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There are at least three debt markets that will cause problems. 1. Student Debt - It is non-renounceable. Bankruptcy does not clear it. 2. Oil and gas compan

There are at least three debt markets that will cause problems. 1. Student Debt - It is non-renounceable. Bankruptcy does not clear it. 2. Oil and gas companies - the entire "fracking revolution " has been funded by loses from bondholders. 3. All Private Equity debt - the basic business model is broken.

epsolos 7y ago
1. Economically speaking, this is actually a really good thing in terms of stability. We would be much more concerned if these borrowers could default. Instead, they have to work, which is good for our economy and good for this specific debt market's health as a whole.
- dfischer 7y ago
  No it’s not. The need for work doesn’t offset that economic calamity that happens with a liquidity crisis and the subsequent devaluation of the dollar. That means people need to work and there’s no money available to pay them. You get a run on banks with more debt than cash available. Everyone is frozen.
  - epsolos 7y ago
    Are you saying that student debt being non-renounceable is bad if and only if we have a liquidity crisis? Because, that's the way your comment reads, to me at least. For the record, I am not endorsing this type of structure for all forms of debt. I am simply bringing to light a more positive view on the supposed "student loan crisis". If so, let's look at some numbers to paint a broader picture: the US mortgage market is 10x the size of the student loan market with average monthly payments in the $1000-1600 range, whereas the national average student loan payment is less than $500. If there were to be a liquidity crisis, the worst we would see out of the student loan market is a larger fraction of borrowers struggling to come up a few hundred dollars per month throughout the recessionary cycle. I just don't think this market is large enough to have the kind of effect your are describing in your comment. I think your comment makes sense for debt as a whole, but I don't think it scales well with the market it's targeted towards.
jedberg 7y ago
You forgot car loans. A few years ago my wife was offered an 84 month loan when she was unemployed. Very few people keep a car for 84 months. I'm sure there will be a lot of people underwater on those loans pretty soon.
- lucas_membrane 7y ago
  Even 84 months ago around a third of those trading in a car for a new one were underwater on the trade-in.
  - dylan604 7y ago
    Auto-loans are the only ones that I've ever heard of that allow you to take the balance of one note and just move it to a new note. Maybe credit card balance transfers, but those are just moving debt from one holder to another. Car loans are adding the balance of the existing note to the new loan.
- im3w1l 7y ago
  Oh... given the people inside my little bubble I'm surprised to hear people don't. If the economy tightened up, presumably people would compensate by keeping the car longer though?
  - toomuchtodo 7y ago
    And service the debt with what job?
- dylan604 7y ago
  are you not underwater immediately on any car loan? sure it's worse on 84 months, but the old saying about "once you drive it off the lot" would apply to any loan would it not?
  - jedberg 7y ago
    Most normal car loans are for four or five years and leave you about even three years in so If you trade it in you don’t owe anything.
adventured 7y ago
> Oil and gas companies - the entire "fracking revolution " has been funded by loses from bondholders. That's no longer a serious problem (and is in fact an opportunity for the majors that have taken over). That's several years in the past as a large risk. At the scale of the US economy and its wealth, the remaining debt implosion risk in the fracking (Permian etc) segment is trivial. The fracking buildout is over and consolidation has already largely occurred. There are only a few relevant small players left to be acquired by the majors. Companies like Exxon, Chevron, ConocoPhillips, Devon, Pioneer, Apache, Concho and Occidental own everything. And a few of those are guaranteed future acquisitions for the big guys, including Devon and Apache. The majors have no real capital problems when it comes to affording to deal with swings in the price of oil, unlike the early years of the fracking boom when dozens of smaller firms still mattered and were highly leveraged. And at this point we know where most of the oil is at in the prime fracking zones, the little wildcatters served their purpose.
tw1010 7y ago
Please tell me where you can read more about the idea that "the entire "fracking revolution " has been funded by loses from bondholders"
- hristov 7y ago
  To be fair there have been plenty of losses from stockholders as well.

epsolos 7y ago

1. Economically speaking, this is actually a really good thing in terms of stability. We would be much more concerned if these borrowers could default. Instead, they have to work, which is good for our economy and good for this specific debt market's health as a whole.

dfischer 7y ago
No it’s not. The need for work doesn’t offset that economic calamity that happens with a liquidity crisis and the subsequent devaluation of the dollar. That means people need to work and there’s no money available to pay them. You get a run on banks with more debt than cash available. Everyone is frozen.
- epsolos 7y ago
  Are you saying that student debt being non-renounceable is bad if and only if we have a liquidity crisis? Because, that's the way your comment reads, to me at least. For the record, I am not endorsing this type of structure for all forms of debt. I am simply bringing to light a more positive view on the supposed "student loan crisis". If so, let's look at some numbers to paint a broader picture: the US mortgage market is 10x the size of the student loan market with average monthly payments in the $1000-1600 range, whereas the national average student loan payment is less than $500. If there were to be a liquidity crisis, the worst we would see out of the student loan market is a larger fraction of borrowers struggling to come up a few hundred dollars per month throughout the recessionary cycle. I just don't think this market is large enough to have the kind of effect your are describing in your comment. I think your comment makes sense for debt as a whole, but I don't think it scales well with the market it's targeted towards.

jedberg 7y ago

You forgot car loans. A few years ago my wife was offered an 84 month loan when she was unemployed. Very few people keep a car for 84 months. I'm sure there will be a lot of people underwater on those loans pretty soon.

lucas_membrane 7y ago
Even 84 months ago around a third of those trading in a car for a new one were underwater on the trade-in.
- dylan604 7y ago
  Auto-loans are the only ones that I've ever heard of that allow you to take the balance of one note and just move it to a new note. Maybe credit card balance transfers, but those are just moving debt from one holder to another. Car loans are adding the balance of the existing note to the new loan.
im3w1l 7y ago
Oh... given the people inside my little bubble I'm surprised to hear people don't. If the economy tightened up, presumably people would compensate by keeping the car longer though?
- toomuchtodo 7y ago
  And service the debt with what job?
dylan604 7y ago
are you not underwater immediately on any car loan? sure it's worse on 84 months, but the old saying about "once you drive it off the lot" would apply to any loan would it not?
- jedberg 7y ago
  Most normal car loans are for four or five years and leave you about even three years in so If you trade it in you don’t owe anything.

adventured 7y ago

> Oil and gas companies - the entire "fracking revolution " has been funded by loses from bondholders. That's no longer a serious problem (and is in fact an opportunity for the majors that have taken over). That's several years in the past as a large risk. At the scale of the US economy and its wealth, the remaining debt implosion risk in the fracking (Permian etc) segment is trivial. The fracking buildout is over and consolidation has already largely occurred. There are only a few relevant small players left to be acquired by the majors. Companies like Exxon, Chevron, ConocoPhillips, Devon, Pioneer, Apache, Concho and Occidental own everything. And a few of those are guaranteed future acquisitions for the big guys, including Devon and Apache. The majors have no real capital problems when it comes to affording to deal with swings in the price of oil, unlike the early years of the fracking boom when dozens of smaller firms still mattered and were highly leveraged. And at this point we know where most of the oil is at in the prime fracking zones, the little wildcatters served their purpose.

tw1010 7y ago

Please tell me where you can read more about the idea that "the entire "fracking revolution " has been funded by loses from bondholders"

hristov 7y ago
To be fair there have been plenty of losses from stockholders as well.