Relevant and even prescient commentary on news, politics and the economy.

Universities and Donations – Western Carolina University

invisible hand What does a public university do when a donation to it comes with strings? This is the situation Western Carolina University finds itself in today as a $2 million donation is being given to it by a Charles Koch Foundation to establish a Center for the Study of Free Enterprise under BB&T bank sponsored department chair Dr. Robert Lopez.

Just to be clear, this is not the only donation ever made by a Charles Koch Foundation to a college or university, the “Koch brothers and their various funding arms awarded $108 million to 366 colleges and universities from 2005 to 2014 — with $19.3 million across 210 college campuses in 2013 alone — according to political funding analysis by the Institute for Southern Studies and Center for Public Integrity.” More and more, we can see moneyed and political interests making large donations no longer tied to just a name on a building in memory of that person: but, the donations are tied to a particular and current interest with an active participation. This is not only happening at universities or colleges, you can see conservative or other groups showing interest in think tanks such as CAP and Brookings for topics such as student loans and changing the law with regard to “mens rea.” The later being a direct attempt to change the law so as to protect their business. It is difficult for a college or a university, much less a think-tank, to accept a donation from an outside interest with ties to an ideology or interest without favoring it in the future.

In answer to WCU Provost Alison Morrison-Shetlar questioning whether Faculty Senate Leader opinion really reflected the overall view of the faculty. “The Faculty Senate voted in majority opposing the establishment of this new center, which is consistent with what I have heard from the general faculty,” said Dr. Bill Yang, chair of the faculty senate rules committee. There does not appear to be a conflict here to what WCU Provost Alison Morrison-Shetlar and what Senate Faculty Chair Dr. David. MCord said; “It is not a small stakes issue here. This is the academic integrity of the institution over the long run” and suggesting it is “fairly unique” to have the overwhelming majority of faculty take a stand one-way and the administration do the opposite.

In a subsequent interview WCU Provost Alison Morrison-Shetlar claimed “the majority of written comments from faculty support the creation of a free enterprise center. She said only one-third of those who submitted comments opposed it.” According to an analysis of the written faculty responses by The Smoky Mountain News; “The written comments showed 20 were against the center, 14 were for it and three were in the middle.” Still a majority against the donation.

The Free Trade Center was originally pitched in August 2105 and Dr. Lopez was given the go-ahead to pursue the Center and construct a proposal with only the Provost’s and the Dean of the School of Business’s knowledge. Coming up for a vote to approve, both the Dean and the Provost came to “finally” realize they would need faculty input before the meeting and the planning stage. Coming out of the October 1st Provost Council meeting, it was decided to present the proposal to the faculty and on October 14 (don’t they have documented rules [like Robert’s] for this stuff?) it was accomplished with a stipulation a decison was to be reached by the next Provost meeting November 1. The failure of the Dean, the Provost and Dr. Lopez to notify faculty members left something to be desired leaving a bad taste in the mouths of some as the process was hurried and not transparent.

One email as disclosed by the Smokey Mountain News gives the impression the center was a foregone conclusion as the administration was on board from the beginning or shortly after Dr. Lopez was given the go ahead. Dating back to late September, the email states; “The Chancellor would like for the proposal to be to the Board of Trustees by the last meeting of this semester. That means we will have to get this turned around and back to the Provost Council in a timely manner,” Dean Darrell Parker wrote in an email to Dr. Brian Kloeppel, the dean named to handle the faculty input process.

Ahhh, but there are University policy rules to be followed. The email “predates several steps outlined in university policy governing the creation of a new center or institute. Administration was already angling to have the center on the desk of trustees within a couple months, despite two rounds of faculty input still needed and a two-phased approval by the provost council.”

“I am not aware of criticisms the policy wasn’t followed,” Lopez said. “This decision is the end of a process that from the very beginning was transparent and inclusive.”

– Wardell Townsend, chair of the WCU board of trustees, said university policy related to the center’s creation was followed, based on what he was told by the provost.

Provost “Morrison-Shetlar said in an interview the policy was ‘followed to the letter.’”

So much for the complaints of the faculty about not following policy and it being truncated.

The process to start a Center for Free Enterprise was well on the way by the time the faculty was informed. In early October, Distinguished Professor of Capitalism Dr. Lopez had already penned a job description “two months before the free enterprise center would come before the board of trustees for a vote” and the position would “participate in a new interdisciplinary center for free enterprise research.”

The position would be a part of the Center for Free Enterprise as the Gimelstob-Landry Distinguished Professor of Regional Economic Development. The position was also announced the previous year with no candidates found to fulfill the role. It was thought at the time the mention of a Free Enterprise Center may prejudice candidates and only those candidates of this mindset might apply. A concern by those opposing the center was the funders might influence who was selected to fill the professorship.

“As far as I’m involved, there is no chance that any donor will appoint any university personnel, full stop,” Lopez said.


“WCU leaders, faculty at odds over Koch-funded free enterprise center” Smoky Mountain News, Becky Johnson

“WCU community grapples with academic pursuits in the face of politically-charged outside funding” Smoky Mountain News, Becky Johnson

” WCU chancellor pledges transparency, faculty involvement to vet controversial Koch money” Smoky Mountain News, Becky Johnson

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Some Great Reads on a Wintery Night

Been taking some time to recoup from back surgery (8 inch gash Lumbar area), catch my breath, and find some more interesting topics on which to write. There are some awesome reads out there if you just take some time to search for them.

