The Blog

How Aristocrats Create Economic Bubbles and Crashes That Hurt Everyone But Themselves

Who will pay for these student debts when the declining job market fails to provide these certificated but indebted individuals the employment-earnings that they will need in order not to default on them? Again, it will be the American taxpayer, the general public.
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The 2008 real estate and MBS-securities crash was the result of lobbyist-induced deregulation of the Wall Street megabanks, deregulation that extended Federal Deposit Insurance Corporation (i.e., FDIC, public taxpayer-backed) protection to the gambling-losses by the most elite stock investors. The dollar-volume of stock-investments is dominated by the wealthiest 1 percent, so that this deregulation left the general public on the hook for the aristocracy's losses when the bubble finally burst in 2007-08. In other words: this deregulation of Wall Street produced a heads-I-win, tails-you-lose, relationship between the aristocracy and the general public, with the public bailing out the aristocrats, so that during the years after the crash, the "fraction of total growth (or loss) captured by top 1 percent" was "95 percent" according to the most detailed analysis yet from economists, and a survey by Pew Social Trends also finds that there was "an uneven recovery, 2009-2011," in which there was "A Rise in Wealth for the Wealthy; Declines for the lower 93 Percent."

It's happening yet again; but, this time, the aristocrats are skimming their gambling-gains not from other people's mortgage debts (and bum MBS securities), but from student debts (and bum student-loan portfolios) -- the very same category of debts that are now soaring because the public are competing ferociously for academic degrees to appeal for jobs in a stagnant employment-market where not having a degree-certificate means a virtual lockout from all but the lowest-paid jobs, and where even the bottom jobs are increasingly requiring academic certification so that employers can plough through the hundreds of applicants for every job-opening and simply discard all applicants who aren't certificated. In other words, the economic losses by the bottom 90 percent of the U.S. population produced desperation, which has caused millions of poor people to take on student debt, hoping to get out of desperation.

And who will pay for these student debts when the declining job market fails to provide these certificated but indebted individuals the employment-earnings that they will need in order not to default on them? Again, it will be the American taxpayer, the general public. And here is how:

The 2005 Republican-passed and Bush-signed bankruptcy-"reform" law made student debt virtually non-subject to bankruptcy. As CBS news noted, "the 2005 Bankruptcy Reform Bill, which stripped students of the right to declare bankruptcy" has been attacked by Democrats who say "You ought to be able to discharge those loans through bankruptcy. ... Why should [these] private loans be different than debt you can accumulate with a credit card, or at a casino? There's just no good reason for it." But, "We haven't gotten any Republican support" for changing this provision of the 2005 Republican-passed-and-signed bankruptcy-"reform" law. Republicans argue that people who cannot repay their student debts should be simply stripped by the loan-provider, which is what the 2005 bill mandated. This supposedly will mean that the U.S. taxpayer won't be left with the burden. But that's actually a lie; and here is that part of this budding horror-story:

On 27 May 2013, the San Francisco Chronicle headlined "Student Loans' Long-Term Impact" and reported that the 9th Circuit Court of Appeals ruled that making these former students indentured servants to their creditors was "untenable" and the court thus reduced the debt after this former student managed to obtain a pro-bono lawyer to take the case all the way through the various courts and then the appeals courts. However, the 2005 Republican law stands; and, therefore, personal bankruptcy is not an option for students who cannot fully repay these debts plus interest.

Whereas in 2005 when the Republican bankruptcy "reform" law was passed and signed into law by Bush, there was less than $400 billion in student debt outstanding, now it's around a trillion dollars and soaring. Seventeen percent of this debt is 90+ days delinquent, but, if one excludes the loans that are still being taken out and while these students are taking their courses and thus building debt instead of being in the loan's repayment-phase, a third of these borrowers are 90+ days overdue. Whereas mortgage loans, home equity loans, auto loans, credit card loans, and all other forms of consumer debt are declining, student-loan debt is soaring.

Here, then, is how taxpayers end up paying, even though the borrowers will be virtual slaves to their creditors on these loans:

On December 16th, Chris Kirkham at Huffington Post bannered "How A For-Profit College Created Fake Jobs To Get Taxpayer Money," and he described the way this new aristocratic scam works. Click on that link if you want the details, but, basically, here is the story: the lobbyists, who service Republicans (and who also service only the most conservative Democrats) have persuaded Congress (basically, now, the House) to extend the federal government's student-loan-assistance programs to for-profit educational institutions whose investors and top executives are making enormous sums of money while they incentivize (reward) their employees to deceive millions of poor and middle-class people to pay for courses that these executives and top investors (and their employees) know will produce an overwhelmingly high percentage of loan-defaults, so that taxpayers are subsidizing crooks (via federal student-loan subsidies) while millions of their victims -- middle-class and poor students -- are building up student debts that will produce a future for them of garnisheed wages, for decades, if not for the entire rest of their lives, and that will leave many of their families in permanent poverty, even for the relatively few of these students who receive diplomas that employers respect.

