Of course, you know students loans are sky high and that, without jobs or while being underemployed or sometimes even gainfully employed, many people are just not paying. That’s called a default. So, that means the lender isn’t getting paid, whether that’s the government or a private institution. You’re probably also familiar with the concept of securitization, though you may not know it by that name. It means that those student loans aren’t really paid to the original lender. The original lender sells the loans for pennies on the dollar as soon as they’re issued. They get paid immediately and someone else has to hope the student pays it back. That allows small lenders with only a little cash to collect and make an instant profit, essentially being paid by the bank to generate money on a low level at which Wall Street wouldn’t bother operating directly. Wall Street wouldn’t bother giving a $10,000 loan to an 18-year old for school, but they’d happily purchase it in two seconds from a smaller entity by making just a phone call. No effort on their part, no need to pay any employees, etc. It’s just another investment for them and an immediately payoff for the small lender. So, when the loans come due, Wall Street yet again can’t be troubled to talk to the student. So it pays someone to do that. That company tries to collect the loan payments, takes their cut, and sends the rest to Wall Street.
Sounds like the mortgage-backed securities debacle, yes? Well, yeah, it’s exactly the same. It’s actually a little worse because Wall Street could own the homes then but now can’t own anything. The best they can do is get the students to work for them to pay off the debt, but that’s illegal no matter how you slice it and will probably stay illegal. God, I really have to use the word “probably” there? I mean, it’s like 98%, but with Trump, the concept of some highly diluted form of de facto indentured servitude is possible, if ever so slightly.
Basically, you know the story. Defaults have spiking, and when they reach a critical mass, the economy crashes. Wall Street is left holding the bag, and that makes us happy because most of us would rejoice at their expense at this point, but unfortunately for us, their failure becomes our failure. If they’re not going to lend any money, companies fail, and the ripple effect we saw with the mortgage-backed securities happens again but with student loans. It’ll happen with car loans, too, and any loan at all that is backed by any collateral or no collateral at all. It’s called loan syndication, and THAT is the new way to make money.
THAT is the weaponized financial tool that is hurting us all.
Seriously, I’m not a crazy conspiracy theorist. I actually worked as an analyst during the financial crisis and analyzed portfolio decisions about these syndications. I worked for a hedge fund for four years. I saw their books. No, I DID their books! And well, I got the heck out of there. And yes, now I don’t have as much money, hence my point that they kind of have a whole heck of a lot of control. Too bad Congress won’t do anything about it.