Did JPMorgan Pop The Student Loan Bubble?

Tyler Durden's picture

Back in 2006, contrary to conventional wisdom, many financial professionals were well aware of the subprime bubble, and that the trajectory of home prices was unsustainable. However, because there was no way to know just when it would pop, few if any dared to bet against the herd (those who did, and did so early despite all odds, made greater than 100-1 returns). Fast forward to today, when the most comparable to subprime, cheap credit-induced bubble, is that of student loans (for extended literature on why the non-dischargeable student loan bubble will "create a generation of wage slavery" read this and much of the easily accessible literature on the topic elsewhere) which have now surpassed $1 trillion in notional. Yet oddly enough, just like in the case of the subprime bubble, so in the ongoing expansion of the credit bubble manifested in this case by student loans, we have an early warning that the party is almost over, coming from the most unexpected of sources: JPMorgan.

Recall that in October 2006, 5 months before New Century started the March 2007 collapsing dominoes that ultimately translated to the bursting of both the housing and credit bubbles several short months later, culminating with the failure of Bear, Lehman, AIG, The Reserve Fund, and the near end of capitalism 'we know it', it was JPMorgan who sounded a red alert, and proceeded to pull entirely out of the Subprime space. From Fortune, two weeks before the Lehman failure: "It was the second week of October 2006. William King, then J.P. Morgan's chief of securitized products, was vacationing in Rwanda. One evening CEO Jamie Dimon tracked him down to fire a red alert. "Billy, I really want you to watch out for subprime!" Dimon's voice crackled over King's hotel phone. "We need to sell a lot of our positions. I've seen it before. This stuff could go up in smoke!" Dimon was right (as was Goldman, but that's another story), while most of his competitors piled on into this latest ponzi scheme of epic greed, whose only resolution would be a wholesale taxpayer bailout. We all know how that chapter ended (or hasn't - after all everyone is still demanding another $1 trillion from the Fed at least to get their S&P limit up fix, and then another, and another). And now, over 5 years later, history repeats itself: JPM is officially getting out of student loans. If history serves, what happens next will not be pretty.

American Banker brings us the full story:

U.S. Bancorp (USB) is pulling out of the private student loans market and JPMorgan Chase (JPM) is sharply reducing its lending, as banking regulators step up their scrutiny of the products.


JPMorgan Chase will limit student lending to existing customers starting in July, a bank spokesman told American Banker on Friday. The bank laid off 24 employees who make sales calls to colleges as part of its decision.

The official reason:

"The private student loan market is continuing to decline, so we decided to focus on Chase customers," spokesman Thomas Kelly says.

Ah yes, focusing on customers, and providing liquidity no doubt, courtesy of Blythe Masters. Joking aside, what JPMorgan is explicitly telling us is that it can't make money lending out to the one group of the population where demand for credit money is virtually infinite (after all 46% of America's 16-24 year olds are out of a job: what else are they going to?), and furthermore, with debt being non-dischargable, this is about as safe a carry trade as any, even when faced with the prospect of bankruptcy. What JPM is implicitly saying, is that the party is over, and all private sector originators are hunkering down, in anticipation of the hammer falling. Or if they aren't, they should be.

JPM is not alone:

Minneapolis-based U.S. Bank sent a letter to participating colleges and universities saying that it would no longer be accepting student loan applications as of March 29, a spokesman told American Banker on Friday.


"We are in fact exiting the private student lending business," U.S. Bank spokesman Thomas Joyce said, adding that the bank's business was too small to be worthwhile.


"The reasoning is we're a very small player, less than 1.5% of market share," Joyce adds. "It's a very small business for the bank, and we've decided to make a strategic shift and move resources."

Which, however, is not to say that there will be no source of student loans. On Friday alone we found out that in February the US government added another $11 billion in student debt to the Federal tally, a run-rate which is now well over $10 billion a month an accelerating: a rate of change which is almost as great as the increase in Apple market cap. So who will be left picking up the pieces? Why the Consumer Financial Protection Bureau, funded by none other than Ben Bernanke, and headed by the same Richard Cordray that Obama shoved into his spot over Republican protests, when taking advantage of a recessed Congress.

