SCOTUS

[MDlaxfan76]

.....to this topic at hand.

College debt forgiveness is the new social justice give me your vote ploy. Biden knew damned well it wouldn't pass the test, even Pelosi said as much.

Debt forgiveness is not the issue, that is the end game.....remember you can not control what you can not manage, and when people are strung out on debt, you can work the system to your advantage. If we want to put an emphasis on education, that is a no-brainer that the majority can get behind, but the moment you throw in the financial burden, you just lost a large percentage of the percentage willing to go in the first place, and of that group, the decision was made early on that they can not afford it.

If the US has far more (2.5x) college educated students since the 70's, it begs the question, why are we not even in the top 10 for most educated countries in the 25-35 demographic? We are ranked 5, in the 55-64 demo...behind Russia, Canada, Japan, and Israel. And by total population, we are 6th: https://worldpopulationreview.com/count ... -countries

A very reasonable question, right?

[MDlaxfan76]

But more to the topic here, what are the impediments that people face, differentially, that determine whether they choose to go to college (or trade school) while others do not? And if they do, what determines, differentially, whether they leave college with large or small or no debts; and what determines, the chances of having debts large enough at age 30 to be impediments to family formation and/or home ownership?

Is it merely "effort"? or "talent"?

Because, according to this ruling, schools can't differentiate on the basis of race in providing any easier access to higher education. They can use donor status or legacy status or...but not race... And, government can't administratively decide on the basis of existing authority under the law (despite it's pretty darn clear wording to allow such discretion in the event of an 'emergency') to give a break to the millions of students carrying debt in order to address the strains of that debt and the impact upon demographic and economic decisions.

Are there any policies that can be supported, both legally, and by sufficient majorities, that address these issues successfully?

And who is fighting against those efforts...and why?

If we actually believe in a full, equal, and fair opportunity society, with efficient fluidity of success outcomes, and if we believe access to and quality of education are critical parts of increasing human capital productivity potential...and we think that we're in a highly competitive world in which our key strategic advantages may be determined by our human capital potential and our system's more efficient allocation...

Is this effort not important?

[Farfromgeneva]

I’ve said it like 400x here already. Allow student debt to be discharged in Bk. Nothing should be done before that move. Nothing. Then let’s see when the BK option is on the table what choices folks make.

On affirmative action, who knows there’s so many ways to skin the cat one would hope the smartest and best at educating people can figure it out. If they haven’t gotten too comfortable in their seats.

[MDlaxfan76]

I’ve said it like 400x here already. Allow student debt to be discharged in Bk. Nothing should be done before that move. Nothing. Then let’s see when the BK option is on the table what choices folks make.

On affirmative action, who knows there’s so many ways to skin the cat one would hope the smartest and best at educating people can figure it out. If they haven’t gotten too comfortable in their seats.

mmm, more than "affirmative action" in highest education, don't you think?
Is that the only impediment to more fluid, equal opportunity society?

The bankruptcy discharge indeed makes sense. Zero sense to have other debts discharged but not this type.

But so does boosting young folks progression to have children sooner.
I don't know about you, but I'd delay children versus bankruptcy.
I'd delay buying a house as well.

yes, maybe there's a better way to address these issues, so I'm open to suggestions, whether coming from left or right perspectives.

[Farfromgeneva]

I’ve said it like 400x here already. Allow student debt to be discharged in Bk. Nothing should be done before that move. Nothing. Then let’s see when the BK option is on the table what choices folks make.

On affirmative action, who knows there’s so many ways to skin the cat one would hope the smartest and best at educating people can figure it out. If they haven’t gotten too comfortable in their seats.

mmm, more than "affirmative action" in highest education, don't you think?
Is that the only impediment to more fluid, equal opportunity society?

The bankruptcy discharge indeed makes sense. Zero sense to have other debts discharged but not this type.

But so does boosting young folks progression to have children sooner.
I don't know about you, but I'd delay children versus bankruptcy.
I'd delay buying a house as well.

yes, maybe there's a better way to address these issues, so I'm open to suggestions, whether coming from left or right perspectives.

I don’t see any consideration of the cost. You’ve had a long career, I’m into longish territory now, success is predicated largely for many on riding it out and hanging in there. Wiping out contractual debt and hiding behind some 9th inning of an emergency as an excuse to hit a Christmas list item ignores all the costs and consequences. The cost of having an entire generation not have to pay the debts or bills is something no society is prepared for.

Housing is too expensive as it is now because of low rates. That is independent of student debt. To keep harping on the lack of investment, college was the investment. And they got debt that’s cheaper than SBA debt (Prime + 275 is higher than the Libor/SOFR based spread) without any collateral. There’s already been subsidized investment. Let’s see how the generation manages it.

I don’t see the conflating of the two as making any sense anyways but I only addressed affirmative action because you brought it up. My focus has been on the student debt proposal. Lumping it all under fairness and opportunity is problematic because the case hasn’t actually been made that it was unfair or imbalanced going in. Make the case that wiping out debt doesn’t have massive problems for society and the economy and it’s only upside. Just saying wiping out debt makes things better doesn’t make it so. It comes with costs that are being completely ignored.

I’m a living example of it being fair in fact. Lower middle class, toughish upbringing, no meaningful support for the debts I took on beyond my own ability and EFFORT. Saved and contributed about $22k personally towards college which cost 1.6x what I sold my mothers house for 2yrs ago while she kicked in $20k or so, scholarship money and Stafford filled the rest.

And I did delay having children and buying a place because I was just getting under my feet post grad school financially when the financial crisis hit. Pushed north homeownership and having children out about 3-4yrs in fact. I’ll be older as a father, older if still alive when they go to college but it isn’t a problem (setting aside an aforementioned d miscarriage on #3 we likely wouldn’t have had a third by choice or less likely because of age considerations but had no problem getting two in). Yet somehow still have a house, kids, debt repaid all within a decade of leaving grad school with the larger student debt. I’ve suffered many ways from all this plus other stuff but I’m still in the game not asking for a handout - this argument offends the hell out of me in general. I sacrificed my mental health to pay off my debts and provide for a family and have fairly ok kids (beat I can tell) at the moment. These kids who are crying without having suffered or gone through real problems, talking about people who came out of college post financial crisis need to actually struggle a lot more before it resonates with me.

