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The process essentially works like this: A bank realizes that a person is not going to pay their loan back, and is losing money on the debt, so they sell the debt on secondary and tertiary markets for pennies on the dollar.“We're basically doing the same thing that an organized debt buyer does on the secondary market,” says Thomas Gokey, one of Yates's team members on Strike Debt. “Banks are mandated by law to charge off defaulted debt after 180 days. It's kind of like a mini-bailout for banks that have created this bad debt. They're stuck with it on their balance sheets and the government gives them a way out, and they're actually able to write it off on their taxes.”“The same Wall Street banks then actually lend money to debt buyers to buy that debt on the secondary market,” adds Thomas. “They sell it for pennies on the dollar, and trade it back and forth with each other.”As Gokey describes the process, one of the buyers will eventually contact a third-party debt collector (though they may have their own debt collection agencies), who will then try to collect the full amount. “It's like other markets,” says Gokey. “You buy for 4 percent of the principal and try to sell it to somebody else for 5 percent of the principal. The debt collector will collect until they have 10 percent of the principal and then sell it off to someone else. It's a very lucrative industry. People are literally getting rich by keeping other people in debt.”
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