"What we are likely to see over the next few months is a lot of private education lenders rethinking the product, particularly if it appears that the CFPB is going to become more activist," says Kevin Petrasic, a partner with law firm Paul Hastings.


"Historically there's been a patchwork of regulation towards private student lenders," he adds. "The CFPB allows for a more uniform and consistent approach and identification of the issues. It also provides a network, effectively a data-gathering base that is going to enable the agency to get all the stories that are out there."


The CFPB recently began accepting student loan complaints on its website.


"I think there's going to be a lot of emphasis and focus … in terms of what is deemed to be fair and what is over the line with collections and marketing," Petrasic says, warning that "the challenge for the CFPB in this area is going to be trying to figure out how to set consumer protection standards without essentially eviscerating availability of the product."

And with all private players stepping out very actively, it only leaves the government, with its extensive system of 'checks and balances', to hand out loans to America's ever more destitute students, with the reckless abandon of a Wells Fargo NINJA-specialized loan officer in 2005. What will be hilarious in 2014, when taxpayers are fuming at the latest multi-trillion bailout, now that we know that $270 billion in student loans are at least 30 days delinquent which can only have one very sad ending, is that the government will have no evil banker scapegoats to blame loose lending standards on. And why would they: after all it is this administration's sworn Keynesian duty to make every student a debt slave in perpetuity, but only after they buy a lifetime supply of iPads. Then again by 2014 we will have far greater problems (and for most in the administration, it will be "someone else's problem").

For now, our advice - just do what Jamie Dimon is doing: duck and hide for cover.

Oh, and if there is a cheap student loan synthetic short out there, which has the same upside potential as the ABX did in late 2006, please advise.

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deepthoughtless's picture

So what you're saying is that if no one stops your criminal behavior, it's the fault of the people who didn't stop you, and not YOUR fault for being criminal to begin with? It's statements like that that have every little common sense idea and behavior legislated to minutiae. Someone screwed a bunch of people because the government didn't say they couldn't? Damn government! Now we've got a new law so no one ever has the chance to do that again. YOU feed big government by defending irresponsibility and greed. Your slobbering love for the corporations is quite sad.

CuriousPasserby's picture

But the thing is, if you loan money to people with no assets and no credit (young students) and it's dischargeable in bankruptcy why wouldn't every one of the go bankrupt upon graduation? There would be no student loans.


Credit cards are another matter. That was corruption, like the copyright extention.

Normalcy Bias's picture

Actually, I think it's a safe bet that over 10% of the population is illiterate NOW...

Oh regional Indian's picture

The merger between the United States and Communist China is disturbing, especially since it will continue and reinforce the use in our schools of the Pavlov method (imported from Soviet Union) aka Direct Instruction, Mastery Learning, Outcomes/Performance/Results-based Education. This method is necessary for global work force training (school-to-work) and brainwashing for a politically correct society. 


 Charlotte Iserbyt


Google her, watch her on youtube and wince.




i-dog's picture

For futher background on the engineered decline in education quality (vs. quantity), some reading of John Taylor Gatto is also instructive.

One should also look into Anthony Sutton's "America's Secret Establishment" and the pervasive activities of 3 founding members of Yale's Skull & Bones Society (after they returned from post-grad studies together in 'Hegelian' Germany).

Oh regional Indian's picture

JTG is also a must hear/read. As is Anthony Sutton.

And Bill Cooper.


Gully Foyle's picture

Oh regional Indian

Dude you are obviously intelligent.

Why do you assume malevolence is involved with every action.

People choose to perceive what they want, Blind men and Elephant you know.

I understand that dark conspiracy sells, it does tittilate to think we are Frodo carrying the ring and conquering evil.

But that's the hook, the selling point.

The problem I have with conspiracy theories is everyone assumes a universal constant, one group to rule them all.

The reality is more like a bunch of selfinterested people trying to gain advantage over another bunch of selfinterested people.

Many small conspiracies working at crosspurposes. At some point they cancel each other out.