And I’ll be even more clear one of my existing engagements is for a income based repayment student lender so me advocating for discharging BK is directly in conflict with the benefit I gain from helping this business in a nascent asset class where the IRR based pitch while solving performance data is greatly enhanced by having student debt be jon-dischargeable. I’m talking against my own book whereas wiping out doe debt would probably benefit this company and me personally.

[MDlaxfan76]

I guess the question might be, would we be offended if we were included in this financial transfer at a point in our lives when it would have made a material difference...

Remember, this proposal wasn't all debt, but rather the first $20k (or last $20k!), and eligibility was vastly made up of students from lower income situations.

So, less legacy wealth advantage going in and less network advantage coming out.

Again, I'm not saying it was the best way to address the issue of delayed family formation, but it's a very real issue for our country that young people are increasingly delaying. Especially those ambitious, better educated folks...

Much more so than 20 years ago, way, way more so than 40 years ago...much less 60.

We do all sorts of huge 'welfare' wealth transfers for various policy reasons and seems to me that this proposal was one such among many choices that could be made.

Frankly, I find proposals from the left of free education for all, with a higher tax rate on the $10 million+ income crowd, to be at least focused on solutions to the more fluid, equal opportunity society challenge...

What are the conservative answers? We talk a lot in conservative circles of wanting equal opportunity, not guaranteed equal outcomes, but what are the proposals for getting closer? Again, in a highly competitive world in which the effectiveness of our answer will likely drive our country's success...or failure...

[Farfromgeneva]

I guess the question might be, would we be offended if we were included in this financial transfer at a point in our lives when it would have made a material difference...

Remember, this proposal wasn't all debt, but rather the first $20k (or last $20k!), and eligibility was vastly made up of students from lower income situations.

So, less legacy wealth advantage going in and less network advantage coming out.

Again, I'm not saying it was the best way to address the issue of delayed family formation, but it's a very real issue for our country that young people are increasingly delaying. Especially those ambitious, better educated folks...

Much more so than 20 years ago, way, way more so than 40 years ago...much less 60.

We do all sorts of huge 'welfare' wealth transfers for various policy reasons and seems to me that this proposal was one such among many choices that could be made.

Frankly, I find proposals from the left of free education for all, with a higher tax rate on the $10 million+ income crowd, to be at least focused on solutions to the more fluid, equal opportunity society challenge...

What are the conservative answers? We talk a lot in conservative circles of wanting equal opportunity, not guaranteed equal outcomes, but what are the proposals for getting closer? Again, in a highly competitive world in which the effectiveness of our answer will likely drive our country's success...or failure...

I would be offended any time someone offers a transfer and doesn’t bother to fully understand the need and consequences (BTW the homeownership level in the US is just fine at it’s Q1 23 level-https://fred.stlouisfed.org/series/RHORUSQ156N). Arguing someone is better off if we waived off debt is a baseline that’s specious. Leverage amplifies gains as well as losses and can enforce discipline where none exists (see RJ Nabsico prior to the KKR deal w two Corp Hqs as an example).

They can only wipe out DOE loans which is why it’s more or less capped at $20k. DOE loans don’t accumulate to much more than that over 4yrs.

My answers have been around a while. Where does higher ed costs go if you don’t have subsidized funding paying for rock climbing walls and all the perks that have been built and spent on the last 30yrs or it being mixed in with big college football money and the institutions had to run themselves efficiently and appropriately. This is a wealth transfer to higher ed faculty as well after they’re own colleagues couldn’t manage costs for years and have allowed slippage that would never be acceptable.

How about make student debt dischargeable. Make the required spending the greater of half of endowment gains in a given year or 6% rather than 5% to remain non profit. Segregate allocated expenditure and require clean reporting of financials and make all title IV eligible colleges and universities be transparent and accountable for their expenditures. Eliminate tenure (colleges -it’s not working over the last two generations even left leaning research has demonstrated the self selection is a problem). Provide increased civil service options in exchange for debt forgiveness that’s tangible and meaningful as I know too many who f’ed off for 2.25yrs in the peace corps. Make Community college as close to free as possible.

That would cover 90% of the legitimate concerns in like 5yrs post implementation. I argue the efficacy of waiving of debt is incredibly low. There’s real psychological impact and changes in future behavior when things are made easy. That’s why there’s so many F off kids and adults from wealth families. Following through with commitments comes with benefits and carries value which is being neglected. Struggle has value.

I don’t believe it’s ambitious talented folks who are delaying. That case hasn’t been made at all just stated as of fact. And a 66 reading on homeownership is not anywhere near problematic level. It’s also not helping ease home affordability. Wipe out student debt for this group they run out and buy homes then it’s so expensive the next generation can’t buy them and what you’re back to finding ways for the fed govt to wipe out their debts accrued in and of sound mind with another shaky proppsition?

[SCLaxAttack]

I guess the question might be, would we be offended if we were included in this financial transfer at a point in our lives when it would have made a material difference...

Remember, this proposal wasn't all debt, but rather the first $20k (or last $20k!), and eligibility was vastly made up of students from lower income situations.

So, less legacy wealth advantage going in and less network advantage coming out.

Again, I'm not saying it was the best way to address the issue of delayed family formation, but it's a very real issue for our country that young people are increasingly delaying. Especially those ambitious, better educated folks...

Much more so than 20 years ago, way, way more so than 40 years ago...much less 60.

We do all sorts of huge 'welfare' wealth transfers for various policy reasons and seems to me that this proposal was one such among many choices that could be made.

Frankly, I find proposals from the left of free education for all, with a higher tax rate on the $10 million+ income crowd, to be at least focused on solutions to the more fluid, equal opportunity society challenge...

What are the conservative answers? We talk a lot in conservative circles of wanting equal opportunity, not guaranteed equal outcomes, but what are the proposals for getting closer? Again, in a highly competitive world in which the effectiveness of our answer will likely drive our country's success...or failure...

I would be offended any time someone offers a transfer and doesn’t bother to fully understand the need and consequences (BTW the homeownership level in the US is just fine at it’s Q1 23 level-https://fred.stlouisfed.org/series/RHORUSQ156N). Arguing someone is better off if we waived off debt is a baseline that’s specious. Leverage amplifies gains as well as losses and can enforce discipline where none exists (see RJ Nabsico prior to the KKR deal w two Corp Hqs as an example).

