College and Housing Bubbles
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College and Housing Bubbles

ANTONY DAVIES: To understand what’s going
to be happening with the student loan bubble, it’s useful to understand first what happened
with the housing bubble. To understand what happened with the housing
bubble, it’s necessary to understand first how mortgage markets work. Let’s take commercial banks. Commercial banks loan money to borrowers,
some of them safe, some of them risky. The borrowers, in turn, sign mortgages, which
they hand over to the bank, and the mortgages are pieces of paper that say that the borrowers
promise to pay back this money they have borrowed, over time, the interest plus the principle. Now, the commercial banks, who now have these
mortgages, behind them sits large savers, such as pension funds, reinsurance companies,
other large entities with large amounts of savings. These entities save their money with investment
banks. Investment banks, in turn, turn around and
purchase mortgages from commercial banks. So the savings goes from the savers to the
investment banks, the investment banks purchase the mortgages, the investment banks then combine
these mortgages into what are called mortgage backed securities. Mortgage backed securities, roughly speaking,
are to mortgages what a sheet of plywood is to wood chips; wood chips come in various
shapes and sizes, and because they’re non-uniform you can’t do anything with them, but if you
glue them together and press them into a uniform shape, you now have something that you can
actually use to build and to create construction plans from. So this is what the mortgage backed securities
are; they’re more uniform financial securities, that generate returns to savers, and they’re
based on, or constructed from, individual mortgages. These mortgage backed securities are rated
by rating agencies, which will bless them and say, “This mortgage backed security represents
a small amount of risk, or a moderate amount of risk, or some large amount of risk.” And once rated by the rating agencies, they’re
then turned over to these large savers, who now are, over time, going to be earning the
interest that the people who took out the mortgages originally are now paying. What’s happened on the backend, is that the
commercial banks have now had their coffers refilled with cash from these savers. They then turn back to mortgage markets and
offer this money to borrowers who want to borrow the money to buy houses. They turn around, again they sell the mortgages
to investment banks, which in turn hand them over to pension funds, reinsurance companies,
and the whole system starts all over again. What happens here ultimately, is that people
with savings loan to people who buy houses. The banks, the commercial banks, the investment
banks, are simply middle men in the transaction. So if we take away the middle men, what the
transaction really looks like is these savers have cash, these people want mortgages, and
so they exchange the cash for the mortgages, these people then turn around, use the cash
that they have to buy houses. What happens next is that the people who borrowed
the money to buy the houses now make monthly interest payments, principal interest, to
these savers, and over time some of these people may go bankrupt and they stop making
their payments, but the people who were safe borrowers may continue to make the payments. So in total, these savers are receiving interest
on some of the mortgages that people didn’t go bankrupt on, they’re not making interest
on other ones that people did go bankrupt on, but on average they’re making some reasonable
rate of return on their savings. Where the interest rate settles, we call the
equilibrium. The equilibrium interest rate is the interest
rate at which the savers are willing to lend as much as money as the borrowers are willing
to borrow. Now, what happened in the housing bubble is
that this process of attaining the equilibrium interest rate was short circuited, and it
was short circuited by two sets of players. One, the Federal Reserve, which intervened
in markets, pushing interest rates to the lowest levels that they have been in this
country historically. The other group was Fannie Mae and Freddie
Mac, these are government sponsored entities, and they buy mortgages. It turns out that they bought mortgages with
little regard for the risk that those mortgages represented. So the first thing that happens is, the Federal
Reserve lowers interest rates. As it lowers interest rates it attracts more
people, both risky and safe, into the market; as interest rates are lower it’s cheaper to
borrow money, and so we get more people looking to borrow. Then Fannie Mae and Freddie Mac come along,
and they start lending money to mortgage markets. These two entities were less concerned with
the riskiness of the borrowers; they were less concerned for two reasons. One, is that because they were government
entities, they tended not to be as profit driven as non-government entities tended to
be. If Fannie Mae and Freddie Mac lost money,
implicitly people understood that the federal government would come behind and bail them
out. Consequently, Fannie Mae and Freddie Mac were
not as afraid of lending to risky borrowers as private investors were. So what happens, as Fannie Mae and Freddie
Mac enter the industry, we have here regular private savers who loan money ultimately to
borrowers, but now enter Fannie Mae and Freddie Mac, and they start loaning money. And as they start loaning money, because they’re
less concerned with risk than the private entities are, what happens is they start attracting
more and more risky borrowers into the market. What does this do to the housing market? And notice there are two distinct markets
