Hacker News Reader

This is a really good point. My gut tells me that if the old people were relying on the massive indebtedness of today's college attendees, then that has been a cruel error on their part, an injustice that should be righted.

Also, the artificiality of the debt--and the idea that a jubilee won't really hurt the creditors--is put into striking relief by the Rolling Jubilee. Right now, people are already buying that bad debt for pennies on the dollar, just to wipe it out. I'd like to see if anyone's modeled what would happen if that behavior were just turned up to 11, who'd be harmed, etc.

>if the old people were relying on the massive indebtedness of today's college attendees, then that has been a cruel error on their part,

Oh no no... I don't want people to picture an old hag sucking the blood of infants.

To clarify, I was using "grandparents" as a single example to humanize what a "creditor" was. We have met the creditors and they are us.[0] When society complains about the unfairness of student loan debt, we tend to think of the creditors as something abstract and invisible.

The total student debt is ~1.3 trillion[1]. If forced to picture who is owed that money, maybe college kids would think of some evil mustache twirling CEO of Goldman Sachs or Chase Bank. Sure, some fraction of a fraction of the interest payment does go to executives like them but the vast majority of the money goes to us.

That 1.3 trillion is diffused throughout the economy. The pensions of police officers, firemen, and teachers. The car insurance premiums we pay is priced a certain way based on investments that point to those college loans. Etc etc.

At the moment, the struggling college grads are "visible" and the creditors seem "invisible" but trust me, if a political movement gathers steam to ask Congress to forgive those loans, all those invisible creditors will come out of the woodwork at Congressional hearings and fight it.

Trying to convince millions of us to zero out the balance sheets for those student loans will be a huge uphill battle.

[0]riff on: https://en.wikipedia.org/wiki/Pogo_(comic_strip)#.22We_have_...

[1]http://www.marketwatch.com/story/every-second-americans-get-...

Wealth is less diffuse than your suggesting. But, it's also more global.

As it stands, money never really sits around doing nothing. It's on some banks balance sheets and so it's loaned out, then repackaged and sold to organizations seeking safe places to park money. This repackaging of debt has been a huge boon to the US economy in the short term. But, it's only a long term gain if people actually default otherwise it's just a long term drain for a short term boon.

The wider problem is there is more 'money' than productive usage for that money which means bad loans, and wealth destruction. Arguably the solution is to have money sit around without being loaned out.

No, this is incorrect.

Firstly, the debt burden is only diffused because those "mustache twirling CEOs' decided it should be.

Pensions used to work just fine before they were financialised by sharks. So did insurance.

No one sane should be trying to increase the returns on a pension fund by gambling on student debt, on real estate loans, or on consumer credit.

That was exactly the approach that caused the implosion of 2008 - or more specifically, it was "mustache twirling CEOs" hiding the fact that the investments they were selling as a sure thing were junk loans with a cheap wood veneer.

Secondly, even if this wasn't true, the social and economic costs of an economy that runs on usury instead of productive investment are so predictably crippling that the hair cut, with associated uncontrolled demolition, will happen anyway.

A debt jubilee would do a lot to restore confidence, because everyone will be able to stop looking nervously at everyone else's obligations and wondering if they're going to be able to meet them. Instead, some realism will be restored to book values.

This would still be cataclysmic, because the financial industry needs to understand that it can no longer run on cocaine and bullshit.

But it won't be the financial equivalent of a self-inflicted nuclear strike, which is a real possibility as things stand today.

>A debt jubilee would do a lot to restore confidence, because everyone will be able to stop looking nervously at everyone else's obligations and wondering if they're going to be able to meet them.

Oh yeah, I'm sure the creditors will be highly confident about future lending after a jubilee, because they went from wondering if debt will be repaid...to knowing it won't.

Where do people come up with this stuff?

You know what, fuck the creditors. Let them feel what it's like to have no money coming in for a while. If they don't want to lend any more they can spend down their capital or go and get jobs. The society we've built around the premise of mortgaging the future is not so fabulous that it can't be improved upon.

>You know what, fuck the creditors. Let them feel what it's like to have no money coming in for a while.

I'll bet most of them already know. Start with nothing, work hard, save money for retirement, lend it to entitled students and have them not only stiff you, but also spit in your face.

That seems fair.

most of the rentier class knows what its like to "start with nothing and work hard"?

We're not talking about "the rentier class", though. We're talking about people who worked in a cubicle for the last 30 years and would like to be able to spend the money they saved.

This is what we need. Creditor haircut, then rates go up because there is real risk.

Let's hold the boomers+ to the fire. And the banks.

I think a lot of the Boomers are going to get their comeuppance. At my age, my parents were on their third house. Most of my cohorts rent, and as I'm in a city where housing is now higher than before the crash, I wouldn't buy a home even if I could afford it. And I don't have school loans.

There are going to be some disappointed Boomers in the next decade, when looking to sell their main asset, upon discovering nobody can or will pay their inflated prices.