They can only wipe out DOE loans which is why it’s more or less capped at $20k. DOE loans don’t accumulate to much more than that over 4yrs.

My answers have been around a while. Where does higher ed costs go if you don’t have subsidized funding paying for rock climbing walls and all the perks that have been built and spent on the last 30yrs or it being mixed in with big college football money and the institutions had to run themselves efficiently and appropriately. This is a wealth transfer to higher ed faculty as well after they’re own colleagues couldn’t manage costs for years and have allowed slippage that would never be acceptable.

How about make student debt dischargeable. Make the required spending the greater of half of endowment gains in a given year or 6% rather than 5% to remain non profit. Segregate allocated expenditure and require clean reporting of financials and make all title IV eligible colleges and universities be transparent and accountable for their expenditures. Eliminate tenure (colleges -it’s not working over the last two generations even left leaning research has demonstrated the self selection is a problem). Provide increased civil service options in exchange for debt forgiveness that’s tangible and meaningful as I know too many who f’ed off for 2.25yrs in the peace corps. Make Community college as close to free as possible.

That would cover 90% of the legitimate concerns in like 5yrs post implementation. I argue the efficacy of waiving of debt is incredibly low. There’s real psychological impact and changes in future behavior when things are made easy. That’s why there’s so many F off kids and adults from wealth families. Following through with commitments comes with benefits and carries value which is being neglected. Struggle has value.

I don’t believe it’s ambitious talented folks who are delaying. That case hasn’t been made at all just stated as of fact. And a 66 reading on homeownership is not anywhere near problematic level. It’s also not helping ease home affordability. Wipe out student debt for this group they run out and buy homes then it’s so expensive the next generation can’t buy them and what you’re back to finding ways for the fed govt to wipe out their debts accrued in and of sound mind with another shaky proppsition?

What should also be addressed as part of this discussion is the inflation of college costs over time and that effect on a student's ability to afford and pay for their education. 4 yr State college tuition and fees averaged $512/yr when I started college in 1974. According to inflation calculators that cost in 2020 should have risen to $2862 but was actually $9349. These two web sites were used for that calculation:

https://educationdata.org/average-cost- ... ge-by-year
https://data.bls.gov/cgi-bin/cpicalc.pl ... ar2=202012

I recall I was able to make about 1/3 to 1/2 of my private college cost through my summer job income and various scholarships. I was fortunate that the deal with my parents was all that went to college and they covered the other 50-66%. They were able to do that with little sacrifice on their income as a white collar middle manager and an elementary school secretary. And they did that with two two kids in college with a three year overlap. I doubt similar positions could cover 75% of state college tuition, room and board today. Their retirements were also significantly covered with employer pensions so saving 10-15% of every year's income to assure a decent retirement wasn't necessary.

I recognize much has changed. The technology needed for a college education, be that in a chemistry lab or a financial equities lab, are significantly more now than the 70s, and the room and board expectations are significantly higher than when my food service was a choice of three dinner meals from a single line and the rest rooms and showers were down the hall from your dorm room.

[Farfromgeneva]

I guess the question might be, would we be offended if we were included in this financial transfer at a point in our lives when it would have made a material difference...

Remember, this proposal wasn't all debt, but rather the first $20k (or last $20k!), and eligibility was vastly made up of students from lower income situations.

So, less legacy wealth advantage going in and less network advantage coming out.

Again, I'm not saying it was the best way to address the issue of delayed family formation, but it's a very real issue for our country that young people are increasingly delaying. Especially those ambitious, better educated folks...

Much more so than 20 years ago, way, way more so than 40 years ago...much less 60.

We do all sorts of huge 'welfare' wealth transfers for various policy reasons and seems to me that this proposal was one such among many choices that could be made.

Frankly, I find proposals from the left of free education for all, with a higher tax rate on the $10 million+ income crowd, to be at least focused on solutions to the more fluid, equal opportunity society challenge...

What are the conservative answers? We talk a lot in conservative circles of wanting equal opportunity, not guaranteed equal outcomes, but what are the proposals for getting closer? Again, in a highly competitive world in which the effectiveness of our answer will likely drive our country's success...or failure...

I would be offended any time someone offers a transfer and doesn’t bother to fully understand the need and consequences (BTW the homeownership level in the US is just fine at it’s Q1 23 level-https://fred.stlouisfed.org/series/RHORUSQ156N). Arguing someone is better off if we waived off debt is a baseline that’s specious. Leverage amplifies gains as well as losses and can enforce discipline where none exists (see RJ Nabsico prior to the KKR deal w two Corp Hqs as an example).

They can only wipe out DOE loans which is why it’s more or less capped at $20k. DOE loans don’t accumulate to much more than that over 4yrs.

My answers have been around a while. Where does higher ed costs go if you don’t have subsidized funding paying for rock climbing walls and all the perks that have been built and spent on the last 30yrs or it being mixed in with big college football money and the institutions had to run themselves efficiently and appropriately. This is a wealth transfer to higher ed faculty as well after they’re own colleagues couldn’t manage costs for years and have allowed slippage that would never be acceptable.

How about make student debt dischargeable. Make the required spending the greater of half of endowment gains in a given year or 6% rather than 5% to remain non profit. Segregate allocated expenditure and require clean reporting of financials and make all title IV eligible colleges and universities be transparent and accountable for their expenditures. Eliminate tenure (colleges -it’s not working over the last two generations even left leaning research has demonstrated the self selection is a problem). Provide increased civil service options in exchange for debt forgiveness that’s tangible and meaningful as I know too many who f’ed off for 2.25yrs in the peace corps. Make Community college as close to free as possible.

That would cover 90% of the legitimate concerns in like 5yrs post implementation. I argue the efficacy of waiving of debt is incredibly low. There’s real psychological impact and changes in future behavior when things are made easy. That’s why there’s so many F off kids and adults from wealth families. Following through with commitments comes with benefits and carries value which is being neglected. Struggle has value.

I don’t believe it’s ambitious talented folks who are delaying. That case hasn’t been made at all just stated as of fact. And a 66 reading on homeownership is not anywhere near problematic level. It’s also not helping ease home affordability. Wipe out student debt for this group they run out and buy homes then it’s so expensive the next generation can’t buy them and what you’re back to finding ways for the fed govt to wipe out their debts accrued in and of sound mind with another shaky proppsition?