Another Christmas gift from Dean Baker; The Effort to Divert Class War Into Generational War: Lessons On Economics You Won’t Get from Jeff Bezos In 5-Easy Lessons, Dean Baker takes apart the Washington Post’s Catherine Rampell’s Drunkenmiller-style rant on how baby boomers are ripping off the younger generations. Prof. Baker gives some sound explanations on SS/Medicare, PPACA, National Debt, the Economy, and Global Warming. Hat tip to Commenter Sandi for pointing to this Christmas Day article.

Obama, the Job Killer Paul Krugman compares Job Creation during Obamas and Bush’s Presidential tenures to date.

Charles Dickens on Seeing the Poor Tim Taylor at Conversable Economist uses Dickens Household Words journal reporting on poverty during a textile strike and a scene at a workhouse. “I know that the unreasonable disciples of a reasonable school, demented disciples who push arithmetic and political economy beyond all bounds of sense (not to speak of such a weakness as humanity), and hold them to be all-sufficient for every case, can easily prove that such things ought to be, and that no man has any business to mind them. Without disparaging those indispensable sciences in their sanity, I utterly renounce and abominate them in their insanity;.” “A Nightly Scene in London;” Charles Dicken. Excellent read if you are of a Dicken’s mind. You can also catch Tim Taylor’s other Charles Dicken’s article; “Management vs. Labor.”

– Paul Krugman writes an article Checking up on Obamacare. It appears the “sky is falling” conservatives have been wrong so far on the PPACA coming apart at the seams. Enrollments appear to be up if you also read Charles Gaba’s blog

” As of today, we should be appx. 1.9 million ahead of last year…but as you note, the question now is whether it will continue to stay ahead of last year *proportionately*.

11.2M vs. 9.3M = appx. 20% ahead. My 14.7M projection assumes 25% growth over 11.7M. It’s that 5% difference I’m concerned about (again, see the final week).

20% growth by 1/31 would be just over 14.0 million even. Again, I’m holding out for the Week 8 numbers before making any adjustments.”

– I had written about Brooksley Born, “The messenger wore a skirt,” says Marna Tucker, “Could Alan Greenspan take that?” a couple of years back and her efforts to regulate the derivatives market as the head of the CFTC. Greenspan, Rubin, Summers, Gramm and others fought to block her and were successful in doing so. I ran across this article by Bill McBride telling the story of Tanta, a blogger and another woman whose Calculated Risk articles were spot-on in detailing the issues leading up to the 2008 collapse. Tanta was widely read by many on the blogosphere as well as the news media.

Tanta, alias Doris Dungey, as a co-author at Bill McBride’s Calculated Risk blog had taken up reporting on the mortgage market (an industry in which she had 20 years experience) and pointing out their risky behavior prior to 2008. Here are some of her words on “piggyback mortgages, mortgage insurers, under pricing-risk, etc. (and I have already said too much) as taken from Calculated Risk (“Remembering Tantra”):

“Back to business: the mortgage insurers can raise rates all day long and it won’t do dog for them or anyone else. The whole problem is, precisely, that the “piggyback” mortgage was designed to get around MI. As long as there are second-lien lenders willing to price them cheaper than MI–and perhaps we’re seeing the beginning of the end of that–the MIs just lose business entirely in a credit bubble, since they’ve been burned before and haven’t been willing to follow the pricing down to ruin again. They remember the early 90s better than the regulators do (or did, maybe).

The real point is they have two dogs in this fight: they have lost market share because competitors (second lien and 100% lenders) have been willing to underprice risk, and they are at risk for the book of business they do have because increasing foreclosures and bubble-deflating in their market areas drag down values on insured as well as uninsured collateral. A lot of lenders and RE brokers have been dismissing the MIs for years now on the grounds that they’re just crying over lost business, but in my unhumble opinion the MIs have been pretty good risk managers in an irrational market for a long time, meaning they’re damned if they do and damned if they don’t. The fact that their interest in all this isn’t quite public-spirited altruism doesn’t mean they aren’t right. (If you remember, I’ve often made that argument about Fannie and Freddie.)

As I have been saying for years now, the reports from the MI companies ought to scare the crap out of Alt-A RMBS holders, but it never seems to. If the sector of the industry whose whole function is to underwrite default risk won’t touch that stuff at the (then) current market price, what makes anyone think the risk is adequately managed by a structured security? What are we going to do here, “make it up on volume”? (Inside joke: mortgage lenders always think they can keep slicing off risk premiums and ‘make it up on volume.’)”

What makes the story of Tanta interesting are several things:

– Her articles on Calculated Risk are crystal clear and go right to the heart of the issue which took me months of reading many difference sources and I still do not have as clear a picture as Tanta did. The articles are still there for those who wish to gain insight.

– “One of the criticisms of the movie ‘The Big Short’ is there are no women lead characters. That is a huge oversight, especially since Tanta was a key source for understanding the mortgage industry for many hedge fund managers!” Here was an expert right in the midst of us.

– Bloomberg’s “Odd Lots” has picked up on this missing and important element of a person’s story sounding the alarm of the coming collapse. Odd Lots: How One Woman Tried To Warn Everyone About The Housing Crash Joe Wisenthal and Tracy Alloway report on Tanta, “Tanta,” a pseudonymous mortgage industry professional who was trying to blow the whistle on the problems she saw emanating from her industry.”

I never got to know this Cassandra, Tanta, or read her words till much later than 2008 when she died and I had later joined Angry Bear. It is a great read by an interesting and very real person who was on the mark with what she reported on the mortgage market. Bloomberg took the time to recognize her as well as the WSJ, Boston Globe, WaPo, NYT, etc.