You are already wondering if debt will be repaid. It is very likely many of the larger student loans in the US for financial aid packages in the humanities will never fully be paid back and the holders of the debt will go to their grave with it. Other debt can and is being defaulted in bankruptcy - consider that even for people 45-55 the median net worth is only around 90k, and you can easily find yourself in way more debt than that amount.

Additionally, anyone making loans is already considering the risk of a debt jubilee when making loans now. After a debt jubilee of course the risk of recurrence is higher, but the risk assessment for banks would not be magnitudes different in the medium term.

Imagine you're a healthy man of age 45. What can you do today that means you get taken care of when you're old? You can try to convince your children to do it, but that's fairly risky - and it doesn't scale well on a national level. Anything you build today is going to break down and undergo capital depreciation by the time you're unable to take care of yourself. If you help build a road, it needs maintenance.

There's few good options at societal scale. One of them is to get the right to extract valuable resources and sit on them until later - this is what Norway's doing with their North Sea oil. The other is to make things, and trade them for promises to make things later. This is one of the huge fundamental forces acting to make debt for the young generation easier and cheaper - the previous generation needs to do things now to convince them that they need to part with their work later.

It's not an error, it's there by design. The only way to get retirement savings on that massive of a level is to make things for people who can't afford them (yet).

>This is a really good point. My gut tells me that if the old people were relying on the massive indebtedness of today's college attendees, then that has been a cruel error on their part, an injustice that should be righted.

It's a "cruel error" to lend somebody money?

I think the cruel error is to (1) make something (nearly) necessary for a prosperous life, (2) make it ruinously expensive, and (3) offer to loan money to people who have little choice or financial sophistication (4) at terms that are highly favorable to the sophisticated creditor.

Well, okay. Then the problem is the government, not the people actually doing the lending.

>But there are also creditors as well. Think of grandparents who have a 401k for retirement. Through the interconnectedness of the financial system, a component of their retirement income will depend on payback of those "bad" college loans.

Do most 401Ks really invest in student debt?

I don't know about "most", but it is probably safe to say "many." Sallie Mae retains ownership of 25% of all outstanding student loan debt. If the debt was forgiven, I think it is safe to presume their equity stock price would go to 0. Look here for the largest holders of that stock:

https://finance.yahoo.com/q/mh?s=SLM+Major+Holders

Much of the other 75% is I'm sure also distributed into many other common mutual funds that are used in people's 401k plans.

>Do most 401Ks really invest in student debt?

It's trillions of dollars, and every penny of it is held as an asset on someone's balance sheet. Do you think it's confined to "greedy bankers"?

They might; I doubt they do directly. The emphasis is on the "interconnectedness". After five or so hops ( A invests in B ->C->D->E ), you don't much know any more.

One big issue is that there are other people on the other side of those debt cancellations that would get hurt.

A risk they assumed when they decided to put their capital to work. I don't actually have any debt myself so I don't have a dog in this fight, but if you have the money to purchase risky assets in expectations of earning a coupon then your necessities are already covered. Between people who don't have enough to live with dignity and people whose investments don't pan out, most of my sympathy goes to the first group.

I don't think you understand...normal people are both the creditors and the debtors. Banks are just the intermediaries that take a cut from the normal people on both ends for "efficiently allocating assets that would otherwise accrue suboptimal rates of interest."

The real problem is that the banks are allowed to take risks without paying the price for these risks when they do not pan out. We have set a precedent that the large financial institutions are too big and too important to fail, and thus they may operate with quasi-impunity knowing that they might have to cut some junior employees/restructure/spin off some divisions in the event of a downturn, but that the revolving door between the public and private realms will always be open, through which both taxpayer money/credibility and new jobs will always flow to those at the top. Nobody will go to jail for being a self-interest optimizing sociopath because our legal and economic system is set up to favor corporations and those with the money to thoroughly defend themselves rather than society as a whole.

I understand fine. I just don't fully agree with your point of view.

Fair enough.

Perhaps we can agree that there isn't enough transparency on the creditor side. You and I are creditors in that we have 401ks or money in pension funds. Do we know what is happening with that money? Not really.

Is it then fair that we have to take a haircut on our (guaranteed safe) savings if a bank screws up our investments?

No, they didn't assume a risk of "oh, let's just forget the whole debt thing, who cares about that stuff anyway".

Yes they did. Default is a real thing and that's the risk you earn a premium for taking. On equity the price of the asset can change, on debt you either secure it or charge a rate of interest that reflects your assessment of the risk. Hence the shitty rate of interest on savings accounts - your principal is guaranteed up to a fairly large amount so you earn less.

There's a big difference between default (one party not paying because of difficulty or choice not to) and a deliberate mass social decision to say "oh, let's just forget the whole debt thing" across the entire economy.

Lumping the two cases together is an unjustified equivocation.

Bonfire of the boomers+. It's time.

Cynically: the old are already impoverished, and we have more to gain by freeing the youth from future poverty than we do by salvaging twilight years.

Realistically, you're right about debt having two sides... but one side is typically far more in the hole than the other.