The passing scene – August 8, 2015

Republican Assault on Trump May Only Make Him Stronger by Matt Taibbi for Rolling Stone.

Trump’s Triumph: Billionaire Bloward Exposes Fake Political System by Mike Whitney for Counterpunch.

How Pathetic: Why Donald Trump May Be the Best Thing Going by Andrew Levine for Counterpunch.

The Republican Candidates Agree that the System Is Rigged for the Rich by William K. Black for New Economic Perspectives.

I still can’t take Donald Trump seriously as a Presidential candidate, but he has said things that need to be said, especially about how he and other billionaires have the power to buy politicians.

Other Republican candidates also point out that the political system is rigged in favor of Wall Street and the large corporations.

Their answer appears to be lower taxes, less regulation and a minimal role for government, on the theory that the less government does, the less it matters whether corporations and wealthy individuals can manipulate government.

My problem with this is that some large corporations have grown so large and powerful that they are the next thing to governments themselves.

Hillary’s Libyan Torturers by Daniel McAdams for The Ron Paul Institute.

The achievement of Barack Obama and Hillary Clinton in foreign affairs was to find a way to find a way to continue the policies of George W. Bush without large numbers of American casualties.

The attack on Libya is an example of this.  The U.S. government supported an attack on a country that did not threaten the United States, based on lies, and reduced it to bloody chaos in which terrorists such as ISIS flourish.

The problem with Bernie Sanders by Joseph Cannon of Cannonfire.

Bernie Sanders is like many democratic socialists of the 1950s and 1960s—a defender of the interests of working people, a defender of civil rights, but also a cold warrior.

He thinks the United States should support Saudi Arabia and Turkey against ISIS, when these two governments are interested only in fighting the enemies of ISIS—Syria for Saudi Arabia and the Kurds for Turkey.   Likewise he favors confrontation of Vladimir Putin over Ukraine, which puts the United States at risk of nuclear war.

Why can’t higher education be affordable?

When I was of college age, back in the 1950s, it was possible for middle-class American families to save  enough money to send their children through college, and for poor but ambitious students to work their way through college.   It also was possible for a hard-working person without a college education to earn a decent living.

Now a college diploma is a prerequisite for a decent job, much as a high school diploma was 60 years ago, and for many students, a college education is out of reach without taking on a burdensome level of debt.   It is a high stakes gamble.   If the college diploma is a ticket to a good job, the gamble pays off.  If it isn’t, then the borrower faces the possibility of a lifetime of debt servitude.

President Obama has proposed a plan for student debt relief, which is to give financial incentives to colleges with affordable tuition and good graduation rates.  Like his heath care form plan, it is complicated, offers opportunities to game the system and may or may not do some good in the long run.

I think the solution is for state universities to provide a good education with free or low tuition to everyone who is capable of doing college work, and for community colleges to provide free or remedial education and job training.  The federal government could provide support to enable them to afford to be able to do this.

I also think the federal government should buy up existing student debt and provide refinancing at a nominal interest rate.  This is part of the larger world debt situation:  People and nations owe more than they ever can repay and there needs to be some means of writing down this debt.

The real problem with college debt

Congress passed a law which will lower interest rates on certain student loans for the immediate future.  But Alan Collinge, author of The Student Loan Scam and founder of StudentLoanJustice.org, told the Real News Network that interest rates are not the most important problem.

The big problem, he told the Real News Network, is that people who take out student loans do not have the same legal rights as other borrowers—bankruptcy, statutes of limitations, truth-in-lending laws, refinancing rights and abusive collection practices, including predatory fees on defaulted loans.  This may have been what he had in mind when he said some lenders find it more profitable to have a loan in default than to be paid up.

The other problem is not the payment plan but the sticker price.  The cost of college tuition and fees is rising faster than anything else, even medical costs.

Links for your weekend browsing 6/7/13

Here are links to articles that I found interesting, and I think you might find interesting, too.

The Banality of ‘Don’t Be Evil’ by Julian Assange.

The founder of Wikileaks reviewed The New Digital Age by Eric Schmidt, executive chair of Google, and Jared Cohen, former aide to Condoleeza Rice and Hillary Clinton and now head of Google Ideas.   He said Google epitomizes the death of personal privacy and the shift toward authoritarianism.

The section on “repressive autocracies” describes, disapprovingly, various repressive surveillance measures: legislation to insert back doors into software to enable spying on citizens, monitoring of social networks and the collection of intelligence on entire populations.  All of these are already in widespread use in the United States.  In fact, some of those measures — like the push to require every social-network profile to be linked to a real name — were spearheaded by Google itself.

