“Why Tad Lost His Job” -Jeffrey Tucker tells a heart breaking story on his disabled friend Tad being fired because of an increase in the minimum wage.
The Student Loan Crisis has been picking up interest in the media lately. Especially with Senator Elizabeth Warren attempting to fix the problem in a well intentioned bill that would make the problem even worse. In order to understand the problem in student loans, you have to understand why artificial bubbles form in the economy; if we look at the housing bubble, we can see how the same factors are in play.
The Housing Bubble has its roots in decisions made by government policy makers in the 1990s. The first problem was the Clinton Administration forcing banks to lower lending standards in the mistaken belief that minorities were being discriminated against as they applied for loans (you can read more about why this was wrong, HERE). Second, then Federal Reserve Chairman Alan Greenspan lowered interest rates in a bid to “spur” the economy following the Dotcom bust. Third, the Administration of George W. Bush actively promoted the goal of “home ownership” and used the quasi government enterprises of Fannie Mae and Freddie Mac to help bring about this goal artificially (Good books on this can be found HERE and HERE).
Remember that nothing in economics is done without reason, saying that “greed” and “deregulation” caused the Housing Bubble is like being surprised that kindergartners left alone with pixie sticks and finger paint would make a big mess, and then punishing them for what they did. What people on the left are doing is refusing to see how the stage was set in the first place. Home mortgages were one of the most stable loan enterprises in American industry for 75 years, it all unraveled within a few short years, and no one seems to ask “why”.
What we have here are three factors which brought about a “perfect storm” in the housing market: 1) Government forcing lenders to make riskier loans 2) The Fed supplying nearly unlimited money to make loans to lenders 3) A quasi government enterprise heavily involved in the mortgage market, guaranteeing nearly 90% of home mortgages implying to lenders that their loans were “risk free” because they were backed by the government.
What happened? Banks, feeling regulatory pressure from the Clinton and Bush administrations to make more home loans, begin to do so. They find out that an easy way to do this is to offer “teaser” rate home loans to people who otherwise wouldn’t be able to afford the mortgage. But this isn’t a problem to the people buying the home, because home values are artificially rising because so many people are getting into the market that otherwise wouldn’t be. Simple supply and demand says that when supply goes down and demand goes up, prices go up. During the housing boom, they went up astronomically, and so home loan borrowers knew they could pay back the money by selling the house, and banks knew that if the borrower couldn’t afford the mortgage, that they would make money in foreclosure anyways. All parties involved had every reason to get involved in the market.
There was no risk, the media trumpeted constantly rising home values as proof that we were all wealthier than ever before. It all worked until enough people couldn’t pay back their mortgages at once, and once that happened, the house of cards fell. Too many homes were put up for sale at once, leading to an increase in supply and zero demand, which caused home prices to plummet. Banks foreclosed on homes and lost huge money selling them for pennies on the dollar (whatever they could get). In short, the market never failed, the market just showed what it could do drunk with artificial money and regulatory laws. (Side note: the media is seeing the bubble re-inflating and mislabeling it as “recovery” which would be equal to me saying that a heroin addict is doing better now that he has re-injected himself).
Okay, now how does this relate to student loans? There are government programs designed to help “make college affordable” (AKA: free money for students). The Federal Reserve under Ben Bernanke has brought interest rates nearly down to zero, which means banks are flush with cash for lending. This means that banks have every incentive to make loans, and because of government “backing” they have nothing to lose when they make student loans.
Example: a kid can borrow 200k to get a BA in Religious Studies (my major so don’t judge lol) without having to care how the student will ever find a job well paying enough to pay off the loans. Because the banks don’t care what students are spending huge amounts of money on as they earn their degrees, students have access to borrow nearly unlimited amounts of money. When students have access to unlimited amounts of money, colleges have NO REASON TO LOWER TUITION. Colleges can RAISE prices, and the students can ALWAYS get the loan money to pay whatever that semester costs. Look: College tuition is rising at an even higher rate than houses during the Housing Boom.
Why is it that in the Great Recession, the price for college education is going up, even as the quality of education is going down? Because of artificial government policies distorting the market and creating incentives that would never exist in a free market. Can you imagine playing Roller Coaster Tycoon and your patrons having unlimited money? You could charge ANYTHING on for your rides, even going to the bathroom, and your guests wouldn’t care, if they wanted they would pay it. That is what is going on in colleges right now! All parties involved have every reason to get involved in the market.
That is why you are looking at a huge student loan bill. The solution to this problem is the exact opposite of what Sen. Warren suggests (let’s make even more money available to kids). The solution is to get government out of distorting the student loan market. If you understand the disease rather than the symptoms, it is easy to see what is wrong. We as a country are refusing to properly diagnose the disease, and it is why we are stuck in this economic quagmire.
Thoughts?I find this incredibly interesting… seems the media has an even more personal interest in protecting this administration than I thought.
Indeed. This just keeps getting stranger. So far, most of this is confirmed.
Nice to see people investigating this. CNN Anchor Erin Burnett just married a high profile CitiGroup banker. You can make these charts with Monsanto, Halliburton, other Big Banks, etc.
When the government does not operate within the Constitution, it means favors and contracts can be bought and sold; this means that someone in a regulatory agency will “change careers” and land a nice job in industry in thanks for their favorable treatment during their time in office.
This is why progressivism will never work, there are too many positions that make it too easy to buy and sell administrative positions. When regulatory agencies can make decisions that can effect billions of dollars, CORPORATIONS HAVE EVERY INCENTIVE TO BE HEAVILY INVOLVED IN POLITICS.
