Discussion in 'Economics' started by Here4money, Sep 15, 2018.
How bad is this incoming crisis?
SLM CDS do exist or at least used to exist. Doubt retail can play in this market. Ask your broker to check a Bloomberg.
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.
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.
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