Student Loans as Medieval Indentures

Click to enlarge.

Dave Dayen writing for Salon points out that U.S. student loan debt now exceeds $1 trillion.  It has exceeded credit card debt for some time.  Unlike ordinary debt, student loans can’t be discharged in bankruptcy, and are virtually impossible to refinance.  Dayen said people now collecting Social Security are still paying on their student loans.  It is a terrible drag on the economy.   Indebtedness keeps young people from buying homes, buying automobiles, starting businesses or getting jobs based on what they love to do.  But the problem is not just the student loan system.  It is the lack of affordable education and the lack of decent jobs for people with high school educations.

Scam Alert! Press Sleeps Through Great Post Office Fire Sale.

The Postmaster General is selling off Postal Service property, much of it prime downtown real estate, at bargain prices.   It is a great deal for the buyers and a bad deal for the public.   Maybe this is why Congress has imposed unusual financial burdens on the Postal Service, such as funding retirement 75 years in advance, and refuses to allow the Postal Service to take normal business steps to stem its losses.

Why Does Eastman Chemical Fear for Its Reputation?

The Washington Spectator reports on how Eastman Chemical, a Kodak spinoff, paid scientists to write journal articles saying its baby-bottle plastic is safe.   There was a time, 30 or so years ago, when I would have presumed Kodak executives were above such conduct.  Maybe they were, then.

This Is Your Brain on Coffee.

Gretchen Reynolds of the New York Times says academic research says that moderate amounts of coffee—four or five ordinary cups a day, or one Starbucks drink—are good for you.  I’m glad to think that, because I’ve never weaned myself from my coffee addiction.  I hope and presume that none of these studies was paid for by the coffee industry.

The student loan crisis

This video is a good summary of the larger problem of higher education behind the student loan debt problem.  Nowadays young people believe that the only way to be able to earn a decent living is to have the credential of a college degree.  Employers use the college degree as a way to sort job applicants, even when you don’t really need to have taken college courses in order to qualify for the job.  But increasing the number of college graduates doesn’t, in and of itself, increase the number of jobs.  Instead it raises the hurdle to qualify for a good job.

The Foundation for Economic Education, which produced this video, is a right-wing libertarian organization which thinks government programs do more harm than good.  I don’t think that’s always true, but in this case I have to agree.  The Foundation is right to say that it was irresponsible in encouraging young people to take on debt regardless of their potential ability to repay.  It also is right to say that putting more cash in the hands of students does no good if that cash is absorbed by increased tuition.

Click on The Freeman | Ideas on Liberty for more from the Foundation for Economic Education.

The explosion in student loan debt

Speaking in North Carolina yesterday, President Barack Obama had this to say about student loan debt.

For the first eight years of our marriage, [Michelle and I] were paying more in student loans than what we were paying for our mortgage.  So we know what this is about.

And we were lucky to land good jobs with a steady income.  But we only finished paying off our student loans—check this out, all right, I’m the President of the United States—we only finished paying off our student loans about eight years ago.

via Obama for America 

Click to view.

That’s really something.  I never had to think about student debt when I sent to college in the 1950s.  In that era, public universities provided an affordable college education for everybody who was capable of doing college work.

President Obama, and also Governor Mitt Romney, favor extension of a 2007 law which freezes interest rates on subsidized Stafford student loans.  If the law is not extended, interest rates will rise from 3.4 percent to 6.8 percent a year, with an added annual debt burden of nearly $1,o00 for the average new college graduate.

This will subtract $6 billion a year from federal revenues.  Romney said there needs to be an offset by cutting federal spending, but he didn’t say where.  Obama hasn’t said anything about the budget impact.

The real problem, as I see it, is that it doesn’t get at the real problem, which is the high cost of college tuition.  So long as college and university administrators are guided by economic incentives alone, making more money available to students will simply result in increases in tuition.

Nor does it address the debt burden of existing college graduates.  Note that the College Cost Reduction and Access Act was phased in slowly, so only a minority even of those who graduated after 2007 got the full benefit of the interest rate reduction.

Click on Student loan debt is growing at an accelerating rate for more facts and figures on student loan debt.

Click on Student Loan Debt Exceeds One Trillion Dollars for background from National Public Radio on extension of the College Cost Reduction and Access Act.  The charts I’ve found indicate that student loan debt actually is less than $1 trillion, but it is on track to reach that level.