What should also be addressed as part of this discussion is the inflation of college costs over time and that effect on a student's ability to afford and pay for their education. 4 yr State college tuition and fees averaged $512/yr when I started college in 1974. According to inflation calculators that cost in 2020 should have risen to $2862 but was actually $9349. These two web sites were used for that calculation:

https://educationdata.org/average-cost- ... ge-by-year
https://data.bls.gov/cgi-bin/cpicalc.pl ... ar2=202012

I recall I was able to make about 1/3 to 1/2 of my private college cost through my summer job income and various scholarships. I was fortunate that the deal with my parents was all that went to college and they covered the other 50-66%. They were able to do that with little sacrifice on their income as a white collar middle manager and an elementary school secretary. And they did that with two two kids in college with a three year overlap. I doubt similar positions could cover 75% of state college tuition, room and board today. Their retirements were also significantly covered with employer pensions so saving 10-15% of every year's income to assure a decent retirement wasn't necessary.

I recognize much has changed. The technology needed for a college education, be that in a chemistry lab or a financial equities lab, are significantly more now than the 70s, and the room and board expectations are significantly higher than when my food service was a choice of three dinner meals from a single line and the rest rooms and showers were down the hall from your dorm room.

Costs went up uncontrolled partly (largely) due to more subsidizing of higher ed. Just like homeownership and housing Rockies skyrocketed with securitization and the opening of the floodgates with changes to CRA and HUD in the early 90s (some of which was easily supportable. But yes const controls and accountability would have to come with any support/solution otherwise nothing so solved and more problems are kicked into the future.

Not all investment is good investment. It’s very likely a forgiveness solution is akin to throwing good money after bad rather than being a good investment.

I also mentioned fixing immigration as a way to ease concerned about feeling some need for accelerating household formation previously.

[MDlaxfan76]

A few thoughts for consideration:

1) the composition of homeownership has shifted significantly older:
https://www.prb.org/resources/u-s-house ... h-parents/

2) expensive housing markets delay family formation by 3 to 4 years
https://www.demographic-research.org/vo ... efault.htm

3) debt does delay family formation for women
https://www.demographic-research.org/volumes/vol30/69/

more
https://www.researchgate.net/publicatio ... _adulthood

And yes, the delays are mostly among college educated women.

I didn't read this long paper, but looks interesting about what people with student debt would do if various amounts were discharged:
https://openscholarship.wustl.edu/cgi/v ... i_research

Again, may be hammer solution with a screwdriver needed, but these factors are a big part of the logic.

[Farfromgeneva]

A few thoughts for consideration:

1) the composition of homeownership has shifted significantly older:
https://www.prb.org/resources/u-s-house ... h-parents/

2) expensive housing markets delay family formation by 3 to 4 years
https://www.demographic-research.org/vo ... efault.htm

3) debt does delay family formation for women
https://www.demographic-research.org/volumes/vol30/69/

more
https://www.researchgate.net/publicatio ... _adulthood

And yes, the delays are mostly among college educated women.

I didn't read this long paper, but looks interesting about what people with student debt would do if various amounts were discharged:
https://openscholarship.wustl.edu/cgi/v ... i_research

Again, may be hammer solution with a screwdriver needed, but these factors are a big part of the logic.

So you’re saying this should be an immediate priority and actually is a major net benefit? Because I already established that two smart guys like ourselves could make the case to justify anything. But that doesn’t mean you or I should believe that’s the agenda here or that the net benefit exists. Net, again. I haven’t seen you even consider or articulate any negative outcome. You surely must believe they exist. I can justify going to war with my children but that doesn’t mean there’s a net benefit. Nor would I ever believe any story I told myself to justify that.

To be clear. I don’t believe the Biden admin cares to really wants to evaluate the costs or downside at all and only is focused on buying g votes with this. Whether one can make a case to defend it is an exercise an academic would do - ever notice how the Portfolio Insurance creator and Robert Merton ended up overseeing two of the worst financial situations in the last 40yrs? (Long term capital and black Monday, which outside the financial crisis were the two others, VAR is a major factor in the financial crisis) I stand by my original statement that this is a vote buying low priority, super low impact, likely long term negative value creation move. A “negative NPV” if you will. The fact that someone could make the case for a positive benefit and ignore any negatives doesn’t surprise me. Cradle could do that. Not impressive. Show me a fully dynamic thought out model that goes out a generation and has a Mimi to tide of scenarios and probabilities then we can talk but these arguments your making are abstractions that also don’t even consider for one second any negative second order effects at all.

If the point is “could one argue some minuscule* positive benefit to wiping out a portion of folks legally entered and binding contracts” I already said anyone can do that. My original point had that I believe this is shameless vote buying in substance still stands. Anyone serious about a wealth transfer like this one now when they fed is unwinding loose monetary policy is required to play out the hand and show me their best efforts at the results for everyone not just the beneficiaries. In fact a true conservative would be concerned with doing harm by acting and slower to execute on something like this until it were fully better and more importantly the costs to the losers in the transaction were accounted for. My only decent boss stopped me a few deals into credit committee at a HY CRE debt fund I worked at in NY. He stopped me and said “I have no doubt you can convince us of many reasons to do the deal and we will discuss those. Right now I want you to tell me how we get f**led by this deal”. Our politicians, like any fiduciary, should be taking that approach to actions.

*(recall you earlier said it’s not that impactful because it’s capped at $20k so coming back now to argue it changes household formation meaningfully but also wouldn’t affect housing prices for those who don’t have student loan issues-I keep making the point that we’re skewing too much transfers towards homeownership which everyone keeps ignoring then keeps crying about housing issues it make less than zero sense)

[MDlaxfan76]

I thought you were doing a more than adequate job describing negatives , moral hazard, mostly.

Yes, that's an issue. Serious issue, IMO.

But why some moral hazards, not others?
Are they all equal in value?

I also agree that this is about fulfilling a campaign promise and the political benefits of doing so. But not "shameless", as I'd reserve that for the grifters who promote controversies because they value the controversy to motivate votes and donations more than any actual action.

I think Biden and his team actually think this would be valuable to the economy over the next 6 years and beyond, and particularly to young people who are going to be paying the bills for all of us older...a lot of their policies are longer term in objective and the benefits play out beyond immediate election cycles. I want more, not less, of that thinking.