While applying with the Internal Revenue Service for tax-exempt status in 2009, an Iowa-based anti-abortion group was asked to provide information about its members’ prayer meetings, documents sent by an IRS official to the organization reveal. On June 22, 2009, the Coalition for Life of Iowa received a letter from the IRS office in Cincinnati, […]
Gets worse and worse…
The president’s bad week just got worse.
I always wondered what the Nixon presidency was like, recently it has occurred to me that I’m living in one.
President Obama will discuss the Internal Revenue Service’s targeting of conservative groups with Treasury Secretary Jacob Lew Wednesday afternoon.
This is just too precious
If you grant the government the authority to own all your income and permit you to keep X of it, why do you consider yourself free?
lol Thomas Sowell destroys some poor socialist soul on the issue of racial egalitarianism
If you follow my blog you’ll know that I often post on the terrible conditions endured by the detainees at Guantanamo Bay. How not only they are unconstitutional but also gravely immoral.
Anyways, corporate-government lapdog “news” agency CNN just did a story on the terrible conditions at Gitmo… the only problem is that they did it on the conditions faced by the prison guards.
Would my followers be interested in a list of political books for summer reading? I could also make a Catholic one.
Hit my inbox if this is something that would interest you.
First, if the benefit of health insurance is mostly or exclusively financial, then shouldn’t health insurance policies work more like normal insurance? Fire, flood and car insurance exist to protect people against actual disasters, after all, not to pay for ordinary repairs. If the best evidence suggests that health insurance is most helpful in protecting people’s pocketbooks from similar disasters, and that more comprehensive coverage often just pays for doctor visits that don’t improve people’s actual health, then shouldn’t we be promoting catastrophic health coverage, rather than expanding Medicaid?
Liberals don’t like catastrophic plans because, by definition, they’re stingier than the coverage many Americans now enjoy. But this is where the second critique comes in: If the marginal dollar of health care coverage doesn’t deliver better health, isn’t this a place where policy makers should be stingy, while looking for more direct ways to improve the prospects of the working poor? Some kind of expanded health security is clearly a good thing — but if we want to promote economic mobility as well, does it really make sense to pour about a trillion dollars into a health care system that everyone agrees is deeply dysfunctional, when some of that money could be returned to Americans’ paychecks instead?"
This is excellent.
I’ve been writing for a long time, at least since the ACA was passed, that the majority of people below the age of 40 do not need comprehensive healthcare coverage. Typically & statistically, that age demographic are quite healthy. What they need is what we call major medical, or catastrophic coverage. Basically, it covers a person in “life & limb” situations when the person’s life is threatened. Injuries from an accident? Covered. Major disease? Covered. Pregnancy? Typically covered.
Annual preventive care exam? Non covered. But these folks, statistically, are far healthier than those over 50, so an annual preventive care physical exam just isn’t necessary, in most cases. But, whatever, go ahead & give them 1 such exam a year. Make people happy. It would still be cheaper than Obamacare!
This is precisely the problem: people don’t know what insurance is! Insurance is a measure against RISK. That’s why car insurance covers theft and accidents, but not your oil changes and gasoline purchases. When a pool of buyers is formed against theft, the company collects a small fee from everyone in order to pay out the few in the pool that actually need the money when something catastrophic happens.
But imagine if car insurance covered gasoline. Everyone would be paying for the gasoline costs of the entire pool. Once you got in the pool, you would have no incentive to not use gasoline, because it becomes “free”. You could use as much as you want and the “insurance” would take care of it! Instantly everyone in the pool would start using more gasoline than they would have otherwise, and the costs of the pool continually go up because there are no incentives for them to go down.
This is the problem with healthcare right now. We are trying to make health insurance cover EVERYTHING health related we may encounter: the check up when you have the flu, routine physicals, basic exams, etc. These things shouldn’t be covered by insurance, they should be paid out of pocket. When insurance is “paying” for everything, you have no incentive to check the cost of a procedure at a hospital or doctor’s office before you go in. A true market can’t exist under those conditions! Prices not only have no incentive to go down, price becomes irrelevant.
Health insurance should cover catastrophic incidents, a young healthy person doesn’t need to pay for access to a million “services” they don’t need. They happen so infrequently they could be paid out of pocket. They would also be paid in a real market where hospitals had to compete for you and offer you the best product at the lowest price. Instead we have a government enforced crony capitalist system that is going to force everyone to get in the same pool in order to cover all the health costs of everyone in the pool. IT CAN’T WORK, IT ISN’T WORKING, AND FORCING MORE PEOPLE IN THE POOL ISN’T GOING TO SOLVE ANYTHING.
Internal cost estimates from 17 of the nation’s largest insurance companies indicate that health insurance premiums will grow an average of 100 percent under Obamacare, and that some will soar more than 400 percent, crushing the administration’s goal of affordability. New regulations, policies, taxes, fees and mandates are the reason for the unexpected rate shock, according to the House Energy and Commerce Committee, which released a report Monday based on internal documents provided by the insurance companies. The 17 companies include Aetna, Blue Cross Blue Shield and Kaiser Foundation.
Thank you, useful idiots.
Good thing we don’t live in one of those countries where the government spies on journalists.
I’m seeing a lot of conservatives getting on Obama’s case about having marines hold umbrellas for himself and the Turkish prime...
catholicism is beautiful, by the way.
If you must know, I will now be referring to that one hit BBC show as “Doctor Whom.” You can all thank Q for that.
In other news, I went to go...
my dear friend will be a priest in about 12 hours.
i cannot contain any emotions.
when your wife stops by work to bring you an iced mocha—that is love.