Showing posts with label student loans. Show all posts
Showing posts with label student loans. Show all posts

Thursday, February 28, 2013

MeanMesa's Sequester Investment Tips

How Long Do I have To Keep Remembering 2008?

For the long, seemingly unending decades of MeanMesa's youth a few unceasingly repetitious bulwarks of investment advice were as dependable as every spring's dandelions in the watermelon patch. They never faltered.  Most the the participants in the American dream in those days probably assumed that they were -- somewhere -- in the Good Book, itself.  In fact, these "American axioms for a future of individual prosperity" were so reliable, anticipated and trusted that the prospect of seeking out any additional possibilities actually amounted to little more than a sort of arcane "hobby."

Investment-wise, the promise was simple.  Just stick to the old tried and true, "simple stuff," and your future would inevitably be "roses, simply roses."  Any one who followed this "readily available everywhere" advice would just about certainly get rich in the end.

Buy real estate.  The value of real estate always increases.  If you somehow buy real estate, and it doesn't evaluate over time, it's your fault.

Invest in the stock market. Sure it's risky, but actually, it hasn't been really risky for years. After all, riding the subway is risky.  There is no possible way for someone like you to ever become a millionaire unless you make a big pile of that money on Wall Street.

Work hard, and save your surplus earnings.  Everything good in the investment world requires personal savings to get started.  If you work somewhere with a pension plan, pay into it.

Get a college education.  After you graduate, you'll be able to get a good job with good pay.  A college education opens up the opportunity for career advances in your future.

There were the "investments" which had most often produced the famous middle class prosperity Americans enjoyed until around the 1980's.  By the time that Ronald Reagan accomplished the now notorious, first penetration of the $ Trillion dollar debt barrier, the economy was already quietly beginning to falter.  Further, although there were booms and busts, that precise kind of "faltering" had more to do with steady state systemics than with the predictable "ups and downs" with which the country had been familiar previously.

This development really occurred along two rather disparate routes simultaneously.

First, a relentless, self-feeding, national wealth redistribution had begun in earnest.  The top money classes of American society had mastered the political techniques they would successfully employ for the following decades.  More than ever before, a new, carefully purchased access to the Congress, the White House and the media would begin to almost imperceptibly funnel economic advantages to the influential.

Second, a rapacious expectation of almost automatic economic success had been firmly planted in the minds and imaginations of those Americans who found themselves either at the lower edge of the wealthy class or even within a "stone's throw" away from it.  The dreamily ambitious middle class rushed to make the traditional wealth building investments mentioned above strongly anticipating that success was just around the corner.

Because such a significant amount of middle class money was flowing into these "investments in the future," because ambitions had become so exaggerated and because the attachment between expectations and risk had rapidly become obscured and inchoate, there were two additional economic phenomena.

Based on the, by then, axiomatic anticipation that economic conditions would simply perpetually improve more and more almost automatically, consumption began to increase faster than additional wealth was being accrued.  This domestic anticipation became an unexamined habit in no time.  At first, previously established domestic wealth was used to purchase ever greater "luxuries and other indulgences" which were consistent with the imaginary improvements in the standard of living.

However, when the previously accrued wealth had been consumed, it was replaced with debt.  At this point, consumer debt began to support the costs of these continuing, ambitious expectations -- and unsustainable levels of consumer purchases.  The money class stood by anxiously eager to provide this credit.  We now see the inevitable results.

Of course there was unsustainable domestic consumption, but what about the "big ticket" items listed above?  A new toaster, washer, automobile or extravagant vacation could certainly undercut a middle class family's finances, but not with the same gravity as the five and six digit borrowing required to participate in our list of "solid investments."

An uninsured medical emergency, on the other hand, would represent a "fifth" addition to the wealth wrecking list mentioned above.