A conversation I was having with a PPACA expert:

“Reform is a process and not an event (I was complaining of the lack of reality by commenters) — and the process is happening. By about 2020 I think we will see results that will begin to make you & I, (not to mention folks like Elliot Fisher, Don Berwick, Diane Meier, etc. happy)

Medicare is beginning to negotiate better pricing (paying hospitals and docs for value, to volume) and in 2-3 years it will refuse to pay for many overpriced drugs. (This will make many Americans angry. They think they should have any drug that they think they need–or that their doctor tells them they need (even though their doc hasn’t read any medical research in 15 years) and that the rest of us should pay for it. Eventually, people will adjust.”

Much of the issue with healthcare is the uncontrolled cost of it. Pharma, hospital supplies, and doctors pretty much charge what they want to with little interference due to Congress. Whether it is a two-tier system of public and private funded healthcare or single payer; the control has to be put in place to administer cost and pricing the same as other advanced countries do. There is no magic bullet and it is un-nerving to me the insistence Single Payer is the magic bullet without the cost controls in place.

T.S.A. Moves Closer to Rejecting Some State Driver’s Licenses for Travel Not all Driver’s Licenses meet the requirements of being used for air travel identification. You may be pushed into a passport or a TSA Travel ID

U.S. Corporations Don’t Need Tax Breaks on Foreign Profits

Yves here. Notice that the justification for tax breaks so that corporations can show more profits is “competitiveness” that we’ve debunked repeatedly. As we wrote last year:

. . . ” Those provisions also serve corporations and the wealthy generally, since they further the use of tax reduction as an illusory economic stimulus. In fact, the main effect is a race to the bottom on corporate taxes, which results in a shifting of the tax burden to regressive consumption taxes and not-very-progressive personal income taxes. In other words, tax avoidance has long been a means for redistributing income to the capitalist classes.”

Sandwichman’s Lump-of-Labor Odyssey Part II ” Sneering at the so-called Luddite fallacy under the conviction that productivity would inevitably create more jobs than it destroyed used to be known as the ‘economic law’ that ‘supply creates its own demand’ — a faith that was once said, by John Kenneth Galbraith, to have “sank without trace” in the wake of John Maynard Keynes’s refutation of it.” A different view and one in which I agree.

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Merry Christmas Bears, Commenters, Visitors, and Yes even Trolls . . .

3:00 PM Eastern Std Time.

Christmas Eve and my wife has made raviolis which will be our dinner along with salad and her home made Italian Dressing. Even with being achy and tired from the events impacting me this year; I am still fortunate to be enjoying a home cooked meal this year safe from the violent incursions affecting so many, to be home and not overseas staying alive while being short and counting the days to fly out, to have food on my table when so many go hungry or wait in lines at the shelters, to have a warm home in which to live with my family, to be employed making greater than median income and have other companies chasing me for my expertise, to have healthcare insurance in which to fall back upon when ill for the umpteenth time, etc. I am sure there are so many stories to be told here amongst us of how each of us are more fortunate than what we have written about, experienced, seen and know of, etc.

Merry Christmas, be safe with family, and enjoy the holiday

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How Probability Is Perceived . . .

I ran across this explanation of Probability as seen by different professions at Sam Wang’s Princeton Consortium and tracked it down to Ben Orin’s Math with Bad Drawings blog. A little about Ben and his blog as told by himself: “This blog is about the things I like. It’s also about the things I can’t do. I hope that the juxtaposition here – carefully edited writing alongside art that my wife (charitably) likens to ‘the average 6th grader’ – captures the contradictory state of the teacher, of the mathematician – and, what the hell, of the human. We are all simultaneously experts and beginners, flaunting our talents while trying to cover our shortcomings the way an animal hides a wound.”

Note the differences in viewpoint of which some are a matter of convenient and profession. I thought you might enjoy the truth and the humor in it as explained by a Ben, a Math Teacher.

Actual Meaning

B Political Journalist

C Investment Banker

D Local News Anchor

E Philosopher

F Weather Forecaster

G Mission Impossible Agent

H Millennium Falcon Captain

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African Americans, the Poor in Court and Sentencing Reform

As one person I read consistently would say upon discovery of something quite obvious; “Quelle Surprise.”

I was told if I saw a prisoner, a parolee, or an Ex with a tattoo of the number “13-1/2” on their arm, it meant 1 judge, 12 jurors, and 1/2 of a chance. 1/2 of a chance to win in court as the cards were stacked against those who could not afford adequate representation or were African American. For sure if you went to trial, the resulting sentencing would be harsher as you made them work rather than accept the offered plea bargain.

Part of the sentencing reform as proposed by Congress, backed by the Koch Bros, and supported by CAP as well as other progressive orgs. is meant to prevent the Koch Bros. associates and white collar business types from going to prison when they break the law. As to be expected, the Koch Bros. could care less about minorities and the people lacking economic means to fight back in court to prevent going to prison. Mind you now, those minorities and people of little means would still benefit from an early release; however, the effort by the Koch Bros., CAP, etc. does nothing to prevent them from going to prison in the first place.

I had previously warned on another site the effort to revise sentencing guidelines is flawed as it failed to address the upfront justice system as I explain here;

Sorry Ed, Keith, and Nancy:

The issue was always in the courts and how defendants are represented and what avenues they had available to them once and if they were convicted and sentenced. The resources are not there, they are over burdened, and they are understaffed. Defendants do not raise much of a fight in the courtroom as they lack the resource to do so. Today, plea bargaining rules the courtroom and 85%+ of all cases before a judge are plea bargained away with many defendants even signing away their rights to appeal for a period of time. It is a matter of expediency as counties and states do not want to fund the courts and defendants can be moved through the system speedily to the prisons. Besides prisons being in unlikely places away from the crowds, they are an economic incentive as they employ people and raise tax revenue in areas not populated by business.

