The Last Bailout … and the Next

Jesus:

Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.

The Fed has said it had “no credit losses” on any of the emergency programs, and a report by Federal Reserve Bank of New York staffers in February said the central bank netted $13 billion in interest and fee income from the programs from August 2007 through December 2009.

It wasn’t just US banks; foreign banks got tens of billions in this secret TARP deal. The revealing thing for me is not how much the banks got — I suspected the number was in this ballpark. It’s just how scarily close we came to a complete system meltdown.

What really gets me, however, is how little responsibility has been taken for the banking collapse. Yeah, I know — it was all CRA, ACORN and the government forcing banks to lend money to poor people. But it wasn’t poor people who created credit default swaps. It wasn’t the CRA that made banks stupidly (and often fraudulently) pack mortgages into investment vehicles and sell them to each other. The massive leveraging our bank system was not ACORN’s idea. The bankers can take all the credit they want for those “innovations”. Isn’t someone going to go to jail for this mess? The S&L bailout cost a lot of money too, but at least the crooks went to jail.

In the meantime, we can rest easy knowing that this sort of debt bubble will never … what was that?

This chart looks like a mistake, but it’s correct. Student loan debt has grown by 511% [between 1999 and 2011]. In the first quarter of 1999, just $90 billion in student loans were outstanding. As of the second quarter of 2011, that balance had ballooned to $550 billion.

Obviously the number of students didn’t grow by 511%. So why are education loans growing so rapidly? One reason could be availability. The government’s backing lets credit to students flow very freely. And as the article from yesterday noted, universities are raising tuition aggressively since students are willing to pay more through those loans.

Ah, yes. Now this is one we can blame on liberal interests and politicians. They have been pushing harder and harder on the education bubble. And many want to make it worse with direct federal loans (call it Fannie Ed) or “forgiveness” of loans if someone enters a politically-correct industry.

Hang on to you wallets, guys. It’s going to get worse before it gets better.

Comments are closed.

  1. Rann

    What about evil Wall Street?

    Dude, you know how bad it’s gotten?

    I saw a round table on MSNBC, and every single one of them was saying Obama was being a jackass for announcing “I have a jobs plan! I’ll tell you when I get back from my vacation in Martha’s Vineyard!”, and telling him he needed to stop vilifying Wall Street.

    Obama has gotten too flagrant and liberal for MSNBC to not call him out.

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  2. Hal_10000 *

    There is no jobs plan. There can’t be because government doesn’t create jobs. I think everyone knows we’re screwed for a few years on jobs and just won’t admit it.

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  3. AlexInCT

    Oh, I am seeing a lot of libs losing their taste for Obama and his antics, but after they told us for 2 years straight that complaining about Obama = racism, I think most of them are going to have a real though time doing any serious reporting on the guy Rann.

    I have to admit however that Obama’s “I have a secret super duper jobs plan and will tell you after I come back from vacation”, coming after 3 years of him and the left pushing their crazy ideological programs that they claimed would finally guarantee us all utopia, but in reality only served to frighten all business owners into hunkering down and the job picture to get progressively worse, is absolutely galling. And even the left is catching on to that.

    As I always ask: can you imagine the reaction however if all things where the same and Bush had pulled a stunt like this? Fuck, at this point Obama is going to out-vacation Bush big time, and I remember the media constantly obsessing about Bush’s vacations. Bush BTW went to his ranch in Texas to clear brush on practically every vacation, while Obama seems to always go hang out in the very places where the people he most demonizes – the wealthy – go hang out.

    And yet, nothing from the chattering classes on that obvious distinction and ironic message? Heh. It must suck to be a leftist. I never remember having to twists myself this badly into a pretzel to defend any Bush policies, even the ones that left me with a terrible taste in my mouth, like these tools have to for Obama. I wonder if they realize the damage they did to their “progressive” movement by giving us this guy, and then feel bad about doing it. Of course, they can’t admit it.

