Meredith Whitney Sees Affordability as Top Political Issue

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00:00The taste thing is way beyond my purview, but I can tell you what's going on with the economy and

00:04with the data. So one thing that is clear, the student loans forbearance, it was basically a

00:11five-year period where people didn't have to pay back their student loans with no penalty.

00:16And I'll get into the numbers in a second, but that resumed at the end of 24. So we're well

00:23beyond nine months of it impacting the fact that students, a big portion of the millennials,

00:30sorry, the avocado toasters, 52% of them own student debt. So over one in four. So sorry,

00:38the avocado toasters own 52% of all the student debt, $850 billion. So the fact that they have

00:45less money, less discretionary spending every month has impacted. And this is something we've

00:49been focused on since September, but only in the third quarter numbers did the company start to

00:54talk about it. But let me give you an example. So everybody, no one would argue that the COVID

00:59stimulus checks that went out to 165 million Americans was stimulative. That was 814 billion,

01:06but 400 billion went out to fewer than 40 million Americans in terms of not having to pay your

01:12student debt. That equated to 400 billion. So that's not only 300 bucks a month, it's $17,000

01:19per consumer over the course of nearly five years. Undeniably, you have a lot more discretionary

01:28spending. So you're going to spend on travel, anything discretionary. You don't think about

01:33spending eight bucks on a French press coffee or 17 bucks on a burrito bowl or develop habits,

01:40right? And you get a higher mobile phone bill and maybe your car payment grows. And that's okay

01:45because you're not paying your student loans. Then all of a sudden, what, October of last year,

01:50you've got to pay again, but you've got all these costs built into your budget now.

01:55Yeah. And that's why they can't turn it around.

01:57That's why they can't turn it around. And something else that happens is, you know,

02:0235% of all students, sorry, 28% of all student debt is owned by this, like this avocado toast

02:09toast generation. They don't have assets. So on average, they have 15% of the assets that someone

02:15over 55 will have. So they have all this debt, no equity, no way out. And 35% is the number that

02:23owns, that's in terms of all the auto debt they own too, to your point of car payments.

02:28So as the gearhead that you are, auto loans have been pretty clean, right? There haven't been a lot of

02:35delinquencies or default. Prime, prime auto loans. I think that's the, well,

02:39tricolor was probably the exception, right? That was subprime. Right, subprime. But I think that's

02:43going to now bleed into the auto loans because they're going to, students are going to get

02:48crowded out by not only having to make these payments, but if you don't make, if you haven't

02:53made a payment and you're either in default or you're serious delinquents, 20% of student debts are

02:58either in default or serious delinquent, the government's going to start wage garnishments. That started

03:03the summer. And so even if, if you look at the one beautiful bill, which was tax refunds,

03:08the treasury has this top program. Well, they, well, they'll garnish your tax refunds. And so

03:16there's, I don't see there's a way out for this. I can't have my wages garnished. Well, I was going

03:20to say, because there has been this narrative that's evolving. It has been evolving that you're

03:24going to get tax refunds, maybe a $2,000 check in the mail because of tariff, a tariff rebate,

03:29and that's going to cause inflation. God says they're going to save that. I was going to say,

03:33but maybe is Scott Besson, right? If all of a sudden you do have resumption of student debt,

03:37that that money is actually going to be used for being saved for paying down debt and maybe not

03:42fed directly right back into the economy. Okay. So, uh, I think what treasury Besson also said is

03:47that it's got to pass Congress, which I don't think it's going to pass. So I think that was his

03:51way out that that's probably not going to happen. Um, but if there's, um, what's the estimate on,

03:56um, on the one beautiful bill tax, uh, tax get back, it's like 265 billion. Well, uh, in terms

04:03of what is, we estimate what is in default or serious delinquent is 170 billion of student debt.