here we wanna talk about. The first is the market for mortgages, the
second is the market for housing. The market for mortgages we’ve seen, as the
Federal Reserve pushes interest rates low, it attracts more borrowers into the market,
and as Fannie Mae and Freddie Mac come along and provide more loanable funds, they attract
more risky borrowers. As we get this increase in borrowers in the
mortgage market, this translates, in the housing market, into an increase in demand. So we have more borrowers showing up, particularly
not just more borrowers in general but more risky borrowers, the demand for housing starts
to increase, and as the demand for housing rises we get an increase in the price of housing,
and we get an increase in the quantity of housing being produced. Now, what happens when the bubble bursts? Everything is fine until the market takes
a downturn. When the market takes a downturn people’s
incomes start to fall, and the first people who are hit the hardest are those riskier
borrowers, who perhaps are living very close to the edge, you know, earning just about
as much money as they’re spending. As the economy turns down, they start to get
behind on their mortgage payments, eventually a lot of them declare bankruptcy, and so what
happens is that a bunch of these borrowers now disappear. But although they disappear, they have ceased
making payments on their mortgages, their houses still exist. So two things happen in the housing market. One is, there’s a decline in the demand for
housing, as these borrowers who used to be coming into the market now stop. Second, as these existing borrowers, who had
already built houses, they go bankrupt, the banks confiscate their houses, turn around
to sell them on the market, we now have an increase in the number of houses being offered
for sale. So we have this combination of a decline in
demand for housing and an increase in the supply of housing, as existing houses come
back onto the market. And the result is, the price of housing declines. This is the crash of the housing market. So ultimately, what happened here? What happened here is that the government
broke the link between risk and return. If you think about a mortgage, a mortgage
represents to a bank two things. One is return; over time the people who borrowed
this money will pay it back, and with interest. But the other is risk; if the people go bankrupt,
they walk away, they stop making the payments, the bank is left with this house that they
don’t want, and they’re not receiving income on the mortgage that they were promised. These two things, the desire for return, and
the desire to avoid risk, ’cause banks to loan prudently; not too much, not too little. But when the government comes along and breaks
this link between return and risk, what happens is, there’s now no penalty for loaning too
much, there’s only a return. So the detailed answer goes something like
this: Fannie Mae and Freddie Mac enter. Because they’re backed by the government,
they effectively force taxpayers to bear the risk of loans that they make. Second, Congress passes, in 1977, and it persists
through 1995, the Community Reinvestment Act. In this Community Reinvestment Act, Congress
required that banks provide loans to low income, to high risk borrowers. Despite the Community Reinvestment Act, banks
were not loaning enough money to higher risk borrowers to satisfy Congress, so Congress
then turns around in 1994 and passes the Riegle-Neal Act. And the Riegle-Neal Act tied something the
banks wanted, which is interstate mergers, to something they didn’t want, which is loaning
to high risk borrowers. HUD, starting as far as 1996, started required
that Fannie Mae and Freddie Mac loan up to 40% of their portfolio to low income borrowers. The Taxpayer Relief Act, in 1997, exempted
profit taxes on home sales up to half a million dollars. And then finally, from 2000 onward, the Federal
Reserve was holding interest rates at historically low levels. These are major interventions in the mortgage
market, that caused the link between risk and return to be broken. In effect, what the government was doing,
principally through Fannie Mae and Freddie Mac, was saying to banks, “You go ahead, loan
out money, and keep the profits that you earn from lending. Any risk that goes along with that lending,
you can just give to us. Fannie Mae and Freddie Mac will handle it.” And by we, what they really meant was, the
taxpayers. So if we look at the data, what we see is,
going back to 1990, this is the fraction of all mortgages in the United States that were
held by Fannie Mae and Freddie Mac. And if you see, round about 2003, Fannie Mae
and Freddie Mac came to comprise almost 50% of the mortgage market. As they loaned more and more money, implicitly
backed up by taxpayers, more and more risky borrowers came into the market looking to
borrow. So if we look at the mix of risky versus un-risky
loans back in 2001, the black bar represents conventional mortgages in the United States. The lighter bars at the top represent what
we would call risky mortgages; these are mortgages in which the borrower has not put any money
down on the house, or the bank has not confirmed what the borrower claims his income and job
history is. These are risky loans, as of 2001. At the height of the housing bubble, 2006,
what we see is these risky loans comprise almost 50% of all mortgages in the United
States. This is the effect of Fannie Mae and Freddie
Mac entering the market and making taxpayer money available to risky borrowers. And finally, when the housing bubble burst,
we end up with the mortgage market going back to where it was; most of the mortgages are
now considered safe mortgages, and a small fraction are still risky. So this raises the question, what does any