What is happening in states and in Congress is akin to giving a person with pneumonia an aspirin and telling them they are cured. For all that is said, talked and written about for criminal justice reform, it is a just bromide to the true issues. Besides have any of you looked at the tenets of parole?

Tethering in one state costs $13 per day for the parolee just released from prison and to which there is no escape. At the end of a 2 year parole, the parolee owes a state ~$9,490 if they do not pay it as they go along (mind you they may not have a job in this economic environment). If you do not complete paying for it, you are kept on parole until it is paid. If you refuse to pay it, you go back to prison. States use these funds to finance other state costs besides just keeping tabs on the parolee.

In most states, the Parole Officer judgment is the same as a court’s decision. A prison psychiatrist can decide a parolee needs no additional counseling only to be overruled by the Parole Officer. The length of the counseling is set by them also as they all have their medical degrees(?). The parolee pays for this also. If the parolee fails the course, the course can be extended or they can go back to prison. So much for the issue of recidivism.

Today, the Washington Monthly admitted they were taken in by the efforts of the Koch Brothers. The Koch Brothers have no interest in justice for all as the administration found out and the Washington Monthly (and I assume the CAP) also found out.

“One of those bills – which has been supported by Koch Industries, libertarians and business groups – would make wholesale changes to certain federal criminal laws, requiring prosecutors to prove that suspects “knew, or had reason to believe, the conduct was unlawful,” and did not simply unknowingly violate the law.

Many laws already carry such a requirement — known as “mens rea” – but Congress left it out of many others, and libertarian groups say that has made it too easy to unknowingly violate obscure laws. Some environmentalists argue, however, that the real motive of Charles Koch, the philanthropist and the company chairman, in supporting the legislation is to block federal regulators from pursuing potential criminal actions against his family’s network of industrial and energy companies, a charge the company denies.”

Why would the Koch Brothers be interested in such a change? It appears “‘Koch Petroleum Group knowingly and voluntarily pleaded guilty to criminal violations of the Clean Air Act and to making false statements,’ the DOJ spokesman, Wyn Hornbuckle, said. ‘These admissions and the significant criminal liability in this matter speak for themselves.'”

Is ignorance of the law an excuse for having committed a felony? It sure does not work when caught speeding (misdemeanor) . . . “well officer, I did not see the speed limit sign,” nor does it work when a person lacks cognizance when committing a crime as witnessed by the numbers of mentally ill locked away in prisons. One recent case has arisen where a 21 year old with the capacity of a seven year old is being charged after tweeting threats to schools. Reading the comments of people who know him, it does not appear he might have an evil intent or mind. The difference between the two being, those who are capable in making cognizant decisions and those being incapable of doing so (Bev Jack?). Even though it is not fool proof and when there is a question of ignorance of the law, it is time to ask for a jury trial. In which case, one can test the law by asking the question, “what would a reasonable man expect and do?”

This really is not the question in that there are those who have better standing in court than the average or less than average citizen due to the availability of resource. Those who have better resource and as a result better standing in court no longer want to make their case and be given a pass. November 24 in a NYT article “Rare White House Accord With Koch Brothers on Sentencing Frays”. Why would this be? It appears H.R. 4002 sponsored by “Wisconsin Republican Jim Sensenbrenner has made it complicated for House Democrats who have been warned (by Republicans) the passage of H.R. 4002 would be essential for obtaining support from Republicans for a larger package of criminal justice bills.” What does this bill do?

In effect it gives businesses a get out of jail free card; “would make wholesale changes to certain federal criminal laws, requiring prosecutors to prove that suspects ‘knew, or had reason to believe, the conduct was unlawful,’ and did not simply unknowingly violate the law.”

Many laws already contain such language which causes the court to prove the defendant knowingly violated the law (except in the case of insanity where the burden of proof is with the defendant). As DOJ spokesman Melanie Newman stated: “Countless defendants who caused harm would escape criminal liability by arguing that they did not know their conduct was illegal.” Those who suffer from mental illness have to prove they lacked an evil mindset and those who do not declare mental illness, do not have such a burden. The potential impact is many more of those could cause potential harm to the environment and walk free. The mentally ill (favored scapegoat of the NRA and weapons promoters these days) are held to a higher standard.

“The proposed standard, Justice Department officials said, might have prevented guilty pleas in a variety of cases, such as the charges filed in 2013 against Jensen Farms of Colorado for failing to adequately clean cantaloupe, resulting in an outbreak of food-borne illness that was cited as a factor in at least 33 deaths. It also might have prevented the plea in the 2012 charges against the owner of a pharmacy who sold mislabeled, super-potent painkillers blamed in three deaths.” The same holds true for “a compounding drug company prepared drugs for injection which resulted in a total of 25 deaths and injury in Michigan and other states.

Even so, some liberal representatives still support the legislation which may result from the passage of H.R 4002 even though it does little to provide the necessary representation in court for minorities and others to get a fair trial without plea bargaining. In a statement on Tuesday (November), Michigan Representative John Conyers said “he supported the bill which the Judiciary Committee approved by voice vote last week because outside parties had raised ‘a number of concerns about inadequate, and sometimes completely absent, intent requirements for federal criminal offenses.’” Seriously, Representative John Conyers? Where is the concern for your constituents who face the courts on a daily basis with nothing to defend themselves other than plea-bargains and the grace of the court (if such exists). The present legislation is little more than a back door correction of what happens and should not have happened in the first place during court proceeding.