Again, look at who is owning those houses, the very significant shift older. And the delay in having children, and having fewer children, especially among those motivated to get more education.

And no, I didn't say that limiting to $20k meant it wouldn't be "impactful" or certainly didn't mean to give that impression...but yes, the benefit falls proportionately more to those who need some assistance because of their lack of legacy wealth, yet had stepped up and improved their "human capital potential"...than it does for those with such legacy wealth. Imperfectly. And obviously more than those who did not spend that time on their educations...

And a heck of a lot of these loans are for debts taken on for private technical schools selling schtick rather than reality. These schools should be taken behind the shed, but that's another matter. We desperately need technical education/career paths, but the current system is a mess.

So...I don't know exactly what the right policies should be to address the frictions on family formation and higher burdens on younger cohorts today than in prior eras, but it's a very real issue...and I think it actually matters.

And yeah, I'm less concerned with the moral hazard involved than I am with the trends to have children later, and less children overall, particularly among those who are investing the most effort in increasing/realizing their human capital potential and yet don't have legacy wealth.

I think it matters in a highly competitive world in which getting this human capital potential closer to optimal could be essential to the way future generations live. Perfection is impossible, there will always be downsides...and yes, I agree with your old boss, that real attention should be paid to mitigating those downsides...

[OCanada]

I am not a great believer in economic modeling over longer periods of time. My nephew makes a wonderful living using it as part of his tool box though. I threw the article in as an add on.

Long Term Capital used a model i believe

https://www.businessinsider.com/why-can ... 20-12?op=1

[DocBarrister]

I don’t understand why President Biden and the Democrats aren’t choosing to make federal student loans interest free. That would still require borrowers to repay the full loan amount but would markedly reduce monthly payments while substantially shortening the time required to pay off the loan. It would also emphasize the fact that federal loans are an investment in the nation’s future rather than a profit-making government program.

I can imagine private student loan programs protesting, but f*ck them.

DocBarrister

You do understand money has a cost even to our US govt right? And frankly for years the principal amortization is much larger than the interest service right? 20yr loan, free prepayment option means avg life well inside 10yrs so avg prin repayment is more like 10%+ which interest hasn’t seen 10% since long before I was in college.

Further subsidizing cost will only push tuitions up, that exactly why we saw the last 25yrs.

That’s why interest-free loans would be a national investment.

Tuition and other costs can be incentivized to be kept under control by requiring eligibility for the loan programs. That is, if you raise your tuition more than 1.25x the rate of inflation as averaged over four years, your new students lose eligibility for federal student loans. Adequate notice would be provided to students to ensure they’re not surprised by such a problem.

DocBarrister

[MDlaxfan76]

I am not a great believer in economic modeling over longer periods of time. My nephew makes a wonderful living using it as part of his tool box though. I threw the article in as an add on.

Long Term Capital used a model i believe

https://www.businessinsider.com/why-can ... 20-12?op=1

hmmm, kinda depends on the purpose, doesn't it?

Obviously there are too many exogenous factors to have a high confidence in any one scenario, and certainly not recognizing long-tail risks and appropriately hedging against, can be disastrous.

But we don't actually want to think about government policy in short term versus long term, do we? Or any corporate capital allocation for that matter that has long term consequences. Want to think about that down to the individual level as well...

Rather we want to think about both intended and unintended consequences, both short and long, and what we can do to mitigate or react effectively to the unintended.

But we sure as heck should be making policy based on such, not just what gets people worked up in the short term...too much of that in both government and corporations.

We should "reward" leaders in each who build long term value through strategic analysis of the long term, not the short.

[Farfromgeneva]

I don’t understand why President Biden and the Democrats aren’t choosing to make federal student loans interest free. That would still require borrowers to repay the full loan amount but would markedly reduce monthly payments while substantially shortening the time required to pay off the loan. It would also emphasize the fact that federal loans are an investment in the nation’s future rather than a profit-making government program.

I can imagine private student loan programs protesting, but f*ck them.

DocBarrister

You do understand money has a cost even to our US govt right? And frankly for years the principal amortization is much larger than the interest service right? 20yr loan, free prepayment option means avg life well inside 10yrs so avg prin repayment is more like 10%+ which interest hasn’t seen 10% since long before I was in college.

Further subsidizing cost will only push tuitions up, that exactly why we saw the last 25yrs.

That’s why interest-free loans would be a national investment.

Tuition and other costs can be incentivized to be kept under control by requiring eligibility for the loan programs. That is, if you raise your tuition more than 1.25x the rate of inflation as averaged over four years, your new students lose eligibility for federal student loans. Adequate notice would be provided to students to ensure they’re not surprised by such a problem.

DocBarrister

But they were subsidized the past three decades already. Those rates don’t reflect credit and market risk for the cohort not even close.

I don’t mind the cost analysis for eligibility. That could’ve been done already when Obama took the FFELP program in house for DOE 13yrs ago. But I do think that’s a small change that has merit.

[Farfromgeneva]

I thought you were doing a more than adequate job describing negatives , moral hazard, mostly.

Yes, that's an issue. Serious issue, IMO.

But why some moral hazards, not others?
Are they all equal in value?

I also agree that this is about fulfilling a campaign promise and the political benefits of doing so. But not "shameless", as I'd reserve that for the grifters who promote controversies because they value the controversy to motivate votes and donations more than any actual action.

I think Biden and his team actually think this would be valuable to the economy over the next 6 years and beyond, and particularly to young people who are going to be paying the bills for all of us older...a lot of their policies are longer term in objective and the benefits play out beyond immediate election cycles. I want more, not less, of that thinking.

Again, look at who is owning those houses, the very significant shift older. And the delay in having children, and having fewer children, especially among those motivated to get more education.

And no, I didn't say that limiting to $20k meant it wouldn't be "impactful" or certainly didn't mean to give that impression...but yes, the benefit falls proportionately more to those who need some assistance because of their lack of legacy wealth, yet had stepped up and improved their "human capital potential"...than it does for those with such legacy wealth. Imperfectly. And obviously more than those who did not spend that time on their educations...

And a heck of a lot of these loans are for debts taken on for private technical schools selling schtick rather than reality. These schools should be taken behind the shed, but that's another matter. We desperately need technical education/career paths, but the current system is a mess.

