savageinfidel

The student loan market has a lot of factors that seem to say "Stay the heck away!": they're relatively easy to qualify for, college costs have increased far more rapidly than general consumer prices, we now seem to feel that EVERYONE SHOULD HAVE A COLLEGE EDUCATION. ELEVENTY!!!, and most importantly, the job outlook for many (most?) college grads is to put it mildly, pathetic.   This graph from the Washington Post piece points out some evidence that we might be seeing the beginning of the next "bubble pop".  Although they're a fairly small part of the overall consumer loan market, student loans are more likely to be 90+ days past due than any other loan class.  And the percentage is growing pretty rapidly.    Luckily, the Unknown Daughter gets free tuition at Unknown University.   We still have a half-dozen years until we have to shell out for college, but it'll take a lot to justify her going somewhere other than to my (fairly low-cost) school....

Here's an interesting article in the WSJ from a while back (7/16) titled "CIT's Woes Prompt Surge In Activity At Receivables Exchange". CHICAGO (Dow Jones)--The turmoil surrounding finance giant CIT Group Inc. (CIT) is driving a surge in new business for a New Orleans-based company that runs a market in receivables. The Receivables Exchange, which lets small- and mid-sized companies auction their accounts receivable to buyers that include hedge funds and commercial banks, on Wednesday recorded its busiest day ever and is fielding a flood of calls from businesses searching for financing alternatives. "These people want to do their own underwriting and do their own credit determination," said Justin Brownhill, co-founder and chief executive of The Receivables Exchange, or TRE. Events this week have shown that "they can't rely on others like CIT to do it," Brownhill said. New York-based CIT, among the biggest U.S. lenders to small and mid-sized bu...

Because corporate borrowing costs were low in recent years, many companies loaded up on debt. Now, much of that debt is coming due at a time when companies have experienced slowdowns. Here's a recent article from the NYTimes Online, titled "Cost of Borrowing Zooms up For Corporations": Like consumers and homeowners, America’s corporations binged on easy credit when times were flush, racking up huge debts. Now the bills are due, and paying them back will not be easy, or cheap. This year alone, more than $700 billion in corporate loans will come due, according to Standard & Poor’s. That is the size of the federal bailout of the financial sector. Many companies were counting on being able to borrow more money to meet those obligations and kick their debt farther down the road. But with the credit markets still tight, corporations are being forced to pay much higher interest rates than they did a few years ago, putting more strain on balance sheets already hammered by f...

One of my students is interviewing soon for an internship in an investment bank's fixed income department, and another is going to be starting soon in a credit analyst position, So, these pieces on distressed debt investing were pretty timely. Michelle Harner over at the Conglomerate posted a very nice piece with some links about distressed debt investing. She highlights the difference between "vulture investing" and "investing for control" (basically traders vs. longer-term investors). She gives a couple of pretty good references. One, from Knowledge@QWharton lays out the basics of "distressed for control" investing: Simply put, their line of work is to make a profit from companies that have failed to do so and are on the brink of bankruptcy. Unlike traditional hedge funds, however, their investment doesn't stop at buying significant portions of these companies' debt for pennies on the dollar, tidying up the balance sheet and then selling...

This weekend I posted a video of a "whiteboard" talk by Paddy Hirsch of Marketplace, in which he explains CDO s and the credit crisis. Here's another one where he explains Credit Default Swaps (CDS) using the analogy of an arctic expedition. Since I'm teaching Fixed Income next year, I'm sure some of these will make their way into my class.

Every once in a while you come across an explanation that makes you realize that just really aren't all that good a teacher. Here's another one to add to the pile. In this video, Marketplace Senior Editor Paddy Hirsch gives one of the best explanations of CDOs and how they contributed to the current credit market woes that I've yet seen: He's also got some other videos up on YouTube that I'll post in the next couple of weeks.