Sean7k's picture

Sure, because the Elites have never considered the benefits of working together on a common goal. They have no understanding of monopoly, whether in business or in government of the masses. This is the problem with people dangerous enough to use the term "conspiracy theory". 

A conspiracy requires collusion, I'm sure all those Bilderberger, Club of Rome, CFR, etc meetings are competitive slugfests. The theory remains until it is proven- more difficult, but as the case of 9/11 shows, not impossible (while we don't know all the particulars, the action has been exposed).

Of course, by using the idea that competition exists and exists amongst the Elites, you help to blind people. Trolling, trolololololololo.

AnAnonymous's picture

Isnt it the definition of a class? People sharing the same best interests?

Of course, there is competition between the elite. Rivalry is the kind of opposition that is majoritarly represented in US citizenism, the other kind of opposition, well, they were destroyed by US citizenism push for conformity and uniformity.

The mattering point: in US citizen societies, the middle class is the King class.

What is done is to preserve the middle class.

But the US citizen elite is no wizard, when an impossibility arises, and maintaining or improving US citizen entitlements is impossible due to lack of resources, despite slackling most of the world to achieve US citizen middle class entitlements.

Marco's picture

Except since the 70s the middle class has only been allowed to continue to exist by going deeper in debt ... part of this was driven by the trade deficit of course (and this can only be corrected by austerity) but a large part was also drive by the increase in wealth concentration with the top <1% (which can only be corrected by taxes).

If the middle class was the king class then why has the upper class gained land and capital ownership when the "king" class only gets commodity goods? Kings own land, not just shiny things.

Cathartes Aura's picture

if "the middle class" chooses to continue chasing the status they believe is theirs, with all the flashy accoutrements they are prone to acquire as "impressive" to others also seeking recognition, then they are missing the facts - the "middle class" is the tool used by the "upper classes" as incentive for the "lower classes" to aspire to. . .that the middlers continue to believe their benefits are solely through their own "hard work" and not through a favourable environment to grow their status-wealth, for later harvesting, is the part folks rarely see.

and it is the "middle class" pockets that always get picked as the process gets wound down, rinse repeat.

Marco's picture

I disagree in your choice of cycle ... in my opinion the cycle we are repeating is leading us back to feudalism.

Except this time some of the forces which got us out the last time have disappeared ... the potential for growth and the value of labour in making that growth possible. Even if technology manages to rekindle the potential for growth, globalisation and automation will see to it there won't be much of an increase in the value of labour.

Very soon the only true value remaining to most people will be their ability to vote for government ...

MrPalladium's picture

"Why do you assume malevolence is involved with every action."

In both criminal an tort law people are presumed to intend the ordinary and necessary consequences of their actions.

So why should we not assume the same of globalists who are aware that their careers are lowering the living standards of most Americans to Chinese levels?

How can we reasonably avoid the conclusion that those at the upper levels of management in the financial industry and multinational corporations do not intend to harm their fellow citizens, and with respect to their fellow citizens (for whom they feel no responsibility whatever) their actions are indeed malevolent?

Neo1's picture

The Communist Takeover Of America - 45 Declared Goals


15. Capture one or both of the political parties in the United States.

17. Get control of the schools. Use them as transmission belts for socialism and current Communist propaganda. Soften the curriculum. Get control of teachers' associations. Put the party line in textbooks.

36. Infiltrate and gain control of more unions.

sid farkas's picture

Now we waste money paying people who don't want to teach to educate people who don't want to learn. After learning to read and write at great expense most people never bother to do it again, makes perfect sense. Marx paradise.

KickIce's picture

Not saying public education is bad but it should be a right to go and a privilege to stay.  The entitlement mentality has gotten to the point where we expect everything and respect nothing.  The teacher's union, along with all government unions, needs to be dismantled and we need to determine a method(s) to rid the system of students that don't care.  I think a combination of a standardized test (in English) and a review board that evaluates character and effort would suffice.

Buckaroo Banzai's picture

You won't say it? OK I will: public education is IRREDEEMABLY AWFUL.

KickIce's picture

I would agree that it is beyond repair but at this point the entire system is so corrupt you could probably extend that every department in the government; housing, food and drug, auto, healthcare, military....

