by Nightcrawler on 10/05/11 11:51 AM
The Healthcare Law requires end of life counseling every couple of years by a "licensed" counselor to make sure the victims affairs are in order.
It seems a very short evolution to convice the elderly who are lonely, to bond with the counselor and bequeath to the state their estate and body parts. While we're discussing these matters, why not take this pill and quit being a burdon on everyone.
A little financial incentive for the counselor could go a long way in the collection process.
Posted by rossbcan on 10/05/11 11:12 AM
... know, but, like to clarify for those who don't...
Posted by rossbcan on 10/05/11 11:01 AM
"read that student loan debt"
I think a plausible case can be made that people whom have paid for an "education" in any "profession" dealing with the humanities such as anthropology, sociology, psychiatry, history, law, economics, etc...
can plausibly claim to have suffered fraud and been deprived of honest services on the part of their educators (indoctrinators), as can anyone whom has paid any part of the costs of "public education".
Why all this BS?
... To hide THIS:
Click to view link
... And prevent THIS:
Click to view link
Posted by rossbcan on 10/05/11 10:52 AM
DB: "Today, of course, Western governments are not nearly so brutal. And yet ... "
Oh? Then why, do tell, do they, having frittered away all the seed corn feel the need to send SWAT teams to collect student loans? Thus, translating their self created survival threats (by crapping in their own home, destroying the productive) to others.
Click to view link
I don't believe the issue is that government doesn't want to be brutes (their basic nature). The issue is that they want it to appear to be someone else's fault.
And, DB forgot: States married to business IS FASCISM.
"Or will history simply repeat itself?"
Yes, until we learn that repeating the same mistakes over and ober again and expecting natural law to provide different consequences to the same actions IS INSANE.
Reply from The Daily Bell
To make an attempt at being funny, while being sarcastic at the same time.
Posted by x59htes on 10/05/11 09:37 AM
Private sector public debt collection is going to lead to an enormous increase in violence from the private debt collectors and people trying to defend themselves from private debt collectors. Eventually the total breakdown of society will result if the policy is not overturned.
Posted by TimurTheLame on 10/05/11 09:12 AM
@ john the simple
Which leads to a point that I had omitted and that is the wage garnishee. These things obviously do not apply in commercial cases which would be settled in civil court should it go that way.
Garnishees are also normally exceptions to the rule in personal collections because the cost for the debt collector to set one up is restrictive given that normal collections are for less than $5k.
However in student loans, I have read that they range from $25K - $100K. Talk about a disincentive for finding work or for staying at a job if the great surprise arrives.
If you are implying military enlistment then an interesting situation arises. It could potentially be a debt collector's fondest dream. I don't quite know how that would play out but I suspect that it would be a nasty surprise for the ex-student. Can't quit just like that when you are in the service.
Posted by Dave Jr on 10/05/11 09:04 AM
A case where one hand of government doesn't know what the other hand is doing. So they waste tax payer money by involving a collection service.
And they wonder why government is called inefficient, among other things.
Posted by Dave Jr on 10/05/11 08:00 AM
Probably the biggest reason students do not repay their loan is because they don't have a job. It wouldn't surprise me if government is paying welfare with one hand, and paying for the recollection of it with the other.
Reply from The Daily Bell
Maybe. Or maybe it's being used as a tool to justify and redeem Leviathan.
Posted by john the simple on 10/05/11 07:59 AM
The pressure put on students to repay their loans make them a prime candidate for enrollment in another school than they thought they at first were getting involved with. This school is a school for mayhem and called WOMP (womens on- going military pressure), and stomp (secret team on-going military pressure);
sort of like operation pressure point. The whole organized team is so covert that it makes those involved feel like saviors of a sort, loving what they do to others.
What they are not aware of is that once indoctrinated into these secret teams of harrassment and pin-the-tail-on-the-donkey fun and games, they are bound to the organizers whenever a new assignment comes their way.
Posted by TimurTheLame on 10/05/11 06:29 AM
Well this will certainly put the temperature in the pressure cooker up more than a few degrees. I was involved in commercial collections with a two country national mandate many years ago and learned quite a bit about the industry.
Disclosure: I set up accounts but did not get involved with in the collection process. Also, commercial collections proceed in a B2B manner, much less personal and no widows or orphans being victimized.
Collecting from the public is another matter entirely. It is all personal. Having read that student loan debt slightly exceeds credit card debt in the US (both hovering around $1 trillion) I will assume that this is where the brunt of the activity will take place.
Now the question would be, is this outsourcing to save money or is this part of a larger plan to ruin the citizenry? People who have never had to deal with collectors or otherwise know little of the industry should be aware of certain facts.
First, the type of person who becomes a collector is a nasty type of lowbrow. A poor man's Pinkerton if you will. The more normal of them will be trained to become so, ' if they want to be successful in this industry'. The people owing will be exclusively referred to as deadbeats and scumbags.
Further to that, they work on commission, so no shakedown, no paycheck. Theoretically if they get enough students to make progress payments on a regular basis, they would be able to build up a nice monthly residual. To get a student to cough up $50,000 would be a windfall but obviously very rare. This will be the appeal to greed, err.. I mean how compensation will be highlighted.
As these collections proceed this will inevitably inflame the most radical and idealistic segment of society, the youth, in better times referred to as our future. There are already so many unemployed and partially employed graduates who live at home and/or barely get by who had done what would have appeared to be a wise move, get an education while the economy is poor and by graduation time things would have improved, as they always do, and get that dream job.
However the economy went from bad to worse. The student loans were granted with the same scrutiny that mortgages were and so now another bubble has burst. To go to congress to give the jackals more tools with which to ply their trade will not bode well in the end. The collectors already flaunt the statutes they have to work under, give them more and the harassment goes up exponentially.
Oh, and I almost forgot, student loans cannot be discharged under any circumstances and they build up 'juice'.
This is also a good way to impoverish relatives who insist that the loan be retired before the interest makes a graduate a serf for life (irony?). So yes, more misery, more stress, more despair. Cui Bono?
DB-"Will the lessons Rome can teach be internalized?" I love it when you bring out the humour!
Reply from The Daily Bell
Thanks for the personal insights ...