of this have to do with college loans? Well, it turns out that the government is
taking almost the same steps, in almost the same order, in the college loan market that
it took in the housing market. And again, the effect is going to be breaking
this link between risk and return. So the government institutes Stafford and
Perkins loans, these are taxpayer subsidized loans, to college students. The Taxpayer Relief Act provided tax credit
for college debt, much the same way as the government provided tax credit for housing
loans. In the Affordable Care Act, the Department
of Education is set up to loan directly to students. So the Department of Education now is doing
in the student loan market the same thing that Fannie Mae and Freddie Mac did in the
housing market. The Loan Forgiveness Program allows for student
loans to be forgiven, and this is an interesting thing, because it sounds quite magnanimous
to say that we’re going to forgive student loans, until we remember that the government
doesn’t have any money with which to forgive those loans unless it first takes it from
taxpayers. So what the government really means when it
talk about loan forgiveness is, let’s force people who didn’t go to college to pay for
people who did. The Community College Act calls for taxpayers
to pay for students to attend community college, this was proposed in 2015. Debt Forgiveness Act, also proposed in 2015,
calls for student loan debt to be dischargeable in bankruptcy, which it currently isn’t. And then finally, we have again the Federal
Reserve doing what it has done since 2000, which is holding interest rates at historically
low levels. So what are the consequences of all of this? The consequence is that high school students
who actually would do better in technical schools, are being encouraged to get college
educations, because the cost of the college education is artificially low. College students are being encouraged to major
in fields that have little earning power. What this results in, is a bubble demand for
college education. People are being encouraged to take on debt
to go to college, who actually would be better off not, or people are taking on debt to go
to college to study things that actually they’d be better off not studying, and so we have
the demand for college rising, and college tuition commensurately rising as well. What happens when the bubble burst? First, taxpayers will be tuck with up to $1
trillion in student loan debt. This is the amount of money that students
have currently borrowed to go to college. Second is that millions of low skilled students
will find that they wasted years of their life obtaining a college degree that does
now have the value that they anticipated it would have. Notice there’s an additional problem here,
with the college loan market, that did not exist in the housing market, and that additional
problem is this: In the housing market, when I, as a high risk borrower, borrowed $300,000
to build a house, and then I find I can’t make my monthly mortgage payments, I at least
have an asset, this $300,000 house, that I can sell to recoup some of the money that
I owe the bank. But that dynamic doesn’t occur in the student
loan market. If I borrow $80,000 to go to college, and
when I’m done with college I find that I can’t pay off my student loan, I have no commensurate
asset that I can sell to turn around and raise money to pay off some of this debt. College presidents will be decried as greedy
profit seekers in the same way that bank presidents were decried as greedy profit seekers. And I don’t mean to defend bank presidents;
some of them certainly were greedy profit seekers. But the banks did exactly what the government
encouraged them to do, by breaking the link between risk and return. When the government said, “You banks go ahead
and loan out whatever you want, and keep the profit, and I, the government, will bear the
risk,” banks did what anybody could have anticipated. They turned around and they started loaning
to everybody in sight. Similarly here, college presidents, when the
government says to colleges, “Go ahead, admit whoever you want. I, the government, will subsidize it, I’ll
provide low interest loans, I’ll provide grants to these students.” What do college presidents do? The same thing any reasonable person would
do; turn around, open the doors, and let anybody who wants in to come in. The end result its, many small colleges, like
many small banks, are going to go bankrupt. There will come a point, in the not too distant
future, when a large swath of students who have gone through college turn around and
discover they can’t afford to pay for this debt that they have incurred. And the world will go forth to high school
students, “Don’t go to college, because all that will happen is you’ll be saddled with
this large debt that you can’t repay.” And so, there’ll be a tremendous decline;
like the burst of the housing bubble, there’ll be a tremendous decline in the demand for
college education, and many small colleges will go bankrupt. What’s the moral of the story here? The moral of the story here is not that banks,
or colleges, are somehow blameless in all of this. The moral is that banks and colleges are made
of human beings, and human beings will make mistakes, some of them will act selfishly,
some of them will act duplicitously. But when the government steps in, and removes
the penalty for acting like that, as it did when it broke the link between risk and return,
it takes off the table the punishment that the market can dole out for bad behavior. And without that punishment, banks, colleges,
are going to do what any reasonable person would guess they would do. They will turn around and give as much of
their product to as many people as show up, because in the end they believe the government
is gonna pay for it.

