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Now I read that Wall Street is creating CDO's based on these loans, like they (continue to) do on mortgages. Some people die "early" without paying back these l
by TheRealDunkirk 3y ago
Now I read that Wall Street is creating CDO's based on these loans, like they (continue to) do on mortgages. Some people die "early" without paying back these loans, and sometimes, they will owe more than they took out. Given the mounting problems with the numbers here, it seems a whole generation of people in the middle of this bubble are going to go to the grave while still owing on these loans. What happens to these CDO's? Are we headed for a smaller "meltdown?"
I went to school from 87-91. I could already see the problem starting. I was hoping this bubble would burst before my own children went to school. Two of three have gone to public schools so far, and we've paid through the nose for it. We are pushing our third towards some sort of trade school.
- Xeronate 3y agoSeems wrong to influence your son's decision based on your financial situation rather than his desires/passions. Of course if he's naturally interested in the trades then sure.
- willcipriano 3y agoMost people desire not being poor over most other things.
- Xeronate 3y agoThere are a lot of ways to make money. Picking a job based on money is a good way to be absolutely miserable. My parents pushed me towards making money my entire life and there is nothing I regret more than following that advice. Every day I wake up dreading going to work and it seeps into every aspect of my life.
- deleted 3y ago[deleted]
- pixelatedindex 3y agoPresumably you have enough money now to switch to something that makes you happy? Personally, if you’re going to be miserable anyway (as most Americans are these days), it’s probably better to be miserable with money than without money, lol
- Xeronate 3y agoI'm 29 and have 500k saved up (live in Santa Monica which is quite expensive), but yes I think I will quit my next stock vest which is Friday. And idk. My best friend from high school moved out here with me and he's a waiter making 40k a year and seems totally happy. Works like 30 hours a week, no mental stress, able to work out and work on himself. I think money is highly overrated.
- deleted 3y ago[deleted]
- sixstringtheory 3y agoMaking 40K a year is only sustainable while you're in good health and don't have a family to support. I remember my carefree twenties as well, but things can change as you get older. There is no retirement plan on that kind of income other than waiting tables till you die. At least you should recognize that your relationship to money is very different than theirs. Having half a mil in savings is a completely different ballgame.
- Xeronate 3y agoI think both situations are unsustainable. I'm not financially stable because I hate my job and might quit at any time and he doesn't make enough money. But I think my main point is both of us have a way of becoming sustainable so you might as well do what makes you happy instead of working a job you hate for 8 years. Being a waiter making 40k isn't enough long term, but working your way into a higher end establishment or management is. A girl I dated started out as barista, became a store manager, and is now the regional manager and makes ~125k a year and more importantly she is a perfect fit for the job and enjoyed it the entire time. All I'm trying to say is there are a lot of paths to a sustainable life even when following your natural inclinations. But anyway OP responded his son's not super interested in college anyway so his plan sounds good to me anyway.
- prepend 3y agoYes, but your top regret would have been different had you chosen a different path. And perhaps your top regret would be worse than your current. > every day I wake up dreading going to work This sounds terrible. But at least you have a job. Many people wake up with dread every day for whether they or their baby will starve to death. Also, it’s never too late to change.
- rqtwteye 3y agoYou may regret it even more if you hadn’t made money.
- idiotsecant 3y agoThe world is cruel and wants to see us all ground to dust. The typical HN denizen might know this at an intellectual level, but few of us have the lived experience. I sincerely hope you never have to learn how much of a privileged perspective you have.
- deleted 3y ago[deleted]
- chaxor 3y agoIf you don't want to be poor, don't go to university. Academia should be a place for people who run away from money, because it's the last thing upon the list of interests for them. Academia should be a place for joy in learning concepts, and in some circumstances, which strive to be useless. Mathematics is one of the most exemplary fields for this, which is summed up quite nicely with the following quote: "The mathematician does not study pure mathematics because it is useful. He studies it because he delights in it, and he delights in it because it is beautiful." Never go to a university expecting to improve your wealth status, because it very likely won't happen. Turn elsewhere to find wealth.
