The student crisis is not like any crisis this country has seen. It’s not a natural disaster like a hurricane, a medical pandemic like MRSA, or even an inability to stay competitive in the global economy. This is, in fact, man-made. To explain, a national innovation system has three parts, basically schools, companies, and customers. In a functioning system, customers tell companies what they want and companies ask schools to educate students to produce what customers demand. The companies are merely a go-between, and when they decide they don’t want to do that anymore, you get what we have today in the United States.
Too many Wall Street asset managers and finance professionals with similar experience have become directors and even CEOs of large nonfinancial corporations. They aren’t just at banks and insurance companies but places that are supposed to produce actual tangible items and also provide services. However, they know that they are beholden to Wall Street via their fiduciary duty to constantly raise earnings per share. As such, each line item on the income statement, to them, no longer represents a real product, an actual person getting paid a salary or getting fired, a tax that actually pays for something like roads and bridges and healthcare and so on, but just an input that either raises or lowers EPS. This abrupt divorce from reality, coupled with all the money in the world to set the rules however they want, has caused the national innovation in this system to fall apart.
We now have educated students who can’t find jobs because providing a job is not really a priority of that asset manager-turned CEO. The priority is earnings per share, no matter how it gets done. In short, the CEO may be blind or may be a jerk, but either way, it’s all about not spending money, even when that money could create ten times more money in the future. That initial dip in earnings per share is seen as a violation of the most basic rule of business–don’t piss off Wall Street–and since they’re longest time horizon is two years and is often shorter than six months, it’s not important to invest in anything with a payback period longer than year. Without getting into much detail, employee training programs have that kind of payback period. So, yeah, you get it. We suck because, as humans, we take too long to turn a profit because, ya know, robots don’t have to sleep or eat, and we do.
Of course, you know students loans are sky high and that, without jobs or while being underemployed or sometimes even gainfully employed, many people are just not paying. That’s called a default. So, that means the lender isn’t getting paid, whether that’s the government or a private institution. You’re probably also familiar with the concept of securitization, though you may not know it by that name. It means that those student loans aren’t really paid to the original lender. The original lender sells the loans for pennies on the dollar as soon as they’re issued. They get paid immediately and someone else has to hope the student pays it back. That allows small lenders with only a little cash to collect and make an instant profit, essentially being paid by the bank to generate money on a low level at which Wall Street wouldn’t bother operating directly. Wall Street wouldn’t bother giving a $10,000 loan to an 18-year old for school, but they’d happily purchase it in two seconds from a smaller entity by making just a phone call. No effort on their part, no need to pay any employees, etc. It’s just another investment for them and an immediately payoff for the small lender. So, when the loans come due, Wall Street yet again can’t be troubled to talk to the student. So it pays someone to do that. That company tries to collect the loan payments, takes their cut, and sends the rest to Wall Street.
Sounds like the mortgage-backed securities debacle, yes? Well, yeah, it’s exactly the same. It’s actually a little worse because Wall Street could own the homes then but now can’t own anything. The best they can do is get the students to work for them to pay off the debt, but that’s illegal no matter how you slice it and will probably stay illegal. God, I really have to use the word “probably” there? I mean, it’s like 98%, but with Trump, the concept of some highly diluted form of de facto indentured servitude is possible, if ever so slightly.
Basically, you know the story. Defaults have spiking, and when they reach a critical mass, the economy crashes. Wall Street is left holding the bag, and that makes us happy because most of us would rejoice at their expense at this point, but unfortunately for us, their failure becomes our failure. If they’re not going to lend any money, companies fail, and the ripple effect we saw with the mortgage-backed securities happens again but with student loans. It’ll happen with car loans, too, and any loan at all that is backed by any collateral or no collateral at all. It’s called loan syndication, and THAT is the new way to make money.
THAT is the weaponized financial tool that is hurting us all.
Seriously, I’m not a crazy conspiracy theorist. I actually worked as an analyst during the financial crisis and analyzed portfolio decisions about these syndications. I worked for a hedge fund for four years. I saw their books. No, I DID their books! And well, I got the heck out of there. And yes, now I don’t have as much money, hence my point that they kind of have a whole heck of a lot of control. Too bad Congress won’t do anything about it.
The government did, however, do one wonderful thing. It became a threat, and they did lose, but they absolutely tried. They gave student loans. Some were just loans, other required you to go into certain fields or to work for them, and others were only for elite students. Some even were after the fact, meaning they forgave your loans if you worker in a capacity that freed up some of their money, like teaching in an inner-city school.
Sounds good, but universities were receiving $X dollars for students and then were receiving less than $X and the rest of the tuition from the government. Since the government is a larger source of cash per student than the actual student or his or her parents, they raised tuition. It’s pathetic.
