THE ONE WHERE WE FIX HOUSEHOLD DEBT

The Problem: 

Think of all your household debt: mortgage, student debt, credit card, healthcare billsauto loans. It can be overwhelming. In fact, often times it actually IS overwhelming. However, the balance that you see on your statement may only be relevant to... you. The company you're paying likely 'carries' your debt at a smaller amount. They may well have purchased your debt for pennies on the dollar, unbeknownst to you.

The Solution: 

We will introduce legislation that will inform you anytime your loan changes hands, exactly HOW MUCH it changed hands for, and give you 90 days to match the offer. Imagine if you could pay a third of your outstanding balance without hurting your credit report. We can.

Lower monthly payments, reduced balances, lower interest rates. Let's fight for the Middle Class and run Government like a business. We Have Things To Do.

The TLDR Version:

As a nation, we've recently surpassed 2008 levels and now have over $12 trillion in private citizen debt. Coupled with our almost $20 trillion national public debt, we see a recipe for disaster.

The average U.S. household today makes $56k, and that's only up from $50k (adjusted for inflation) in 1980. This stagnated income has further exacerbated a growing debt crisis for the American Middle Class. Hedge funds are even looking for new ways to securitize tranches of student debt to bet against it (aka betting you'll default). This was the same process that culminated in the subprime housing collapse of 2008 (the one that created a near global economic collapse).

In the investment finance world there is a second and even third or fourth market for your private debt. What this means is your debt can be bought and sold - from one company to another - while you're still on the hook for the balance plus accruing interest. You already know this: when your mortgage (or any debt) changes hands, you, the borrower, typically receive a notice in the mail that you need to start sending those payments to the new guy.

Update: The NY Times goes as step further; the new guys that own your debt often don't even have the documents to prove it; as a result, judges are tossing billions in student debt out of court.

What they don't tell you in that notice in the mail is the biggest dirty secret in this entirely rigged game. Often times, the new company did not purchase your debt for the full value you still think you owe. In fact, they often purchase second and third market paper at severe discounts.

John Oliver recently pointed this out when he and HBO created a collections agency and purchased 15 million dollars worth of Texas healthcare debt for only... $60,000. Let that sink in a second. $15M for $60k (or 0.004%). What if you could do the same? What if you could buy your own debt back for a fraction of the cost?

The private sector is already comfortable with this because they often do not carry your debt at 'par value' (the full amount of your loan) on their balance sheet. Rather, they sell it off their books to a collections agency and write down the loss (similar to the infamous $916M carried interest loss). The second company will then collect from you with varying levels of aggression, but at any point in time, for reasons that have nothing to do with you, they can and will sell your loan to another company. Same formula - rinse and repeat.

Now, imagine you have $120k in medical or law school debt rolling at a Federally 'capped' rate of 7.87%. Your monthly payments are crippling, and annually you're only paying off interest, nothing more; the balance isn't moving. You are stuck on that hamster wheel. If that loan were sold to another company for $30k, and you then had 90 days to match the offer, you could feasibly get a private loan the size of a small car from your local bank/credit union and potentially be paying of $30k at 3% in today's interest rate environment. In this hypothetical you saved yourself from paying future interest as well as 75% of the balance; as a result, that crippling monthly payment would likely drastically reduce into something far more affordable.

Meanwhile, no private sectors were hurt in the making of this solution. The market had spoken; your debt was not worth the full value, and the deal was going down with, or without you. Similarly, no tax dollars or government subsidies were used.

Let's run the Government like a business and alleviate the $12 trillion albatross of debt around the U.S. Middle Class and give them buying power back. Lower monthly payments means more disposable income; this would stimulate the economy.

It's time to lead, California - We Have Things To Do.