Saturday, September 29, 2012

Student Debt default up: BofA gets a deal

by Richard Mellor

I was talking to a couple of people from Britain who grew up there during the 1960's as I did.  They were both university graduates, one an artist, the other works in the tech industry.  They were both saying how grateful they got such a good education provided to them by the state basically. I am sure it is different in Britain today as global capitalism continues its slide in to historic default itself. But it's an example of the direction we must head in if we are to go forward rather than back.

We have commented on this blog about the absurdity of there being such a thing as a "student debt market". It is not absurd when we remind ourselves that in the so-called free market economy all things must become commodities, must be able to be bought and sold in the marketplace.  Student debt in the US at one trillion dollars has surpassed auto and credit card debt.  The affect this has on society and the individuals who are forced to borrow money to receive higher education is considerable as this debt hangs over you, an ominous cloud that gets bigger and bigger as the interest mounts up.

It's no wonder that student debt default is on the rise with 9.1% of loans due since October 2009 defaulting within two years according to the education dept. "That's up from 8.8% in the previous two-year reporting period and almost double the rate of five years earlier." the Wall Street Journal notes.  This report doesn't include those borrowers who have been allowed to postpone their payments due to unemployment or other hardships.  And with the crash and subsequent economic fall out, hardships abound.  What an uncivilized way for society to educate its members.  The US government estimates that about one in five borrowers who took out federal loans for undergraduate study will default at some point in their lifetime, the Journal says.

College graduates are not having an easy time finding jobs and some simply become so overburdened they simply give up.    The Journal gives one example:

Kristopher Kenny, a 25-year-old from Fort Lauderdale, Fla., said he hasn't made a payment on his roughly $38,000 in federal student loans in five months.
The 2011 University of Miami graduate owes about $140,000 in student loans made by private lenders.
Mr. Kenny says it's impossible for him to keep up with his total monthly student-debt tab of about $1,370 because he earns just $1,800 a month working part-time in pharmaceutical sales. He can't find a full-time job.
"Every single day, I'm thinking about how much debt I'm in," said Mr. Kenny. "I regret the decision of going to college, which is unfortunate."

A Pew Research Center study that came out earlier this week reports that 40% of households headed by someone younger than 35 years old have student debt and that for the lowest fifth of earners in the U.S., student debt amounted, on average, to 24% of household income in 2010 up from 15% in 2007, a bigger share than for any other income group. Pew also found that among all student borrowers, the average student-debt balance rose by 14% to $26,682 between 2007 and 2010, after adjusting for inflation.
This is exploitation and oppression; it is debt slavery.  

We must all know people who walked away from their homes rather than continue to pay the moneylenders their interest during this historic crisis of capitalism.  Business Week reported some time ago that if it came to a choice, many were walking away from house payments and keeping their car payments up because you can't get to work or look for a job very easily without transportation and you can always sleep in your car. Public transportation, another public service under the ax, is already inadequate in the US unless you live in a major city like New York or Chicago.  In California you almost have to have a car to work.

Defaulting on any of these loans can cause headaches for years to come in an economy run by moneylenders. It can prevent you from getting a car or renting an apartment.  The coupon clippers' work hand in hand in their assault on US workers and middle class; the poorest of us fall deeper in to the quagmire.  First, their system heads toward the precipice only to be rescued by public funds.  They then use those public funds to go on a buying spree or lend them back to us with interest.  Alongside this, through their control of the state and a monopoly in the political arena, they slash public services from education to transportation to libraries and, at a time when people's funds are low, campgrounds, parks and other relatively inexpensive amenities that offer workers and our families a brief respite from an insecure and stress laden existence are closed------all to save money.

Source: Wall Street Journal
In the same Wall Street Journal today I see that B of A is offering to settle claims that it lied (they use the term, misled) to investors when it purchased Merrill Lynch during the height of the Great Recession. Th bank is offering $2.43 billion. Investors were seeking $20 billion at trial so the bank settled but admitted no wrong doing; it settled "as a way of eliminating the uncertainties of protracted litigation" the Wall Street Journal reports.

Well, that's nice of them.  But what's interesting is that when some poor working class folk or a community business get dragged before one of their judges for some infraction, the judge lays the hammer down extra hard if the "accused" doesn't show remorse, admit guilt or continue to deny guilt.  Not for the bank, it denies it did anything wrong and gets a better deal for it. Of course, as "BofA"  says this or that or "BofA denied the allegations"  it's very handy for the guilty parties, the human ones that is, as "the bank" gets the blame and its hard to put a bank in jail.

BofA has set aside $42 billion "in litigation expenses, payouts and reserves", according to the WSJ. This is a staggering sum.  The bank paid $8.5 billion last year to settle claims made by a group of coupon clippers,  who the WSJ refers to as, "High profile mortgage-bond investors"   and got $20 billion of taxpayer's money to help it with the Merrill purchase, what execs thought would be a great windfall.  It was for some, the deal allowed Merrill to pay $5.8 billion in bonuses to its execs.  Isn't socialism swell!

Millions of workers throughout the world are challenging capitalism and the bankers; a million take to the streets in Portugal.  A general strike is called in Greece.  Hundreds of thousands of Spaniards surround parliament. South African workers are waging a heroic war against the mine owners as well as against some of their own leaders.  In China, India, and Bangladesh, workers are on the move.  Workers and indigenous communities throughout South America are fighting back against the global energy companies that destroy their communities.  Students in Chile and Montreal Canada are waging a continuous struggle against attacks on education and other austerity measures.

It can be frustrating here in the US as a movement of workers (not a movement "for" workers) has not really taken off.   We are being bombarded instead with 43,000 political ads a day says Business Week that drive us further from politics and increases the general disgust Americans have with the present corrupt political process, a process that one worker in a Democratic Party poll has resulted in the US being "mired in a bowl of stupid".  After spending a record $5.29 billion in the 2008 election, the Democrats  and Republicans (Dems 57% of it, Republicans 42%) are looking to set another record this year at close to $6 billion.  The politicos of the best democracy money can buy reside in Washington DC. But it costs a lot of money to confuse, demoralize  and wear down a nation of 300 million people.

As a previous blog pointed out, the situation here is extremely volatile.  Having no political party of our own and a hierarchy atop organized Labor that is completely wedded to the market and capitalism, the movement as it arises here will face some obstacles.  The US capitalist class is the most crass and violent and is committed to placing the US working class on rations, but the US working class will rise to defend its interests as it always has.  It may be delayed, it will be confused and contradictory.  But we will see some battles here in the not too distant future.

No to austerity, money is everywhere.

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