Perry Glasser

THE CRUSH IS ON US – PART 3 of 3

In Business, Economics, Economy, EDUCATION, Finance, Millenials, TAXES on June 13, 2018 at 12:16 pm

THE CRUSH is not a youth problem; it’s a shared disaster.

Titanic_sinking_stu_w1Being on the upper decks of the Titanic did little to protect wealthier passengers from flood below. Passengers in steerage just drowned sooner, but eventually the entire ship lay at the sea bottom and all passengers were in the drink, a few alive but many more dead.

In Part 1 and Part 2 of THE CRUSH, Dollar$ explored the dimensions and culpability for the coming student debt crisis. But THE CRUSH is with us now. We have struck the iceberg and are taking on water. Never mind the moral bankruptcy of blaming victims, rejoinders to “Suck it up, kid,’ and “Pay your dues, punk” are not only insulting, they ignore the economic realities.

This is the rising tide that sinks all boats.

Seeking better loan programs are merely fuzzy thinking that Dollar$ will risk beating a metaphor to death by calling it the equivalent of moving deck chairs. Better loan programs remain loan programs, that is, they continue to tax the poor for being poor.

Instead, Dollar$ puts forward some substantive changes.

  1. All existing and future loans should be 50% the responsibility of the associated colleges and universities – institutions need skin in the game if they are to have incentive to stop soaring tuition and fees.
  2. Free tuition and fees at state schools through 14th grade. Naysayers will scoff at this “giveaway,” doubtlessly the same naysayers who opposed mandatory free education through 12th grade when everyone was certain a 6th grade education was peachy.
  3. Tax private university endowments. Yale and Harvard don’t need tax shelters for accumulated wealth.
  4. Eliminate tax deductions for education donations. Existing tax structures enable the rich to get richer while dumping the burden of social advancement on the rest of us.
  5. Initiate federal tax credits for tuition and fees to all schools — that’s a credit, not a deduction. If education is the key to our society’s future, why can’t all of us lift some of the burden undertaken by a few of us?
  6. In schools with more than 2500 students, cap university administration at 1/300 students by taxing the payrolls of schools with higher ratios. Someone has to step up and squeeze costs: let’s start with non-classroom personnel.

Why?

Well. . .

ECONOMIC RED FLAGS

Autos.

The auto industry is a mainstay pillar of the US economy. Rubber, glass, steel, plastics, aluminum—there is no element of car manufacture that does not support tens of thousands of people. Subsequent to sales, there is an entire service industry, everything from car washes to oil changes to mechanics employing hundreds of thousands more.

Yet the average age of the person buying a new car is up to 51.7 years; that Boomer earns $80,000 per year. “It takes four millennials to replace one boomer” in terms of economic impact,” observed Steven Szakaly, the National Automobile Dealers Association’s chief economist in 2015.

Dollar$ notes for the less financially sophisticated that auto sales on the secondary market, trading your older hunk of junk for a slightly newer pile of junk, has all the national economic impact of opening a lemonade stand in your driveway.

Sure, Whiners will eventually buy new cars. They will have to in order to get from here to there when the supply of jalopies have all turned to rust. But they will delay joining the auto market—the definitions of a demographic market slowdown. They are barred because they carry too much debt. Buying a new car either has to be postponed or requires even higher interest rates.

That, readers, is THE CRUSH that is visited on us all.

Houses.

c20_currHousing starts in the past 20 years have dipped precipitously, most during the Great Recession of 2006-07, but have never recovered. This, Dollar$ hastens to add, is a fact in the teeth of the lowest mortgage rates ever, the reason housing prices and rents are soaring.

It’s our old friend, the fact that cheap borrowed money always inflates prices.  So it is with tuition; so it is with housing.

Cheap borrowed money does little for the Whiner who can’t enter the market because mortgage qualification is out of reach—too much debt already on the books. Qualifying for a mortgage grows more and more difficult, a task like a donkey running on a treadmill for a carrot.

So what, you ask?

“During the first two years after closing on the house, a typical buyer of a newly built single-family detached home tends to spend on average $4,500 more than a similar non-moving home owner. Likewise, a buyer of an existing single-family detached home tends to spend over $4,000 more than a similar non-moving home owner, including close to $3,700 during the first year.” National Association of Home Builders

Every year a Whiner postpones or is barred from entering the housing market is another year that $4,000 of spending on appliances, carpeting, lawn care, furniture, window dressing, pots, pans, wallpaper and paint is withheld from the general economy. With millions of Whiners forced to stay on the sidelines, billions and billions of dollars are withdrawn from economic activity.