Click on The next act in the student loan fight: Offsetting the cost of lower rates for background from the Washington Post on the budget impact of extending the law.

Click on Dissecting the Fight Over Student Loans for Talking Point Memo’s report on Democratic and Republican differences over how to handle the budget impact.

Let the student loan debtors use bankruptcy

A lot of the Occupy protesters are unemployed or underemployed college graduates who can’t pay their student loans.  Well, you may say (if you’re in my generation), they shouldn’t have borrowed the money in the first place if they weren’t in a position to repay it.  But they have little choice.

Double click to enlarge

Young people today believe, with good reason, they have no economic future without higher education.  The cost of higher education has gone up so much that it is not affordable for most middle class and working class families without borrowing.

But unlike with any other form of debt, you can’t go through bankruptcy, sell what you have and pay what you can, and make a fresh start.  If you don’t get a good job right out of college, you may be struggling for the rest of your life.  Even when you go on Social Security, your income can be garnished to pay your outstanding college loan debt.

As the chart shows, this wasn’t always the case.  When the student loan program was established, college debt could be discharged through the bankruptcy process, the same as anything else.

Mike Konczal on his Rortybomb web log asked a good question.   Why not turn the clock back to 1989 or 1997, when student loan debtors could at some point use the bankruptcy process like everybody else?

Consider these facts, as recently reported in USA Today.

• Last year the amount of college loans taken out crossed the $100 billion mark for the first time.
• Total college loans outstanding are expected to go above $1 trillion this year.
• Americans now owe more on student loans than on credit cards, maybe partly because credit card debtors can go through bankruptcy.
• Students nowadays are borrowing twice as much, adjusted for inflation, as they did 10 years ago.
• Total outstanding college loan debt has doubled in the past five years.

As Elizabeth Warren once asked:

Why should students who are trying to finance an education be treated more harshly than someone who negligently ran over a child or someone who racked up tens of thousands of dollars gambling?

Click on Student loans headed for $1 trillion this year for the full report in USA Today.

Click on Two Steps Toward Ending Our Current Student Loan Problems for Mike Konczal’s full comment on this subject on his Rortybomb web log.  (Hat tip to him for the chart.)

Click on Student Loan Scandal Fallout for Elizabeth Warren’s full comment on Credit Slips, a group web log about credit, debt and bankruptcy.

Click on Dancing Around the Edges of Student Loan Reform for a rebuttal to Mike Konczal [Added 11/1o/11]

Why no youth revolt?

A friend of mine noted that 20th century political revolutions of the left and right were led by young unemployed college graduates, as were the recent protests in Egypt.  Since unemployment among recent U.S. college graduates is the highest on record, he wonders if and when there will be a similar explosion in the United States.

One reason for the lack of an American youth revolt, in my opinion, is that so many recent graduates are too busy paying off their college loans.  They spend too much time looking for jobs or working multiple jobs to have time for political activity.  And they are aware that, in today’s labor market, getting a reputation as a troublemaker or dissident will make you unemployable.

Is higher education turning into a ripoff?

Higher education is increasingly becoming a ripoff, writes Malcolm Harris on the web log of n + 1 literary magazine.  College tuition has increased sevenfold (adjusted for inflation) since 1978, but the average quality of education has gone in the other direction.  The salaries of administrators continually increase; those who do the teaching are being asked to do more for less pay and job security.

Students are continually being told that they have no economic future if they don’t go to college, so they take on crushing loads of debt.  American college graduates owe more than $800 billion in college loans.  American college loan debt now exceeds American credit card debt, while unemployment among recent college graduates is the highest on record.

If tuition has increased astronomically and the portion of money spent on instruction and student services has fallen, if the (at very least comparative) market value of a degree has dipped and most students can no longer afford to enjoy college as a period of intellectual adventure, then at least one more thing is clear: higher education, for-profit or not, has increasingly become a scam.

via n+1.

I’ve written about this previously, but Harris told me things I hadn’t known.  Student loan debt is securitized and repackaged into something called Student Loan Asset-Backed Securities, aka SLABS, just like the subprime mortgage loans.  So you have the potential for the same kind of crash.

Another thing I hadn’t known is that, under the  Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, no education loan, even money borrowed on a credit card, cannot be discharged through bankruptcy.  Before 2005, this only applied to federal government loans.

That means a college graduate with an outstanding college loan is in a form of indentured servitude.  If the graduate defaults, he or she is in the position of a debtor’s prison inmate on a work release program.

