Well-connected banks and major corporations who make bad decisions and financially crash get bailouts. Citizens who make similar mistakes when they're young get their lives destroyed. Makes it pretty clear who "our" government really serves.
When major banks fail they take out major parts of the economy. I'm sure we all remember the mayhem the big banks caused in the Great Recession.
Secondly, the bailouts the banks received were loans -- they've now been repaid with interest, and the federal government has wound up making a profit.
I'm no banker or Wall Street apologist, the big banks and executives should've faced large punishments for their role in the fraud that triggered the economic crisis.
But we also need to be pragmatic and realize that the Bush and Obama administrations had very limited choices to fix the recession, which was made worse because banks basiclly stopped lending any money.
By all means let's elect politicians who will regulate and break up big banks, but let's not score cheap populism points by deriding economic policy without proposing a viable alternative.
Those banks made bad decisions and instead of paying the cost (in evolutionary capitalism) of being frozen, orderly split up and re-processed among members of the market to re-define their value factor the banks were rewarded.
I had hoped that they would be properly refactored so that the people could benefit from that change instead of the corporations. Maybe if that had happened the correction our house pricing so desperately needs could have happened.
All that rationalization and apologism fails when you consider this simple fact: there has been no one convicted of criminal wrongdoing in the US for bringing about the Great Recession. Much to the contrary, the persons in charge, the persons responsible for great hardship caused to billions of people worldwide for the past decade, they got big fat bonuses that not you or I could ever dream of making, perhaps not even in a lifetime of work. Note I'm not talking about banks as institution, I'm talking about personal responsibility and accountability. That alone shows how much of a farce everything is, how the super-rich and powerful simply play by a different set of rules.
Yeah sure, the government had to step in to prevent an even bigger catastrophe. But if indeed it were the case that the people responsible were even for a moment under any threat of actual punishment for their crimes, it would not have all been swept under the rug, and the people in charge simply finding employment elsewhere.
Realistically, I think that's going to have to be what happens. The horse is out of the barn. We can close the door through reforming student loan programs, but we have to bring the horse back, first.
I say this as somebody who graduated college in 2010 with fairly minimal debt that I've already paid off. I was extremely lucky in my choice of career (and knowing I wanted to do it at the time) and I made better choices than most with regards to picking colleges and what school I attended, and so it kinda pisses me off a little bit--but me being pissed off is distinctly secondary to we have saddled two entire generations with impossible debts in the chase for "employability".
A viable one is to let students default on their debt. Then colleges incentives to survive on tuition will align to the students capacity to increase their income.
There shouldn't be (considerable) debt going into dead-end college studies.
> When major banks fail they take out major parts of the economy.
Sure. So... do the bankers go to jail?
Nope. They get bonuses.
It's a great scam. They play with your money. If they lose, oh well, the government will bail them out. If they win, they keep the money. And either way, the people in charge get large bonuses.
Only Iceland chose to charge the bankers who engaged in predatory / illegal behavior. Every other country pretty gave them a handshake, and a pat on the back.
Look, if the bank is "too big to fail", by all means bail them out. But nationalize it, fire the idiots in charge, and sell off the assets to people who aren't robber barons.
They let Lehman Brothers die. The results of that were awful. They did more or less what you suggest with the next failure, AIG, which was bought by the government for a song. The government has since sold their shares, making 22 billion dollars profit off that bailout. The government did so well from the deal that the old CEO is trying to sue on the basis that the terms were unfair.
After that, the government offered to buy assets from banks to ensure they had enough cash to keep doing business (TARP). Every bank was asked to participate because the government didn't want to single out the weakest ones. They were concerned the stigma would drive away business and push them over the edge. In the end, the government sold off the TARP assets they bought and made another 15 billion dollars profit off that.
The bailouts were not that expensive. What was tremendously expensive was the impact of businesses all around the world shaking in fear of being short on cash and unable to secure a loan. That caused them to reduce spending, but one person's spending is another's income. That caused a spiral of dropping incomes and cutting costs. That's where layoffs, bankruptcies, and wage freezes came from. Government revenue dropped significantly too as tax money comes from sales and income.