The Two -- or Maybe Three - Horned Beasts
 Goring the Soft Underbelly of Economic Recovery

Nestled in what we hope is the "mid-term" period of this endless Republican Recession, it's easy to adopt a few mistaken conclusions.  If any of these "ring true" with your own thinking on these matters, don't be too hard on yourself.  The oligarchs have invested literally millions and millions of their "hard earned" dollars to misdirect, obfuscate, confuse and obscure the facts behind the economic disaster.

Let's take a look at some of the more commonly held misconceptions.  These are some of those mistakes.

Mistake 1:  The current catastrophe began in 2008.

Yes, 2008 was the year that the blood actually began to flow, but what we're in right now started decades before that.  For convenience, we can say that the present disaster is the inevitable, contemporary "mature" state of the catastrophe, but we must also rush to add that the fundamentals lurking below this intractable mess can quite comfortably be anchored with the Reagan years.

Remember the Reagan years?

Just think of them as the date of birth for the now infamous "trickle down" economic voodoo plan.

Right now, we would have a hard time remembering the disaster of 2008 had it been a traditional "adjustment."  It wasn't.  Further, had that disaster been even somewhat "traditional," our economy would be raging out of this mess in a "traditional" economic recovery cycle.  It isn't.

Mistake 2:  The economy is wrecked because of government spending.

Wait a minute.  All we hear on the commercial media is that the economy has been wrecked by government spending.  Every Republican who has staggered up to a microphone for the last five years had parroted exactly the same "talking point."

"We don't have a revenue problem, we have a spending problem."

Think for a moment.  Exactly why has this idea, so to speak, "grown so many legs?"

To answer this question, we need look no further back than to the beginning of this talking point.  The day before this talking point was hatched in a neo-con think tank, the talking point was "jobs."

Of course, the "jobs" talking point served well as a sort of populist distraction and as a road weary topic for "fly by" water cooler conversations. The viral utility of this well crafted deception lasted long enough to throw the 2010 Congressional election into the quivering hands of the overly ambitious, but tragically synthetic, tea baggers.

One week after that election, it became painfully clear to the House leadership that it was, unquestionably, foolish to count on these unruly tea bags for any sort of rational legislative work whatsoever.  That legislative work would, of course, have included any effort, no matter how modest or arcane, which might ease the "jobs" problem.

Even a comatose 19th Century loyalist like John Boehner could see that the voters had already grown dangerously tired of the lack of progress on the "jobs" talking point literally hours after their first glimpse of the endless stream of tea bag House bills obliterating ObamaCare, recriminalizing abortion, prohibiting Sharia Law in Oklahoma and so on.

This development cast a sudden shock-wave through the meticulously groomed public opinion ontology in which the oligarchs in charge of the Republican Party had invested so much.  What followed was a wonderfully entertaining, yet morosely awkward, attempt to somehow surgically attach "jobs" to "spending."

After bumbling around with this nearly impossible mission for a month or two, the "jobs" thing was trashed in favor of a full court effort at just the "spending" thing. This interregnum in public opinion manipulation failed because the message, if there actually was one, turned out to be utterly incomprehensible to the public.  One thing we know about oligarchs is that they are always ready to "cut their losses."

Mistake 3:  Things will return to how they were before.

In the wide spread absence of understanding for the scope of the collapse, the decades of constant corruption which led to the current emergency and the grave degree of wealth redistribution which had accompanied it, the default metric employed by voters to gauge the economic recovery became the "restoration of conditions previous to the collapse."

Voters wanted to know when they would get their old jobs back, when their pay checks would look like they did before the massacre, when their houses would once again be worth what they had paid for them and so on.   Even Republican voters.  Even tea bags.

There were a few unguarded words to the point that the "jobs lost in the catastrophe would not be returning," but, when no one really liked the sound of that, the rhetoric was instantly replaced by the far safer and easier fabricated memes of simply bashing the President or lamenting that the sides -- now actively touted as being equally to blame -- "couldn't just get along."


When unemployment drops to roughly its traditional level and the annual deficit subsides to some figure roughly similar to its traditional level, this will end.  However, the country which emerges from this will not be particularly similar to the one inhabiting the imaginations of Americans.

