Month: March 2013

Whose fault is the big student loan bubble?

by David Atkins

It’s not quite as big as the housing bubble, the causes are somewhat different, and it’s less likely to collapse. But still, the parallels between the housing bubble and the growing student loan bubble are more than a little disconcerting:

Student loans are souring at a growing rate—and investors can’t seem to get enough.

SLM Corp., SLM +4.22% the largest U.S. student lender, last week sold $1.1 billion of securities backed by private student loans. Demand for the riskiest bunch—those that will lose money first if the loans go bad—was 15 times greater than the supply, people familiar with the deal said.

Meanwhile, SecondMarket Holdings Inc., a New York-based trading platform best known for private stock shares, said it would roll out on Monday a platform to allow lenders to issue student-loan securities directly to investors.

“The catalyst for this new suite of services is investor demand,” said Barry Silbert, founder and chief executive of SecondMarket.

But while investors are piling into student loans, borrowers are falling behind on their payments at a faster clip. According to a Thursday report by the Federal Reserve Bank of New York, 31% of people paying back student loans were at least 90 days late at the end of the fourth quarter, up from 24% in the fourth quarter of 2008. The figures include federal student loans and those issued by private lenders.

Investors’ hunger for risky loans shows the lengths they are willing to go to generate returns in a period when interest rates are hovering near record lows.

Most student loan debt is backed up explicitly by the government. But about 10% of it goes through Sallie Mae, a private lender. And securities investments in these loans. Either way, the demand on Wall Street for securities on these loans is growing fast:

Yields on securities backed by student loans, which move in the opposite direction of prices, have been plunging. The average yield for floating-rate student-loan-backed securities stood at 1.48% on Thursday, down from 2.01% at the end of August, according to Barclays BARC.LN -1.29% . That compares with roughly 0.75% for comparable Treasury securities.

This year through February, dealers sold $5.6 billion of student-loan-backed securities, more than triple the figure for the same period in 2012, according to Asset-Backed Alert.

The federal government doesn’t bundle new student loans into securities, so investors don’t bear the risk of defaults. Dean Maki, chief U.S. economist at Barclays PLC, said higher delinquencies likely would raise the cost of the student-loan program to the government.

Those who believe that the crash of 2008 was a “black swan event” won’t even see a problem here. The rest of that this sort of mad rush to securities against loans that probably cannot be repaid is a symptom of the race among those with far too much capital on their hands to find places to park their enormous wads of pocket change, creating big demand for even the riskiest of investments.

Assigning blame for this situation becomes something of a political Rorschach test: one’s political theology.

A progressive looks at this situation and sees a host of social ills and policy missteps contributing to it. These begin with lack of affordable access to higher education, but also include a lack of jobs with decent wages available after graduation, an overabundance of liquid capital combined with a culture of greed seeking out ever-greater returns on ever-riskier investments, and a dearth of regulation controlling what kind of investments our too-big-to-fail financial institutions are allowed to take on.

A conservative looks at it and sees the hand of government. A conservative sees a government that funnels too many people toward higher education, ensures the availability of too many educational pathways without secure jobs on the other side of them, and guarantees too many student loans that most students and lenders, they believe, would not take on in purely “free” market.

These two sides are not going to be reconciled, and any set of policies attempting “compromise” between them would lead to worse effects than giving free reign to either one side or the another.

The progressive approach works. It has worked in the past, been shown to work elsewhere in the world, and leads to superior outcomes. But it also requires progressive taxation and regulation to accomplish.

The conservative approach would almost certainly “work” in the sense that the end result would lead to fewer risky investments. Most poor students would never have an opportunity to go to college; most funding apparatuses that support poorer students achieving higher education would disappear or be funded by the least scrupulous of lenders; most liberal arts education would vanish into thin air; and capital investment would go toward higher education that safely served only a wealthier customer base more able to repay loans.

The problem is that that vision of society is certainly callous, and borders on sociopathic. Some would rightly call it evil. It’s a vision that assumes that those with money always deserve to have it, and those without don’t deserve it and must do whatever it takes to get it. It’s a vision that assumes the “free market” is a force of nature to which human beings must adapt or die, rather than an artificial construction designed to serve the needs of the human beings.

