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Contagion: Where will the next financial crisis start? A clue...


maxwere

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Another train at the end of the tunnel heading straight for us..........

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I'm not so sure the systemic risk is there. I am not saying that, there isn't a problem. I'm just not sure the problem is anything like the mortgage crisis and the resulting financial crisis.

In this case, is the AIG factor in play? And, what about collateral? Good or bad, in terms of the systemic effects on the entire economy?

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I'm not so sure the systemic risk is there. I am not saying that, there isn't a problem. I'm just not sure the problem is anything like the mortgage crisis and the resulting financial crisis.

In this case, is the AIG factor in play? And, what about collateral? Good or bad, in terms of the systemic effects on the entire economy?

So you think President Bernie Sanders is just going to wave his hand and forgive 1-2 trillion buy issuing new soveriegn debt and the stock and bond market will be none the wiser? What is the AIG factor?

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I'm not so sure the systemic risk is there. I am not saying that, there isn't a problem. I'm just not sure the problem is anything like the mortgage crisis and the resulting financial crisis.

In this case, is the AIG factor in play? And, what about collateral? Good or bad, in terms of the systemic effects on the entire economy?

So you think President Bernie Sanders is just going to wave his hand and forgive 1-2 trillion buy issuing new soveriegn debt and the stock and bond market will be none the wiser? What is the AIG factor?

That is not what I said. I said, I do not believe the systemic nature is not nearly as great as in the mortgage market. But, check your own OP. We aren't talking about 1.2 Trillion. Apply the default rate and, think again about systemic risk and how it applies in comparison.

The issuer of CDSs, an amount that represents more than meets the eye, insurance written as insurance but, without the recognition that there could be a systemic crisis.

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While I have no student debt (thank goodness), my husband has lots between undergraduate and graduate school. We pay roughly the cost of another mortgage per month, and he's been out of school a long time. I have quite a few opinions on some reforms to student loans, but for starters...

1. Remove the cap on the student debt interest you can claim on your taxes. There's a current cap of $5,000. We hit that easily in a few months.

2. Allow federal loans to be refinanced when interest rates are low. We could refinance into private loans, but we then lose some of the loan protections that federal loans have to offer (deferment, and forbearance). Husband took out undergraduate loans when rates were much higher and we are stuck through the life of the loan.

3. Allow employers to help provide loan repayments in return for tax credits or tax savings. Employers used to be able to provide this benefit, and most would do this in exchange for a work commitment of x years at that company.

I definitely think this will be the next bubble. Having high student debt prevents you from other consumer spending. Couple that with the fact that tuition continue to rise, wages are stagnant, which means people are taking on bigger debt and holding it for longer. It's only a matter of time before the defaults will start to affect the markets.

Edited to add: Defaults of student loans will likely lead to defaults in other areas as well. Credit cards, car loans, mortgages, etc.

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While I have no student debt (thank goodness), my husband has lots between undergraduate and graduate school. We pay roughly the cost of another mortgage per month, and he's been out of school a long time. I have quite a few opinions on some reforms to student loans, but for starters...

1. Remove the cap on the student debt interest you can claim on your taxes. There's a current cap of $5,000. We hit that easily in a few months.

2. Allow federal loans to be refinanced when interest rates are low. We could refinance into private loans, but we then lose some of the loan protections that federal loans have to offer (deferment, and forbearance). Husband took out undergraduate loans when rates were much higher and we are stuck through the life of the loan.

3. Allow employers to help provide loan repayments in return for tax credits or tax savings. Employers used to be able to provide this benefit, and most would do this in exchange for a work commitment of x years at that company.

I definitely think this will be the next bubble. Having high student debt prevents you from other consumer spending. Couple that with the fact that tuition continue to rise, wages are stagnant, which means people are taking on bigger debt and holding it for longer. It's only a matter of time before the defaults will start to affect the markets.

Edited to add: Defaults of student loans will likely lead to defaults in other areas as well. Credit cards, car loans, mortgages, etc.

Those are good suggestions.

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I'm not so sure the systemic risk is there. I am not saying that, there isn't a problem. I'm just not sure the problem is anything like the mortgage crisis and the resulting financial crisis.

