The Next Financial Bubble?

The most recent issue of Forbes magazine includes an article entitled "The Great College Hoax." You can find it here:

http://www.forbes.com/forbes/2009/0202/060.html

When I first saw the title on the cover, I thought it would be yet another conservative screed against liberal arts institutions. It wasn't. Instead, the piece has a terrifying discussion of the effects of privatizing student loans. Author Kathy Kristof reports:

A decade ago nearly all student lending was of the low-cost, federally guaranteed variety, most of it with 6% to 8% interest kicking in only after a student left school. As costs outpaced such financing over the past decade, the share of student loans from "private" lenders rose from 7% to 23% of the market, or $20 billion in the 2007--08 academic year.

The rise of private student lending closely paralleled the subprime mortgage boom, which went from 8% of home loan originations in 2003 to 20% in 2006, before the housing meltdown sent that mortgage sector over a cliff. Private student loans resemble subprime mortgages in other ways, too. As banks and brokers did with subprime home loans, colleges and the lenders in cahoots with them commonly market private student loans alongside lower-cost alternatives, blurring the differences.

The key one is cost. Many private lenders tack 10% origination fees onto 18% variable interest rates (there is no legal limit), which begin accruing the moment a loan is funded. That has made private loans more than twice as profitable as government-guaranteed ones . . . .

New York Attorney General Andrew Cuomo has called private lending "the Wild West of the student loan industry." Some problems he notes smack of subprime mortgage lending: lax disclosure requirements, variable interest rates that compound and make paying off the principal a Sisyphean task, and kickback agreements by which lenders pay loan originators--in this case, colleges--a cut of their revenues.

State and federal authorities have taken action to curb the outright bribery. No less illustrious institutions of higher learning than Columbia University, New York University and the University of Pennsylvania paid $1 million-plus each to settle charges of wrongdoing in the student loan market.

Yet investigations still found "troubling, deceptive and often illegal practices . . . involving lenders, educational institutions and financial aid officials," according to Cuomo's office and the Congressional Committee on Education & Labor. Don't count on Washington to provide any more safeguards than it did with housing. Department of Education oversight of the student loan industry has been deemed insufficient by the Government Accountability Office.

Scary news indeed for students and their families. Look at this example cited by Kristof:

Mindy Babbitt entered Davenport University in her mid-20s to study accounting. Unable to cover the costs with her previous earnings as a cosmetologist, she took out a $35,000 student loan at 9% interest, figuring her postgraduate income would cover the cost.

Instead, the entry-level job her bachelor's degree got her barely covered living expenses. Babbitt deferred loan repayments and was then laid off for a time. Now 41 and living in Plainwell, Mich., she is earning $41,000 a year, or about $10,000 more than the average high school graduate makes.

But since she graduated, Babbitt's student loan balance has more than doubled, to $87,000, and she despairs she'll never pay it off.
"Unless I win the lottery or get a job paying a lot more, my student debts are going to follow me to the grave," she says.

In the 1950s, 60s, and 70s, Americans had a commitment to make college an affordable step for students with the ability and desire to make the grade. In the "deregulation" craze of the last quarter century, this became just another way to pad profits at the expense of hard-working men and women trying to make a better life for themselves. As one of Kristof's interviewees put it:

"You can get better interest rates, and better treatment, borrowing from Vito in downtown Brooklyn."

(My apologies to Italian loan sharks in the borough, who are unfairly compared with the college loan lenders in that quote.)

The Obama Administration has a lot on its plate. But making post-secondary education affordable again -- and preventing another lending crisis from erupting -- should be one of the first year goals for the White House and the Department of Education.

Full Text of Rev. Lowery's Benediction

Courtesy of the Federal News Service, first posted on Lynn Sweet's blog at the Chicago Sun-Times, http://blogs.suntimes.com/sweet/2009/01/rev_lowery_inauguration_benedi.html,
and from there to Facebook by Julie Skipper and Amelia Killcreas, here is the full text of the benediction given by Rev. Joseph Lowery at the Inauguration:

God of our weary years, God of our silent tears, thou who has brought us thus far along the way, thou who has by thy might led us into the light, keep us forever in the path, we pray, lest our feet stray from the places, our God, where we met thee, lest our hearts, drunk with the wine of the world, we forget thee. Shadowed beneath thy hand may we forever stand -- true to thee, O God, and true to our native land.

We truly give thanks for the glorious experience we've shared this day. We pray now, O Lord, for your blessing upon thy servant, Barack Obama, the 44th president of these United States, his family and his administration. He has come to this high office at a low moment in the national and, indeed, the global fiscal climate. But because we know you got the whole world in your hand, we pray for not only our nation, but for the community of nations. Our faith does not shrink, though pressed by the flood of mortal ills.