These beliefs were not always accepted in polite society because they lead inevitably to the collapse of what we call civilization. They presage a Dickensian banana republic of very poor and very rich, subject to rampant corruption and instability. Unlike those who claim that feminism and marriage equality will lead to civilization collapse, the historical evidence is ample that too much inequality and too little support for the middle class leads inevitably to the loss of broad-based prosperity and democracy.

We are fortunate in that most people don’t accept the conservative vision. But for a variety of reasons tied mostly to the short-term self-interest of the wealthy who fund electoral campaigns, as well as the racial and social insecurities of older white men in large sections of the country, the conservative vision has just enough clout to make addressing our challenges utterly impossible through the political process.

The answer to this problem isn’t compromise. It’s public policy specifically designed to disempower plutocratic privilege and racial prejudice in our body politic. Nothing else will accomplish the goal, because pinning down solutions to this and other problems in our system isn’t a question of minor disagreement. It’s a question of political theology.

When one of two religions demands massive human sacrifice on the altar of infallible market, its priests have to be disempowered for peace and justice to be established.

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Why are politicians more conservative than they need to be?

by digby

Dylan Matthews at Wonkblog reports on a fascinating study about liberal vs conservative beliefs:

Last year, a group of political scientists took a random sample of state legislators and asked them a slew of questions, most of which boiled down to: “What do your constituents think about policy?” Do they support gay marriage? Do they support Obamacare? Do they support action to combat global warming?

Friend-of-the–blog David Broockman and Christopher Skovron, graduate students at Berkeley and Michigan, respectively, have released a working paper based on that research and the findings are rather astonishing. 

Broockman and Skovron find that all legislators consistently believe their constituents are more conservative than they actually are. This includes Republicans and Democrats, liberals and conservatives. But conservative legislators generally overestimate the conservatism of their constituents by 20 points. “This difference is so large that nearly half of conservative politicians appear to believe that they represent a district that is more conservative on these issues than is the most conservative district in the entire country,” Broockman and Skovron write. This finding held up across a range of issues. 

Surprised? I’m not. The study doesn’t answer the question as to why this might be, but I have a quick answer: the political media and the donor class are more conservative than the rest of us. I don’t know how many thousands of times I’ve heard the phrase “it’s a conservative country” from pundits and commentators but I’ve heard it many times. And it isn’t just that explicit belief, but a whole set of assumptions that permeate the commentary at every level. It goes all the way back to Joseph Kraft’s famous column from 1968 to today when you hear the media complain about the voters being stupid and selfish when they seem not to support conservative policies for their own good.

As for the politicians themselves,  there are many incentives to be as conservative as their constituents will allow. And it’s not surprising that the people vote for people who are more conservative than they are — they usually have two conservatives to choose from and in the end have to pick the one who’s closer to their beliefs or who holds the cultural signifiers they are forced to substitute for policy agreement. If a liberal is even in the race, he or she usually has less money and almost no institutional support. The Party apparatus in both parties gives its money to the more conservative — under the same assumption that the most conservative choice will always have an easier time winning. It’s a self-perpetuating feedback loop.

I don’t know that changing this assumption among the political media would solve the problem. But it would certainly allow a little bit of clarity. Years of right wingers playing the refs by accusing the media of being liberal lapdogs ha staken its toll. And, frankly, many of the elite political media are extremely well compensated and live in a world filled with rich, powerful people. They naturally identify with them and have less understanding of the average Americans’ daily concerns. (And no, it doesn’t matter if they came up from the average middle class — our meritocratic ethos says they did it all on their own and everyone else could too. Many of them are more hardcore about this than the children of the aristocracy.)

Ultimately, a whole lot of this comes down to money: as the old saying goes, “it is very difficult to make a man understand something when his livelihood depends on not understanding it.”