Critics have said those who oppose the change due to the Sensenbrenner addition are exaggerating the impact of it as it is only a small portion of the entire bill focusing on eliminating mandatory sentencing. The elimination of mandatory sentencing will not stop a judge from applying a harsh sentence forcing a defendant to apply to a COA to overturn the judge and costing $thousands more. It is true a reduction in sentencing will help the overall issue of too many in prison; but, this solution is only a part of the problem. Most of the issue is on the front end of the justice system in the US. The lack of adequate representation, the under-staffing of public defender offices, the cutting of funds for public defenders, the over use of plea bargaining to short circuit the justice system, the burdens on courts, etc. The poor and minorities deserve the same representation and access to justice as what the associates of the Koch Bros. industries receive in court. This is a far bigger problem and sends many more people to prison than does drug sentencing which could be mitigated if better representation existed. It is here Congress, Conyers, CAP and all the progressive orgs should spend their money and energy. Otherwise much of the effort will not yield the payoff in preventing people from going to prison as expected.

12 Jurors, 1 judge, and 1/2 of a chance.

My $.02 . . .


A Study In Contrasts Nancy LeTourneau; Washington Monthly
Criminal Justice Reform: It Depends Upon Where You Look; Ed Kilgore; Washington Monthly
Quick Takes – my answer to Washington Monthly; Nancy LeTourneau; Washington Monthly
Rare White House Accord With Koch Brothers on Sentencing Frays; Matt Apuzzo and Eric Lipton; NYT

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For Profit College, Student Loan Default, and the Economic Impact of Student Loans

For Profit Goes on Probation

The University of Phoenix has been placed on probation by the Department of Defense preventing the university from recruiting on military bases. The probation comes after the Federal Trade Commission and the California Attorney General’s investigation into the University of Phoenix recruiting methods, its high costs, and the resulting poor student performance.

This is not the first time Phoenix-U has been in trouble. In 2013 the University of Phoenix was threatened with probation by the accreditation board for a lack of “‘autonomy’ from its corporate parent -– a development that prevented the university from achieving its ‘mission and successful operation.'” In other words, the for-profit university #1 priority by its owners was to turn a profit at the expense of teaching, retaining, and graduating its students. This is precisely what I had alluded to previously on higher rates of defaults.

Student Loan Defaults

An interesting analysis by the NY Fed suggests students with lower amounts of student loan debt are more likely to default than those students with higher amounts. This is a new take on student loan debt and associated default as it was always thought the higher the debt the greater risk of default. Student Loan Debt has increased as more attend college, costs to attain an undergraduate degree have increased, even higher costs are sustained for Masters and Doctorate degrees, and students have been staying in school longer. Coming out of college the study finds amongst students loan debt is distributed rather evenly over time with one third being held by those in the 20s, one third held by those in the thirties, and one third held by those forty years of age and older. A large percentage of those borrowers or ~39% of them have loans of less than $10,000 and it is the holders of debt who have been defaulting at a higher percentage. The study goes on to break it down as to why they might be defaulting more frequently than tose with higher amounts of debt.

Using Equifax credit data, the NY Fed broke down the data into loan origination cohorts of student loan borrowers and using the same Equifax data, developed default rates for each cohort. Taking the origination date information for each academic year, the Fed was able to assign borrowers to loan-origination-completion-cohorts. The analysis did not reveal dropout or graduation information; however by using loan origination data, the methodology used does approximate whether students left school finished their education or just left school.

invisible hand

As shown on the graph and nine years out for the 2005 and the 2007 cohorts 24% of the students and greater had defaulted on their student loans by the 4th quarter of 2014. While the data for the 2009 cohort is incomplete and depicts five years as opposed to nine years, the data depicts a worsening default rate at 5 years then what can be found with the 2005 and 2007 cohorts at 9 years. Typically what we read and hear about is a 3-year window as reported by the Department of Education and is discussed by the news media. The 3-year window default rate is much less for each of the cohorts with the 2005 cohort being ~1/2 or 13% of what it is in 2014 as shown by the Fed study.

As I mentioned above, a large percentage of those who defaulted had student loan debt of less than $10,000. 34% of those borrowers in that group who defaulted on their student loans had balances of less than $5,000. 21% of the 2009 cohort were in this category of < $5,000 in student loans five years out which depicts a worsening trend when compared. A closer examination of the 34% also reveals this group to be made up of students who attended community college, did not finish, perhaps discovered this is not what they wanted to do, or the curriculum did not fit their needs. What the NY Fed concludes is the default rate worsens when a much longer period of time is taken into consideration as opposed to the 3 year window the Department of Education looks at and which the public hears about in the news. The longer the period, the higher the default and it continues through years 4 through nine for the first two cohorts. As shown the default rate for the 2009 cohort is already higher. Those who had lower amounts of student debt in the end may have defaulted due to a worsening economy or potentially did not get the payback expected from a two year degree at a community college or for-profit school. The study also revealed those who are current today with their student loans did experience stress in making payments and 63% of those student loan borrowers appear to have avoided delinquency and default over the last decade. On the other side of the coin, student loan borrowers with $100,000 of debt had a default rate of 18% which has been attributed to their being higher earners after graduation.