The violent wealth redistribution will remain a "settled fact" in the aftermath, as will be paralysing divisiveness so carefully installed the cripple the political process which might have, in better times, threatened the over riding scheme of the oligarch class we now see unfolding.

The American economy will see further retraction in organized labor, voter enfranchisement, wealth equality, individual opportunity and so on.  There is, as of now, no factor in the visible field which can alter this outcome much.  The Dow may be at an all time high, but the economic fundamentals for the majority of the country hold little promise for the future.

We may well be able to re-establish a more or less stable state, but we will not regain the competitive prowess of even a decade ago or make much progress toward solving the relentless drift toward more and more upward wealth redistribution.

Mistake 4:  Buy real estate or invest in the market.

The advertisements making this suggestion, especially to younger Americans, are, frankly, horrifying.  If learning the lessons of the last thirty years are too exhausting, learning the lessons of the last ten may not be such a "heavy lift." 

The collapse which materialized after the 2008 debacle instantly reduced the wealth of most Americans by around 40%.  The message of that collapse was that there is nothing which can be done politically to prevent the same forces who now "own" all that money from doing it again whenever they like.

The oligarch class may wait until the "investment barrel" is once again filled before they empty it, but the die is cast.  Elizabeth Warren notwithstanding, the banksters have flourished mightily from this last, most outrageous so far, "barrel emptying" move, and they will not be inclined to forsake the opportunity to repeat it in the future.

This dark forecast encompasses both investments in real estate and in the stock market.  Both reservoirs of wealth were effortlessly emptied, and both reservoirs remain just as susceptible to being emptied again in the future.  The risk of even a very rational investment in either has careened beyond what might be encountered at a gaming table in a crooked, Mafia operated casino.

This advice might have led to an awkward question in past years: "If not real estate or the market, then what?  Where should I put all this money?"

The very discouraging fact is that few of the Americans who would have traditionally been or would have become investors have any money to invest.  While productivity has steadily increased -- along with the profits for the oligarch class who benefit from it -- the flow of wages to more middle class Americans have been stagnant.

The chart below explains the reciprocal nature of the wealth redistribution.  Productivity increases the flow of potential investment capital to the inactive, non-participating coffers of the oligarch/corporate class.  Increased profit is directed at further increases in that upward flow.  Importantly, the more that wealth is concentrated in those purposefully sequestered coffers, the more the economy suffers.

 As the wealth consolidation of this upper class becomes more and more segregated from the mainstream economy [current estimates are that more than $2 Tn worth of ready cash is pocketed away by corporations, mostly off shore], what had previously been a massive potential investment reservoir is now basically empty.  Worse, members in the middle class now have essentially no confidence that such an investment risk is a reasonable one.

What looks like Productivity and Wages is actually fundamental wealth redistribution       (image source)
The "40% number" used to define the scheme's dramatic impact on middle class wealth can easily drift to hyperbole, but the blood soaked reality of it is becoming  unavoidable.  Meanwhile, the middle class is being patiently persuaded to continue to pretend that this either never happened at all, or, at least, that it didn't happen to them.

All this leaves two very troubling "visitors" attending the economic recovery.  First, the potential for profiting from a real estate investment is no longer based on the idea that the entire economy is prospering.  Instead, it is based exploiting  the loss incurred by someone else who lost everything with a mortgage for an artificially high priced house.

Second, the maelstrom on Wall Street is now essentially one which excludes all players who didn't rake in the grotesque gains during the bubble.  No one else has the money -- or the trust -- to play poker there.  The "rotational velocity" of the money already in the market may continue to increase -- hence the record high DJA of today -- but the prospects for a middle class, long term investor are in shambles.

The generational durability of the disaster is also often underestimated.