For we know that, Lord, you're able and you're willing to work through faithful leadership to restore stability, mend our brokenness, heal our wounds and deliver us from the exploitation of the poor or the least of these and from favoritism toward the rich, the elite of these.
We thank you for the empowering of thy servant, our 44th president, to inspire our nation to believe that, yes, we can work together to achieve a more perfect union. And while we have sown the seeds of greed -- the wind of greed and corruption, and even as we reap the whirlwind of social and economic disruption, we seek forgiveness and we come in a spirit of unity and solidarity to commit our support to our president by our willingness to make sacrifices, to respect your creation, to turn to each other and not on each other.

And now, Lord, in the complex arena of human relations, help us to make choices on the side of love, not hate; on the side of inclusion, not exclusion; tolerance, not intolerance.
And as we leave this mountaintop, help us to hold on to the spirit of fellowship and the oneness of our family. Let us take that power back to our homes, our workplaces, our churches, our temples, our mosques, or wherever we seek your will.

Bless President Barack, First Lady Michelle. Look over our little, angelic Sasha and Malia.
We go now to walk together, children, pledging that we won't get weary in the difficult days ahead. We know you will not leave us alone, with your hands of power and your heart of love.
Help us then, now, Lord, to work for that day when nation shall not lift up sword against nation, when tanks will be beaten into tractors, when every man and every woman shall sit under his or her own vine and fig tree, and none shall be afraid; when justice will roll down like waters and righteousness as a mighty stream.

Lord, in the memory of all the saints who from their labors rest, and in the joy of a new beginning, we ask you to help us work for that day when black will not be asked to get back, when brown can stick around -- (laughter) -- when yellow will be mellow -- (laughter) -- when the red man can get ahead, man -- (laughter) -- and when white will embrace what is right.
Let all those who do justice and love mercy say amen.

AUDIENCE: Amen!

REV. LOWERY: Say amen --

AUDIENCE: Amen!

REV. LOWERY: -- and amen.

AUDIENCE: Amen! (Cheers, applause.)

END.

Rational Idealism Comes to Washington, At Last

The Washington Post and other news outlets are reporting that the Obama Administration has instructed military prosecutors to seek 120-day continuances (postponements) of the military proceedings pending against detainees at Guantanamo Bay. That move, in and of itself, confirms the new Administration's commitment to two major principles:

First, the threat of terror does not change the American belief in due process and funadamental fairness in criminal proceedings.

Second, our adversarial, jury-based system of justice is not only the fairest means of conducting criminal proceedings, it is also the most accurate.

The "Star Chamber" procedure used by the last Administration, by contrast, drowned out the American message to the world that liberty is preferable to tyranny. And there is no evidence it got us anything in return. Did President Bush prevent another terrorist attack by his constitution-shredding methods? There's no way to know. It's like the man with the elephant gun in his living room. When his neighbor says, "but there are no elephants in this area," the man waves his gun and says, "Damn right. Cowards."

Thanks to the Obama Administration for recognizing that we have to live free to be free.

The full story is here:

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/20/AR2009012004743_pf.html

This Was Bound To Happen

Legal "experts" now claim the President should re-take the oath of office that was flubbed by Chief Justice Roberts.

http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2009/01/21/MNAF15E20I.DTL

One wonders what we would do without academics. Or maybe one wonders what we accomplish with them?

But let's humor the not-busy-enough folks who commented for this story. Assume someone files a declaratory judgment action against President Obama, seeking a declaration that he is not, in fact, President. Inevitably, it will end up in . . . the United States Supreme Court. Someone tell me which five justices are going to rule that their Chief invalidated the entire Administration?

(Almost) Speechless in Jackson

Ludwig Wittgenstein concluded his first great treatise on philosophy with the words, "Whereof one cannot speak, thereof one must be silent." That is how I have felt about the inauguration of the 44th President of the United States. Here is the closest I can come to describing my views in this momentous time in our history.

The presidency of Barack Hussein Obama marks a drastic leap forward in the tortured history of race relations in the United States. At the same time, President Obama's Administration heralds a new day when the term "liberal" is not a radioactive word that dare not be spoken, but embodies the American people's ideals and mandate.

But I do take exception to the notion that President Obama's election and inauguration fulfills the dream of Martin Luther King, Jr. I think it is only a passageway to that fulfillment. That one African-American man can be elected does not prove that life is now fair for the vast numbers of Americans of racial and ethnic minorities, female Americans, and/or Americans living in poverty. As the President said yesterday, our success is measured by "the reach of our prosperity; on our ability to extend opportunity to every willing heart—not out of charity, but because it is the surest route to our common good."

That is what Dr. King called The Beloved Community. http://www.religion-online.org/showarticle.asp?title=1603

And that, if we accomplish it, is his Dream.

May our new President and Congress be able to achieve a measure of it.