Economic Impact of Student Loan Debt

invisible hand

One aspect of the fall-out resulting from increased student loan debt as suggested by the Fed study is decreased home ownership. From 2008 onward the study depicts a steady decrease in the numbers of graduates burdened by student loans investing in homes. Dropping from a high of ~34% in 2008, the percentage of homeowners and having student loan debt has declined to ~23% in 2014. What has occurred, those 27-30 year old having no student loan debt have surpassed those with student loan debt in home ownership. While both groups experienced a decrease in home ownership during bad economic times, the decrease for those having student loans was far more severe. The decrease in home ownership still continues for both groups with those having less debt owning homes at a higher level.

invisible hand

A similar situation holds true for new auto ownership. The numbers of 25-year old college graduates purchasing automobiles and with student loan debt retreated from the market place at a faster pace than those without student loan debt. It is only recently have increased numbers of both groups returned to the market place to buy automobiles. While the purchase of automobiles has increased for all 25 year old people, the numbers of college grads with student loan debt no longer surpass those without student loan debt and at best are at the same level as those without student loan debt. Student loan debt is a burden and more of a burden in harsher economic times.

Much of the retreat from the market place is due to large loan and higher interest rates on undergraduate student loans, even higher interest rates and balances on graduate and doctorate student loans, higher balances due to the increased costs of colleges across the board, and longevity in paying back student loans. There are no controls on colleges and universities to rein in costs and it is the only cost to increase at a faster rate than healthcare. The higher costs play out in student loan debt as states do not subsidize colleges to the same ratio as they did 20 years ago, Pell Grants have not kept up with the costs of colleges, and parents can not afford the increased cost out of pocket either.

For the purchases of homes, cars, appliances; the bank assesses your ability to repay the loan as these loans can be discharged in bankruptcy unlike student loans which can not be discharged. Many college graduate households today consist of two married adults both of which are burdened with having student loans to pay off making the situation even more precarious. The result is increased risk.

invisible handUsing the same data, the NY Fed reviewed the risk rates of 25 and 30 year olds with and without student loan debt. As can be expected, those households with student loan debt were deemed a higher risk due to student loan balances and higher interest rates and a decrease of potential income over time. Those students would be less likely to obtain a loan or a loan with lower interest rates. A higher interest rate adds to an already high financial burden.

There are probably many other reasons why young households may have retreated from the market place; cultural changes in how younger households view home ownership, automobiles, and other purchases; higher costs of financing; lowered expectations of future earnings; unwillingness to take on more debt, etc. The fact of the matter is, not only does the market place view them as a higher risk; but, these college-educated young buyers are not buying homes, autos, etc. or making large investments at the same level that once existed and it does not bode well for the economy.

It also never ceases to amaze me the number of anti-educational opinions which flare up when the discussion of student loan default arises. There are always those who will prophesize there is no need to attain a higher level of education as anyone could be something else and be successful and not require a higher level of education. Or they come forth with the explanation on how young 18 year-olds and those already struggling should be able to ascertain the risk of higher debt when the cards are already stacked against them legally. In any case during a poor economy, those with more education appear to be employed at a higher rate than those with less education. The issue for those pursuing an education is the ever increasing burden and danger of student loans and associated interest rates which prevent younger people from moving into the economy successfully after graduation, the failure of the government to support higher education and protect students from for-profit fraud, the increased risk of default and becoming indentured to the government, and the increased cost of an education which has surpassed healthcare in rising costs.

There does not appear to be much movement on the part of Congress to reconcile the issues in favor of students as opposed to the non-profit and for profit institutes.

The Race Between Education and Technology

Just Released: Young Student Loan Borrowers Remained on the Sidelines of the Housing Market in 2013

University of Phoenix Accreditation Hits Snag As Panel Recommends Probation

For-profit college banned from recruiting military students

The Student Loan Landscape

Looking at Student Loan Defaults through a Larger Window

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More Shopping Around . . .

I want to stress the need to shop around when looking for healthcare insurance on the exchanges by citing one example of how it can make a difference. As mentioned earlier here and on Charles Gaba’s ACA Signups blog, Shopping Around does make a difference. If you did not do so, you could be suckered into paying far more than what is necessary for healthcare insurance. This is supposedly the impact of the free market and as there is a sucker born every minute, there are those who will invest the time to look for and find the best policy at the best price. The market is not static.

I pulled another example of how the market can vary by going from a state to state view to looking within one particular state. In particular, I chose Missouri as an example to portray as it is showing an advertised high increase of cost at 27 and 22%. Charles Gaba does an excellent job of explaining the impact of these two increases within Missouri, which I will portray at AB. Charles Gaba fills the gap which Healthcare.Gov does not fill by pointing out the number of policies which have lower rates of increase than 10% (Healthcare.Gov only mentions increases >10%).

invisible hand

As you read the top half of the chart (click on the chart for a larger chart), you can see Coventry Health and Life appears to dominate the market place with >80% market share. If we look at the number of participants in the market, Coventry is only being measured against 48% of the market place. The other half of the market place which is reporting less-than a 10% rate hike is not reported by Healthcare.Gov. It is there, Healthcare.Gov does the consumer a great disservice by not reporting market place increases less-than 10%; the PPACA a disservice as it creates only a picture of out-of-control increases; and a disservice by feeding the naysayers with data of >10% increases only. While the PPACA is not perfect, it is certainly a step in the right direction as we waited ~22 years since Hillarycare for the healthcare industry and the Republicans/Congress to bring something to the table.