- imtringued 3y agoMeanwhile in the real world, large companies and public jobs all have practically mandatory education requirements. Your pay as a public employee in Germany is literally determined based on whether you have a BSC or MSC or none.
- boeingUH60 3y agoPassion doesn't pay the bills. It's good to be passionate about something, but many passions are not marketable. Many have drowned in student debt following their passions, but this wouldn't be so in many countries that have university education fully covered or significantly subsidized by taxes.
- SoftTalker 3y agoThe countries that have "free" university education also steer young people into career paths starting in middle school. If you're not the sort of person who will succeed at university, you get directed into vocational or trade school or apprenticeships, etc.
- mc32 3y agoExactly! Passions are good hobbies. Many people who take their passion and turn it to make it their source of income regret the decision because it sours the passion —it become a job.
- brightlancer 3y agoIf passion doesn't pay the bills, it certainly can't pay taxes. Why should engineers and plumbers and garbagemen pay taxes to send someone to art school for years? Once something is paid for with tax money, then the people paying the taxes want a say in how it's spent -- which is not just reasonable, it's a requirement of a liberal democracy.
- boeingUH60 3y agoOf course, countries with tax-funded higher education ration degrees. There are limited slots, and art courses are usually at the bottom of funding considerations.
- TheRealDunkirk 3y agoHis grades do not warrant the gamble on the expense, either mine or his. He's very artistically inclined, rather than academically.
- allenrb 3y agoGiving the benefit of the doubt here, I assumed the push toward trade school is because that makes the most sense for the child in question. College is not for everyone, including a lot of people pushed into attending.
- gorjusborg 3y agoIt really baffles me sometimes how readily we assume our conclusions apply to others. Most serious decisions in life require balancing multiple difficult trade-offs. To think that our particular biases, experiences, resources and difficulties are anywhere close to another's is a huge leap. It's fine to speak from one's experience, but to say that someone else should make the decision one thinks is wise based on a single comment is either ignorant, arrogant or both. Edit: I replied to you @allenrb, but I'm not directing these thoughts toward you. I'm just pointing out a general behavior I see (but wish I didn't) on the internet and HN.
- prepend 3y agoHow many kids do you have? Interests are all well and good, but costs are real. Following passion is for rich people (or people who get unlimited student loans).
- brightlancer 3y ago> Following passion is for rich people (or people who get unlimited student loans). I think this is a truism that people want to be false. But in any developed country, most poor people are pretty rich when compared to the world, and it offers them lots of freedom to choose what field they want to work in, where they want to work (both city and company), etc. There isn't the expectations that sons take their fathers' jobs and that daughters take their mothers' (often being a homemaker). It still sucks to be relatively poor in a developed country, but most are rich enough that they can follow their passions in ways their grandparents never could and half the world can't today.
- johngladtj 3y agoEducation is an investment, period, end of story. If you don't do a modicum of Research before you take on tens or hundreds of thousands in debt to invest in something, that's on you and you alone. If people were not bailed out and subsidized we would not have these issues of this magnitude.
- epistasis 3y agoSeems like if we don't think 18 year olds are not legally responsible enough to drink alcohol, then perhaps we shouldn't allow them to take on life-destroying amounts of debt.