Now I promote education for everyone. I tell everyone that they should learn as much as they can, and that’s why I’m teaching all this stuff to you–I just feel like I have to–so let’s not blame the universities. Why not? Well, even if you want to blame them, there’s a bigger fish to fry. They’re at least educating us. They’re overcharging, but a lot of that money is going toward education. Sometimes, you get a TA and the education is going directly from the professor to the community or a company or the government via his or her research, but we’re learning as a country. The country and the world is becoming more intelligent and being taught some many ways to be more innovative and efficient. Since most professors are an expert in only a couple things, you’d think the students are learning something along the same lines as those other stakeholders, which means those stakeholders can hire those students. The students and, let’s say, the community or a company are taught by the same professor or at least that professor’s TA and in the same subject matter. So, they can obviously work together, with the company paying the student. It’s a perfect system.
Yeah, right.
The companies aren’t paying the students. They are finding every way to not pay someone after they graduate. I know it sounds silly, but their excuse is basically ‘I don’t wanna!’
These loans are bankrupting people. The most important effect is the psychological stress that just ruins any chance of being able to handle any of life’s challenges, but let’s say you’re fearless: what’s the economic cost of all this?
Well, we have an average of $30,000 in student loan debt, and we end up paying probably $55,000+ when you add in all the interest over many years. That’s a down payment on a gigantic house you’ll never need because you can’t afford children. Your salary is going to be around $100,000 as an oft-promoted veteran of a good company. Many do better than that, but so many wash out. Even more never get on that track. We talked about that: outsourcing, automation, underemployment, and so on. So, you get that awesome salary, you feel good, Wall Street slowly recedes into the shadows before you realize the ruse, and you get a bill in the mail christened with a free migraine to go with it.
Last week, I talked briefly about the velocity of money and how a slow velocity is synonymous with poor circulation of money because it’s stored in large homes and yachts and such. Well, in this case, velocity is near zero because you’re not spending your money at the store but giving it to a bank, a collector, etc. That’s why so many malls are closing. Even a movie ticket seems like a real expense these days. Disposable income after more necessary expenses is near zero. Honestly, it’s almost always below zero because we use our credit cards for necessary purchases, as well. I mean, if they’re necessary, we just have to, no?
Somehow, among all of this, our personal expenses, aside from loan payments, are actually going up. It defies economics, but at this point, the price-quantity relationship isn’t as strong as companies’s incentives to just raise the price however much they want. Someone is going to pay. They don’t care. Moreover, fewer units at a gigantic price is cheaper for them to produce anyway. So it’s the gift that keeps on giving.
So with these higher prices on necessary expenses, debt you can’t even quantify let alone imagine paying off someday, ever-increasing underemployment and minimum wage jobs, predatory employment practices, and being one broken ankle away from insolvency, it’s obvious that we’re being bankrupted. I honestly think it’s intentional. I don’t believe it’s malicious, but I do think, since money is obviously a limited resource, it’s an intentional transfer of wealth from the 99% to the 1% and large corporations who just hold onto it. It’s likely because the baby boomers are so afraid to turn the economy over to millennials and want to hoard it as long as they can. We’ll get our chance, whatever’s left of us at that time.
What can Trump do about all of this, and what will he do?
In this case, I can say with a smile that he can do A LOT! There is nothing holding back the Office of the Presidency or any branch of the government from doing anything they want about this.
REGULATIONS! REGULATIONS! REGULATIONS! REGULATIONS! REGULATIONS! REGULATIONS! REGULATIONS! REGULATIONS! REGULATIONS! REGULATIONS! REGULATIONS! REGULATIONS! REGULATIONS! REGULATIONS! REGULATIONS!
PUNISHMENT! PUNISHMENT! PUNISHMENT! PUNISHMENT! PUNISHMENT! PUNISHMENT! PUNISHMENT! PUNISHMENT! PUNISHMENT! PUNISHMENT! PUNISHMENT! PUNISHMENT! PUNISHMENT! PUNISHMENT! PUNISHMENT!
GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! GROW A SPINE! OW A SPINE! GROW A SPINE!
Not professional? No? Okay, well then. They NEED to get rid of Citizens United, pay to play, banks that write the darn laws themselves, wage theft, any talk of repealing Dodd-Frank, and all the people who cause these crises in the first place!
Instead, Trump is actually interested in giving more power to these companies. Remember, the national innovation system only works if companies do their part to transform actually intelligence into supply of goods and services customers want. All of these goods and service aren’t just widgets. People need these goods and services. Money doesn’t solve all our problems. We need that money, but we need to transform that money into the products and services that actually benefit us. So, the companies needs to actually do their part.
Trump’s policies that support wage theft, high risk, ignoring employees, going back on promises to students, privatizing critical infrastructure that will synthetically create natural monopolies, and shutting down any way for people to complain about it is the exact OPPOSITE of what actually grows the economy. The stock market is not a good measure of economic success if so few people are actually invested in it and those who are aren’t spreading the wealth through other means to those who aren’t. That’d be trickle-down anyway, but trickle-down would work if those at the top actually wanted to pay. It’s way more about individualism versus collectivism than about economics when you really think about it.