Banks should be smaller. Hell, companies in general should be smaller. We have far too many oligopolies and near-monopolies. Not enough competition.
The problem is finding agreement on the specifics. We got a whole slew of new regulations in Dodd-Frank and Basel III, but nobody outside of financial experts know or understand them. The general public doesn't agree on much more than that they hate bankers.
I know there's a few common things often pointed to, like reinstating Glass-Steagall, but there's plenty of disagreement there too. For one, I don't think it would have made much difference in this crisis. The counterparty risks that dominated this crisis were all in the investment sides of the companies anyways. It seems more like a pet cause than an actual solution.
I guess the problem is that politics is broken. Ideally, smart, well-informed people would discuss these things and the public would listen and support the best ideas. That's not how politics works these days, though. Party ideology is basically religion at this point.
Fix the government and everything else flows from there. But, that's easier said than done. The American government is fractured and broken because American society is fractured and broken. It's not clear how to make it whole again.
There's more people affected negatively by irresponsible banks and student loans than those that who were affected negatively who worked for the banks. For example, I know more than a handful of people who were let go from Lehman and are doing just fine. In fact I literally just met someone who today is making a $500k salary. We still have people digging themselves out of debt because they lost everything (tangible and intangibles) due to the 2008 crisis.
> The American government is fractured and broken because American society is fractured and broken.
There's a great theory which is that federal politics is all rooted in local politics. In other words, the reason the federal government is full of assholes is because people let these people get elected at the local level and their natural progression is simply to move up through system to the federal level (usually passing it off as "well it just affects that one town, so what").
> the federal government is full of assholes is because people let these people get elected at the local level
I feel that politics in general is a field where sociopaths can thrive. There's a lot of backstabbing, deal making, and pandering I think fits well with that mindset at all levels of government. I think the same could be said for wall street as well.
You're right about how people have been impacted. That's going to continue to hurt as long as their point of view is ignored. Can't just tell angry people to stop being angry. Doesn't work.
> Citizens who make similar mistakes when they're young get their lives destroyed.
Except in this case the mistake is that the government is willing to guarantee huge loans made to an 18-year-old. There are colleges out there that you can graduate with only a couple thousand dollars of debt and there are other colleges where you can graduate with hundreds of thousands of dollars of debt.
A potential fix would be to limit the amount of government-backed student loans to something people can reasonably pay off. If students want to go beyond that, they would need to convince a bank that funding the more extravagant tuition was a reasonable risk to take. With the government-backed student loans, you rely on an 18-year-old to accurately do the risk analysis themselves and the current situation seems to indicate many aren't good at doing this.
> A potential fix would be to limit the amount of government-backed student loans to something people can reasonably pay off.
They DO limit the amount of government-backed loans you can take for an undergraduate degree to $31,000 (or $57,500 if you can convince TPTB that you are 'independent', which is much harder than it sounds.)
Other loans don't have limits, but aren't government backed. They're private loans but get many of the same privileges, including that the loans aren't dischargeable in bankruptcy. This sort of makes sense, because you can't repossess a degree, but it also sort of doesn't because of the points you made.
Insofar as bankruptcy itself was meant to be an "escape hatch" to avoid designing forgiveness into every element of the system, adding any situation where bankruptcy is impossible seems like it destroys the purpose of having bankruptcy exist in the first place.
I mean, I get the real problem: just-graduated students have no assets, but a lot of debt, so they have no disincentive from declaring bankruptcy. Hard to come up with a solution to that, since—if the just-graduated student had assets—they'd just be able to pay the debt with them.
> adding any situation where bankruptcy is impossible seems like it destroys the purpose of having bankruptcy exist in the first place.
Agreed, but keep in mind we aren't talking about loans in the traditional sense. Normally a loan requires some entity to take on the risk of default. With student loans this would mean looking at what the individual was studying, how much of their own money they were supplying, the typical default rate, etc. The amount that they will loan and the interest rate will be determined by the answers to those questions.
When you have the government making loans to students without asking those questions, you are no longer running a normal loan program. When you remove the way a loan program usually adjusts to the risks up front, you have to try to deal with the risk elsewhere. This is done by removing the bankruptcy option.