04:10So that gobbles that up. So there's not a great way out for this demographic. And I think what's,

04:17it was really interesting is businesses have catered their entire, um, marketing strategy to

04:23this Holy grail of millennial Gen Zs, which they think is going to be this bastion of endless

04:29discretionary spend. They've got to really rethink those, those strategies. By the way, I wonder what,

04:34first of all, it's shocking to me that millennials hold 35% of all auto loan debt. Um, and it's

04:40avocado toasters, avocado toasters. And I'll be using that, uh, on my podcast, hot pursuit,

04:46which it's just about cars. Um, what about the younger generations? Are they not taking student

04:50debt as a result of this? Or do they not have the, the, the problem because they didn't go through this

04:57period where they didn't have to pay? And I mean, well, I think psychologically, when you don't

05:01have to pay a loan for nearly five years, there's not only an issue of ability, but willingness

05:08because you, it's just out of, out of your mind. So the trend in, um, in younger, um, people is

05:14they're not going to college because it's really expensive and they haven't seen the return on

05:20investment. So, you know, so I just think they're not getting saddled with this kind of debt, but

05:26the problem is really the fact that these debts aren't being paid and these kids are going to have,

05:30or kids, not a, not kids anymore, right? Here's an avocado toaster right here. Um, uh, they are

05:36going to have to start paying the debt or they'll have their wages and tax refunds, garnish tax refunds,

05:41garnish, but either way, it's going to impact their whole outlook on how they've looked at the world

05:50in terms of, you know, there's another issue of like, if you have an Amazon culture, you tap and

05:55you don't realize that you're spending all that you're spending as opposed to our generation,

06:00which is I ran out of cash. That's it. This, this generation though, it's, it's becoming a

06:05growing political force and the concerns about affordability. I think the mayoral election here

06:10in New York was a really big sign of that. And it's something that the Trump administration has

06:14been paying attention to all of a sudden, all these affordability pushes are starting to enter.

06:18So as we get closer to the midterms, how much do you expect policy to affect this? Are you expecting

06:23any big policy changes that could eat into your concerns at all? Or is this just too big of a

06:29problem for policy to tackle? You've, you've nailed it. So this is what I think is the most important

06:34factor in 2026, which is, it's all going to be about affordability all the time, because this will

06:40be what gets people either elected or elected out of office. And the one thing the administration can

06:46do, because they can't do much on the pricing. The one thing that they can do is fast track this,

06:52this bill that came out of the Senate banking committee. It's called road. It's trying to make

06:58housing more affordable. And that's now in the House banking committee, and they're working

07:03diligently to mark it up. But effectively, it's going to, you know, most real estate problems are

07:08local, but let's say 25% of them can be federally looked at. They can change, this is probably up your

07:15alley, a 1974 chassis law that will reduce the cost of manufactured housing, which is the only way to

07:23get real affordable housing into, into the sphere of more American, like the American dream. That would

07:31reduce manufacturing by almost a quarter and create like a 5x production cycle on manufactured

07:39housing. So I think manufactured housing is the way to look at this. But housing is going to be

07:44something that the administration can do. And that's also doing affordability, sorry, opportunity

07:52zones, redistricting, how lot size, so you can make lot size more affordable. But everything is going to

08:00be about affordability. What what can you do, you can do something on housing. I wonder if, you know,

08:07investors who are watching this, and they're like, wow, I hadn't thought about they're running your

08:10numbers. Can they can they be a little bit more sanguine if they think the Fed is going to cut

08:17to 3% or an even lower terminal rate? Or does that do those kind of rate cuts have no effect on

08:23avocado toasters with these kind of issues? I don't see the rate cuts being meaningful at all to

08:29affordability. And here's why. Because housing is about the cost of housing, not just rates. So the

08:36overall cost of home prices stay this high and rates are low, it doesn't really affect the affordability

08:42factor. And then for for subprime subprime lending is really not a factor. So if you reduce rates on

08:50subprime, there's just not a lot of subprime credit out there now. You know, maybe it affects the higher

08:56end a little bit. But I don't see this being a rate issue. You lower rates, potentially you could

09:03increase prices even higher. So it is not a rate issue. It's a structural issue that you can have

09:10their fixes and their creative fixes. Housing is the first one.

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