There are literally millions of young people across the country who would have -- in better times -- been building wealth for all sorts of possible uses.  They aren't.  Worse, they haven't been for decades.  They aren't buying houses or cars because they have neither the savings nor the credit nor the confidence.  They don't have usable health insurance, and they have nothing similar to the employer pension and retirement plans of past years.

Mistake 5: It's worth any price to get a college education.

While union busting is a foundational part of the oligarch scheme, an even more sinister side of the destructive ambition is found just below the obvious.  There are political advantages from the destruction of organized labor's potential in campaigns, but the underlying ambition is far more general.

Union or not, the oligarchs will not rest until they have orchestrated the unilateral deprofessionalization of every credentialed worker possible.  This has naturally extended into the realm of higher education.  The monied class will approve of an education for middle class folks but will not countenance the creation of specialists of any type which can resist the relentless lowering of all incomes other than those of Wall Street.

The President has made some small headway in reigning in the rapacious interest scams for student loans, but even this relief is superficial.  The $ Tn dollar student loan debt may be a real "profit center" for the money handlers, but controlling the future economic success of graduates is the clear shining prize.

The inevitable result of this can be seen everywhere.  The college graduate enters the work force already hobbled with only a small chance for a job in his field as he competes with much cheaper foreign labor, a mountain of college loan debt and, even if he can find work in his field, a pay check paying a salary of $10 or $12 dollars per hour.  They don't save to buy a house or a new car.  They live with their parents.

This all may sound like the forlorn fiddle solo in a tragic movie, but consider the numbers.  There are millions of both college graduates and other young people earning significantly less than it takes to live.  They have been struggling along like this since the 1980's.

What had previously been a constantly swelling reservoir of wealth to invest in the future has been hollowed out and redistributed.  The point here is that these lost years will not be reclaimed. 

How could they?

Even if we tried?  Even if we dedicated an immense amount of resources and political effort to it?

This is the great multi-generational "hollowing out" which inevitably accompanies such a devastating wealth redistribution and consolidation.  The economy which is left after suffering this kind of "across the board" looting will resemble the economy which entered it very little.

It may seem as if we took our eye off the ball in 2010, but actually we pretty much quit paying attention in the 1980's.

We have to remember all of this when we look at the feeble, faltering economic recovery.  Comparing it to the glory days of our past is just as irrational as comparing our future to the same glory days would be.

Oh don't forget about the oligarchs (Courtesy of Daily KOS)

The game is real.  If we lose completely, the oligarchs will own everything that's left standing.  If we hold our own, we'll have a place to live -- just a place with far fewer, much more modest dreams that before.

MeanMesa's "sequester investment tip?"

Just go to the casino.  The odds are better.







Thursday, July 12, 2012

Mitt Romney's "Gift" -- You Pay

The Oxen Who Draw the Corruption Cart

Plenty of Americans have come to realize that they are mired in an economic world quite removed from the atmospheric phantasm where banksters and Congressmen dwell.  However, when the actual details of their dilemma are trotted forth, their faces glaze and their eyes turn hollow.  They'd like to understand, but the things are made as incomprehensible as possible before being "revealed" as causes.

There are, specifically, two important issues among these purposefully "incomprehensible things."  We can mention both, but this posting is entirely centered on just one of the two.

Two Primary Mechanisms for Looting the Treasury

1.  Tax Expenditures

To create a tax expenditure, a law must be passed which excepts somebody, some business or some business practice from the taxes which would, in the absence of the tax expenditure, be normally collected.  The entire body of tax expenditures is often called "corporate welfare."  No astonishing genius or insight is required to understand the mischief such "tax expenditures" can precipitate when they are "running loose" in a sympathetic Congress under the "watchful eye" of an equally sympathetic President.

Tax expenditures can also be created at state and municipal levels, although usually with less egregious largesse than when done federally.  At the local levels, tax expenditures are often referred to as "economic incentive packages" designed to bribe new businesses and their subsequent hiring to attend the particular location.

