Buying your own debt ?

Thrugelmir

antrobus wrote: »

You could probably save the lives of a 1,000 Ethiopians for £10k, or something similar.

Good thought. :T

globalds

Interesting replies.

Just one question ?

Would advances in technology or at least the power of data processing make the breaking up of this pooled debt possible or is this anonymity built into the bundling of the debt ?

I guess it is like one of those bag of Carp deals ..if you or anyone else knew exactly which bag contained the iphone and which ones contained Rick Astley CD's ..people and institutions would cherry pick.

princeofpounds

Would advances in technology or at least the power of data processing make the breaking up of this pooled debt possible or is this anonymity built into the bundling of the debt ?

In theory it could be done for sure.

It would be administratively complex, because you would need to get all the banks in the system to categorise loans in a standardised manner and to trade them through a standardised system. You would also need to change the loan terms to permit the disclosure of individual personal data for these purposes. But there is nothing technologically hard about it.

But no-one is going to do it, because there is no economic incentive whatsoever to do it and the costs would be very large.

If P2P lending ever really takes off, it would be a more natural step from that sort of system, really just a secondary market in nonperforming P2P loans, as the data is already treated more in that manner on the sites i have seen.

Generali

michaels wrote: »

I disagree, I think whenever your personal debt is traded you should be allowed to purchase it at the agreed price. I can't see how it is morally right that others can purchase your debt but that you can not.

Thanks OP I was going to post the same thing. Isn't there somewhere where either mse martin or the gov are looking for suggestions for what should be in the autumn statement?

The thing is, it's not 'your' debt because it's not 'your' property. What you propose would end the securitisation market overnight and result in much higher interest costs for no obvious gain.

Generali

globalds wrote: »

Interesting replies.

Just one question ?

Would advances in technology or at least the power of data processing make the breaking up of this pooled debt possible or is this anonymity built into the bundling of the debt ?

I guess it is like one of those bag of Carp deals ..if you or anyone else knew exactly which bag contained the iphone and which ones contained Rick Astley CD's ..people and institutions would cherry pick.

Think about this in practice.

People with good credit ratings with debt that was trading in a crappy bundle would buy out the debt in order to gain a discount. Under a system such as the one that seems to be proposed, the transaction price would be set at the average price of the entire bundle each time there was a trade in the RMBS.

Each time there was a trade, people with good credit ratings would be encouraged to make a profit at the expense of holders of the RMBS leaving the dross behind.

In effect what would happen is that I would buy into a bundle of mortgages when the RMBS was first sold and I would then face an ever decreasing level of credit quality until all I was left with was the debt of the bums and the people too dumb to recognise a bargain. That's not really fair on me as a buyer of an asset.

Imagine a situation where I sold you a 5 year old car and then said that in 5 years time if the car is still running well I demand the right to buy it back at the average price of 10 year old cars, regardless of how well they are faring. Whether they've been crashed, scraped, smoked in etc. That's not a great deal for the buyer and if it was enshrined as a law as a right would probably mean the end of the market for 5 year old cars except at real knock down prices.

princeofpounds

Good analogies Generali - it really is the nub of the issue that although a debt is your liability, it is someone else's asset.

tincans6

Generali wrote: »

In effect what would happen is that I would buy into a bundle of mortgages when the RMBS was first sold and I would then face an ever decreasing level of credit quality until all I was left with was the debt of the bums and the people too dumb to recognise a bargain.

Whats wrong with you - call yourself JP Morgan and sell that !!!!!.

Generali wrote: »

That's not really fair on me as a buyer of an asset.

You never know - could be a couple of years bonus before the toilet flushes.

michaels

It obviously changes the market but it wouldn't kill it. Aplying it retrospectively to those who had already bought debt bundels would obviously be unfair.

Imagine you are the original lender and want to sell 10 loans, the price you would get offered for the debt would be on the basis that the individuals borrowers have the right to immediately pay off their own debt at the transaction price when the transaction takes place. There would still be a market clearing price for this bundle.

N1AK

michaels wrote: »

It obviously changes the market but it wouldn't kill it. Aplying it retrospectively to those who had already bought debt bundels would obviously be unfair.

No one's saying it would kill it, however it would decimate the value of resold debt. That would mean that anyone thinking of lending to remotely risky borrowers would stop or charge vastly more. It would also lead to companies bringing debt collection in house rather than selling the debt to dedicated debt collection firms; again the downside would be this is less cost effective and thus borrowing would become more expensive.

Generali

N1AK wrote: »

No one's saying it would kill it.

Errm, well actually that's exactly what I'm saying.