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Saturday Night at the Movies (on Sunday)

Dial 999: Winstone and squad in The Sweeney

If there’s anything I’ve learned from watching hundreds of crime thrillers over the years, it’s this: if you’re a bad guy, be wary of any police team that is known on the street as the “(insert nickname here) Squad”.  Consider “The Hat Squad” in Mulholland Falls, Lee Tamahori’s 1996 neo-noir concerning the exploits of a merry crew of thuggish cops (led by growly fireplug Nick Nolte) barely distinguishable in thought or action from the criminals they chase. The latest example is writer-director Nick Love’s new film, The Sweeney, which centers on “The Flying Squad”, a modern-day team of London coppers who share similarities with their fedora-wearing American counterparts. For one, they’re led by a growly fireplug (Brit-noir veteran Ray Winstone). He’s DI Jack Regan, a “cop on the edge” who swears by the adage: “To catch a criminal-you have to think like one”. And you also apparently have to act like one; Regan and his clannish unit bend the rules (and violate 57 civil liberties) on a daily basis. But they always get their man, sealing every takedown with the catchphrase “We’re the Sweeney…and you’ve been nicked!”

Naturally, Regan’s questionable methods have put him at loggerheads with his supervisor (Damian Lewis), and especially with head of internal affairs DCI Lewis (Steven Mackintosh). Lewis and Regan have a history of mutual animosity, which would likely turn into open warfare should Lewis ever discover that Regan has been playing bangers and mashers with his (nearly) estranged wife (Hayley Atwell) who is an officer in Regan’s squad. However, office politics soon takes a back seat to Regan’s  obsession with nailing his criminal nemesis (Paul Anderson), who Regan suspects as the mastermind behind a series of bold, military-style robberies (one ends with the execution of a jewelry store customer). The squad intercepts the heavily-armed robbers in the middle of a bank score, but after a pitched gun battle on the busy London streets, they elude capture (set in Trafalgar Square, it’s the most tense and excitingly mounted cops’n’robbers shootout since Michael Mann’s Heat). Regan’s superiors are not pleased with his disregard for public safety, so they ask for his badge and gun. Regan sees this (and a brief jail stint engineered by DCI Lewis) as a minor setback; with the clandestine help of his protégé (Ben Drew) he is soon back on the case (“unofficially”…of course).

Love’s film is based on a British TV series of the same name, which ran from 1975-1979. As a self-proclaimed Anglophile and huge fan of British TV police procedurals, from Prime Suspect and Cracker to New Tricks, Life On Mars and DCI Banks (the latter recently making its U.S. premiere on PBS) I’m embarrassed to admit that this particular series somehow slipped under my radar. Regardless, one needn’t be familiar with the TV version to enjoy this film, which I did immensely. The screenplay was co-written by John Hodge (Trainspotting ), and is chock-a-block with his trademark crackling dialogue and amusing insult humor (although I found myself wonting for subtitles at times). Performances are excellent throughout; Winstone can do no wrong in my book, and I was particularly impressed with Drew’s convincing performance as a reformed petty street criminal turned policeman (he’s better known to many as the British rap artist “Plan B”).

Interestingly, while it has a number of similarities to the Michael Mann film I mentioned earlier, there is one classic noir that Love’s film particularly evokes, and that is William Friedkin’s 1971 thriller, The French Connection. Winstone’s character struck me as a bit of a kindred spirit to Gene Hackman’s “Popeye” Doyle. Both bachelors, they are somewhat slovenly and bereft of basic social skills, but on the job, they are a force to be reckoned with; driven, focused and relentless in their desire to catch the bad guys. And like Doyle’s obsession with “the Frenchman” in Friedkin’s film, Regan’s pursuit of his quarry becomes his raison d’etre; all else falls by the wayside. Perhaps most significantly, both of these cops see themselves as working-class heroes of a sort. The criminals they seek to take down are living high off their ill-begotten gains; they are cleverly elusive, yet so confident in their abilities to cover their tracks that they seem to take a perverse pleasure in openly taunting their pursuers. This is noir as class warfare. Or, this could just be a well made cops and robbers flick with some cool chase scenes…

One hundred years ago today

by digby

 … feminists did something really important.  Here’s Kathy Geier on the centennial anniversary of the first big suffragist march in Washington:

On March 3, 1913, President-elect Woodrow Wilson arrived at Union Station in Washington, DC. It was the day before his inauguration, but the teeming mobs that typically appeared to greet a new president were nowhere to be found. Instead, the streets of Washington seemed deserted. A disappointed Wilson asked, “Where are all the people?” “Over on the Avenue watching the suffrage parade,” he was told.