2.  Loan Guarantees

Loan guarantees are typically a legislative method to induce banks to perform in certain ways which they would otherwise not consider good business practices.  When a state of federal government interests require that some of the "cash on hand" being held by banks be "forked over" as loans, the "loan guarantee" means that the government has "counter signed" the note, guaranteeing repayment even if the primary signatory should default or fail.

Massive loan guarantees, for example, were added into the bail out of AIG during the onset of the Great Republican Depression in 2008.  These guarantees made all the "bad debts" that AIG had accumulated "as good as gold," preventing the massive corporation's judgment troubles from bankrupting scores of investors.  In the casually reassuring parlance of the banksters, this was referred to as "making these investors whole."

This posting is about loan guarantees.

And not just fairly reasonable loan guarantees with at least theoretical legitimacy, outrageous ones.  And, where might MeanMesa find such outrageous loan guarantees being proposed?  Why, in the Romney For President campaign, of course.  And further, the proposing itself was not a mere "fly by" gaffe by one of Mitt's paid campaign servants.  It was actually formed in Mitt's brain and written into a tasty little, 35 page proposal which entered into the Fourth Estate presses under Mitt's very own signature.

This little trick didn't get enough attention in the luridly tame press releases, so MeanMesa finds it necessary to "step up to the plate" and honor the plan with  the "good dose of squawking" it deserves.  It deserves plenty.

How Congress Can Help Banksters
 Have High Profit, Risk Free Banking

Let's imagine for a moment that we are a bank.  To make it even simpler, let's imagine that we are a bank before the "depression proofing" Glass-Steagall Act was vaporized a few decades ago.  

Because we were a traditional bank, we made our living from the interest which we charged on loans.  The rate of interest which we charged was, again put simply, "what the market would bear."  Of course we were capitalists, but we were competitive capitalists.  If our loan policies became too expensive or too strict, borrowers would visit another bank.

Still, we were, naturally, a little strict.  If a borrower could not or would not repay our loan, we had to do whatever we could to recapture the capital by foreclosure or bankruptcy.  In fact, one part of the calculation of a particular interest rate was factoring in how likely it would be for the loan to fail.  Riskier borrowers would have to pay higher interest rates to make our part of the bargain worthwhile.

We knew that big losses from failed loans could "break the bank," so we were very insistent that risk be a part of any interest rate calculation.  What losses we inevitably did suffer simply ate away a chunk of our bank's profits, and as such, became part of the "cost of doing business."

However, if the loans you are making are guaranteed by the US Government, the  part of this "cost of doing business" caused by loan failures is removed.  And, also important, the cost of doing whatever is possible to recover any failed loan amounts is also removed.  Your profits go up quickly.

Now, on to student loans.

The abbreviated WIKI explanation isn't bad.  (Read the whole WIKI article  here.)

Prior to 2010, Federal loans included both direct loans--originated and funded directly by the U.S. Department of Education--and guaranteed loans--originated and funded by private investors, but guaranteed by the federal government. Guaranteed loans were eliminated in 2010 and replaced with direct loans because of a belief that guaranteed loans benefited private student loan companies at taxpayers expense, but did not reduce costs for students.

If you were a bank which was making lots of students loans, Obama's 2010 policy change pretty much slid you out of the picture.  Accompanying your trip "out of the picture" was a sudden decrease in your bank's interest revenues because you were no longer collecting interest on the student loans you used to make but which were then being made directly by the government.

Further, the national totals of student loan debt had grown immense -- surpassing even the personal [credit card] debt of the country.  That much debt paid plenty of interest.  The colleges and universities had also contributed their part.  The cost of an advanced education had skyrocketed.

(image source - Huffington)

Of course, the new loan policy made great sense to students and families faced with paying for such an education.  And naturally, the dismal reaction to these policies on the "lending side" was nothing less than an hysterical kind of eschatological obituary for the demise of free enterprise and, predictably, also for the demise of liberty itself.

Remember, these were not simply "run of the mill" loans made hilly nilly from your bank's urban branch offices.  These were very sweet, federally insured,  "guaranteed loans."