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  4. Rann

    Oh, I think Obama’s got a jobs plan. It’s exactly like his old “jobs plan”, and even spelled the same! Neverminding that it didn’t work, just wasted a ton of cash on croneyism, and obviously made things worse, but by gum we’re gonna try it again! So here we go!

    o/` S-T-I! o/`

    (I hope you like living on the streets!)

    o/` M-U-L! o/`

    (Eh’ll be thinking of you while I’m on vacation!)

    o/` U-S-FUCK-YOU-ALLLLLL! o/`

    (Because that’s what the US does now! Bye-bye!)

    But Mickey’s musical stylings aside, Obama’s “jobs plan”, if it exists at all, is probably just another large stimulus with the serial numbers filed off. The really debatable things are if he seriously thinks that will get it passed, and if he cares. It’s not a hard argument to make that Obama doesn’t really think he’s going to be reelected and has basically just given up, and is going to do the bare minimum amount of making it look like he’s still taking it seriously, and in actuality is just going to take the remainder of his time in office to ride the taxpayers for all they’re worth.

    It’s not a hard conclusion to come to, considering that someone who spent as much time campaigning as he did (it being one of his only real skills) must surely have known that dangling that sort of carrot in front of a dissatisfied and in many cases unemployed electorate right before very visibly heading off to an extreme luxury vacation (and essentially admitting that he considered the vacation more important than his constituents’ plight) was near-suicidal. Either he’s given up and figures his only chance of reelection are the diehard toe-the-line group that would vote for him no matter what, or his arrogance has reached insane heights even for a politician, or he’s dumber than even his more fierce detractors said he was. Those are really the only three options, there is no way to spin Obama’s announcing “I know you’re suffering and jobless, and I’ll get right to helping you as soon as I get back from my nice long luxury vacation at Martha’s Vineyard, which you’ll be paying for” as something acceptable or intelligent. (Well, unless you’ve just had so much koolaid your skin’s changed to a color that does not exist in nature. I wouldn’t be surprised…)

    I wouldn’t put it past Bachman to have some kind of “jobs plan” either, but she’s nuts anyway. I honestly wouldn’t be surprised if it involved making churches able to take contracting jobs from the state to dig ditches and do other unskilled labor and letting them hire parishioners to do it, or something like that.

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  5. hist_ed

    And many want to make it worse with direct federal loans (call it Fannie Ed) or “forgiveness” of loans if someone enters a politically-correct industry.

    This is already happenning and has been for years. The Department of Education run the biggest student loan operation in the country (see here: https://www.dl.ed.gov/borrower/BorrowerWelcomePage.jsp ).

    For many classes of public service jobs, there is debt forgiveness. Teachers, public defenders, and proseccutors (and many other government jobs) get their remaining loans forgiven after ten years as long as they kept their loans current.

    There are other forgiveness programs if you teach in a school with a certain precentage of poor kids or a particular subject (special ed, for example).

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  6. AlexInCT

    Speaking of school loans hist_ed, I think that’s the next bubble that’s gonna burst. Well after the coming double dip in the housing market that’s right around the corner. I bet Obama’s job plan helps expedite both, but the reality is starting to sink in for many people that the degree in womyn studies or french poetry of the 13th century they are now in debt to the tune of over $100k or more for, unless they land a job teaching at some level, has not left them qualified to do anything more than make minimum wage asking people if they want to supersize their meal. We now have close to a trillion dollars in outstanding school loan debt, and way too many of those people carying the biggest share of that debt that can’t get employed or are not making enough money to pay the debt and live. I smell another government bail out.

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  7. AlexInCT

    Any politician with a jobs plan that doesn’t basically consist of a massive rollback of the bloated government regulation and a reduction of the tax burden on small businesses, things that would let loose the economic engine of the private sector, should be laughed at. Government doesn’t create wealth. It shifts it around and burns up a ton of it in the process of doing so and trying to control it.

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  8. Seattle Outcast

    There is too a plan. He’s stealing it from Bob the Dinosaur and “waiting for all his problems to go away”. That’s why he’s been on a near-permanent vacation – for a problem this big, you have to do a LOT of waiting….

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  9. JimK

    When the student loan bubble bursts, it’s gonna take down a lot of people. There’s a HUGE staff at my school dedicated to dealing with nothing but loans. Tuitions rise and rise and rise beyond all sense, inflation or value, because fuck it, the kids can get loans. So schools have been expanding and expanding and expanding…that shit will be OVER.

