Relief for students will not be seriously addressed, as long as policymakers and lawmakers are listening to Wall Street. Wall Street has a vested interest in maintaining securitization infrastructures and perceives any reduction or elimination of debt as a destruction of their carefully conceived plan and execution of a fake securitization scheme that evolved over four decades.
Relief won’t happen, except perhaps as a token gesture, simply because Wall Street is communicating its intent to withhold money from the campaigns of anyone who votes for substantive relief.
In so doing, Wall Street is undermining the national economy.
It should go without saying that in a consumer-driven economy, you want consumers to spend. Once again, Wall Street has interfered with the economy with the bogus entry into the lending marketplace. In so doing, it sold loans to 17-year-old prospective students who had no access to information that would reveal the consequences of the complex financial packages they were purchasing and that the students were induced to issue.
I should point out that students are allowed to sign these papers even when they are legally incompetent and even if their parents object. It is one thing to sell a complex financial product to people who are overly exuberant about buying a house at a price far above its value. It is quite another to sell complex financial products to people who have not yet completed maturity – physically, mentally or emotionally.
Wall Street interfered with our political process, making education an expense instead of an investment in the country’s future. There are several ways out of this, but nothing will happen unless the elephant in the room is identified.
The situation’s absurdity was amply highlighted by the documentary aired Sunday night, “Loan Wolves.” It ended on a somewhat hopeful note that somehow student debt would be reduced or eliminated before the end of this year. That won’t happen. And the reason I’m writing this article is that nobody seems to be addressing the reason that it won’t happen.
I have written about this before, but virtually nobody has picked up on it. There are no federal student loan offices. They don’t exist. But there are private companies that sell these complex financial packages to students who are too young to drive or drink. Frequently the people who are selling to them are not much older. Neither side of the transaction knows anything about what they are doing.
These companies act as brokers. The money temporarily comes from an intermediary for an investment bank. The originating company is named as the payee on a note incorporating mind-boggling terms in their complexity. Neither the note nor the unpaid account is sold to anyone. But the payee on the note has already agreed to release any claim to any payment, debt or note from the student.
In a pattern identical to the home loan fiasco that resulted in the 2008 crash, the investment bank maintains total control over the money without owning a single loan or account. Securities are then issued by the investment bank and sold to investors with the implication that the investors are buying something that is government guaranteed.
The revenue generated from the sale of the securities by the investment bank exceeds the amount of the financial package purchased by the student, resulting in the issuance of the note, which forms the basis for the fraudulent conjecture that a loan account was “securitized.”
Despite receiving enough money to pay for the transaction with the student many times over, no loan account is ever credited. This supports the false claim that an amount is due from the student as set forth on the promissory note, despite the absence of any underlying obligation.
The government in many cases is the guarantor of loans. Most people don’t think about what that means. The government will make up the difference if there is a loss attributable to the unpaid loan account. Up to now, the government has been complicit in issuing payments on nonexistent losses.
The documentary also discusses an absurd change in bankruptcy law in 1998. This was accomplished by the Clinton administration, which had no idea what it was doing, and Congress who also had no idea what they were doing. The change makes it illegal to discharge student debt in bankruptcy – even in part. This is a sharp departure, and some say a violation of the constitutional provision guaranteeing fresh starts in the form of bankruptcy.
This change puts student debt in the same classification as punitive damages. We are punishing students for believing salespeople whose income depends on commissions paid from fees received by the originating company or a sales organization related to the company. And the fees, of course, are paid by an intermediary for the issuing investment bank since the goal of the scheme is to sell securities (not to make loans).
I have said before that I think the securitization of student debt eviscerates the government guarantee simply because there is no loss to cover with the guarantee. That being the case, any argument that the government is being protected by this change in bankruptcy is completely specious.
But if my rendition of the infrastructure is correct, then there is no need to declare bankruptcy since there is no debt. Once again, I strongly suggest that people who think they are “borrowers” should demand a copy of the loan account at the earliest possible time. And in the absence of receiving it, they should bring action against those who are making false claims of the right to administer, collect or enforce a nonexistent obligation.
PRACTICE NOTE: It is helpful to focus the analysis on the presence of two (2) issuers. We all know that the investment bank is both the issuer and underwriter of certificates falsely labeled as collateralized loan obligations.
But through the manipulation of labels, consumers are presumed to be borrowers, not issuers. I grant that some analysis methods would result in finding that they are both. But the overwhelming consensus is that the students are always issuers and sometimes borrowers.
I take the position that students are only issuers and therefore entitled to compensation for their role in an undisclosed securitization infrastructure. As such, they are probably entitled to additional compensation beyond what was given to them as a “loan.” But I acknowledge that in the Reformation of contracts with students and homeowners, they will probably be treated as both.
Filed under: foreclosure |
I agree Poppy. We are a consumer economy. Produce nothing else of value. When the consumer is done, so is the economy.
Student debt is due to “guaranteed” federal assistance. Bailouts for schools. Under that guise they continue to raise tuition. Filling seats. Debt in general is encouraged. What I call debt equity is a great con too. Refinance and lower your payments, now you have more discretionary income (debt equity)…no plan for any contingency, like the economy in free-fall. Everything sold is a “finance” plan…the prices are un-realistic. Look at this economy, autos at $110,000.+ What are people thinking? Homes highly overpriced…you cannot get past overpaying for a property. Bankruptcy or foreclosure is the only out. The lenders know it. Hence, the reason for “selling debt”…they win, every time. My $.02 on the matter.
!) We need to fix consumer driven economy. Cannot survive on this. 2) Student debt relief is diversion from mortgage fraud. Why not mortgage debt relief? Makes no sense. Political votes.