It's probably the same thing like gambling to those people. Or penny stock trading. The reasoning is probably like this: at 1/1200 rate, I can cheaply buy a whole crapload of debt. And based on the time-honored principle "if you throw enough shit at a wall, some of it will stick", if just a small percentage of those debts pays out, I will make a profit even if the rest are junk.
At that rate, why didn't the creditor try sell the debt to the debtor? Effectively saying "you pay me 1/1200th, then your debt is owed to yourself and you can call it quits."
This is a very common misunderstanding in this thread, so I will answer it here once. The portfolio is worth a penny on the dollar because it is a mix of quarter debts, dime debts, and "not even worth a 1/1000th of a penny" debts, and the mix is known to be skewed towards crap. If the mix were known to be largely collectible debts, it would have been priced near 30 cents or more. The portfolio has been worked and the easily collectible debts - working phone numbers, responsible debtors with capability to pay - has been collected already.
Even calling people to offer terms isn't profitable at 1/1200th of a $250 AT&T receivable and much of the portfolio is physically incapable of paying the two cents! The collector is hoping to get literally three in a hundred to pick up the phone and take an offer of $150, the bulk of which goes to labor to call them.
It's not gambling if the law of large numbers is on your side. It's more like running a casino, where the loss on a single transaction could be high, but overall you're almost certain to make money.