    I got 20 bucks that says in 15 years, the only school that will be operating break-even or with a surplus? Schools with successful sports teams supported by community dollars (i.e. attendance at games, merch, etc.). Everyone else will be losing money hand over fist once this bubble explodes.

    Locally, Quinnipiac is charging 51 thousand goddamned dollars a year to get a DOCTORATE in physical therapy, and that’s if you live off campus. Are you fucking kidding me? There’s so much wrong with that I hardly know where to start. The cost? The fact that they now inflated the program to “entry level doctorate?” The fact that a 4th tier school can get away with charging Ivy League rates?

    When this all blows up in their faces, a lot – a fucking whole lot – of jobs will be lost. Pensions will be destroyed, contracts broken…it’s going to be quite a mess. And college towns, like New Haven – we have like eleventy big dollar schools within a 45 minute commute – will be devastated.

    Hopefully I’ll have moved out of this state by then.

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  10. AlexInCT

    Maybe his plan is to stimulate job growth by taking more vacations. You follow Vilsack’s logic this means more work for security details, ritzy hotel chains, police forces, and so on. Win-win on that stimulus.

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  11. AlexInCT

    Locally, Quinnipiac is charging 51 thousand goddamned dollars a year to get a DOCTORATE in physical therapy, and that’s if you live off campus. Are you fucking kidding me? There’s so much wrong with that I hardly know where to start. The cost? The fact that they now inflated the program to “entry level doctorate?” The fact that a 4th tier school can get away with charging Ivy League rates?

    Please say you are kidding about that $51K a year Jim. That is fooking insane. Seriously Quinnipiac is charging that much? This problem is far worse than I thought it was. Holy sh*t!

    When this all blows up in their faces, a lot – a fucking whole lot – of jobs will be lost. Pensions will be destroyed, contracts broken…it’s going to be quite a mess. And college towns, like New Haven – we have like eleventy big dollar schools within a 45 minute commute – will be devastated.

    They will clamor for bail outs and get them I bet. In the blue states I would not at all be surprised that they jack up taxes on those still working to save these schools. Maybe they can petition the federal government for a bail out. Claim it is a stimulus and presto, all is well. Connecticut will get some serious pain from this for sure.

    All kidding aside, I was talking to someone that is at UConn – software development in engineering – and he was pointing out that the faculty staff there is now outnumbered by those working on the peripherals. He pointed out that there are more paper pushers now than there are teachers by a two to one ratio. He said that ratio only a couple of decades ago was 4 teachers to each admin person, and 3 decades ago it was even higher in favor of those that where there to teach. I have not been able to confirm these numbers, partially because I am inclined in hindsight to think they sound correct and don’t want to bother, and I should mention I trust the guy, but that ratio just smacks of insane to me. And most of these non-teaching employees work in the various massive bureaucracies that deal with student loans and payments.

    On the up side when these big learning institutions take the beating that’s coming, maybe all those online schools will finally become the thing. Frankly, and unless your concern is with the whole college experience or the need to get the kids out of the house, I feel online classes are far likely to be more effective than, and at least as effective as a 300+ student class thought by a TA, what these colleges offer as an education. Probably even more pertinent since you are likely to pick up some valuable skills learning to interact in a virtual environment. Technology has made the need to be physically there non existent IMO. Just like the advances in communication technology has made so much business travel unnecessary as well.

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  12. JimK

    Please say you are kidding about that $51K a year Jim.

    I did make an error there. it’s $36,130 tuition if you live off campus, and $49,560 if you live on campus. The number I saw was estimating travel, food, living and tuition for off-campus students.

    Oh and the school says add $800 for books. Which is horseshit. I’m part time at a community college and in my second semester, I spent $500 on books. Mostly used fucking books.

    So it’s not 51K. Unless you live on campus, take the food program and need books. In which case it;s probably closer to 55K. To get a doctorate. For physical goddamned therapy.

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  13. CM

    I’m part time at a community college and…..