WhyDoesItHurtWhen iPee's picture



"if you want to get laid go to college, if you want an education go to the library".  (FZ)

Today colleges provide a sheeple education, for the most part, certainly very little critical thinking.

Cathartes Aura's picture

since most are in general agreement that K-12 schooling is mainly a babysitter for parents, combined with training in how to be a good citizen-worker bee, then it shouldn't be much of a stretch to note that paid schooling (college/uni/etc.) is an extension of the same principles, with the fabulous benefits to the system of being a cash cow for banks, until now. . . now they'll park their "losses" back in the government garage.

look at how they manage their nationstate assets. . . canny bankers, hmm.

KickIce's picture

Exactly, and I smell another bailout as government can't afford for any of these huge bubbles they have created to burst.

nickt1y's picture

And the differenc now? Oh yeah they get to graduate from high school.

TWSceptic's picture

You are clueless, public schools suck everywhere. And that's while losing money instead of making profit.

buckethead's picture

I like much of what you have to say, but all too often the good old fashioned non-sequiter sneaks by your self editing program. (GLITCHEZ!)

Any who consider the words and thoughts of Rands fictional writings as absolute truths are delusional. Likewise for those who would deny any principles she might have espoused.


Rand makes some points. She also makes some fallacious arguements. Much like an economist does.

sessinpo's picture

LetThemEatRand                    2325580

A few decades ago, a large percentage of the population could not read or write.  Still true in much of the world where there are no public schools.  Rand paradise.



Your statement is comparing apples to oranges and makes no sense in regards to the article. The article is about higher education, college if I need to be specific to you. Public schools where a child learns basics of reading, writing and math are not higher education. Thus your comparison is irrelevant and makes no sense. In addition to that, while the Fed gov likes to stick it's nose in, public schools of elementary, middle and high school are generally controlled at the state level with the state's governor and lower more involved depending how the state has it set up and more often then not, those public schools are funded through local property taxes.


Thus your overall comment looks dumb.

Cathartes Aura's picture


Public schools where a child learns basics of reading, writing and math are not higher education.

and pledging allegiance, every morning, hand on heart.  don't forget one of the most important parts of mandatory schooling.

goldfish1's picture

A few decades ago, a large percentage of the population could not read or write.  Still true in much of the world where there are no public schools.

Depends on what you mean by reading and writing. Fully one third of high schoolers drop out. Can they read and write?

Also, things are evolving quite dramatically unless you haven't noticed. Will reading and writing be all that necessary? It is for the truly academic, but is the majority of the population really that bent toward being academic?

Many many kids get those school loans and drop out. It's a racket. And are those that do get a degree qualified to do anything we really need? How many can cook, grow food, build a shelter, sew? Build a fire for that matter?

The money is so out of whack. It is representative of society being drastically imbalanced.

The leaders are low lifes and are in power because they exploited an honor system. How to fix things? It all begins with you. Get your life straight, honorable, true. It grows inward and outward exponentially.



aerojet's picture

As someone who both taught college courses and now as a worker in private industry, I can tell you that many Americans are only barely literate.  The grammatical errors I find in company documents and emails are amazing!  It's all because we don't value literacy, we just take it for granted.  Worse still is how people treat mathematics--it is actually acceptale to be innumerate in the US.  I think that is why we have such a large student loan debt problem to begin with.

Cathartes Aura's picture

agreed, and it's an important distinction - training people to be a citizen workforce in mandatory K-12 does not equal literacy. . . one can teach themselves to be literate via reading.

of course, now that books are becoming "obsolete" literacy will continue to devolve.

Gohn Galt's picture

Huh?  In the Massachusetts after the civil war less than 1% of the population was illiterate.  Public school was forced on them by gunpoint with a standing army.  Your better off teaching yourself if that is the choice.  Foreigners came here to be Americans because of personal liberty.

brettd's picture

Don't conflate "The world" with the USA.

USA spends on "education" like no other country and yet is ranked

25th in empirical, international math/science testing.

Pure fail.

The Big Ching-aso's picture



Too many dumb-asses getting dumb-ass degrees in dumb-ass courses under dumb-ass loan programs.

