The market for purchasing debt securities on the cheap is factored into the cost of the debt. So if debt purchasers go out of debt, the interest rates for borrowers, both good and bad, go up.
It's a one way market where the purchasers are replaced (from the debt collectors to the actual owners)
Before: I owe $20k, the bank sells my loan to a debt collector for $1k. He expects to collect 10%, ends up extracting $2k from you. $1k for the bank, $1k for the loan collector, -$2k for you.
After: I owe $20k, the bank wants to get rid of my loan for $1k. I buy it (because my grandma just died and I had the cash) . Bank and I are better off, loan collector gets nothing.
OR bank tries to get rid of the loan, trues to sell it to me for $1k, if that doesn't work they go to the loan collectors. Loan collector buys it, and works out a more fluid payment scheme to try and get back $2k very slowly from me.
If the loan collector can't offer a better service, I don't see their value to society anyways. Apart from subsidizing loans for people by being willing to be the guy who psychologically tortures people in bad situations (who most likely don't know about debt collection laws in place to stop this). In the end we kill off a disgusting system.
Also, this thread was originally prompted by the idea that it would be good for borrowers if they could get a right of first refusal on any resale of their debt. There's a question of whether more selective lending is in the best interests of such borrowers.
As much as being in debt sucks, many of these borrowers would prefer to be in debt than not have had access to borrowed money in the first place. Moreover, this would make life harder certain borrowers who would pay back their debt but can't get a loan because they fall within whatever statistical grouping or heuristic lenders are using to minimize their losses.
>There's a question of whether more selective lending is in the best interests of such borrowers.
It's kind of odd to question whether it's in the best interest of borrowers. I mean, we're talking about the people who clearly cannot pay their debt and thus need it reduced. So, more selective lending would disqualify them and prevent them from getting in over their heads again.
>many of these borrowers would prefer to be in debt than not have had access to borrowed money in the first place.
Again, that's odd. We're not just talking about being OK with debt. We're talking about being so far in debt that they cannot pay. Why should they continue to have easy access to borrowed money? Their preferences aside, that doesn't really work for anyone under any system (including the current).
>this would make life harder certain borrowers who would pay back their debt but can't get a loan because they fall within whatever statistical grouping or heuristic lenders are using to minimize their losses.
The only case that this makes sense for is the case of people borrowing money to access medical services (as per the original article). Though people shouldn't have to get into debt that they have no hope of repaying to access medical services. That's a problem with the health system, not something that fall under the debt market. Ultimately it seems that if you don't pay for health services through taxes, then you pay for it through other means (e.g. paying higher interest rates to the banks when you take out a loan to buy your house)