That, readers, is THE CRUSH that is visited on us all

Social Life.

We are hard-wired to like babies. We are hard-wired to enjoy creating babies.

Religious imperatives implore us to be fruitful and multiply, but even if you are of the less religiously minded who believe the problems of our planet stem from the ugly fact that people (gasp!) live here, a problem best cured by having us quietly vanish in favor of a planetary legacy of dolphins, daisies and roaches, Dollar$ notes that for most of us the purpose of life is to create ever more life.

Dollar$ also notes that however unpopular the fact may be, in general, the age of women has a biological shut-off date beyond the shut-off date of men.

Yet the median age for marriage and childbirth are rising.

Women are waiting.

Dollar$ endorses the idea that technological and social advances have made much of that delay possible, and Dollar$  celebrates that technology has gifted women with freedoms and choices never seen before.

Nevertheless, among the Whiners, student debt diminishes those choices. Dollar$ suggests no one has children until that want to, and Dollar$ fervently hopes people will be able to afford children when they make that decision, but Dollar$ also notes the delay of expenditures associated with childrearing siphons billions from the economy.

Involuntarily delayed childrearing holds costs for many that cannot be measured because unhappiness is not quantifiable on any balance sheet.

That, readers, is THE CRUSH that is visited on us all.

Dollar$ believes that most things worth doing are worth doing to excess. No so with student debt, however. Enough, in this case is too much.

Advertisements

THE CRUSH – PART 2 of 3: WHY DOES EDUCATION COST SO DAMN MUCH?

In Business, Economics, Economy, EDUCATION, Finance, Millenials, Political Economy on June 8, 2018 at 10:58 pm

The Whiners can’t win for losing. In the education stakes they are damned if they take on education debt, damned if they do not, and have no third option, at least not as long as anyone wants a comfortable middle-class life. You know, a car, a family, maybe a house, a pet, food in the panty, and a place to put books that isn’t bricks and boards purloined from a construction site.

Why does it cost an arm, leg, foot, your mother’s wig and a promise of your first-born? A Baby Boomer could sell ice cream on the beach all July and August, take another two weeks to goof off, and pretty much have education fully covered. No such luck for the Whiners.

WTF is going on?

The cost of an education soars because unrestrained lending and unrestrained spending is the cocaine of finance.

UNRESTRAINED LENDING

Not long ago, the world learned there ain’t so such thing as a free lunch. Global markets became grossly inflated because of easy credit. No lender had any incentive to say, “No.” After all, if the price of everything will go sky high in the very near future, even your Uncle Pete’s lamebrain kid if he borrows money can pretty much do nothing but clean his toes, wait for profits, sell, and pay off everyone.

But if markets head south, the Uncle Pete’s lamebrain kid shrugs and walks away from a soured investment. When a million knuckleheads all walk away at once, and the financial community is left holding worthless paper.

That was the story of The Great Recession, the worldwide economic slowdown that had national economies shrinking anywhere from 6 months to 6 years after 2006.

It’s not as though a few speculators took it on the chin. When nations’ economies shrink, angry crowds that see their futures and the futures of their children evaporate, carrying pitchforks, torches, and ropes fill the streets.  They want blood.

The similarities between the Great Recession and The Crush are scary.

THE GREAT RECESSION THE  CRUSH
EASY CREDIT BORROWERS Sub-prime mortgages Any 18-year old who can sign his name—or get a parent to sign in his stead.
MARKET CONSEQUENCE The price of housing soars since no one is paying their own money. Why not? Let’s buy 3 properties and in a year sell them to reap huge profits. At 3% down, our returns will be stratospheric! 3? Piker–let’s go for 10! The price of education soars, since no one is paying their own money. Why not? Let’s take three degrees, take our time in school, and figure out what to do after a year or two abroad. We can’t lose! We have a diploma and a bunch of letters after our name! Mom will be proud!
UNDERLYING ASSUMPTION Housing prices will always rise. A return is sure. What can go wrong? College grads will always earn more, a guaranteed return. What can go wrong?
THE CREDIT ENGINE In the US, Federal National Mortgage (FNMA) and Federal Home Loan Mortgage Company (Freddie Mac) guarantee loans made by banks and other agencies.  The Fed is our safety net! How can we lose when the US taxpayer is on the hook to cover all bets in the event of defaults? In the US, Sallie Mae guarantees Federal student loans made by banks and other agencies. How can lenders lose when the US taxpayer is on the hook for defaults if some slacker Whiner refuses a decent job?  Never mind defaults:  the only way to discharge a student loan is for the borrower to drop dead!
THE TOP In 2008 just as the subprime crisis was coming to a head, Americans had $12.68 trillion in debt outstanding, of which housing debt made up $10 trillion.
With collateral like a standing house whose value rises every six months, we’ll make out like bandits!
In 2014, there was approximately $1.3 trillion of outstanding student loan debt in the U.S. that affected 44 million borrowers who had an average outstanding loan balance of $37,172.