The bottom half of Charles Gaba’s chart depicts what could be happening using an estimated increase of 9.9% with the other healthcare insurance companies. If Charles is to be wrong in his calculations, he has erred to the high side of a potential increase by them. The total increase for the state is not 33% or 42% as reported in the news media. Nor is it 21% using a weighted average calculation as Charles Gaba determines. It is an ~ 15% total increase (Charles Gaba calculated) as determined by a high estimate of what is being paid by >50% of the market place insured participants. Could the state’s 15% be decreased? Yes, if more people shopped around in the lower half of cost in the market place.

Is this a failure of the market place, a failure of people not to “Shop Around,” or a failure of Healthcare.Gov to advertise low increases by not reporting on those lower-than 10%? Some of each I suspect; but, do not expect the healthcare insurance companies to come to your door and tell you they are going to gouge you this year as they will not. Maybe Healthcare.Gov should report on the low increase companies and maybe people should spend more time looking for a low cost and better policy . . . the same amount of time they will spend investigating an automobile and looking for the lowest cost than what they will for something impacting their health. After all, which is more valuable?

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Right Wing Slant to Non-Partisan Progressive Think Tanks

With the Koch Brothers donating to Center for American Progress and funding studies on Incarceration, one might wonder what changes might occur at CAP due to the financial support of studies by the Koch Brothers. CAP is not the only one to begin to solicit or accept funding from major corporations or interests. Brookings has also been soliciting funding for its research.

Corporations made up 25% of Brookings’s donors giving at least $50,000 in 2013, up from 7 percent in 2003, the analysis found. The proportion of donors at that level coming from overseas, including foreign governments and trade associations, rose from 6 percent to 22 percent in that period. Separately, the analysis showed a substantial increase over that time in the percentage of gifts that came from corporate and foreign donors.” The increase comes as corporate interests look for other ways to influence Washington beyond traditional lobbying efforts.

A recent Brookings study released in June analyzed Federal Reserve Board data that tracks student debt and income levels in young households and concluded typical student borrowers were no worse off now than they were a decade ago and reports of a student debt crisis may be overblown. The study contradicted arguments from critics of the for-profit student-loan industry and Sen. Elizabeth Warren (D-Mass.), who has pushed for federal relief of a debt burden that she has said “crushes ­ millions of young people and has started to weigh down the entire economy.”

Federal Reserve Chair Janet L. Yellen later cited the same database reaching an entirely different conclusion. In an October speech, Yellen warned of the “dramatic increase” in debt for students and in particular for low-income families further warning of “the large and growing burden” of student debt on its owners and its impact on the future economy.

Matthew Chingos a researcher for Brookings called Senator Warren’s proposals of lower interest rates poorly thought out and not as progressive as they may seem. Going back to the same ‘fair market value” analysis Jason Delisle of the New America Foundation advocates, Matt suggests today’s interest rates do not reflect administrative costs and default rates. He conveniently ignores the inability to discharge student loans in bankruptcy and the collection of debt afterwards which exceeds that of dischargeable loans. Another Brookings Associate Beth Akers has claimed student loan interest rates on student loans do not really much of an impact on cost ignoring the overall student loan cost in comparison to short-term costs. Silly me, I should take a fifteen year a $100,000 8% mortgage as opposed to a 6% mortgage loan as my payments will not matter? Many student loans are 10 or more years in length, graduate and doctorate loans do exceed $100,000, and while undergrad loans may be less; the overall cost does matter in relation to the accumulation of wealth for young people.

Michael Simkovic, a visiting associate professor of law at the University of North Carolina at Chapel Hill and an expert on lending issues, said that if Brookings’s reports on student debt were to dictate policy, they would “boost the profits of the student lenders like Sallie Mae.” In other words, the Brookings study favors a positive business policy over that of advancing a student prospects and whose growth in wealth and income will spur greater economic growth over the long term. With this outlook, Brookings gives the appearance of shifting to the right in politics.

The closeness of this new approach with corporate funding gives the appearance of ties between Brookings and the student loan lending industry. While Brooking denies being influenced, there appears to be similar ones between Chingos, Akers, and Delisle with business promoting their interests also. Created in 2000, Lumina Foundation came into being when USA the largest administrator of student loans sold its assets to Sallie Mae. Since 2009, Lumina has donated $1.9 million to Brookings. The donation figure was tabulated by the Foundation Center, a research group that tracks philanthropic giving. Matt Chingos states Lumina did not underwrite his June study; but, at the same time, Lumina has directed $hundreds of thousands in both his and Akers direction since 2011.

Three former Sallie Mae board members sit as directors of Lumina. Lumina states unequivocally in this David Dayen article it has no ties to the student loan industry and it is an “independent and nonpartisan organization.” Interestingly, Lumina has shown up on other articles on student loans as well as the one cited to refute any impact it may have. To my point though, corporate interests are having more impact on once nonpartisan studies just by the nature of their donations as more think tanks are looking for funding and corporate interests are looking for other ways to impact Washington. Going forward, nonpartisan think tanks such Brookings lend their past credentials to the results of today’s studies which are indirectly and directly funded by corporate interests.

In the end, the directors at Brookings, Lumina, and the study’s authors have taken an arm’s length stance on the impact of the donations to Brookings and the results of the studies. So one could conclude, nothing has changed over the last decade or so with Brookings and we have nothing to worry about as corporations support independent study at nonpartisan think tanks?

Senator Elizabeth Warren declined to comment on the Brookings reports, but she called for greater transparency so the public can assess the “independence, or lack of independence, of the research from think tanks.” Maybe Senator Warren has a point? This is first time I have seen a Brookings study use terminology such as “cheap political gimmick” and “embarrassingly bad proposal” and potentially may be the beginning of political sway in the study and no longer presenting “just the facts mam.” If anything Warren’s proposal of reducing student loans to what the Fed uses for a discount rate is a proposal too late and should have come years earlier as we would have been graduating a cohort of students who would have benefited from much lower rates. Who is embarrassingly naive now?