So...I don't know exactly what the right policies should be to address the frictions on family formation and higher burdens on younger cohorts today than in prior eras, but it's a very real issue...and I think it actually matters.

And yeah, I'm less concerned with the moral hazard involved than I am with the trends to have children later, and less children overall, particularly among those who are investing the most effort in increasing/realizing their human capital potential and yet don't have legacy wealth.

I think it matters in a highly competitive world in which getting this human capital potential closer to optimal could be essential to the way future generations live. Perfection is impossible, there will always be downsides...and yes, I agree with your old boss, that real attention should be paid to mitigating those downsides...

How impactful was moral hazard with the financial crisis and housing? I wouldn’t be so dismissive and it was be a fallacy to blame it on Wall Street. Is it possible you’re putting too mount rust in the survey of these kids (20 somethings) and letting them off too easy? Why are you so sure the burden is so great as to causing all these problems and not something else?

Anecdotal but was asked to talk with a staffing company owner recently by a trade credit insurance friend and she tells me there’s a meaningful motivational issue she didn’t see 10-20yrs ago as it is. It she’s even close to right then this is a potential disaster. Just because some folks overuse moral hazard doesn’t mean you should be so dismissive of
It. It’s very real. I tried hard to not sue that tent because I knew you’d dismiss it fairly easily and quickly but that’s a mistake.

The childhood trend was happening when I was in my 20s, it’s not new. We should’ve wiped out all debts at the financial crisis of all consumers under this thesis. Is literally next worth a million bucks more, if not higher, than I am now if I didn’t have to repay my debts.

$20k in debt out of $80 or $120k doesn’t change the housing credit profile enough relative to the costs. I’m not sure you’re correct about the for profit debts being wiped out. DOE doesn’t do that type of lending and dont believe FFELP allowed it either. That debt is stuck.

https://fsapartners.ed.gov/knowledge-ce ... s-may-2023

[Farfromgeneva]

I am not a great believer in economic modeling over longer periods of time. My nephew makes a wonderful living using it as part of his tool box though. I threw the article in as an add on.

Long Term Capital used a model i believe

https://www.businessinsider.com/why-can ... 20-12?op=1

Yeah their correlation trades misunderstood market/liquidity risk but it have Robert Merton of Black Scholes fame so obviously it couldn’t lose!

Making pennies on Rwandan Telecom
vs Italian lira pair trades to make “riskless” nickels…

But I haven’t even seen any consideration of a cost benefit analysis to believe the folks proposing or pushing this are even considering downside costs and externalities at all. Just “trust us, it’s and for them and the only fix is if we abrogate contracts and wipe out their agreements. That’s the only way to solve this perceived but unquantified problem.” Show me consideration don’t just tell me, not when history hasn’t been kind to all citizens when these actions are taken. And why use some nonsense backdoor because of emergency of Covid to justify this? Because they can’t make the case otherwise is what it tells me.

[MDlaxfan76]

I thought you were doing a more than adequate job describing negatives , moral hazard, mostly.

Yes, that's an issue. Serious issue, IMO.

But why some moral hazards, not others?
Are they all equal in value?

I also agree that this is about fulfilling a campaign promise and the political benefits of doing so. But not "shameless", as I'd reserve that for the grifters who promote controversies because they value the controversy to motivate votes and donations more than any actual action.

I think Biden and his team actually think this would be valuable to the economy over the next 6 years and beyond, and particularly to young people who are going to be paying the bills for all of us older...a lot of their policies are longer term in objective and the benefits play out beyond immediate election cycles. I want more, not less, of that thinking.

Again, look at who is owning those houses, the very significant shift older. And the delay in having children, and having fewer children, especially among those motivated to get more education.

And no, I didn't say that limiting to $20k meant it wouldn't be "impactful" or certainly didn't mean to give that impression...but yes, the benefit falls proportionately more to those who need some assistance because of their lack of legacy wealth, yet had stepped up and improved their "human capital potential"...than it does for those with such legacy wealth. Imperfectly. And obviously more than those who did not spend that time on their educations...

And a heck of a lot of these loans are for debts taken on for private technical schools selling schtick rather than reality. These schools should be taken behind the shed, but that's another matter. We desperately need technical education/career paths, but the current system is a mess.

So...I don't know exactly what the right policies should be to address the frictions on family formation and higher burdens on younger cohorts today than in prior eras, but it's a very real issue...and I think it actually matters.

And yeah, I'm less concerned with the moral hazard involved than I am with the trends to have children later, and less children overall, particularly among those who are investing the most effort in increasing/realizing their human capital potential and yet don't have legacy wealth.

I think it matters in a highly competitive world in which getting this human capital potential closer to optimal could be essential to the way future generations live. Perfection is impossible, there will always be downsides...and yes, I agree with your old boss, that real attention should be paid to mitigating those downsides...

How impactful was moral hazard with the financial crisis and housing? I wouldn’t be so dismissive and it was be a fallacy to blame it on Wall Street. Anecdotal but was asked to talk with a staffing company owner recently by a trade credit insurance friend and she tells me there’s a meaningful motivational issue she didn’t see 10-20yrs ago as it is. It she’s even close to right then this is a potential disaster. Just because some folks overuse moral hazard doesn’t mean you should be so dismissive of
It. It’s very real. I tried hard to not sue that tent because I knew you’d dismiss it fairly easily and quickly but that’s a mistake.

The childhood trend was happening when I was in my 20s, it’s not new. We should’ve wiped out all debts at the financial crisis of all consumers under this thesis. Is literally next worth a million bucks more, if not higher, than I am now if I didn’t have to repay my debts.

$20k in debt out of $80 or $120k doesn’t change the housing credit profile enough relative to the costs.

Is that how you read the above, that I'm dismissing moral hazard?
Nope, it's an important downside risk/cost.

I asked about whether all policy decisions that create moral hazard are equal. Equally good, equally bad.

I don't think so.

But I'm mostly playing devil's advocate for the policy to discharge some of the debts of those most struggling, even if imperfectly. Does the risk that the next cohort will assume their profligacy with debt will in turn be discharged overwhelm the benefit? I dunno, but there's a case to be made, I think, that the benefit outweighs the cost, and that claims that this is shameless vote buying are an overreach therefore.

Again, the data indicates that the student loan debt weight, especially for women, is slowing down the timing of their getting married, having children, and those families buying houses. And fewer children when they do than in prior generations, both because of biological challenges later and costs of having children...while still in debt.

