I came across this story and really felt the need to make sure you all are aware of this and understand it.
So some guy on TeeVee decided to go into the consumer debt market and buy some consumer debt – this is what COLLECTION AGENCIES do.
He bought $15,000,000.00 (fifteen million dollars) of medical debt out of Texas and paid… wait for it… just under $60,000 for it. And he paid the asking price. That is what the portfolio of bundled debt was OFFERED at by the previous holder, who may or may not have been the originator.
Guys, that is $0.004 cents on the dollar. FOUR TENTHS OF ONE CENT per dollar. Which means that if a debt collector settles with the debtor for $0.01 on the dollar, his gross profit margin would be a mere 250%.
When Karl Denninger and myself and other people (but KD is without question the leader on this topic – his book Leverage has a goodly part dedicated to this very thing) scream and yell about how galactically criminal the medical/insurance racket is, and how if the market were allowed to work that prices for all medical products and services would fall at least 90% if not more, we really aren’t kidding. Just look at the data above. It implies a 25000% markup to the paying private consumer. Everyone else (namely insurance companies and government… but I repeat myself) backs out of the TWENTY-FIVE THOUSAND PERCENT CUSHION.
In terms of morality, if a creditor sells debt, both he and the market have REPRICED that debt. The new debtholder’s basis is the price he paid for the debt. And thus the creditor can and should negotiate with the debt collector on the NEW BASIS, not the original balance, because the original creditor is no longer going to receive anything – by his own choice. He “cashed out” when he sold the debt on the market.
The fact that most people have no understanding of this is precisely how these debt collection agencies make the huge profits that they do. They want the debtor to assume that the collection agency is a “pass-through” or middle man for the originating lender, when in fact, the originator is totally out of the picture. Imagine if a debtor settled a $100,000 medical bill for $0.50 on the dollar, when the collection agency had bought the debt for even $0.01 on the dollar – which we know is high. That would be a 5000% gross profit margin.
The happy ending to this little story is that the TeeVee guy FORGAVE all $15,000,000 of the debt he bought – which didn’t even require a license. Just a $50 paperwork fee, and a corporation. It seems to me that this sort of thing might be a really cool way to give alms. Can you imagine lifting that kind of burden off of so many people’s shoulders? I would limit it to medical debt, though. Just to be sure I wasn’t enabling some idiot who ran up credit card debt on strippers and bright red three piece suits.
And one more quick thing. His name was Cassius Marcellus Clay, Jr. He was a baptized Christian and sexually promiscuous coward who APOSTASIZED from Christianity and joined up with the truly depraved racketeering organization, The Nation of Islam, in order to get out of being drafted in the Vietnam era. He wasn’t wise. He was an egomaniac that was good at “beating people up”, as he himself put it. Prayers for the Champ? Yeah, but odds are it is too late for him, and those prayers will be applied to a poor, forgotten soul in Purgatory. But yes, by all means, pray for the dead, even though it is pretty much impossible to refer to Cassius Clay as “the faithful departed”. But if you really believe in any of it, you should, at the very least, use the man’s real name – the name that God calls him: Cassius Marcellus Clay, Jr. Not his bullshit Nation of Islam stage name.