The housing bubble, and the consequent credit crisis, is a very complex system that is elegantly and lucidly explained in the following video, created by Jonathan Jarvis.
There is at least one element missing from the video, which is mentioned but not expanded upon: Credit Default Swaps (CDS), which explain how insurance companies are also included in the flowchart. The Collateralized Debt Obligations (CDOs) are partially insured by CDSes, which is a guarantee that if the CDO stops earning money, the insurance company will pay the difference. Because the CDO market was actually the business of reselling housing mortgages (and we all know how that went) the CDS contracts are now in effect. Now, insurance companies must pay out sums of money that are a large portion of the total mortgage defaults.
Nevertheless, this video is fantastic, and it is a useful tool for learning more about the student loan bubble. In the same way that bankers created CDOs out of mortgages, student loan debt has also been packaged and resold to other bankers and investors. Unlike mortgages, students are not able to default on their loan repayments.
Excerpt from: http://vimeo.com/3261363
The goal of giving form to a complex situation like the credit crisis is to quickly supply the essence of the situation to those unfamiliar and uninitiated. This project was completed as part of my thesis work in the Media Design Program, a graduate studio at the Art Center College of Design in Pasadena, California.
After watching the trailer for Default: the Student Loan Documentary, I eagerly anticipate the general release of this film, which focuses on the personal stories of students who have been affected by educational debt. Although there are strong political and financial overtones to the student loan bubble at large, it is important not to lose track of the actual people who will be most strongly impacted.
It is very common to read criticisms of students who have taken on more debt than they can handle, and if this film is able to speak to those criticisms, it will be a significant accomplishment. This challenge involves convincing a wide audience including people who dutifully paid all of their student loan debt, those who required no debt to begin with, those who compromised in order to avoid debt, and those who didn't go to school at all. With an audience like that, Default might be a very difficult sell.
The following trailer is about 5 minutes long.
Excerpt from: http://www.defaultmovie.com/?page_id=2
Default: The Student Loan Documentary is a feature-length documentary chronicling the stories of borrowers from different backgrounds affected by the private student lending industry and their struggles to change the system.
In 2005 private student loans were exempted of ALL consumer protections. No matter when their loans were taken, many borrowers now find themselves in a paralyzing predicament of repaying two, three or multiple times the original amount borrowed, with no bankruptcy protection, no cap on fees and penalties and no recourse to the law. The consequences are dire, with stories of borrowers in financial and emotional ruin.
Beyond these personal accounts, DEFAULT will explain the differences between federal and private student loans, a subject often overlooked by colleges and high school counselors. It will also give detail on the rise of the private lending industry and of college debt.
While the media has focused on the disaster that sub-prime mortgages have turned out to be, only superficial attention has been given to financial giants which have been profiting by approving loans to low-income students with variable interest rates up to 25%.
As The National Consumer Law Center concluded in their March 2008 report titled "Paying The Price: The High Cost of Private Student Loans and the Dangers for Student Borrowers", there are ominous signs that "the student loan market is headed for the same fate as the subprime mortgage industry."
Default is directed by Aurora Meneghello and produced by Serge Bakalian. Keep an eye on the official website, which is www.defaultmovie.com. Student Loan Bubble will keep you posted as this story develops.