IF you are a woman, or family, trying to keep afloat while paying rent that is escalating faster than your income, and your debt payments come due each month, it is entirely rational to invest more time in building more of a career, or at least work stability (in a very unstable, job hopping world of today), such that you can see adding the expenses of children...a $20k discharge, or $40k for a couple could be huge in changing the timing of various decisions...aunt Matilda leaving a pot of cash ain't happening...

HOWEVER, that doesn't mean this is the best policy to address these issues; it may or may not be...just that it's a reasonable justification, not mere vote buying.

So, what would be the best policy that would enable young people who are spending time on education, investing in their future, to have children sooner and more of them? What's "fair" in a world in which rich people get hugely subsidized health care and Social Security when they hit 65? Paid for by taxes on young people..

[Farfromgeneva]

I thought you were doing a more than adequate job describing negatives , moral hazard, mostly.

Yes, that's an issue. Serious issue, IMO.

But why some moral hazards, not others?
Are they all equal in value?

I also agree that this is about fulfilling a campaign promise and the political benefits of doing so. But not "shameless", as I'd reserve that for the grifters who promote controversies because they value the controversy to motivate votes and donations more than any actual action.

I think Biden and his team actually think this would be valuable to the economy over the next 6 years and beyond, and particularly to young people who are going to be paying the bills for all of us older...a lot of their policies are longer term in objective and the benefits play out beyond immediate election cycles. I want more, not less, of that thinking.

Again, look at who is owning those houses, the very significant shift older. And the delay in having children, and having fewer children, especially among those motivated to get more education.

And no, I didn't say that limiting to $20k meant it wouldn't be "impactful" or certainly didn't mean to give that impression...but yes, the benefit falls proportionately more to those who need some assistance because of their lack of legacy wealth, yet had stepped up and improved their "human capital potential"...than it does for those with such legacy wealth. Imperfectly. And obviously more than those who did not spend that time on their educations...

And a heck of a lot of these loans are for debts taken on for private technical schools selling schtick rather than reality. These schools should be taken behind the shed, but that's another matter. We desperately need technical education/career paths, but the current system is a mess.

So...I don't know exactly what the right policies should be to address the frictions on family formation and higher burdens on younger cohorts today than in prior eras, but it's a very real issue...and I think it actually matters.

And yeah, I'm less concerned with the moral hazard involved than I am with the trends to have children later, and less children overall, particularly among those who are investing the most effort in increasing/realizing their human capital potential and yet don't have legacy wealth.

I think it matters in a highly competitive world in which getting this human capital potential closer to optimal could be essential to the way future generations live. Perfection is impossible, there will always be downsides...and yes, I agree with your old boss, that real attention should be paid to mitigating those downsides...

How impactful was moral hazard with the financial crisis and housing? I wouldn’t be so dismissive and it was be a fallacy to blame it on Wall Street. Anecdotal but was asked to talk with a staffing company owner recently by a trade credit insurance friend and she tells me there’s a meaningful motivational issue she didn’t see 10-20yrs ago as it is. It she’s even close to right then this is a potential disaster. Just because some folks overuse moral hazard doesn’t mean you should be so dismissive of
It. It’s very real. I tried hard to not sue that tent because I knew you’d dismiss it fairly easily and quickly but that’s a mistake.

The childhood trend was happening when I was in my 20s, it’s not new. We should’ve wiped out all debts at the financial crisis of all consumers under this thesis. Is literally next worth a million bucks more, if not higher, than I am now if I didn’t have to repay my debts.

$20k in debt out of $80 or $120k doesn’t change the housing credit profile enough relative to the costs.

Is that how you read the above, that I'm dismissing moral hazard?
Nope, it's an important downside risk/cost.

I asked about whether all policy decisions that create moral hazard are equal. Equally good, equally bad.

I don't think so.

But I'm mostly playing devil's advocate for the policy to discharge some of the debts of those most struggling, even if imperfectly. Does the risk that the next cohort will assume their profligacy with debt will in turn be discharged overwhelm the benefit? I dunno, but there's a case to be made, I think, that the benefit outweighs the cost, and that claims that this is shameless vote buying are an overreach therefore.

Again, the data indicates that the student loan debt weight, especially for women, is slowing down the timing of their getting married, having children, and those families buying houses. And fewer children when they do than in prior generations, both because of biological challenges later and costs of having children...while still in debt.

IF you are a woman, or family, trying to keep afloat while paying rent that is escalating faster than your income, and your debt payments come due each month, it is entirely rational to invest more time in building more of a career, or at least work stability (in a very unstable, job hopping world of today), such that you can see adding the expenses of children...a $20k discharge, or $40k for a couple could be huge in changing the timing of various decisions...aunt Matilda leaving a pot of cash ain't happening...

HOWEVER, that doesn't mean this is the best policy to address these issues; it may or may not be...just that it's a reasonable justification, not mere vote buying.

So, what would be the best policy that would enable young people who are spending time on education, investing in their future, to have children sooner and more of them? What's "fair" in a world in which rich people get hugely subsidized health care and Social Security when they hit 65? Paid for by taxes on young people..

Let me start by saying Ive struggled through many issues with money and family, household formation through the actual financial crisis. I had little to fall back on and a lot of cover in my 20s so I’ve lived this young household with student debt (and a spousal income drag vs expense) personally. Life is hard so when “what’s fair” is posed to me I start off with more of a zero base budget approach to all this stuff. Action causes more problems in this specific area of govt than inaction. I work for myself these days (maybe not much longer who knows) so cover my own healthcare and let the kids hang on the wife’s program. Every nickel I have to earn to pay my bills not because someone else invested in a business infrastructure or there’s faceless/bar loss cohort of shareholders. Every revenue and every expense is mine to handle. JayZ knows the struggle.

Vote buying can be reasonably justified is what I’ve been trying to say. Doesn’t make it right. In fact if the unification comes after the action Id argue it’s most likely dishonest and not the reason for the action at all or even a real concern. Making a case and shameless vote buying aren’t mutually exclusive.

I don’t see the data confirming or proving what your saying just correlation personally. But it’s data in isolation not scrubbing the error squared out of the model to definitively say that’s the variable causing the problem. And most positive NOVs start out negative, I’ve mentioned that I carried my wife while we put the two kids in childcare to the turn of $1500-2500/mo for four years of her take home being underwater. But now she’s got a $200k+ retirement account, more responsibility and higher salary 5-10yrs later and it’s accretive. So there’s a path.