Bazza McKenzie's picture

A genuinely challenging degree requires an IQ substantially above 100, say in the 110-115 range (as well as application to your studies).

Somehow the unavoidable reality that half the population has an IQ below 100, and about 70% are below 110, has totally escaped left-wing politicians who think everyone should somehow have a degree, and they'll legislate it if necessary.

Next up: legislating that everyone will be tall, beautiful and happy - and the legislators will be taller, more beautiful and happier than anyone else.

StychoKiller's picture

Not if Melissa Moon Gompers has anything to say about it!

"Welcome to the Monkey House"

One of the more memorable stories found in these pages are "Harrison Bergeron."  In this story, we find the type of society that I fear the most, a socialist republic where all people are required to be equal; those who possess intelligence and pose the danger of actually thinking are controlled by implants which forcefully disallow any thought from entering their minds.

XitSam's picture

As I recall, Anthem, by Ayn Rand has a similar everyone must be equal theme.

fonzannoon's picture

Most of the shitheads that consitstently create financial catastrophe's because of their greed and evil minds have IQ's well above 100.

Cathartes Aura's picture

ahhh, but they're admired, they make money.

Shizzmoney's picture

The problem all comes back to unemployment.

Corporations have made getting a degree a must have for "well paying jobs" (sic).   

The government, who is basically a corporate lackey, institutes programs (built by bankers) to make this happen through loans.  The banks also get into the loan game because of this high new demand.

The problem?  The hidden secret that a degree doesn't mean you will get instantly hired, nor does it means you'll get a job that will pay back that student loan from either side.  Never mind the fact that what college has really boiled down to, for most majors, is just "buying" a degree...not actually earning it.  So what you get is a bunch of opulent kids who had their school paid for by mommy and daddy who didn't really earn their degree; I know of a major college in Boston who, if you got kicked out, would let you back in if you made enough in donation (as happened to an uber-rich kid I knew of).

I mean, how many smart people filled with guile are making it in today's society w/o a degree?  And is it right to hold an economic gun to low-to-middle income people's head that you MUST take on this debt, even if you think you can make it without a degree, just in order to get a paycheck (that doesn't keep up with inflation) every 2 weeks.

OpenThePodBayDoorHAL's picture

Why can't we have a proper apprentice program like other countries (Germany, Norway, Australia, Canada etc etc). Three out of four jobs we produce do NOT require a college degree. Double the minimum wage and have some real apprenticeship incentives, problem solved.


StychoKiller's picture

Liberal/Progressive Socialists don't want to get dirt/oil under their fingernails.

NewWorldOrange's picture

Yeah, just what we need. More programs.

lenitivelea's picture

Raising the minimum wage would devastate employment. You set a price floor above equilibrium, you get a surplus (unemployment). You double a price floor already above equilibrium, people starve to death. 

Bendromeda Strain's picture

Not to mention that a wage price spiral is just what is needed to set off the dry tinder for an epic currency fire. "Double the minimum wage" sounds like the idiotic ravings of a lunatic who plays an economist in the pages of the NYT.

beenburnedtwice's picture

But please, abolish minimum wage; one step to fiscal sanity.


brettd's picture

What the hell does minimum wage have to do with a trade or performing any task?

I got paid 40.00/hour as a painter.

Tile guys made 50/hour.

Plumbers 40-60 hour.  That's at least 2000.00 a week on a 40 hour week! 

Willing to Work weekends?  Make even more!

Increase minimujm wage my ass.  Fastest way to get on any crew of any type is stay to the foreman:  I'll give you a day free...you don't 

like what I deliver, I'll walk away.  Never once was refused a slot. Never failed to get hired and/or referred.

Apprectice?  spend Saturday mornings for a year on You Tube, studying your craft of interest, and you'll get more education for free than that $200,000 paper from University of X.

buckle up kids.  We're going to have to start being American again.

It ain't fair, and it ain't easy , but we will be successful.


Gully Foyle's picture


Mike Rowe made the same point in a 2009 TED talk.

You need to watch it all the way through.


Awakened Sheeple's picture

Thanks! This video made my morning!