Last week, I talked about wage theft and ignoring employees, which you can read about here. I’ve also talked about Trump wanting to defund certain institutions that we use to report employment abuse. Trump wants to remove that role from the Consumer Financial Protection Bureau, and he also supports the Department of Labor ignoring complaints, which you can read about here. To read more about privatizing critical infrastructure, go here.
Regarding the student loan crisis in particular, the best way the Trump administration has figured to lift the burden is laughable. They are just taking care of themselves. Betsy DeVos, or the devil’s disciple given a chance to return to Earth to do his bidding, wants to ignore the Department of Education’s promise to forgive law school student debt after 10 years of civil service right as the first law graduates reach the ten-year mark. Not even one promise fulfilled. That’s her motto. The Trump Administration also wants to get rid of higher education altogether for anyone who isn’t super rich. They are supporting trade schools instead. Now that’s fantastic. Maybe you don’t get it. I’m actually not being sarcastic this time. It really is fantastic. However, it should be the student’s choice to go to trade school to be an auto mechanic, electrician, or carpenter, etc. We shouldn’t just take away their money and force them to do it. Again, the top-down approach is no way to make friends, and it doesn’t work.
We know what we need. Just give us the money so we can do it. Delegate a little. Decentralize. Stop telling me what I want like you know. I live just blocks from the White House, and you really haven’t a clue what I need. So give us a all a raise and let us handle our own lives. We live our lives. You don’t. You want limited government: well, all you have to do is give us the money to live and reasonably achieve our goals and stop trying to put us in chains. That seems like an awful lot of work for someone who doesn’t want the government to do anything.
In summation, we’re somehow cutting expenses and saving what we can and never getting ahead. That’s not even counting the debt. With student loan payments, we’re going backwards. As a form of protest, I’d say don’t even pay them. It might cause a recession, but it’s better than a recession happening anyway and your not having money to ride out the storm. That’s sort of a game theory discussion that basically surmises that it’s better to not pay back the loans, irrespective of ability, because someone else might not be paying either whether they can or not. In short, you don’t want to be the only one paying. If baby boomers, the 1%, investment companies, insurance companies, large corporations, and so on can just stop paying whenever they choose, so can you. I mean, your income isn’t rising, your living expenses and interest expenses are, more and more of you are getting paid jack compared to what you’re worth, and it’s making so many of us so stressed out. So just stop coughing up the dough. See how the banks feel about it. Anyway, if we all have bad credit scores, they’re going to have to lend to someone or figure out a way to operate without Interest Revenue, their bread and butter.
Look, the money is out there. Some of it has left the country and won’t easily come back if it went to China and even a few ally countries, but mostly, it’s still here. It’s just in a very illiquid form. It’s untouchable. We can’t have any. That is temporary. We WILL get that money so long as it stays in this country or in an international trade system that allows that money to rotate through all of us and not in China where they’ll trap it and keep it away from us as long as they can. The vast majority of that wealth will stay here, and that’ll be a great benefit for us in the future. In terms of financial wealth, I do believe America’s best days are ahead of us. In terms of innovation and competitiveness, no way, but strictly speaking about a cash balance, we’ll be doing just fine as soon as those bloated billionaires, corporate slush funds, and investment and insurance companies are either forced to redistribute or die off.
In the mean time, the concept of minimalism is trending. It’s popular to live in a cubby hole or an attic in New York City while trying to make it as a musician. Maybe do that. In the short run, I’m not sure there’s a better way but bare-bones financial discipline. Skipping meals, doing your own home repairs, hoarding coupons, adding water to your soap bottle to get a few more squirts out of it, and so on. Taking a nap instead of going to the doctor. I mean, I don’t know how else people can save money. They’re paid nothing and are expected to somehow survive?
We need to be protesting, calling Congress, and boycotting the goods and services of our own employers. We deserve a fair wage. I know “we” doesn’t include me, and I know I have ineffable privileges in this world, but I’ve made it my darn business to know what it’s like to have nothing, and with what little I can truly feel about it, I have to tell you it’s scary. Running out of money is no joke, and yet the current administration is laughing at millions of American struggling to summon enough energy to walk to the bus stop while sick and hungry, half the time in cold weather.
Call your Congressperson and tell them to renegotiate student loan debt. Tell them you’ll stop paying unless you can refinance. Tell them you’re broke and that they know why. Tell them the biggest problem isn’t the debt but the inability to pay. Tuition shouldn’t be as high as it is, but we could’ve paid if it weren’t for so many other problems. Tell them to NOT support the RAISE Act, repealing Dodd-Frank, rollbacks on labor regulations, reneging on student loan forgiveness programs, and anything else that doesn’t empower you to take care of yourself. Like I said, you know what you need.
We can do this. We can get them to listen to us. We can get enough people in office in 2018 to get appropriate bills passed. Stay strong. Keep fighting.