In the sea of your pro “write off the debt” argument a one liner feels like a throwaway. Maybe it’s not but you’ve made meaningful effort to make an argument for why we should and limited consideration to the other risks/costs. (I’ve had a word unrelenting headache for two days as well which is messing with my head a bit today as well and maybe impacting everything from my biz calls to this stuff)

Ignoring overpriced and short supply housing while making this case is really silly too. Regardless of composition of homeownership, the cost issue is already high and your suggesting pushing it higher on the demand side. What happens if those who had student loan debt wiped out suddenly represent 70% fo defaults on GSE mortgages in a decade? (and didnt most of your cohort here flip out early on when I’ve laid a lot of problems at the doorstep of boomers in the past?)

I think you’re giving too much credit to a Biden admin that’s had a terrible record on many topics of social justice and entrenched politician of four decades. It’s been three years since the former jerk is gone. We now see he’s messed up on stimulus, his approach to social media if you see the most recent C&D against White House communications. Time to stop defending him/them because the other guy is worse. He’s a craven politician whos cares move with the wind over time. Give me a break, that was a investment plan on their wish list which may have made sense to some degree but only when inflation came around did they present it as that and are “hoping” it will be the case but wasn’t their care or intent going in. He shouldn’t even be running again which should say something about the guy. Inflation reduction act? Yes, better than Trump, Hawley,Cruz, DeezNutSantis, etc. but that’s not me wanting the perfect.

And I’ve tossed up numerous ideas. Discharge in BK, make CC more affordable to free, create real meaningful civil service programs to repay debt, enforce cost controls on the colleges and universities. I’m more for free childcare up to 3 or 4 over wiping these debts out. That would be a better solution to the problem as you present it-which isn’t exactly the same weighting with which the admin presents it. It has to invoke all parties impacted and responsible to work. Not just trying to isolate one aspect, that never works in a dynamic model.

And throwing in the fairness compared to others is again both moral relativism and also I’m clearly against many of these subsidies.

Should we next bail out car loan borrowers? It’s unproductive to have transport issues for the economy and they need cars to get to work.

Subprime Auto Bondholders Face Possible First Hit in Decades
Holders of riskiest parts of three ABS deals may see losses
Consumers are not repaying their debt after lenders shut doors
ByCarmen Arroyo+Follow
July 5, 2023, 5:26 AM EDT
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The collapse of two US auto dealers and a growing pile of delinquent car loans are threatening to deliver losses in a corner of Wall Street that, until now, has been a sea of calm: the asset-backed securities market.

Bonds backed by car loans made by U.S. Auto Sales and American Car Center, two used-car dealers that shut their doors earlier this year, have been veering into distress in recent weeks. Borrowers have been falling behind on payments, and Citigroup believes that some of the riskiest parts of three different asset-backed deals could fail to return principal to investors.

Any lost principal would be a rare event in the ABS market, where subprime auto bonds haven’t failed to return investors’ money since the 1990s, Citigroup said. Prices on a bond issued by U.S. Auto Sales, owned by private equity firm Milestone Partners, have dropped to distressed levels, trading at a little over 18 cents on the dollar on June 26, according to Trace data.

The disruption is a major test for the subprime auto ABS market, where issuance grew by more than 70% to $40.5 billion in the five years through 2021, according to data compiled by Bloomberg News.


“The economy is not doing well and there’s a flood of shaky issuers that are going out of business” in the auto market, John Kerschner, head of US securitized products at Janus Henderson, said in an interview. When lenders do fail, “it’s hard to get borrowers to pay back their debt, especially because sometimes it’s not clear where to send the payments.”

Subprime Auto ABS Boomed Since 2016

Subprime lenders issued more auto bonds in past two years

Source: Bloomberg News
Does not include near prime or non-prime deals
Milestone Partners didn’t reply to a request for comment, while a spokesperson for York Capital, which backed ACC before the bankruptcy filing, declined to comment.

As the Federal Reserve ends quantitative easing and tightens the money supply, credit is harder to come by across the economy. Consumers, meanwhile, are burning through their pandemic-era savings.

Read more: Subprime Car Loan Borrowers Miss More Payments, Clobbering Bonds


The deterioration of the bonds issued by ACC and U.S. Auto Sales comes months after both companies announced they were closing their dealerships. Both firms transferred the collection of payments on their loans, known as servicing, to Westlake Portfolio Management after going bust. A spokesperson for Westlake declined to comment.

“The bonds are deteriorating in part” because it takes a few months to transfer the servicing of the loans “and meanwhile consumers may cease making payments,” Eugene Belostotsky, a securitized products strategist at Citi, said in an interview. “The lenders went under because borrowers were not paying back the debt, now that’s just accelerating.”

CITIGROUP SEES THESE FOUR BONDS POTENTIALLY TAKING LOSSES:
The D and E tranches of a 2022 ABS from U.S. Auto Sales
The E portion of the 2021 ABS transaction from the same firm
The D slice of a 2022 ACC deal
Moody’s Investors Service further downgraded some of U.S. Auto Sales ABS in late June, for moving the E note of the 2022 deal to a C rating. The ratings firm noted that there are shortfalls in the pools of money available to pay bondholders, because dealerships haven’t fully reimbursed trusts for items like unearned vehicle service contract payments.

Investor Protections

One of the reasons auto ABS losses are almost unheard of is the use of investor protections known as overcollateralization. That means the amount of loans backing the bonds exceeds the size of the principal on the bonds, allowing at least some borrowers to default without any losses for bondholders.

But for the two subprime issuers that ran into difficulties this year, those protections have waned dramatically on some securities. The overcollateralization for the 2022 U.S. Auto bond has fallen to just 5.5%, compared with a target of 35%, according to a Citigroup report dated June 30.

Not all bonds in these ABS deals will be impaired, money managers who are monitoring the bonds say, but investors who hold the riskiest portions of the deals could be wiped out.

“We are going to see more securities getting hit going forward,” said Dan Zwirn, chief investment officer at Arena Investors, in an interview. “Subprime lenders are in for a reckoning.”

— With assistance by Charles E Williams and Scott Carpenter