    Are you the Jeff, or the Abed? Don’t tell me Pierce??!
    (That’s about the extent of our knowledge of ‘community college’ down here at the bottom of the earth)

    Seriously though, unpaid student loans have become an issue here too. They are govt loans. The govt can call them in now, and is even now able to chase them overseas.
    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10745720

    “This is not a harsh move. It is about fair and appropriate, real world consequences of the same sort you would face if you continued to remain in serious default on your mortgage.”

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  14. AlexInCT

    CM, in the US student loans are the only kind of debt you can not discharge in a bankruptcy proceeding. Like herpes they are for life. Is that the same where you are?

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  15. CM

    No idea. I got rid of mine within a few years of graduating and getting a job. Managed to get by without a large one as I worked quite a lot and didn’t spend much. The wife has one as she went back last year to do legal professionals (‘the bar’). But so long as you’re not earning money you don’t have to pay any back and it doesn’t incur interest.

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  16. JimK

    Are you the Jeff, or the Abed? Don’t tell me Pierce??!

    When that show first aired, I joked that I was the Pierce, since the average age in class in like, 20. I’m double that. But a few weeks later, after I got everyone watching the show, a group of my classmates were like “You are SO the Jeff. You are our Winger!”

    I took it as a compliment. Good Lord I hope it was a compliment. ;)

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  17. CM

    Haha, I would definintely take it as a compliment, Jeff is a great character. I reckon it’s the best comedy in years. The double-episode Season 2 finale (‘A Fist Full of Paintballs” / “For a Few Paintballs More”) was epic, and even managed to outdo the equivalent “Modern Warfare” from the first season. The Joel McHale / Josh Holloway “you’re not that good looking close up” thing was funny as shit.
    During the first season I thought Gillian Jacobs was the hot one but by the end of the second season I was firmly in the Alison Brie camp….the double-episode finale confirmed that in no uncertain terms.

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  18. AlexInCT

    I beleieve that you are able to avoid payments as long as you are in school here in the US. Not working however requires you jump through hoops to get some kind of temporary suspension of your payments. Think you do not incur interest then, but I might be wrong.

    I never had to worry about loans to pay for to get my “edicatian” and my wife did not have an insane amount we paid up in a few years. Of course both of us are in fields where if you are good you can get paid well. Student loans have not been a big deal to us. Have releatives that have not been that lucky dealing with these things, though. And with my kid getting up to the age where that decision needs to be made I was wondering. I hear the military still pays for a good schooling, but I have been encouraging him to actually also look at trade schools. They don’t outsource those jobs, and these people make some serious cash.

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  19. Mook

    But it wasn’t poor people who created credit default swaps. It wasn’t the CRA that made banks stupidly (and often fraudulently) pack mortgages into investment vehicles and sell them to each other. The massive leveraging our bank system was not ACORN’s idea. The bankers can take all the credit they want for those “innovations”. Isn’t someone going to go to jail for this mess? The S&L bailout cost a lot of money too, but at least the crooks went to jail.

    But Fannie, Freddie and HUD were mandating the lowering of credit standards to give loans to “underprivileged” borrowers who otherwise wouldn’t have qualified, thereby fueling a housing/debt bubble. I believe the Feds now guarantee something like 90% of all mortgages these days. Extreme Fed Reserve money printing and artificial intervening in interest rates starting under Greenspan and increasing under Bernanke made it worse, resulting in the collapsing of the tech bubble in 2000 while continuing inflating the housing/debt bubble. Too much money chasing investments.

    Banks were supposed to keep an iron wall between their insurance and investment division and their banking group. If that wasn’t done, then criminal prosecutions and bank closings should have happened rather than bailouts. The bailouts were yet another federal govt. intervention which rewarded bankers who made bad decisions. The bailouts did not “save us from meltdown”, it kicked the can down the road while adding more debt wasting more taxpayer money to intervene in the market. They should have let the bad banks fail. Loans will ALWAYS be made if the risk/reward is profitable.

    Student loans are a bubble too. But again, govt intervention in making/guaranteeing these loans inflated the bubble, including university tuition costs which have been wildly inflated due to these govt. loans.

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