Unless something changes, college loans are headed for the same kind of financial crash as mortgage loans.  And colleges and universities seem to be following the failed pattern of U.S. manufacturing industry, and setting themselves up for the same kind of failure.  What happens to the higher education industry when their potential students come to realize they are not getting value for money?  Will they reform, or fall into the same cycle of cutting costs and quality of product?  This is a familiar script.

The subprime student loan crime scene

When I put up my original posts on Subprime student loans and The student loan train wreck, I did not realize how much of a racket the student loan process really was.

SCM Corp. (known as Sallie Mae) is a private, profit-seeking corporation which is guaranteed against loss by the federal government.  It thus had no incentive to limit loans to those who could afford to pay them back. Not only that, SCM, like a credit card company, actually benefited from defaults, because it owns the collection agency.

The current crisis in student loans is worsened by the policies of the Bush administration, which deprived student loan debtors of the protections given other debtors, and the Obama administration has not proposed anything to change this.

The infographic below the fold tells the story.  I have only a couple of differences of opinion with its message.  I think the student loan reform bill signed into law by President Obama does help student borrowers going forward, although not those currently in debt.  And I would note that SCM has been hurt financially by the federal government’s decision to make student loans directly and not channel them through private lenders.

The student loan train wreck

One in five student loans which entered repayment since 1995 are in default.  That’s vastly larger than the home mortgage default rate.  And while homeowners can walk away from their mortgage debt by forfeiting their home, college graduates are saddled with the student loan debts until they’re paid off, they die or hell freezes over, whichever comes first.

As financial writer Zac Bissonnette pointed out, this is only the beginning.  College graduates in 1995 left school with about $13,000 in debt.  Now the figure is closer to $23,000, and more American college students are borrowing to pay for college than at any time in history.  As he goes on to say:

… What percentage of student loan borrowers had the course of their lives altered by their debt? How many pursued careers that they weren’t passionate about in order to make their monthly payments? How many had to rely on their parents — whose own retirement situations are often dubious — for a bailout? How many had to put off marriage or having children? How many suffered from stress or anxiety as a result of the struggle to make their monthly payments? How many had to skip grad school in order to start making a dent in their debts?

20% tells us how many had their financial lives literally ruined by their debt. But it tells us nothing about how many sacrificed their lives to pay their debt, and that’s the real tragedy of a nation that decided, in the span of a few years, that it makes sense to send 21 year olds out into the world with 5- and even 6-figure debt loads.

One of the positive accomplishments of the Obama administration and the Democrats is a reform of the college loan process to eliminate the middleman in government-guaranteed loans.  But this will not solve the real problem, which is ever-rising college tuition combined with a stagnant economy.

Of course home mortgage defaults are no longer considered a crisis, even though the rate is as high as it ever was.  And unemployment is no longer considered a crisis, even though it is stuck between 9 and 10 percent.

Click on The Student Loan Train Wreck: Why the Default Rate Is Just the Beginning for Zac Bissonnette’s full article on Huffington Post.

Click on Government Vastly Undercounts Defaults for a good analysis in Chronicle of Higher Education.

Click on One in Five Student Loans Go Into Default for another Zac Bissonnette report on AOL’s DailyFinance.

Click on Subprime Student Loans for my earlier post on the same subject.

Click on Student-Loan Debt Surpasses Credit Cards for a Wall Street Journal report.  About $300 billion of the nearly $830 billion in student loan debt has been added in the past for years. [Added 8/10/10]

Click on The Student Loans Scheme: a Gateway Drug to Debt Slavery for a report on the government’s role in exploiting student loan debtors.  [Added 9/5/10]

Click on New Debt Numbers for a report showing average student debt rose to $24,000 for the Class of 2009.  [Added 10/23/10].

Reforming the student loan process

The average American college student graduates with $20,000 in debt.  As part of the Affordable Care Act reconciliation process, Congress eliminated commercial banks from the process of lending government money to students.  This will save an estimated $61 billion over 10 years, which will be redirected to higher education and student aid, including an extra $36 billion for Pell grants to low-income students.

This is a good idea, but it is ironic that the Affordable Care Act eliminates the middleman commercial banks in student loans, but does not eliminate the middleman private insurance industry in guaranteeing health care. Nor is the extra aid likely to offset the soaring cost of college tuition.

It is like so much of what passes for reform these days.  It keeps things from being worse than they otherwise would have been, without actually making things better.

Click on this for a New York Times report on the legislation.

[Update 9/5/10]  I may have given President Obama too much credit.  Click on this to see why.