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Occupy Wall Street's Rolling Jubilee: Your questions answered

November 16, 2012: 3:07 PM ET

Will Occupy Wall Street's debt buying plan work? Yes. Does that mean you don't have to pay your credit card bill? No.

By Anne VanderMey

FORTUNE -- No more drum circles for Occupy Wall Street -- now they're working with actual drummers. On Thursday the newly reinvented and refocused Occupy movement staged an indie rock star-studded benefit in New York City to launch its new debt-buying project, the Rolling Jubilee. By all accounts, the party was great. It's still unclear, though, whether the actual plan to buy and wipe out loans will be as successful.

The idea behind the Rolling Jubilee is simple, and frankly elegant: buy distressed debt for less than the debt's face value – think unpaid loans of people who are late on their medical bills – and then forgive it. As Occupy put it in a promotional video, now with some 80,000 YouTube views: "Instead of collecting on the debt we buy, we're going to abolish it. Poof." Still rankling from the government's 2008 Wall Street rescue, organizers dubbed the effort the "people's bailout."

The group says it has already bought and eliminated $100,000 worth of medical debt. After Thursday night's gala, which also was streamed live online as a telethon, OWS had raised close to $300,000 -- which could hypothetically wipe out $6 million more.  "That's a crazy bargain," wrote one supporter in a blog post.

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But will it work? The challenges are substantial. Slate's Matt Yglesias raised the question about whether buying old and distressed debt, which might never be paid anyway, is actually better than just directly giving an indebted family money. JMP Securities analyst David Scharf says that even on very old accounts, people who can pay something generally will, but he also says only some 20% accounts will pay anything toward their charged off debt.

Next, there's the question of how the group is actually able to buy the loans. Purchasing directly from the banks is tricky. Most of them sell debt through contracts to established customers. "It's not like someone can just show up and tell Bank of America or Chase that they're about to displace their longstanding relationships," says Scharf. Debt brokers also restrict who they sell to for liability reasons. Even recognized debt buyers sometimes have trouble making deals.

Occupy's strategy so far has been to make friends in the industry. Those friends purchase loans for them (probably from other buyers and not directly from banks), and then erase it. The group won't say who it's working with, and in a statement it referred to its contacts as "moles in the debt-brokerage world." What they will say is that it wasn't that hard to find a sympathetic ear.

"You'd be surprised," says Aaron Smith, one of the Jubilee's organizers. "I certainly was."

Technically, the project is feasible. Still, even if Occupy's moles do manage to buy a lot of distressed debt, the nation's multi-trillion dollar debt burden won't be much affected. And as for the industry, the two largest publicly traded credit purchasers are expected to spend nearly $1 billion in distressed debt per year. A few million from the Rolling Jubilee "doesn't qualify as a rounding error," Scharf says.

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In some key ways, the project doesn't really "work." But that, of course, is missing the point. Organizers say the actual goal is to jumpstart the conversation about debt that originated from predatory lending practices. "I want to make it really clear that what we're doing here is not charity," Smith said. "It's not debt forgiveness. It's a political statement about what we view to be odious debts."

People whose debt is wiped out will get a certified letter in the mail from the Rolling Jubilee. The idea is that they will donate in turn, Smith says. (That's the "rolling" part of the plan.) They will also get a copy of the "Debt Resistors' Operations Manual," a handbook that will send chills down the spine of anyone worried about moral hazard. The book, which is free online, includes choice phrases such as: "We are under no moral obligation to keep our promises to liars and thieves. In fact, we are morally obligated to find a way to stop this system rather than continuing to perpetuate it."

Getting that message out is Occupy's real goal, and it seems to be working, given the amount of coverage the effort has garnered so far. But it's hard to imagine that the country's big debt-buyers are nervous right now, and the banks certainly aren't. No one should skip their Visa payments because they think Occupy might bail them out.

One of the best outcomes of the Rolling Jubilee is still the good old-fashioned charity of it. If the project takes off, and the group's moles buy the right loans, thousands of families will get a break, while Occupy spreads its message.

Like the group's efforts to coordinate relief for victims of Hurricane Sandy, the project is part of a smarter, even softer, approach to anti-capitalist revolution. As far as a movement goes, it beats drum circles.

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