Whereas during the run-up to the 2008 collapse, JPMorgan/Chase, and Countrywide, and other such corporations, were skimming mainly from poor Blacks, and from Hispanics many of whom couldn't even read the loan-contracts (mortgages) they were signing, this time, millions of ordinary people of all types are signing onto loans that will produce not just unemployment but garnisheed wages when they are employed -- but, again, the taxpayer is being left to hold the bag of federal subsidies for these crooks, while the crooks (and especially the elite investors and executives) -- walk off with all the winnings.

David Halperin headlined at Huffington Post also on the 16th, "Corruption Threatens Obama Action on For-Profit Colleges," and he reported that Republicans and a few Democrats were trying to water down the Obama administration's proposal to hold colleges responsible for providing degrees and courses that employers want from job-applicants, in order for them to be able to receive federal subsidy. "Since 2009 the Obama administration has been seeking to issue a rule that would implement a requirement written into law that federal money go only to those career education programs that actually prepare students for 'gainful employment.'" Halperin makes clear:

Under this current draft of the gainful employment rule, only 13 percent of current career education programs would be at any risk of losing eligibility for federal aid, and no school would face penalties until 2018. That's far too lenient. ... Far more than 13 percent of current programs are bad for students and are unworthy of taxpayer support. The major for-profit college companies -- including Apollo (University of Phoenix), Education Management Corp. (The Art Institutes, Brown Mackie), Kaplan, ITT Tech, Career Education Corp. (Sanford-Brown, Brooks, Cordon Bleu), and Corinthian Colleges (Everest, Heald, Wyotech) -- disserve and abuse a significant percentage of their students.

For-profit colleges constitute only a small portion of federally-backed loans, but almost half of loan-defaults:

For-profit colleges today have 13 percent of all college students -- but 47 percent of student loan defaults. The real cost to a student of a year at one of the major for-profit schools can be almost twice as much as attending Harvard, yet many for-profit college graduates, aiming for careers in health care and high-tech, struggle to find jobs beyond the Office Depot positions they could have obtained without a degree. The people whose financial futures are ruined by predatory for-profit schools are veterans, single mothers, immigrants, and others struggling to build better lives.

These for-profit colleges pay their representatives in Congress handsomely. One of the biggest aristocrats on the federal dole has been Donald Graham, who recently sold his money-losing Washington Post to Jeff Bezos while retaining his enormously profitable Kaplan Inc. with Kaplan University, Kaplan Colleges, and Kaplan Career Institutes. On August 6, 2013, Halperin headlined "Bezos' Purchase of the Post Leaves Graham With Kaplan For-Profit College," and he reported that Graham's lobbyists were profusely paying lawmakers to gut the weak Obama-proposed rules. "Kaplan spent $1.36 million on lobbying Congress in 2010-11, and that would not even include any funds spent on non-lobbyist consultants, like former top Obama aide Anita Dunn, or any contributions to the ubiquitous advertising against the rule." Practically all of this aristocrat's income was courtesy of U.S. taxpayers. "In 2010, about 90 percent of Kaplan revenue came from U.S. taxpayers through federal aid." Furthermore, "Kaplan executives have done well. Andrew Rosen's predecessor as Kaplan CEO, Jonathan Grayer, received a $76 million compensation package when he resigned in November 2008. But when in 2012 Representative Elijah Cummings (D-MD) asked for-profit colleges to disclose the salaries of top executives, Kaplan/The Washington Post Company refused. The Post's explanation for declining to tell the congressman what Rosen earned? Because the Post was not required to disclose such information about Kaplan, a wholly-owned subsidiary, to the Securities and Exchange Commission. Never mind that nine out of every ten dollars obtained by Kaplan higher education came from taxpayers." Halperin had earlier revealed that Kaplan also has funded ALEC, the Koch-backed organization that writes laws for state legislators who favor their privatization-of-government policies and to pass them into law. So, these aristocrats are, essentially, privatizing the government to themselves.

In other words: what conservatives -- which includes virtually all Republicans but also some (basically the Clinton-supporting) Democrats -- favor is shoveling the public's hard-earned wealth toward aristocrats, as happened with the 2008 collapse and its aftermath, and as is now building again to happen with the only consumer-loan category that is still rising, even after the 2008 collapse.