About James Carlton

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100 thoughts on “College and Housing Bubbles

  1. but if the student loan bubble bursts, where will we go to learn to be aggrieved social justice snowflake warriors? I am soooo o triggered right now

  2. Every full tuition student who took out a loan to pay high $$ tuition is actually paying for 3 others paying nothing ! Inside school administration students are referred to as TUITION UNITS with a grade for those most likely to complete full education.

  3. Another serious flaw with these securities is that they create tiny little pieces out of actual real property that is not fungible in that sort of way. When you end up with difficulties like foreclosure or heaven forbid someone pays off their mortgage and wants the deed to their property the chain of title can become a huge mess. Who actually owns what can become a horrible ball of string. This securitzing of mortgages should never have been allowed. There have been numerous incidents where banks were unable to prove that they even had clear title to a property when they went to foreclose. Then what?

  4. College education is NOT artificially low, it is artificially high. The cost of college has gone up far in excess of inflation and it is due to government interference.

  5. Its called government intervention. Democrats you dummy. They told banks to give people laons that couldn't pay it back, because of muuhh racism. Then the government forced banks and taxpayers to give losers money to go to college who wont pay it back and took stupid courses (liberal arts/social sciences) that make nothing to pay it back in their stupid degrees. Nothing but a scam and fascism between universities and Democrats. Lesson here " separation of government and economy" oh and when the communist democrats ruined the market's, they did what they always do and blamed it in evil capitalism and called the bank's "preditory lender's". Even though the democrats put a government gun to their heads and forced them to make these loans and the university's (which are a buisness) sold all kinds of usless crap to students and falsified all kinds of courses to get them in for that free money. When the government says there is money available the frauds come out of the woodwork (the university's) now you also know how the medicade scam works. Dr's scam the gell out of it insteadbof being honest and charging fair rates.

  6. “The banks did exactly what the government encouraged them to do”…

    Yes, and before that happened… the government did exactly what the banks encouraged THEM to do. That’s how it works.

  7. This man is one of the smartest men in the world, I want to vote him as President of the USA, I know he will be a great President, he is already more educated and wiser than any other previous US President.

  8. Another factor was a spike in oil prices above $150 a barrel and gasoline above $4 a gallon: It severely strained household budgets and made living in a large house far-flung from peoples’ jobs no longer desirable.

  9. Particleboard can be claimed to be chips of wood pressed together, but that's not how plywood is made (gluing veneers of wood).

    I'll call it quits after that because something tells me that Bill Clinton's insisting that "every American" deserves to "own" a house and *deserves" to go to college like both were Constitutional Rights won't be mentioned at all. As President, Bill Clinton essentially single-handedly created both the student-loan bubble yet to crash, as well as the housing crises that probably hasn't completely corrected itself.

    It took the Dow Jones Industrial Average about 100 years to break 1000 points. The last time it was under 1000 points was a few months after the first Boland Amendment prohibiting Congressional funding of the Contras.

    If it took a century to break 1000 points, and it's at 25000 35 years later, there's far more bubbles than just the (Bill Clinton inspired/created) student loan and mortgage bubbles.

