Student debt , are there credit default swaps for these things?
- Thread starter Cuddles
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Student debt , are there credit default swaps for these things?
- You can go to the banks who provided funds to those agencies or lenders that underwrote those loans to see if they are willing to sell you credit swaps on those student loans but first you need to do your home to find out the payment and default statistics on those loans to see if you might be able to profit from them like what Dr. Burry did. And also you need to find out how extensive the debts are and how heavily invested the institutions are into student debts. Dr. Burry and others were able to profit tremendously from the housing market crisis not just because people defaulted on their mortgages alone, not it was:
extensive default on outstanding mortgages +
extensive fraudulent mortgages +
complete collapse of the housing market on which those mortgages and fraudulent mortgages were based on +
extensive investment in mortgages, derivative on mortgages, derivatives on derivatives on mortgages by
the entire financial industry
It was a very unique situation thus the extreme payout. In this student loans situation, how much invested are the financial industries in these loans? Are there derivatives on those student loans? Those are all questions that I would consider before wanting to do credit swaps on these loans.
- You can go to the banks who provided funds to those agencies or lenders that underwrote those loans to see if they are willing to sell you credit swaps on those student loans but first you need to do your home to find out the payment and default statistics on those loans to see if you might be able to profit from them like what Dr. Burry did. And also you need to find out how extensive the debts are and how heavily invested the institutions are into student debts. Dr. Burry and others were able to profit tremendously from the housing market crisis not just because people defaulted on their mortgages alone, not it was:
extensive default on outstanding mortgages +
extensive fraudulent mortgages +
complete collapse of the housing market on which those mortgages and fraudulent mortgages were based on +
extensive investment in mortgages, derivative on mortgages, derivatives on derivatives on mortgages by
the entire financial industry
It was a very unique situation thus the extreme payout. In this student loans situation, how much invested are the financial industries in these loans? Are there derivatives on those student loans? Those are all questions that I would consider before wanting to do credit swaps on these loans.
Those are good points. Addituonally, the housing market in 2008 had a built-in exponential function in that falling housing markets depressed prices and increased foreclosures dumped on the market which led to increased declines in housing markets. Hard to see such a feedback loop in student loan defaults. That and the fact that they have so many options to delay or defer or lower monthly payments if your income falls or ... means they are far less suceptible to the acceleration effect that foreclosures provided.
Yes and also that houses were used and solely used as collaterals for those mortgages which compounded the collapsing effects on failing mortgages from the depressing prices on the housing market. That tie was supposed to make mortgages safer but really didn't help much as it turns out. The student loans has nothing tied into it and as you said has lot more flexible repayment options and plus the financial industry is not that heavily invested in it. It was also the derivatives and the multiple-degree derivatives that were betting and double-betting and triple betting on the same mortgages that compounded the speed the failing of the mortgage market and in turn the economy. The student loans have no derivatives on them, that I think is its biggest saving grace.
Limits are the keyword here. If you don't know the limit you will have a lot of problems. It is very interesting when you have money and something like that, but remember, you have to give them back. That is why you have to work. I know that it is a little complicated for the students but everyone is passing through this period. One of my friends once had problems with the debt collectors because of the loan. He was very lucky because these guys frontline-collections.com were very good with him and gave him some more days for the payment. So being a student is not so easy but when you manage your time and budget everything is fine.
M
morganist
The problem with student debt is it is pretty much unsecured debt because most students don't have much when they start working. This means if there is a default it is likely to be a hard default. They can get round this by offering creditors' agreements to offer a lower more affordable debt repayment scheme. This reduces the loss of debt to the bank and seems like a reasonable option to help the debtors' out. There is a technique they can use, which I used to recommend to people when I worked in insolvency. Yes yet again it is pension related but it usually works, at least in the UK.
When you pay into a pension your pension scheme is usually protected against insolvency. You could threaten the organisation who lent you money that you will put your possessions into a pension unless they give you a creditors' agreements. The results varied from being able to stop the interest rate being charged or interest payment or instalment payment holidays to reductions in the debt needing to be repaid. Either way the threat of protecting assets by putting them into pensions worked as leverage to make the debt more manageable or to prevent the interest from increasing.
The idea of using credit default swaps to profit off of student debt is an interesting one, but it's important to approach this idea with caution. As you said, the financial crisis of 2008 was a unique situation that involved extensive fraud and investment in mortgages and derivatives. It's important to thoroughly research the payment and default statistics on student loans before investing in credit swaps, and to consider how heavily invested the financial industry is in these loans.