Post your predictions on the next financial bubble to burst...

[U-Ute]

Gawker claims (http://gawker.com/5988302/its-eerie-how-perfectly-student-debt-is-following-the-financial-meltdown-script) that student loans are the next to bring us down.

[UtahDan]

I've heard this for at least the last six months. Higher education is overpriced.

[Joe Public]

People have been saying this for years, but the so-called student loan bubble is different from others in several ways. Be it tulips, internet stocks, or houses, a typical bubble is based on tradeable assets with speculatively high prices. Once the frenzy stops, those assets are dumped on the market; the resulting, sharp drop in price is labeled a crash or correction.

How would that happen with student loans? An education is not a directly tradeable asset. I can't take my degree to a broker and exchange it for money. Sure, people presumably have more marketable job skills due to an education, but that isn't what I'm discussing.

How would the market crash? As explained above, schools don't have to compete with graduates who are flooding the market with degrees they already purchased. New buyers - incoming students - are still incentivized to borrow money and pay the price the school sets for an education. The school has very little direct market incentive to adjust that price; classes are still filling.

People are stuck with debt related to the loans, and that debt is an enormous amount in aggregate. However, virtually nobody can walk away from that debt. For much of it, the government guarantees repayment.

What flood of supply relative to demand will cause the bursting of this bubble?

[wuapinmon]

http://www.theatlantic.com/business/archive/2013/03/dont-panic-wall-street-is-going-crazy-for-student-loans-but-its-not-a-bubble/273682/

[LA Ute]

This seems to fit here. From the Washington Post (http://www.washingtonpost.com/business/economy/housing-program-seeks-to-cut-monthly-payments/2013/03/27/6b75b97a-9724-11e2-b68f-dc5c4b47e519_story.html):


The Federal Housing Finance Agency, which oversees mortgage finance giants Fannie Mae and Freddie Mac, announced that borrowers who are more than 90 days late on their mortgages will become automatically eligible for a modification to the terms of the home loan. The goal is to reduce monthly payments.

In the past, to be eligible for a mortgage modification, borrowers had to provide documentation they had a financial hardship. They will no longer be required to do so — though providing such documentation will make borrowers eligible for more substantial monthly savings....

Some analysts worried that the new program could encourage borrowers to deliberately miss payments in order to become eligible for the program.

“The primary issue is whether this will encourage borrowers to strategically default on their mortgage in order to get the modification. This risk exists because the new program does not require the borrower to demonstrate financial hardship,” Jaret Seiberg, an analyst with Gugenheim Partners, wrote Wednesday. “

FHFA said Fannie and Freddie would use existing “screening measures to prevent strategic defaulters.”

Can you say, "moral hazard?"

[Two Utes]

Gawker claims (http://gawker.com/5988302/its-eerie-how-perfectly-student-debt-is-following-the-financial-meltdown-script) that student loans are the next to bring us down.

Treasury Notes. And it could be big.

[Applejack]

College athletics.

[U-Ute]

Student loan bubble bursting?

http://www.cnbc.com/id/101012270?__source=xfinity|mod&par=xfinity

[wuapinmon]

Student loan bubble bursting?

http://www.cnbc.com/id/101012270?__source=xfinity|mod&par=xfinity

No. They're reacting to the President's ranking proposal and getting out before they have to finance more for-profit school loans.

[LA Ute]

No. They're reacting to the President's ranking proposal and getting out before they have to finance more for-profit school loans.

The bank's behavior does remind me of what the banks were doing just before the subprime real estate loan bubble burst. Very low-key, downplaying the significance of getting out of that type of loan business. Yada yada yada. I am not reassured.


"It's men in shorts."

-- Rick Majerus

[wuapinmon]

The bank's behavior does remind me of what the banks were doing just before the subprime real estate loan bubble burst. Very low-key, downplaying the significance of getting out of that type of loan business. Yada yada yada. I am not reassured.


Lawmakers are going to come after for-profits because they're going to score the lowest on the Obama proposal. The banks know these are dogs, but they were getting high interest. Now that that's in jeopardy, better get out now before they pass a law saying that all current providers have to keep providing or some nonsense like that.

[Sisyphus]

The debt bubble is completely reflated, with big banks seeing about a $60B reversal of fortunes almost overnight in unrealized losses, while we're continually going in the wrong direction...

A credit downgrade on US debt will be a doozy

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/08-2/Unrealized%20Losses%20on%20AFS.jpg