- achenet 3y agoyou mean like this one? https://en.wikipedia.org/wiki/Subprime_mortgage_crisis https://en.wikipedia.org/wiki/Subprime_mortgage_crisis
- Willish42 3y agoOne has to think the ROI for any financial investment in someone <25 YO towards things like education pays off more than similarly-sized investments later in life. Regardless of whether the parent can support that tuition cost or the kid has to take on loans themselves, it should be up to the individual whether they take on that risk irrespective of the parent's financial situation, which is I think where this heavily-downvoted reply was going. As somebody who's education was way less supported than the rest of my family, who came out with a better job than all of those others in spite of that, there's a decent chance your kid will resent being "held back" by such a choice for a very long time if you give them trade school as their only option in life. Lots of people find ways to be successful in the arts by eventually finding something cross-disciplinary, and with the direction most non-white-collar jobs in the US are heading I wouldn't bet my kid's life on trade school. What made sense as a sentiment on Mike Rowe's "Dirty Jobs" 10+ years ago doesn't quite hold up as well today, and those projects were funded by the Koch brothers and the whole "trade school is just as good" thing should be taken with a mountain of salt. I'd love to see more data proving trade school proves better today, especially for young adults with educational backgrounds and access to learning and job opportunities whose parents are in the economic class to be browsing HN
- red-iron-pine 3y agoAt $6k a year like in Canada or Europe... sure, follow the passion. At $60k per annum... that's crippling debt.
- lordnacho 3y agoWell the CDOs are probably tranched, so there will be some portions that are safe. But in general, you'd think the student loans would only be in trouble if there's a large increase in the unemployment rate. You'd get a meltdown if the government were to announce a change in the laws.
- have_faith 3y ago> the CDOs are probably tranched, so there will be some portions that are safe The mortgage CDO's where tranched in 2008 also.
- masfuerte 3y agoSort of. They took the shitty bottom tranches from the mortgage CDOs and repackaged them as new CDOs. The credulous ratings agencies gave these new CDOs the same rating as the old ones but it took only a modest market downturn to wipe out even the top tier of these second level CDOs. Even this might not have been a problem if the whole thing hadn't been massively leveraged. The fact that mortgages were involved was nearly irrelevant. This shitshow could have been built on anything. The regulatory reforms that tackled the mortgage market were missing the point.
- reaperman 3y ago> But in general, you'd think the student loans would only be in trouble if there's a large increase in the unemployment rate. I thought the government guarantees these loans, but maybe I mis-read that, mis-understood, or something changed. I think the borrower is still on the hook and accrues fees if they don't pay but I also thought the federal government literally paid to keep the bank whole.
- TheRealDunkirk 3y agoThis is why I'm asking. If that's the case, then I think even I would want to invest heavily in them. As long as the US government continues to make the money printer go BRRRR, this is an investment vehicle that simply cannot fail. (Until it does, in which case it will do so in a most-spectacular fashion.)
- pixelatedindex 3y agoI’m a newbie, what’s a CDO?
- arrosenberg 3y agohttps://en.wikipedia.org/wiki/Collateralized_debt_obligation https://en.wikipedia.org/wiki/Collateralized_debt_obligation You take a bunch of loans and bundle them together and securitize the bundle to sell to the public. Mortgage CDOs crashed the global economy in 2007-8.
- maxbond 3y agoCollateralized Debt Obligation, sort of like a bond that's composed from many loans on something you can repossess, like houses or boats. They're notorious because they were involved in the 2008 financial crisis. https://www.investopedia.com/terms/c/cdo.asp https://www.investopedia.com/terms/c/cdo.asp Or if you prefer the Big Short explanation: https://youtube.com/watch?v=EEXTqtH-Oo4 https://youtube.com/watch?v=EEXTqtH-Oo4
- adhesive_wombat 3y agoThe Big Short also has an earlier explanation of a non-synthetic CDO ("we just repackage it [low-quality risky debt] along with a bunch of other shit that didn't sell and put it into a CDO"): https://youtu.be/xbiDrzTd8fE?t=260s https://youtu.be/xbiDrzTd8fE?t=260s
- HWR_14 3y agoIt's a combination of loans. The idea is let's say I have 100 identical loans I made (in reality, there are averages). Further, we agree 5-15% are likely to default. I'm going to get paid 85-95% of the interest + principle. But I want that money now. You want to invest in future cashflow, so I want to sell you a loan. Buying one from me is kinda risky, you may get back 100% or 0% of the interest + principle you expect. So instead I sell all 100 as a lump sum, and you and 99 other people each get 1%. But, CDOs go a step further. You may have more or less risk tolerance. So we chop it up. You can buy something that gets paid back if 70% of the loans are good, or only if over 70% or over 80%, or even over 90%. The less likely you are to get paid back, the more you make. So the person who absolutely wants to get paid back gets a small interest rate. The person who only gets paid back if literally every loan pays off gets a much higher rate. In 2008, what happened is all those people buying the "very safe" 75-85% failure rate sections also were getting wiped out.