  10. this is exactly why you should NOT refinance your mortage….that is a last resort because when market crashes you are underwater and screwed…and it will crash sooner or later again guaranteed.

  11. Quick thing here, the federal reserve is a private company not government. 2 the market crashed because the banks gave out low but adjustable interest loans, then jacked up the interest and the payments.

  12. Without any "skin in the game" (Nassim N. Taleb), the same crash will occur to the student loan industry as it did the mortgage and lending industry.

    Nothing in this world comes for free. Absolutely nothing.

  13. This video misses the key point that there is no wiping out of student loan debt, and also that a lot of student debt is not underwritten by the government. Plus, only 25% of Americans go to college even now. And employment opportunities are in fact better for college grads, which is the actual word going around. It now takes a college degree to get hired at Starbucks in major cities! Additionally, there are no equivalents of mortgage backed securities for student loans. They don't wind up in pension plan portfolios.

    So while the government underwriting may have been able to cause a housing crisis, I don't think it can cause the same in student loans. The issue I see with student loans is more that too many people wind up with debt they can't repay that then prevents them from participating in the economy in more productive ways for them and the country as a whole. Young energy is being mal-invested, and credit/debit that should be helping people get ahead is instead holding them back.

  14. This is the type of stuff that needs to be taught in HS. Preferably before the kids born after 2008 reach the comprehension age of this, so they can contextualize the change.

  15. now thx to obama, if you cannot pay your loan in 10 years, it gets paid off by the taxpayer. if you become disabled, and then take student loans, it gets paid off, because your disabled, you dont even need to try to get a job in your field. your welcome lefties.

  16. I got 40k+ in student loan debt that I will never pay back. F**K the government and all their mothers too.

  17. This is a very underrated channel…

    On another note, I wish students would consider degrees that would get them jobs. Maybe consider the job before they consider the degree. Right now it seems like most consider the degree before the job prospects afterwards.

    I considered the degree first because I thought there should have been good jobs after but there wasn't. In the end I went back for another degree that I knew would land me a good job. Not everyone has the ability, money, or time for that though.

    Edit: spelling and weird formatting correction.

  18. There's more to it. A debt bubble is a convenient way to hide the inflation that everyone is pretending is not happening. After the student loan bubble there'll be another one to take its place.

  19. The banks were making student loans, reaping the profits, and the government assumed the risk. That may have been stupid, but it was legal, and now the government reaps the profits as well as the risks. During the housing bubble, while banks were encouraged to loan to low-income applicants (in part to make up for so many decades of discrimination), the banks were committing massive fraud, doctoring loan documents, so they could make loans, earn profits from fees, and then make more money from selling those loans, many of which were worthless. Even more fraud on the part of the bankers. So, how many bankers went to prison? Wells Fargo, BoA, etc.'s stock prices were hurt, and the banks were fined (a relatively small amount), and the bank managers who pulled off the fraud walked away with vast fortunes.

    Also, during a housing bubble, property values fall. Th $300,000 house Dr. Liberty spoke of, when worth less than the amount owed on it, is not much of an asset. On the other hand, the person who takes out a college loan is an indentured servant. A school loan can't be discharged through bankruptcy. The loan taker might be paying it back for the rest of his life, but he will pay. The loan forgiveness chimera has floated away.

  20. Perfectly said I’ve studied (privately) the housing bubble and I’ve warned people back in 2010 that the next one would be student loans.
    Take away responsibility and u get a bunch of rich fucks that will rape the coffers of the government.

    All u have to do to qualify for a student loan today is ask for it!!!!!

  21. Great video, but one idea needs correction. College education cost is not artificially low, its artificially affordable! The actual costs being passed on to tax payers by educational institutions are really high by historical standards and are made possible using easy to obtain college loans.

  22. Love these. Someone please assign a security detail to Prof Davies to keep the Auth-Left from making him "disappear."

  23. How does the student loan problem end?…or will the gov just continue to garnish a person's social security?

  24. @14:10 he says 1 trillion, the video is 1 year old and now its over 1.5 trillion, I wonder if its a bubble

  25. They better not bail out all these loans.
    Blue collar workers will need to get violent against white collar workers if that happens.
    You will know your friends by looking at their hands.

