MDlaxfan76 wrote: ↑Wed Jul 05, 2023 12:51 pm
Farfromgeneva wrote: ↑Wed Jul 05, 2023 12:36 pm
MDlaxfan76 wrote: ↑Wed Jul 05, 2023 11:50 am
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