In this case, is the AIG factor in play? And, what about collateral? Good or bad, in terms of the systemic effects on the entire economy?

So you think President Bernie Sanders is just going to wave his hand and forgive 1-2 trillion buy issuing new soveriegn debt and the stock and bond market will be none the wiser? What is the AIG factor?

That is not what I said. I said, I do not believe the systemic nature is not nearly as great as in the mortgage market. But, check your own OP. We aren't talking about 1.2 Trillion. Apply the default rate and, think again about systemic risk and how it applies in comparison.

The issuer of CDSs, an amount that represents more than meets the eye, insurance written as insurance but, without the recognition that there could be a systemic crisis.

Are you saying this because there is less percieved securitization in the market as they are mostly federal? Uncollateralized soveriegn debt is systemic.

I think you are confusing deliquency rate with default rate. Deliquency is correlated with teasers, ARMs no interest loans. Many of these will never get paid back. 10% default might as well be 100%. There is no collateral. Who would not default in this scenario? How do you renegotiate the haircut?

Also, you can bet these guys who are willing to give up an organ will be revolutionaries of the worst kind.

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For comparison sake, my tuition at AU was between 700-900/qtr. People are getting taken to the cleaners these days.

I'm reminded of this:

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I'm not so sure the systemic risk is there. I am not saying that, there isn't a problem. I'm just not sure the problem is anything like the mortgage crisis and the resulting financial crisis.

In this case, is the AIG factor in play? And, what about collateral? Good or bad, in terms of the systemic effects on the entire economy?

So you think President Bernie Sanders is just going to wave his hand and forgive 1-2 trillion buy issuing new soveriegn debt and the stock and bond market will be none the wiser? What is the AIG factor?

That is not what I said. I said, I do not believe the systemic nature is not nearly as great as in the mortgage market. But, check your own OP. We aren't talking about 1.2 Trillion. Apply the default rate and, think again about systemic risk and how it applies in comparison.

The issuer of CDSs, an amount that represents more than meets the eye, insurance written as insurance but, without the recognition that there could be a systemic crisis.

Are you saying this because there is less percieved securitization in the market as they are mostly federal? Uncollateralized soveriegn debt is systemic.

I think you are confusing deliquency rate with default rate. Deliquency is correlated with teasers, ARMs no interest loans. Many of these will never get paid back. 10% default might as well be 100%. There is no collateral. Who would not default in this scenario? How do you renegotiate the haircut?

Also, you can bet these guys who are willing to give up an organ will be revolutionaries of the worst kind.

Yes, and because one default has limited effects on other borrowers. The underlying value of collateral is not affected. Your next statement is far too general to be meaningful.

No, I am not confusing the two. I am actually playing along assuming worst case scenario. I disagree. 10% default is not equivalent to 100%. Who would not default? Seriously? The other 75% is the obvious answer.

I do not understand organ donors and revolutionaries? Is this intended to be dramatic?

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I do not understand organ donors and revolutionaries? Is this intended to be dramatic?

Listen to the podcast. It's systemic just like housing. Ignore the technocratic voodoo-speak... it wasn't complex, unregulated derivatives or mark to market accounting that underwrote junk morgages. Human actors will act in their best interest. If that means working an underpaid cash job to avoid wage garnishment, then thats essentially a default. Once the bubble gets politically untenable the public will realize its been lied to and demand a 'fair' renegotiation in greater numbers. Congress &or the whitehouse will offer a stupid alternative like altering bankrupcy laws or partial/full forgiveness. It's in the rhetoric now.

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In talking with friends that are in their early 50s.

They went to private college and still owe around $50K. They obviously havent trying too hard to pay off the debt, but wow.

He is disabled and they are trying to pay off their debt on her salary.

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It's a vicious cycle. These loans just help to drive up the cost which requires more debt. As long as there is someone willing to pay these escalating costs, they'll just keep raising the tuition.

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We've got several different areas where a big bubble could burst. Housing could hit us again. Commodities are way off and falling. Eventually the free money that's been propping up Wall Street will have to end. What happens then? It may be something in another country like China that starts the snowball rolling downhill.