  26. Socialism empowers the state, capitalism empowers the individual. Some would prefer that the state assume their responsibilities and make life decisions for them, and the rest are grownups (capitalist-realists) who eventually decide to get a job and move out of their parents' house.

  27. A capitalist society is more like the natural world everybody was born into where some people really are more equal than others. Bernie offers an alternative world of the supernatural & make-belief.

  28. What a surprise. The government was responsible for the crash, not the free market. Totally totally shocked 😳

  29. This is one of the best and clearest explanations of hindsight and foresight I've seen in ages. Thank you for making the video and please keep them coming. We will push past the barrier of ignorance and disinformation as long as videos like this keep reaching out to the masses.

  30. I saw a video in the late 80’s that outlined these moves using debt. The intention is to create slavery. Also, Thanksgiving dinner tastes better when you’ve announced to the family that you’re “going back to school.” I have no debt. None.

  31. He introduces the ratings agencies that evaluated the loans and then conveniently never came back to the fact that mortgage backed securities were vastly overrated. He also never brings up AIG, which played a similar role to Fanny and Freddie, but was a private institution that took on risk for loans it never evaluated with money it didn't have. The government was not the one to approve no income verification no collateral loans. The government also didn't devise the balloon payment structure which was on the face of it greedy and exploitative financial instrument. Bringing up HUD before AIG is disingenuous and misleading.

    Both the government and banks refused to investigate the viability of loans that were driving unsafe levels of investment. Both were negligent in monitoring there level of risk. Both willingly lied to Americans that were unable to afford homes.

  32. "To understand what's going on, take out the middlemen". The problem with this is that it completely sweeps aside the middlemen's implicit interest in making a sale (ie: a commission), and how they deceptively peddled the CDO product to make it seem much safer than it actually was. Also, by saying the Fannie & Freddie were lax on the risk because they were confident of a government bailout, so were other investment outfits who were relying on AIG, whose job it also was to bail them out if a CDO didn't pan out.

    There's no such thing as a magical institution which has nobler motives and purer execution than the people who comprise it. The collapse happened because the individual motives of the middlemen benefiting from the housing bubble, lenders, brokers, and ratings agencies, all were operating at the expense of the investors who were providing the money. The only player who did have a stake in how the loan operated was the borrower (who was riding the giant housing equity bubble assuming it would last indefinitely), and the holder of the bond (who was desperate for a vehicle to get return for their capital).

    This isn't to say the Fed isn't also responsible for their lax monetary policy, this is what ultimately fueled the growth of the 2001 stock market bubble, and the subsequent 2008 housing crash: Lots of liquidity desperate for a way to earn interest.

  33. One thing not mentioned in his lecture that makes the situation even worse is the fact that many people will be saddled with loans but never make it to getting a degree.

  34. Wow – What a dishonest representation of reality. Half truths and misinformation at it's best.
    In short, this asshat (and numerous right-wing pundits) completely places the blame on federal programs designed to help the working poor.
    No mention of the repeal of Glass-Steagall (1998) allowing investment banks to acquire commercial bank and their services (loans).
    No mention of how these same banks employed Credit-Default-Swaps to bet against their own investors.
    Completely skipped how those MBSs were fraudulently rated as AAA (very low risk) by Moody's and S&P, but were comprised of 50%-90% subprime loans with teaser rates. They should have been rated as C (high risk).

    Want a better and unbiased narrative of what reality happened leading up to the 2008 Financial Crisis, read The Big Short: Inside the Doomsday Machine by Michael Lewis.

  35. This is what people don't understand. Liberals say "businesses and banks are too big". Conservatives say "government is too big". But the problem is that they''re all too big and they help each other. They feed and need each other. And we get eaten in the process.

  36. This is great. Actual economic education for the masses. This information is not only not taught to our students it's discouraged. Now do a lecture on the Laffer curve and tax policy. That should be amusing and educational as well. Thanks for this.

  37. Hahahahahaha, your government must be soooo secretive in social programmes, it collapses the world economy? Truly funny on a perverted level.

  38. You forgot how the ratings agencies defrauded everyone due to there being no incentive to tell the truth once the entity paying for the rating was not the entity holding the asset being rated! I suppose a similar situation in the college scheme is how colleges say "study what you love, follow your dreams, you'll get a job" and then that doesn't happen for all the useless degrees they dish out. Both instances of fraud, should be corrected by standard antifraud regulations rather than encouraged by massive taxpayer subsidies.