We're Finally Ready for ROMNEY'S GIFT

So far, of course, it's only a "Romney Promise" of a gift, but it looks like one he would actually hand over gladly to his, uh, friends -- perhaps to show his gratitude for the billion dollars they gave him for his campaign.  Here, we will turn over the reins to some excerpts from a report by a tasty site called boston.com - courtesy of The Boston Globe.  (Read the entire article here.)



Romney student loan plan criticized

Would allow private lenders back into market

  By Tracy Jan Globe Staff / July 9, 2012
 WASHINGTON — Mitt Romney promises to usher private lenders back into the federal student loan market in a bid to decrease default rates and increase efficiency if he becomes president, but such a move could cost taxpayers tens of billions of dollars over a decade without saving students money, according to several higher education analysts.
The prime beneficiaries, critics say, would be banks and loan companies that stand to reap a financial boon through subsidies to make nearly risk-free, government-backed loans. They are the same firms that benefited from the system that existed for decades before 2010, when President Obama required that the government issue all federal student loans.

“The old guaranteed loan program was rife with lobbyists and will go down in history as a system that existed far longer than it needed to simply because it was enriching private companies,” said Jason Delisle, director of the Federal Education Budget Project at the New America Foundation, a nonpartisan think tank. Inviting private lenders back into the program, he said, appears misguided: “What’s in it for students or taxpayers? Nothing.”
Private lenders, however, argue that Obama’s move in 2010 cost the industry thousands of jobs as companies went out of business or shut down divisions that dealt with the servicing of such loans. And the Romney campaign says reintroducing private competition would spur innovation that could help prevent students from borrowing more than they should.
The current market for loans to help students and parents pay skyrocketing tuition rates is dominated by government-backed loans made exclusively through the Department of Education’s federal direct loan program. In addition, the private market offers more loan options with no such backing — typically at higher interest rates. Before 2010, private firms also made government-backed loans.
Romney has long had financial ties to the student lending industry, a lucrative sector that has come under intense scrutiny in recent years because of some questionable practices.
The sector has contributed more than $29,500 to Romney’s campaign this election cycle, making him the top recipient of all candidates, presidential and congressional, according to the Center for Responsive Politics. In comparison, Obama, who ranks ninth, has received $5,250 from student loan companies.
The industry’s top campaign contributors — SLM Corp., NelNet Inc., and College Loan Corp. — have donated to Romney but have not given to Obama. SLM Corp. owns Sallie Mae, a former government-sponsored enterprise that began to privatize in 1996. Though it now provides only private loans, it remains the largest originator of federal loans that until 2010 made up the bulk of its business.

A Few "Fly By" MeanMesa Conclusions

Quick Game of Monopoly, anyone? (image source)

This tasty little piece of Romney campaign policy -- and, such actual, substantive policy statements are as rare as daisies in a Kansas blizzard in the Romney campaign -- paint the picture of what the candidate intends to do if elected.  Of course we can expect grand looting schemes to be hatched behind the closed doors of the Romney White House, but it will be these smaller, quieter peccadillos which will signal the true regression at America's kitchen tables.

Voters will be so busy stuffing legislative "lobsters through the keyholes" of Congress as they try to keep food on the table, the sheer number of these lesser schemes will flood any attempt to rectify details.  This has been the pattern of Republican controlled enterprises.

It wasn't the Iraqi oil Cheney's little energy session decided to purloin, it was the oil field service contracts. It wasn't innovative economic programs to raise the money to pay for Medicare Part D, it was surreptitiously invisible borrowing. It wasn't an argument presented to voters for anti-Roe action, it was a state by state decimation of abortion clinics.  It wasn't some persuasive campaign to win this election, it was voter suppression.  On and on the pattern repeats itself.

If a Republican controlled government emerges from the November election, we can expect more of the same -- much more.  The crony corruption with include big pieces everyone can see, but also a horde of lesser insults we'll be too busy to fix.