The student loan bubble is ultimately the same as the mortgage bubble, without the complex secondary derivatives market. It was created by a combination of stupid politicians trying to make higher education more “affordable” via cheap credit, and irresponsible borrowers who took out loans they weren’t certain they could pay back. The result will mirror the collapse of Fannie and Freddie, this time in the form of their cousin, Sallie Mae — the quasi-government arm that guarantees student loans.
To understand the moronic opposition Congress faces in letting student loan rates reset to their pre-stupid-legislative levels, I refer you first to this article which I wrote over at a finance website. It’s designed to help investors take advantage of this lunacy. Heck, if the government is mucking up, why not take advantage of their incompetence? My editor congratulated me on the article, sending me this link, saying, “Shows you’re doing a good job if the yahoos come after you… with pics of the Big Lebowski as ammo, no less”.
The “yahoo” in question is Cryn Johannsen, a blogger who believes that higher education should be free, and that taking on debt and providing income to “Wall Street” and “banks” is very, very bad. Ms. Johannsen – an apparent Socialist – renders judgment on capitalist opportunism, while not even realizing that any profit generated off my investment suggestions has no bearing whatsoever on student loan borrowers or lenders. It’s like investing in an ambulance company in an area with a lot of car crashes.
Ms. Johannsen is exactly the kind of foe that we are up against on a daily basis, so it’s important to know who she is and what she’s about. Her resumé proudly (though I don’t know why) points out all the time she’s spent in education’s ivory tower, robbing her of the opportunity to see how the real world functions. For her, like all Socialists/Liberals, big government is the answer. She has no idea that all that higher education has to be paid for by someone — that tuition doesn’t just grow on trees. Worse, she believes all higher education should be public. That’s right –private education is evil because it makes money. Indeed, links from her website take readers to another website which seems to have a swine and excrement fetish.
Ms. Johannsen dismisses the reasons why we are in this mess at all, so all the more reason why I reiterate those reasons. Public institutions have been forced to raise fees because state governments consistently run budget deficits, which means they must raise money to make up the difference. Public college tuition fees are often the first thing that gets boosted, thereby necessitating more financial aid to students, thereby increasing the amount of money loaned, inflating the bubble. Meanwhile, on the private side, tuition has increased at twice the rate of inflation for reasons nobody seems to have figured out.
But the one reason Liberals like Ms. Johannsen always ignore is that thing they hate – personal responsibility. High school grads have been fed the line that a college education is essential if one wishes to get a job. Unfortunately, that just doesn’t hold true any longer -especially now in the Obama Economy. Nobody tells these grads the same thing that nobody told mortgage borrowers — if you can’t be certain that you can pay back a loan, DON’T TAKE IT OUT.
Look, I’ve been involved with the credit markets for years. All this whining about debt traps always leave out the most important message — debt is not a trap IF USED RESPONSIBLY. Just like alcohol. Just like fast food. Oh no. That concept again, “Responsibility”.
I’m sure Ms. Johannsen thought she was belittling me by asking how things would turn out if the 36 million people who carry student debt invested in the stocks I suggested. She unwittingly proved my point — it would turn out GREAT! The fact that these debtors can’t actually invest in those stocks because they can’t make ends meet demonstrates that if they hadn’t taken out loans they couldn’t afford, then they’d have capital available to invest. Then they’d make a fortune and they wouldn’t need to take out a loan to go to college.
She doesn’t understand this, though, because it involves the words “investment’ and “profit”. That may explain why she runs her website on “shredded shoestrings”. If she actually made her blog worthwhile, instead of offering up the same old Liberal pablum, then she might attract advertising and generate revenue.
Liberals and Socialists believe that investment and profit are supposed to be moral. They aren’t and, by definition, cannot be. Supply and demand exist regardless of how many self-righteous ninnies like Ms. Johannsen exist. These same people also think they live a “moral” and “ethical” life because they choose “organic” or “local” products. The truth is this: look around your house. Look at what you use. Somewhere in the manufacturing, production or distribution chain of EVERY SINGLE PRODUCT AND SERVICE YOU USE, something immoral or unethical is involved. The diamond in your jewelry box is likely the product of African civil wars. The rice you bought at Whole Foods? The CEO opposes gay marriage. The organics you purchase? They engage in anti-competitive practices designed to push non-organics out of business. The machine that assembled your car replaced a human being who is now out of work. I guarantee that there are millions of workers in the manufacturing chain of everything you use who are racists, homophobic, misogynist, kick dogs, beat their spouse, and steal from friends. If people only invested in pure, clean morality, there would be no investment and we’d be a Socialist or Communist society, which is what I know Ms. Johannsen prefers.
This is the kind of elitist lunacy Americans are up against, and why the Liberal policymakers must not only be beaten back so the entitlement culture doesn’t get any firmer handholds, but why we also must hold the GOP establishment to account. They cannot get snookered into lowering student loan rates for political reasons. All it does is place them in the position of having to raise them again. The entire debacle only pushes Sallie Mae, and America, closer to insolvency and further away from the Founders’ intentions