  39. This dude is disingenuously trying to conflate two disconnected concepts. He's got an axe to grind, and is presenting this with remedial high school economics when he should bother using some real numbers.

    Mortgage interest rates are market-dependent, only partially dependent upon the Fed. Your interest starts with the Prime rate, then increased by the modifier for the loan type and duration, and then modified again by your down payment and credit rating. The Fed "keeping rates low" affects the ultra-short term borrowing rates that businesses use for payroll payments, letting businesses reach into the box for false liquidity. Mortgage rates are secondary. In addition, forcing banks to lend to "high risk borrowers" was trying to keeping home ownership within reach for the average American while it was becoming increasingly the domain of the wealthy. Note that wage stagnation settled in around the late 70's, when this act was passed – making it pretty timely and pretty necessary.

    On the other hand, student loan rates are NOT market-dependent. Mortgage debt gets erased by bankruptcy all the time. Student loan debt CANNOT be discharged by bankruptcy. Student loan forgiveness programs require 10-15 years of PAYMENTS ON TIME by the borrower, while working at a public sector job that pays below private market value. Student loan forgiveness programs create incentive for individuals with higher education to select a life of public service. Consider that the default duration on most student loans is 10 years, which coincides with the shortest forgiveness requirement I have found. Consider also that extended repayment plans that last 30 years tend to end up around triple the total loan amount in repayment, meaning that at the 10 year mark, the government STILL GOT ITS MONEY BACK and the forgiveness is only managing the interest it would have made across the next 20 years.

    Trying to paint the student loan crisis as something crafted by loaning money to poor people for college is pretty shameless. There is a VERY big difference between treating low income people as high risk for a mortgage, and treating them as high risk for a college education.

  40. College is a scam. They charge you exorbitant amounts of money, fill your head with near useless information and give you a piece of paper that guarantees absolutely nothing.
    Far better to find an apprenticeship program that teaches you the skills needed to perform a needed service for others. Far better way to spend your time than going to college.

    The prices of college started skyrocketing the moment banks got into the student loan business. Once the government started taking over the risk of student loans the banks went into overdrive shoving student loans out the door at record pace.

    If TRUE financial education was taught to kids in grade school and high school, many of the graduates would understand how screwed up college currently is.

  41. Who is "the government" but it's people?
    BTW Women hold most of the debt and the majority of taxpayers are men.
    See the problem with that?
    Men are being turned into economic slaves with the guise of "responsibility."
    That and women can't be in two places at once.
    Perhaps female empowerment isn't what's needed.
    Perhaps the delusion of equality is bankrupting us all.

  42. Wait what?!?! More government didn’t lead to happiest for everyone?? You don’t say…

    So the Left’s solution to government backed debacles = more government??

  43. Let’s be clear that minorities with good credit scores and high savings were given higher interest rates than their white counterparts. It’s called systematic racism.

  44. The banks pay the politicians who enact these policies bc the risk is worth it bc they can extract the most profit (and assets) from “risky borrowers”…….to take any blame off the banks is foooolish

  45. Only difference is, wait for it…

    Banks don’t exchange cash for a promissory note. There is no exchange – just a debt created and shackled to the borrower. Banks just type into their bank account a figment of the imagination called dollars – there is no connection between dollars and real value anymore. The value isn’t in the dollars being borrowed – the value only exists in the enslavement of the borrower to pay the bank!

    One of the biggest scams in world history! Right up there with the Federal Reserve System!

  46. That's why you invest in a degree that isn't worthless… Actuarial Science, Accounting, Nursing, most engineering degrees

  47. This is too complicated for me to understand, so I am just gonna vote for Bernie or any other communist that promises to fart rainbows and give me everything for free. The cost of my stupidity deserves to be paid off by smart people. And if you dare to disagree, you are a racist, sexist, white nationalist, neo-nazi who should be banned from ever speaking again. Hail communism! Down with America!