With collateral as sound as a college degree, there’s just no way the kid can’t pay it back—and if he doesn’t, we’ve got Mom and Dad on the hook, too!

THE BUST The rise in housing prices proves unsustainable as supply outstrips demand. Financial organizations “too big to fail” do just that. It’s hard to stay solvent when there is not money coming through the front door. Individual savings and investments evaporate like piss on a hot rock. Municipalities holding “guaranteed” mortgage paper can’t pay retirees; whole countries flirt with bankruptcy. Political unrest endangers the developed world Just wait, Bunky.

The Crush is coming.

UNRESTRAINED SPENDING

Unrestrained spending for colleges and universities siphons money from the paying customers–students–into rat-holes that have little to do with their own educations. What incentive does any school have to contain expenditures?  The kids have to pay, and with  a generation coerced into attending, and lending institution falling over each other in haste to lend to kids who can’t resolve debt except by paying or dying, why would a school say to a student, “Nothing doing”?

Living and working on a campus is a nice life. There are shows, sporting events, a lot of trees; pleasant company, all in a landscape that is a joy to the eyes. Bird songs. Fountains. Statues.

Of course it’s not the school’s money that pays for that lovely life. It’s the students. Schools just spend their students’ money. If there is some project near and dear to an administrator’s cold dark heart (assuming administrators have hearts at all) if there isn’t enough in the cash box just raise tuition and fees.

Administrative passions vary, but all have a few things in common:

  1. Administrative bloat has outstripped the pace of student growth. Every dean needs a secretary and an assistant dean who also needs a secretary. Worse, student growth is now reversing itself, but don’t expect college layoffs any time soon.
  2. Administrative services to students allegedly about insuring a safe and healthy environment create the “snowflake” mentality and in fact infantilizes young men and women. Here’s an idea: instead of crumbling with anxiety and accessing expensive college support services, drop out of school and come back when you are ready. Yes, it is possible to live in a world where people disagree. Keep your cash, have another latte, ponder your future.
  3. Whole curricula that have little or nothing to do with traditional scholastic concerns in the Liberal Arts and Humanities or real-world studies such as Math and Science are now lavishly funded. Professors are passionate about educating students about the smallest social segments anyone can identify. Instead of seeking our commonalities, find our differences. A professor’s fantasies of revolutionizing society must be indulged. Identity politics can and perhaps should be stressed on campuses as an engine of social change, but never forget that students pay cash money for a political indoctrination that is available for free 5 yards beyond the ivy-covered walls.
  4. Colleges and universities compete for students by offering amenities usually reserved for cruise ships or mental hospitals: health clubs, guidance counselor, swimming pools, lounges, architecture that wins awards, teams that win championships. The world’s greatest teachers, Siddhārtha Gautama, the Buddha, taught under a banyan tree; Jesus of Nazareth did his best work lecturing in the open air on a hill. They managed to change the world by talking about common humanity, not by demanding their student spay heed to their difference.
Almamater

Please pay at the door.

  1. Colleges and universities have no financial skin in the game. How this point eludes legislators mystifies Dollar$. Thanks for borrowing cash, kid, thanks for giving it to us, don’t let the door slam you in the ass on your way out where you will soon discover that your profound knowledge of a contemporary gay Asian poet has less market value than the dude’s poetry.
  2. Legislatures have cut aid to state education, off-loading what was once understood to be a public good to what now constitutes a use tax. Never mind that all of us benefit from youth ready, willing, and able to make the innovations in products and processes that will benefit us all, let’s charge only the kids.

But is there a costs to us all?

You betcha.

We are every one of us at risk. The Crush will come for us all.

THE CRUSH: THE COMING STUDENT DEBT CRISIS — PART 1 OF 3

In Economics, Economy, EDUCATION, Finance, Millenials, Personal Finance on June 7, 2018 at 5:58 pm

When it comes to student debt, because of the coercive necessity for advanced education and its the rising cost, the perennial Millennial and Gen-X complaint about how their parents, those self-centered Boomers,  screwed up everything, Dollar$ concedes the issue.