Upstaging a president is no easy feat. But then, few Americans had ever witnessed so electrifying a spectacle as the suffragist parade that was then marching its way up Pennsylvania Avenue — and into the history books. The parade was brilliant political pageantry, as well as a deeply subversive act. Historian Christine Stansell has noted that in the early 20th century, for a woman to “expos[e] oneself to the public eye” was “in itself a transgression,” something akin to prostitution. And on that cold, sunny day in March, over 5,000 women came together to boldly stake a claim not only to public space, but to American democracy itself.

Read the whole thing. Considering that we are still dealing with equal access to the franchise, it’s especially important to keep reminding ourselves how hard it’s always been to persuade certain white males that anyone should have it but them.

This fits in nicely with a number of pieces written lately, like this one by Dave Roberts, about the efficacy of protest movements. The fact is that major change usually requires a mix of many tactics both inside and outside of politics. These suffragists, led by Alice Paul, were very confrontational, very tough and very brave. And I’m fairly sure that they were absolutely necessary.

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Heresy on Up With Chris


by digby

Up with Chris Hayes was just excellent this morning and I’m excerpting pieces of it below. I would encourage you to watch the whole thing, but the following segments that discuss the sequester and the budget wars are nearly heretical in their rejection of the normal assumptions in these discussions.

This excellent explanation of the fundamental misapprehension about deficits by Stephanie Kelton, chair of the department of economics at University of Missouri-Kansas City, in particular, rightfully makes the entire political culture look completely daft:

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Considering that, talking about what liberals think we should be cutting may not be all that useful.  Still, it’s not a conversation you are going to hear anywhere else:

Visit NBCNews.com for breaking news, world news, and news about the economy

I am glad to see Jared Bernstein be clear about which tax expenditures he wants to eliminate and explicitly exempt those that have been put in place by liberals over the years because both parties agreed that outright government assistance for poor people was off the menu. Because dependency. And as much as I think this deficit reduction nonsense is daft, I will admit that if Bernstein’s plan were to be adopted exactly as he proposes it, it would be one way to eliminate some of our obscene income inequality. (Needless to say, as the ATR spokeswoman implies, this could only be done in the context of “revenue neutral” lowering of rates. )

The following segment may be the best television discussion of what’s really happening and how we got here than I’ve seen in all the blather of the past two years. I wish everyone in the country would see it.

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Chris mentioned this entertaining Ezra Klein column about the intransigence of the GOP and how many of them don’t actually realize how far the president is willing to go to get a deal — and when they’re told they just make even more demands (also known as “give them an inch and they’ll take a mile.” ) His conclusion is what’s important about this:

The interesting question is whether the possibility of a government shutdown, a debt-ceiling breach or simply the pressure of the sequester’s cuts will, in the coming months, break one side or the other. But as long as the GOP’s position is they won’t compromise, there’s not going to be a compromise.

What if the President agreed to no new revenue? Would they agree then? I don’t have the answer to that but I do know that in all the budget battles so far the only revenue that was achieved was revenue from the automatic expiration of the Bush tax cuts. And even that was much less than the president asked for. Let’s just say that the history suggests that one side will “break” before the other. The question is if the Republicans could even agree to vote for their own budget if the president said he was willing to sign it. I can’t say I’ll be entirely surprised if he offers to.

*Also note that Jared Bernstein shows the same skepticism I have about the defense cuts. I still see very little reason to believe that they will be severely cut. I still suspect that if the defense contractors start feeling the pinch, the administration will lean hard on the House progressives to pass a 1.2 trillion deficit reduction package exempting most of the defense cuts while cutting social security and Medicare — and Boehner would fall on his sword and bring it to the floor without a GOP majority. Why he might even be able to persuade his caucus to let him keep his job once he explains that Republicans will probably take back the house by running against the Democrats who cut Social Security and Medicare.

But maybe not. We’re so far down the rabbit hole that politics seems beside the point.

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QOTD: Mitt

by digby

Look who’s talking:

Romney criticized Obama over the sequester, hinting that he would have accepted a 10-1 spending-cuts-to-tax-hikes deal. “It kills me not to be there in the White House doing what needs to be done,” he said. “The hardest thing about losing is watching this critical moment, this golden moment slip away with politics.”