  48. No more A’s for effort, you gotta earn your keep;
    No more A’s for effort, no more bailing out the weak!

  49. This guy is a complete idiot! Many of the things he is saying is misleading. I don't know a single person who is recommending people to get worthless degrees. I have never heard anyone say "get a degree in gender studies because the pay is so great"! He doesn't seem to understand how the Federal Reserve System workers or where the money mortgage holders borrow comes from. He talked about not having an asset to lean against and that is partly true however little known fact. Your wages can be garnished to pay for your student loans. Social Security can be garnished or withheld to pay student loans. Remember that student loans don't go away in bankruptcy!

  50. It was more then Fannie Mae and Freddie Mac that were the catalyst to the housing crisis . Many financial investment companies and banks were making money off of bundling low and high risk morgages together and selling them to domestic and foreign investors. If he's going to tell the story then tell the entire story and not be agenda selective in the information .

  51. He fails mention where all the money originated from. How was it created? How was it circulated into the economy?

  52. My opinion is in the 80s manufacturing died in the U.S.. this is the time when we went from manufacturing to a service economy. College education was pushed to increase jobs in that industry also jails and prisons sky rocketed do to the massive increase in policeing. They decided that instead of manufacturing jobs they would jail more people and allow for seziour of assets. Thank you politicians

  53. But worst than the consequence of the housing bubble and the college loan bubble, is the forced integration that it presents.

  54. I'd like to see this guy explain how the AMA has acted as a cartel from it's inception, pushing states to restrict the supply of medical professionals and hospital rooms, while medicare, medicaid, and employer provided health insurance has steadily increased demand.

  55. The worst part about this whole housing bubble was that the government seriously named those entities Fannie Mae and Freddie Mac. By the way for some reason they're in autocomplete on my mobile wtf

  56. Not to mention the fact that entire ghost communities were built all over tue globe for supposed "buyers" that never existed. You know since the banks had no idea or that they had no idea that the crash was going to come, even though they managed to bet in the market it would and made out like bandits and still took the tax payers money. Or maybe just maybe we could look into the numerous other crashes that happen throughout the last 200 years.. Noke of those were the banks fault either.. Or.. Or.. Or just maybe we vould look into why soooo many people couldnt afford decent housing in the "richest" country on earth.. Or maybe we could not listen to this mans bullshit.. I love you all.

  57. So let me get this straight.. The housing bubble was all you lazy stupid hard working tax payers fault!? I knew it! Thanks alot guys! You suck.

  58. Thank you for your clear and concise lectures. The Media explains nothing, only half the story. You have opened up doors for me.

  59. Packaging and selling any kind of debt should be illegal. This idea opens the door to create a bill of good to pass on to another buyer.

  60. And the moral of the story is,,, degrees in underwater basket weaving do not produce individuals who weave baskets better than those who weaver baskets above water. With no degree at all. Hence, baskets weaved underwater do not fetch more revenue than baskets weaved above water.

  61. One thing not touched on here – many of these colleges have taken out municipal bonds to fund further expansion of their programs, campuses, etc. These bonds are getting sprinkled all throughout municipal bond funds at Fidelity, Vanguard, etc and the bond funds are being more and more heavily weighted towards education sector. The interest rates are very favorable, many of the bonds paying out 4%-5% which raises the yield of these bond funds. Plus they are state and federal tax free. example – the vanguard one i think has a 3.8% yield right now. When these colleges go bankrupt, the bonds they took out will go bust. Then the bond funds are going to take a nose dive, some might even go bust themselves depending on how heavily weighted the bond fund is to bonds colleges and universities took out who knows. The bond funds don't give you a break down by sector, you have to manually do it yourself…..just like michael berry had to do with the mortgages in the mortgage backed securities. People aren't taking this into account. It's going to be a scary ride

  62. “An ounce of prevention is worth a pound of cure”. Education in high schools could prevent a lot of these issues from getting out of control.

  63. While I agree with the message, I think your audience would benefit from a more accurate explanation of how fractional reserve lending works. Banks do not simply lend out deposits from savers. The relationship or “license” banks have with the central bank, essentially allows them to create money. This is vital to understanding how out of control banks got in the mid 2000s and why government thought it was a good idea to implement reserve requirements in the wake of the financial crisis.

  64. So this guy says everything is government's fault? I don't think so. The only problem is the rich got richer through this process.

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