
The Risks of Distributing Risk - cancan
https://themargins.substack.com/p/the-risk-of-distributing-risk
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shred45
I definitely can see how Lambda school is now incentivized to generate as many
ISAs as they can, and that price discovery in the ISA market (and other
somewhat opaque or difficult to model debt markets) can be tricky, but
shouldn't Lambda be incentivized to produce excellent graduates because that
increases the credit rating (so to speak) of their ISAs and in turn the market
value? I would think that ISAs of notoriously bad programs would sell for
pennies on the dollar, while ISAs for a highly regarded program might be as
good as cash (probably not that good, but you get the drift). I would think at
some point that it would be easier to produce one good graduate than 10 or 100
terrible ones (even a terrible program probably has a decent amount of
overhead per graduate to market to and find them, enroll them, instruct them,
test them, etc.).

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asaramis
this is kind of the perfect example - in theory, the secondary market should
correctly price the ISAs based on the quality of the students being graduated.

But there is a significant lag built in on the pricing. It would probably be a
few cycles of students, and you wouldn't even know they're not getting good
jobs for a number of months if not years. Especially given Austen's kind of a
celeb, Lambda could raised a few bigger and bigger rounds in that time period
- and their numbers would look fantastic to potential investors with the cash
coming in up front. If they played it right, they could maybe even IPO before
those secondary ISAs ever get properly priced. Financial innovation at its
finest!

~~~
kaffee
> "... would probably be a few cycles of students ..."

This sort of delay would be priced in by the person buying the ISAs from
Lambda.

I agree with the grand-parent post. Lambda school definitely has skin in the
game. If they want to continue operating (i.e., sell the next batch of ISAs
onward to investors) then they need to have students who get high paying jobs.