He’s a funny guy. Dishonest too. I think it’s perfectly clear that he would have happily accepted a 100% spending cuts deal. Golden moment, indeed.

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McFadden’s strip in the New York Times:

This would be a lot funnier if Justice Scalia were the only person in America who believed this.

The desire for racism is no longer an issue in American life is powerful for a lot of reasons, most of them good. But it’s obvious that there are a lot of people who want to declare the problem solved before it’s over out of resentment that they had to deal with it in the first place.

It should be obvious to anyone that the act of suppressing the African American vote is racist. And there is no doubt that the Republicans are doing that.

It should also be obvious that when you have a criminal justice system that throws out these statistics, that we have a problem with race:

• African Americans now constitute nearly 1 million of the total 2.3 million incarcerated population
• African Americans are incarcerated at nearly six times the rate of whites
• Together, African American and Hispanics comprised 58% of all prisoners in 2008, even though African Americans and Hispanics make up approximately one quarter of the US population
• According to Unlocking America, if African American and Hispanics were incarcerated at the same rates of whites, today’s prison and jail populations would decline by approximately 50%
• One in six black men had been incarcerated as of 2001. If current trends continue, one in three black males born today can expect to spend time in prison during his lifetime
• 1 in 100 African American women are in prison
• Nationwide, African-Americans represent 26% of juvenile arrests, 44% of youth who are detained, 46% of the youth who are judicially waived to criminal court, and 58% of the youth admitted to state prisons (Center on Juvenile and Criminal Justice). 

Drug Sentencing Disparities 

• About 14 million Whites and 2.6 million African Americans report using an illicit drug
• 5 times as many Whites are using drugs as African Americans, yet African Americans are sent to prison for drug offenses at 10 times the rate of Whites
• African Americans represent 12% of the total population of drug users, but 38% of those arrested for drug offenses, and 59% of those in state prison for a drug offense.
• African Americans serve virtually as much time in prison for a drug offense (58.7 months) as whites do for a violent offense (61.7 months). (Sentencing Project)

The fact that there are also some African Americans in high places does not change the fact that we stil have systemic racism in this country.  You just can’t look at those numbers as come to any other conclusion.

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Wingnut Welfare even for the 1%


by digby

They have more money than they what to do with:

Former FreedomWorks chairman Dick Armey revealed that the Tea Party group paid Glenn Beck about $1 million to say “nice things” about the group on his radio show, and that it got a negative return on that investment, in an interview Friday — with the liberal group Media Matters, of all places. It’s the latest strange revelation in the FreedomWorks civil war. Armey reportedly tried to stage an armed coup last fall, but his reign didn’t last long, and donor Richard J. Stephenson agreed to pay Armey $400,000 a year for 20 years to go away. Apparently that didn’t come with a non-disparagement clause. 

After the liberal magazine Mother Jones posted a copy of a FreedomWorks document about its fundraising, Armey reached out to Media Matters to explain how the group wastes money by trying to raise money through radio hosts Beck and Rush Limbaugh. Armey said FreedomWorks paid Beck $1 million to say nice things about the group to raise more cash, but Beck’s appeals raised considerably less than that. 

“The arrangement was simply FreedomWorks paid Glenn Beck money and Glenn Beck said nice things about FreedomWorks on the air,” Armey said, adding that, initially, Beck’s kind words were only supposed to cost $250,000 a year. “Once that was approved by the trustees, it then took on a life of its own, it got bigger than we understood it to be. All of a sudden it was we are paying Limbaugh as well as Beck.” The price of Beck’s nice words then went up to $1 million a year, Army said. He explained how it was a bad investment:
“If Limbaugh and Beck, if we were using those resources to recruit activists and inform activists and to encourage and enthuse activists, that’s one thing… If we are using these things to raise money; one, it’s a damned expensive way to raise money; and two, it makes raising money an end on to itself not an instrumental activity to support the foundation work that our organization does..  

“It is like federal budgeting… We count the receipts we get from people who have sent in money, and we, meaning they, I am not a part of it anymore, do not count what the funds that are laying out are. They don’t say, we paid Beck a million dollars and we had this program where we raised $300,000, you had a net cost of $600,000, or whatever the numbers are. 