I think the solution is to account for the risk of the loan up front like we do with other loans. This probably means removing or decreasing the government's role in issuing these types of loans. Eventually, I could see colleges sharing the default risk with a private bank. Colleges who don't think their education is worth much would be less likely to participate in such a program, but that probably isn't a bad thing.
> make them dischargeable by bankrupcty and let the market price in the default rate and see what happens.
These loans aren't coming from the market. If students had to go to a private bank and make a case about why they were a good investment, student loans would look a lot different--to say nothing about college in general.
I feel like the only replacement for bankruptcy that works for people coming out of college with few assets is to require any unbankruptable (Is there a real word for this concept?) loan to have a minimum income required for repayment, meaning that if you come out of college unemployed or fail out you have a safety buffer between unemployment and destitution that you won't want to enter intentionally. Similar to the UK system, not that the UK system is currently doing any good.
Imo, one solution would be for high schools to encourage students to work for 3 years doing unskilled labor until they make enough money to pay for 3 years of college. Then for the 4th year they can get a part time job in their field and maybe extend their degree one more year. In the end they will be entering the professional workforce a few years later, but that isn't so bad and may help them mature.
This is patently ridiculous. Many people going to school also can't live at home with mom and dad or at least can't live off mom and dad.
3 years of unskilled labor will leave a lot with just enough to support themselves while the cost of education managed to go up in those 3 years more than inflation. Meanwhile you missed out on years of good earnings at your chosen profession.
Working your way through school has become somewhat laughable. Your advice would leave the majority of people much poorer for following it.
This is just fundamentally a waste of time and talent.
If you have the time to work enough to pay for 3 years of college in high school and still perform well in the school itself and jump through all the hoops required to get into that prestigious school you always wanted with a plethora of extracurriculars you aren't learning jack in high school anyway and are probably doing severe harm to yourself working so many hours of the day.
Education in general is messed up, mostly because years 5-18 are almost exclusively a black hole of nothing for most people where you go to learn to read, write, and do arithmetic. Which most people will do by age 8. Then there's a decade of Shakespeare, algebra, and dissecting frogs which plenty of people use in their daily lives and that plenty of employers eagerly need more of in the workforce.
As I understand it, subsidized loans mean that the government will pay your interest for awhile. Unsubsidized Federal Student Loans are still loans from the government, but you have to start paying interest right away.
As far as I can tell, a combination of different loan programs the government will loan any amount of money toward the cost of college with the only "limit" being for undergraduates. Your parents have to take out the loan for an amount in excess of the $12.5k to $18k yearly undergraduate limit. Once you get to grad school you can borrow the entire amount directly. Once you get to the Plus loan program (which doesn't appear to have any limit) there is a credit check required.
There used to be a private loan program (FFEL) where the government would guarantee the loan amount, but I think that was shut down in 2010. I'm sure you can also go to a bank and just get a loan directly, but I don't know what type of special rules apply to those.
The limits I mentioned include both subsidized and unsubsidized federal loan programs. Any further amount you receive is either a private loan or PLUS. PLUS loans are made to the parent on behalf of the student, and actually were dischargeable by the parents' bankruptcy last I checked.
The graduate school limits are higher, but still exist. Med school students, for example, simply cannot fund their entire education through federal loans. The maximum period you can get through federal loans in any circumstance is around $140K, and medical school almost universally costs more than that.
It is possible to discharge student loans (not just Plus loans) in bankruptcy, but you have to basically prove that you can't survive while still making the payments. I don't know if it is easier to discharge the Plus loans or if they all require the same level of hardship.
Sure, but PLUS loans (for undergraduates) are obligations of the parent, not the student. The parent must agree to take out the loan and the parent signs the MPN.
The parent can, of course, take out unlimited amounts of money if their credit qualifies them to, just like they could by going to the bank themselves and asking for a loan.
Bank bailout was not done out of kindness towards banks. It was done to save the economy from free fall. Infact some banks like JPM were forced to accept bail out even though they didn't want or need a bailout.
