Originally Posted by JonLaw
First rule of debt.

Debt that can't be paid back won't be paid back.

You're basically talking about SLABS, which I was interested in (from a bubble perspective) a few years ago, but which died with the bust.

http://blogs.reuters.com/great-debate/2013/03/07/student-loan-bubble-babble/

Second rule of debt: debt that can't be discharged, won't be discharged. Sure, some loans won't generate any income without asset seizures, and some won't even come with assets to seize (damned homeless people), but a significant part of the loan pool will generate income for, basically, eternity. So there's that.

I was actually talking about a classic scenario in which a loan originator keeps the loan on their own books, rather than securitizing, hedging, and debt-swapping. But yes, the parallels to the subprime housing market are significant.