Included in the document posted by Mother Jones is the chart below, which shows there is, indeed, some kind of Glenn Beck and Rush Limbaugh “program.”

First of all, these numbers are staggering. Even by wingnut standards. No wonder nobody bats an eye about writing a couple of blog posts for 30k or accepting 350k from a foreign government. It’s chicken feed for the small fry(ers.)

Global instability on the horizon

by David Atkins

Sometimes even diamonds can be found in the rough. Similarly, Tom Friedman can be worth reading as more than simply an emetic from time to time. This is one of those times.

Friedman has become more and more interested in climate change of late. His worst tendencies lead him to equate the climate challenge and the deficit issue. But when he avoids doing that, his climate material can actually be insightful and decent.

In this case he points out that climate change has led to increased food insecurity in Middle East nations, which has in turn led to the instability that creating the Arab Spring. With that insecurity still present, it may be more difficult than previously hoped to establish secure and democratic futures in those nations:

Jointly produced by the Center for American Progress, the Stimson Center and the Center for Climate and Security, this collection of essays opens with the Oxford University geographer Troy Sternberg, who demonstrates how in 2010-11, in tandem with the Arab awakenings, “a once-in-a-century winter drought in China” — combined, at the same time, with record-breaking heat waves or floods in other key wheat-growing countries (Ukraine, Russia, Canada and Australia) — “contributed to global wheat shortages and skyrocketing bread prices” in wheat-importing states, most of which are in the Arab world.

Only a small fraction — 6 percent to 18 percent — of annual global wheat production is traded across borders, explained Sternberg, “so any decrease in world supply contributes to a sharp rise in wheat prices and has a serious economic impact in countries such as Egypt, the largest wheat importer in the world.”

The numbers tell the story: “Bread provides one-third of the caloric intake in Egypt, a country where 38 percent of income is spent on food,” notes Sternberg. “The doubling of global wheat prices — from $157/metric ton in June 2010 to $326/metric ton in February 2011 — thus significantly impacted the country’s food supply and availability.” Global food prices peaked at an all-time high in March 2011, shortly after President Hosni Mubarak was toppled in Egypt.

Consider this: The world’s top nine wheat-importers are in the Middle East: “Seven had political protests resulting in civilian deaths in 2011,” said Sternberg. “Households in the countries that experience political unrest spend, on average, more than 35 percent of their income on food supplies,” compared with less than 10 percent in developed countries.

Everything is linked: Chinese drought and Russian bushfires produced wheat shortages leading to higher bread prices fueling protests in Tahrir Square. Sternberg calls it the globalization of “hazard.”

Ditto in Syria and Libya. In their essay, the study’s co-editors, Francesco Femia and Caitlin Werrell, note that from 2006 to 2011, up to 60 percent of Syria’s land experienced the worst drought ever recorded there — at a time when Syria’s population was exploding and its corrupt and inefficient regime was proving incapable of managing the stress.

The world isn’t just getting flatter (an observation that isn’t so much wrong as mundane.) It’s getting hotter.

That in turn is creating regional instability that threatens to become global instability. And keep in mind that this is just the beginning of the impacts of climate change. As we approach a series of carbon tipping points and exponential effects, it won’t just be desert nations that experience revolutionary shock. The impacts will be felt nearly everywhere, all at once.

Our little battles over budgets, austerity, discrimination and income inequality will seem to have been insignificant by contrast.

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How to stay competitive without really trying

by digby

I have been taken to task by readers for suggesting that our recent austerity craze is caused, at least in part, by a desire among our betters to lower wages.  For our own good, of course.

And yes, perhaps that is a bit hyperbolic. But perhaps not:

The U.S. job market is slowly improving, and most economists expect that gradual recovery to continue this year. Yet one of the most disturbing trends of the recession is still very far from being reversed. America’s middle-class jobs have been decimated since 2007, replaced largely by low-wage jobs.

A recent presentation from the Federal Reserve Bank of San Francisco lays out the situation clearly. The vast majority of job losses during the recession were in middle-income occupations, and they’ve largely been replaced by low-wage jobs since 2010.

Just saying.

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