The young and the riskless

February 18, 2014

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Last quarter, Americans‚Äô household debt showed the largest quarterly increase since 2007. Total household debt rose to¬†$11.5 trillion, which is still 9% below the 2008 peak. This the first year-over-year debt increase since the recession, according to a new report by the¬†NY Fed.¬†Joseph LaVorgna, the chief economist at Deutsche Bank, has declared that ‚Äúthe deleveraging cycle is over.‚ÄĚ

For the first time in four years, the¬†WSJ reports, mortgage debt increased over the prior year, thanks to fewer foreclosures and bankruptcies. But compared to 2005-2006, when Americans of nearly all demographics loaded up on mortgages, growth in housing debt was much more limited. What‚Äôs pushing up our debt loads,¬†NY Fed¬†researchers write, is borrowing by America‚Äôs ‚Äúyoung and riskless.‚ÄĚ Between 2012-2013, mortgage debt growth was driven entirely by those under 39, and most of the growth came from Americans very good credit scores.

Student debt, the NY Fed reasearchers say, continued its troubling growth, as ‚Äúeven older student loan borrowers continue to increase their borrowing”. And, as¬†Dina ElBoghdady¬†writes, students with medium-to-poor credit scores saw the biggest jump in debt. It‚Äôs no surprise, then, that the Mortgage Bankers Association¬†waking up¬†to the¬†many¬†warnings¬†in the last few years that America‚Äôs $1 trillion student debt burden is starting to hurt the economy. Under new Federal rules that went into effect last month,¬†ElBoghdady¬†reports, it could become harder for indebted students to get home loans — the rules reward lenders that avoid borrowers whose debt service exceeds 43% of their gross income.” The rule applies only to jumbo mortgages for the time being, but will expand in the next few years.

Some context: among bachelor‚Äôs degree students who graduated in 2012 with debt, the average debt load was $29,400, the¬†New America Foundation¬†reports. That‚Äôs up nearly 20% in four years. The average estimated monthly bill for America’s bachelor-degree debt: $312 a month.¬†– Ryan McCarthy ¬†

On to today’s links:

Modern Problems
Comcast-Time Warner, monopolies, and our national broadband crisis - Felix

Easing Ain’t Easy
Why all central bankers should be “reassuringly vague” -¬†George Magnus

Remuneration
January 2013: time for bankers to cash in on their equity compensation - WSJ
The effects of a $10.10 minimum wage: reduced employment, less poverty, and a raise for 16 million Americans  - CBO

Tax Arcana
Abba’s “glittering hotpants, sequined jumpsuits and platform heels… were designed for tax efficiency” -¬†Guardian

Hilarious
Atlas Shrugged in one chart - BI

Alpha
What I saw when I crashed a Wall Street secret society party - Kevin Roose
A simple explanation of how 401(k) fees are killing your retirement - Matthew O’Brien

Wonks
Larry Summers: “The US may well be on the way to becoming a Downton Abbey economy” -¬†Reuters

New Normal
Minimum-wage commuting: Crossing a state line to earn $1.85 more per hour - NYT

Sad But True
You’re not going to read this article — but you’ll probably share it anyway -¬†The Verge

Sad Trombone
“Circus folk fear a national clown shortage is on the horizon” -¬†NPR

Ugh
The disturbing rash of finance suicides - Ben Walsh

Cephalopods
Goldman Sachs’ misleading new ad campaign -¬†Stephen Gandel

China
Chinese bank stocks: “pure bets on the volatility and growth of the underlying economy” -¬†Michael Pettis

Oxpeckers
“Picking at a salad seems to be the single most common form of consumption we report” -¬†NYT

Big Ideas
Credit card debt can help the poor - NYT

Charts
The incredible shrinking mortgage-backed security market - Sober Look

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