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It's a vicious cycle. These loans just help to drive up the cost which requires more debt. As long as there is someone willing to pay these escalating costs, they'll just keep raising the tuition.

I think we're reaching that point where parents are starting to realize the cost is greater than the benefit of a four year degree. More people are talking about skilled trades, the disparity between universities and trade schools, ROI, and how hard it is to find skilled tradesmen these days, and what that's already doing to pay grades. Once that happens, its all over but the crying.

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It's a vicious cycle. These loans just help to drive up the cost which requires more debt. As long as there is someone willing to pay these escalating costs, they'll just keep raising the tuition.

I think we're reaching that point where parents are starting to realize the cost is greater than the benefit of a four year degree. More people are talking about skilled trades, the disparity between universities and trade schools, ROI, and how hard it is to find skilled tradesmen these days, and what that's already doing to pay grades. Once that happens, its all over but the crying.

These guys: http://www.hackreactor.com/

$17k tuition

3 months

99% employment after graduation

$105k avg starting salary

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It's a vicious cycle. These loans just help to drive up the cost which requires more debt. As long as there is someone willing to pay these escalating costs, they'll just keep raising the tuition.

I think we're reaching that point where parents are starting to realize the cost is greater than the benefit of a four year degree. More people are talking about skilled trades, the disparity between universities and trade schools, ROI, and how hard it is to find skilled tradesmen these days, and what that's already doing to pay grades. Once that happens, its all over but the crying.

These guys: http://www.hackreactor.com/

$17k tuition

3 months

99% employment after graduation

$105k avg starting salary

I think this is exactly what is going to begin to replace traditional education. Can we continue to cling to a generalized format in a world of specialization? Cost, relevance, effectiveness are going to create a shift.

I think the model will shift from "what is required" to "what you want and need".

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Yes, but there is a "professional" dogma that will not go down without a fight. I call it: "ordination by accreditation".

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I am convinced that Online Education is where it is at in the future.

Dr. Gouge has been touting this to the BOT...thus the need to shift from the current delivery mechanisms to a more diverse platform of online and on campus education.

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I am convinced that Online Education is where it is at in the future.

Dr. Gouge has been touting this to the BOT...thus the need to shift from the current delivery mechanisms to a more diverse platform of online and on campus education.

You go online, there is a virtual campus all over the world. The degrees in brick in mortar buildings are getting more and more expensive these days as well.
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I am convinced that Online Education is where it is at in the future.

In general, the quality of education is simply inferior online. I understand the attractiveness of this option to universities and students alike, but it is far from ideal in terms of education outcomes.

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I'm not so sure the systemic risk is there. I am not saying that, there isn't a problem. I'm just not sure the problem is anything like the mortgage crisis and the resulting financial crisis.

In this case, is the AIG factor in play? And, what about collateral? Good or bad, in terms of the systemic effects on the entire economy?

So you think President Bernie Sanders is just going to wave his hand and forgive 1-2 trillion buy issuing new soveriegn debt and the stock and bond market will be none the wiser? What is the AIG factor?

That is not what I said. I said, I do not believe the systemic nature is not nearly as great as in the mortgage market. But, check your own OP. We aren't talking about 1.2 Trillion. Apply the default rate and, think again about systemic risk and how it applies in comparison.

The issuer of CDSs, an amount that represents more than meets the eye, insurance written as insurance but, without the recognition that there could be a systemic crisis.

Are you saying this because there is less percieved securitization in the market as they are mostly federal? Uncollateralized soveriegn debt is systemic.

I think you are confusing deliquency rate with default rate. Deliquency is correlated with teasers, ARMs no interest loans. Many of these will never get paid back. 10% default might as well be 100%. There is no collateral. Who would not default in this scenario? How do you renegotiate the haircut?

Also, you can bet these guys who are willing to give up an organ will be revolutionaries of the worst kind.

Student loan debt shares almost none of the features with the housing crisis that made the latter systemic. While the issue is a massive and growing one, it will manifest itself as a sharp drop in home ownership for an entire generation (which has serious long-term economic consequences) rather than via systemic risk.

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