- Armisael16 3y agoOne of the core elements of the 2008 meltdown was when someone abandoned a house, all the other houses in the neighborhood would see a substantial drop in their value. This made it more likely that other people would go underwater on their mortgage and also walk away. Education doesn’t have this kind of contagion. If you stop paying your student loans it has very little impact on the value on my education.
- actionfromafar 3y agoI think it could ripple, somehow. People just giving up and stop paying, suicide, homelessness, crime, tax evasion etc.
- mquander 3y agoIt doesn't need to be contagious to create a crisis, just correlated, e.g. if there is a big macroeconomic shock that makes many students unable to pay their loans all at once.
- imtringued 3y agoIf you can't pay your loan back because of poor education quality, then your fellow students will have the exact same problem.
- wernercd 3y ago> Education doesn’t have this kind of contagion. It's never been more true that education is overpriced and underdelivers. The contagion may not be "house goes bust and my house value goes down"... but there is a contagion: My degree is now no better than the degrees for the mills pumping out idiots while lowering standards and full of soft degrees filling the markets with "educated" people that aren't qualified to fill a coffee cup at starbucks. If you don't see a market flooded with lower value results as devaluing the worth of higher education then you're not looking closely enough.
- JamesLeonis 3y ago> Now I read that Wall Street is creating CDO's based on these loans The official term is SLABS: Student Loan Asset Backed Securities. Here's a recent paper on the subject. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3631953 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3631953
- throwaway29812 3y agoHave we learned...nothing?
- teeray 3y agoGreed's gonna greed
- HKH2 3y agoWell, students can't default on their loans, so this time round it's more interesting.
- ben_w 3y agoEffectively a stealth tax for most graduates, if they can't ever hope to repay it. But regressive if you're rich enough to pay it off… or never have need for it to begin with.
- imtringued 3y ago100% guaranteed bailout.
- throwaway29812 3y ago"Too big to fail..by law"
- anticensor 3y agoLoan forgiveness is the way of defaulting for student loans.
- 3y ago
- AmVess 3y agoSame time frame for me. Adjusted for inflation, I paid $56,000. That same college is now charging almost $130k for the same degree.
- deleted 3y ago[deleted]
- jorvi 3y agoNot that it touches on your other points but > Two of three have gone to public schools so far, and we've paid through the nose for it. We are pushing our third towards some sort of trade school. Jesus Christ. You're gonna give child one and two full opportunity to realize whatever potential they have, but steer child three?
- dgellow 3y agoExcuse my ignorance, but isn’t the point of public schools that they are free?
- kingrazor 3y agoK-12 are "free" (funded in large part by property taxes, as I understand it). Higher Education is not, though public colleges tend to be cheaper, from what I've seen.
- musicale 3y agoThat would be nice, wouldn't it? US community colleges (usually 2-year) tend to have low tuition and may offer flexible scheduling so you can pay as you go and/or work through school. Housing can still be expensive though. US public universities may have lower fees for in-state students. UC Berkeley costs some $41K+ per year (including on-campus housing, food, etc.) for CA residents - not particularly affordable to begin with - but charges an extortionate $33K "nonresident tuition fee" on top of that for non-resident students (including any students under 24 whose parents live out of state.)
- red-iron-pine 3y agoPublic in what sense? Elementary through Secondary aka K-12 is, but is mandatory for students unless they take extra-ordinary measures to not be there, e.g. homeschooling, or dropping out at 16. Funding through this is usually handled on the state and local level, often by local property taxes. Public Universities are ones funded by the state, to varying degrees. Private Unis have their own funding, usually through a mix of tuition and large endowments.