Millennials are, for once, correct.

Call them The Whiners, but call our system to fund education The Crush.

whiner

Dollar$ despises the reductio ad absurdum that dumps entire populations into convenient rhetorical buckets. Gross generalizations about millions of people can never be accurate. Any thinking person (a Dollar$ reader, for example,) can point to dozens of exceptions, but in the grand scheme of things it is now long overdue that we grapple with the out of hand system for funding education.

The Crush will soon crush us all.

So this column will not be about how Whiners need to man-up, knuckle down, and work. Look, a kid borrowing money for education is accepting debt precisely because the kid wants to get ahead. The Crush does not allow it.

This Dollar$ series will be about

  • our coercive culture,
  • risk-free lending from banks and The Fed,
  • educational institutions that have no incentive to manage costs.

The Crush allows  no escape, no free market options, no serious choice to not participate, and no institutions with any incentive to carry the weight, though plenty offer lip service as they add bricks to the load.

COERCIVE CULTURE

Citizens in America with advanced degrees earn considerably more than citizens without a parchment.

graph

Of course, free spirits may always choose to abandon The System and be poor, but the gap between having a Bachelor’s Degree and not having one in a nation where medical care, housing, and being reasonably fed depends on income, makes the Poverty Option the choice of living with a gun to one’s head or not.

Trapeze artists who fly with no net all eventually fall to earth.

What is a Whiner to do?

RISK-FREE LENDING

Bankruptcy laws are the enlightened replacement to debtor’s prisons. Nor do we allow people any longer to become indentured servants to pay their debt. Slavery is simply evil; holding debtors behind prison walls disables their ability to pay their creditors.

Besides, in our corporate state, to be fair, where corporations are legally people, you can’t jail a business no matter how badly it manages its affairs (though Dollar$ ardently wishes we could).

Bankruptcy laws humanely offer a Citizen a new start. To be sure, as a strategy to manage personal finances, declaring bankruptcy should always be a last resort; it cuts an individual off from future credit for many years, and the process of bankruptcy debt relief is managed by courts that apportion remaining assets to grumpy creditors who must accept something instead of nothing.

Yet debt incurred for education whether it be from the Fed or a private loan from a bank cannot be settled by bankruptcy. Businesses leverage their assets with debt all the time. Who would argue that leveraging oneself as an asset that can and will earn more is a bad idea? That debt follows the borrower forever, even through bankruptcy. Short of paying it off, the sole means of settling student loans is Death.

death

THE ONLY WAY TO ESCAPE STUDENT DEBT

Like Fat Harry, who in my Brooklyn childhood was all too happy to lend money for a quick plunge on a horse at Aqueduct, some education loans grow through compounding any unpaid balance. Harry called that the vig. Harry might apply a baseball bat to the knees of a derelict borrower to encourage compliance, though Harry never preferred a payoff when he could keep his money on the street earning ever more. An outstanding balance was far better than some Citizen … uh make that Sucker….trying to settle.

With educational loans, just because you’ve made the stupid decision borrow a fortune against future earning when you are in your teens (something like betting on the wrong horse), the banks and Fed will forgive several payments. No problem! Like Harry, they are delighted to fold what you did not pay into your outstanding balance and add it to your total debt! When you start paying the vig again, YOU’LL OWE EVEN MORE and if you don’t pay, they’ll take it through the IRS.

It’s not a baseball bat to the knees, it just feels like one.

THE RISING TIDE WILL SINKS ALL SHIPS

The cost of that required education at public and private schools has soared at twice to three times the rate of inflation, a rate that HMOs, hospitals, and medical insurance envy. Baby Boomers who earned a year’s tuition and fees with a decent summer job, if they needed it, worked during the school year for a few hours per week for incidental expenses, inexpensive textbooks and dormitory space that was less than luxurious, but kept rain off their heads.

Whiners caught in The Crush have no such option.

The average tuition and fees for a degree program at a state institution in 2017 is just under $10,000. Now add books and mad crazy things like food and a roof. Boy, those college kids are scamps!  The eat food! They wear clothing! Such frivolity!

There’s not enough ice cream to scoop to meet those expenses.

Of course, they might work their way through school, attending fewer hours while they work somewhere at minimum wage–except that winds up making the cost of their education go up by another year or two…

The Crush has no mercy.

**********************

COMING SOON

PART 2—WHY DOES EDUCATION COST SO MUCH?

PART 3—THE CRUSH