For those of you who can no longer afford your loan payments or refuse to spend your entire life giving half of your salary to pay off your education expenses, The Angry Future Expat lays out a clear and compelling case against paying back your debt.
The simple fact is that, with the exception of a couple people who had their notes cancelled by the courts due to fraud, bad faith, a lack of standing, or other misconduct, no mortgage holder anywhere in the United States have ever received a government bailout. Period.Read the entire post here.
Rather, bailouts are all about protecting creditors, or the bondholders of creditors, by protecting their payment stream. For example, Fannie and Freddie’s exist to buy up so-called “conforming” mortgages, and then they securitize them and sell them to large institutional investors, such as pension funds, university endowments, etc. These investors are not, however, true investors because they are not adopting the risk of default. If a large group of mortgages in the securitization pool default, i.e. the people stop making the payment, the investors still get paid.
Now, the mortgage holder (homedebtor, “homeowner,” whatever you want to call them) still loses the house. Same with student loans, the securitized student loan is guaranteed by the government, so when the grad school grad can’t make the payments, it doesn’t matter to the “investor.” But the graduate still goes into default, has their wages garnished, gets hit with tens of thousands in fees and collection costs, and has to leave the county to have any chance of a normal life.
The bailouts are a one-way ratchet in favor of the creditors. They do not help the debtor at all – in fact because everything is guaranteed, it creates a perverse incentive for banks and finance companies to push ever-increasing levels of leverage (aka debt) onto those too stupid, too young, too desperate, or too optimistic to really understand what their getting themselves into.