Sunday, April 17, 2011

Student debt and the next bubble. Why do we need a student loan market anyway?

Isn't freedom swell.  The Economist Magazine reports that this year US student-loan debt will pass credit card debt for the very first time.  Wow! The US is the place for firsts. Higher education is more expensive than ever and the price of going to a public university has doubled during the first decade of the Millenium.

As they have driven down wages or in one way or another cut disposable income as well as cutting financial aid for education, students have been forced to borrow.  This is not accidental, it is a conscious strategy.  The government shouldn't provide us with education, let the market do that. Our tax money is needed for spreading peace all over the world like they are in  Iraq, Libya, Afghanistan etc. and for bailing them out when the crises hit as they always will.  As for our youth, force them in to the clutches of the moneylender.

It turns out that not only are students borrowing more than ever before but they are taking on more riskier deb,t what the Economist describes as "unregulated private student loans." with the least protection and highest rates.  It is the for-profit schools that are driving the engine and, as is always the case, the poorest of the working class suffer most. In the subprime Ponzi scheme it was the poor that were the main victims.  Read the quote I used from the Wall Street Journal a few days ago, the one from that 89 year old lady being terrorized by moneylenders. Some commentators said that the subprime collapse was the greatest transfer of African American wealth in US history.  And with the subprime it is minority college students that  "appear to be borrowing a disproportionate share." says the Economist.  This is pretty obvious if you are among the poorest; you need to borrow more.

"If this continues," the report adds, "the consequences will be severe: reduced access to higher education, diminished life choices, and increasing rates of catastrophic loan default." All the prerequisites for another bubble are mounting, and it's not just in student loans. Global commodity prices are soaring from electronics and tech companies to food which is the big ticket item for millions of people around the world. The insanity of it all.  Even rents in Haiti are on the increase as no housing has been built since the earthquake in 2010 as aid workers' need for living quarters drive up existing units; not much of an aid program for the poor Haitians needing a roof over their heads; thousands are still living in tents, that's what being next door to the U.S. does for ya!

The next crash is being prepared by market forces.  These developments cannot be overcome and are endemic to the capitalist economy, as natural to it as we breathe air, and more polluted air at that. The system cannot be made "nice"

They know it will occur, "Once again the world's investors are pumping up bubbles that will probably explode in their faces" says Business Week.*  But the alternative is too horrific to consider.  No ruling class commits suicide  or leaves its place in history voluntarily. "It's comical that we think we can regulate away our future recessions or crisis. It's scary to the extent that if we do, we will crush the essence of capitalism, which is basically greed and animal spirits.", says James Paulsen, a coupon clipper at Wells Capital Management. 

I would say that they are not managing capital or society very well----the productive forces need new managers.  And why do we need a student loan market anyway?

*The Bubble This Time: Business Week 4-18-11

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