This causes me to come back to my original point; “With the Koch Brothers donating to Center for American Progress and funding studies on Incarceration, one might wonder what changes might occur at CAP due to the Koch’s financial support of future studies.” Having watched what is occurring at Brookings, one might expect a different direction taken by CAP.

The New Republic takes issue with the direction of the Koch Brothers and the Center for American Progress study on incarceration;

“The consensus may be bipartisan, but it’s not ideologically balanced. The language advocates use to describe the problems at hand and the nature of their proposed policy solutions demonstrate that this moment is far more concerned with mass than incarceration. Despite reports of meeting in the middle, we’re witnessing a liberal acquiescence: Nearly everything is phrased in conservative terms — cutting costs, saving funds, and minimizing the size of the system.”

There is more to the issue of prisons than just head count and hidden within the parole, local, state, and federal justice/prison systems. Sentencing guidelines, parole board rules (which grant the boards court-like powers), the public defender system (vastly underfunded and under manned), the 1996 AEDPA (which disallows federal courts from ruling on state decisions in criminal cases), etc. are some of the issues needing to be addressed. Rather than concern over these issues and the impact upon people going to trial, conservatives or “being right on crime” are now concerned about the impact on taxpayers. More on this in another post.

In an earlier post, I had written about Alan Collinge going to Washington DC to protest CAP’s apparent change of direction with student loans.

CAP’s “How Qualified Student Loans Could Protect Borrowers and Taxpayers” proposes returning bankruptcy protections to student loans. Examining the plan reveals this program would “allow student loan borrowers to refinance their loans at current rates (about 4.5 percent for undergraduate loans, 6.4 percent for graduate loans). While this could mean a significant interest reduction for private loan holders, it would likely translate into only a couple of percent reduction for federal loans, which comprise the lion’s share of all outstanding loans. There is also a .5 percent fee that would be slapped onto the principle of the new, refinanced loan, making the plan even less attractive. This plan, furthermore, would not be available to the most distressed borrowers, those in default whose loans have exploded with penalties and fees.

There are some hidden consequences as well. For private loan holders, the federalization of their loans – and let’s be honest, this really is a federalization plan rather than a refinancing plan- will cause them to lose vital consumer protections like statutes of limitations and Fair Debt Collection Practices rules (Don’t believe the rhetoric about federal loans having more consumer protections than private loans – this is completely false). This could be a huge negative for these borrowers.”

Instead what is seen are alternatives to bankruptcy such as gainful employment, income based payment, service loan forgiveness, payment on time, interest reductions, etc. in most plans are teasers with only a low percentage of applicants being accepted and successful. CAP and other advocates push for these repayment programs which in the end result in the majority of people who try for the benefit being kicked out before anything is forgiven. CAP has recruited a former director of the Department of Education lending program David Bergeron who does not appear to have brought anything new to the discussion other than repayment programs which may cause more damage in the end. The issue still remains of bankruptcy protection in the form given to big business and TBTF by Congress and in the end walked away from $billions in responsibility over the decades. Guess students do not get a benefit of the doubt.

Nonperforming loans would be included in this plan also as a bailout and makes the government a private industry bill collector for loans which more than likely should not have been made. The impact of this plan would help a few borrowers and in the end may hurt them as they lose protection under the statutes of limitations.

The same as Brookings, the Center for American Progress in alliance with conservative groups is voicing a message more to the right in politics than progressive.

1. “Elizabeth Warren faces right-wing stooge: Here’s who’s quietly funding her top critic” David Dayen, “Salon”
2. “At fast-growing Brookings, donors may have an impact on research agenda” Tom Hamburger and Alexander Becker, “The Washington Post”
3. “Obama’s Student-Debt Fix Isn’t Much Better than the GOP’s” Nora Caplan-Bricker, “New Republic”
4. “You Can’t Reform the Criminal Justice System by Cutting Costs” Stephen Lurie, “New Republic”
5. Student loan refinancing Alan Collinge, “The Hill”

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Listen to Michigan Congressman Sander Levin Tongue – Lash Wisconsin Congressman and Chairman Paul Ryan

Michigan is pitifully gerrymandered due to state Republicans controlling the state legislature in 1990, 2000, and 2010 and controlling redistricting. Michigan sends fewer Democrats to The House than how the state votes which is 54+% Democrat in national elections. Democrat Congressman Sander Levin is one of those Congressmen. Listen to his response to Republican Congressman Paul Ryan, Chairman House Ways and Means Committee during another unscheduled committee meaning.

“So whatever the Supreme Court decides later this month,” Paul Ryan said. “I think the lesson is absolutely clear. Obamacare is just flat busted. It just doesn’t work. And no fix can change that fact.”

Sanders: “What’s busted is not ACA But your attacks on it, endless attacks.”Sander Levin said calmly and deliberately. “Never coming up with a single comprehensive alternative all these year. So you sit as armchair critics while millions of people have insurance who never had it before. Millions of kids have insurance who would not otherwise have had it. People who have pre-existing conditions no longer are cancelled or can’t even get insurance. The donut hole is gone. Millions of people in lower income categories are now insured through Medicaid, millions and millions and millions. Cost containment is beginning to work. The increase in cost net rate is going down. And so you are livid because it is getting better. That’s why you are livid. … And the states that are denying their citizens further coverage under Medicaid, are essentially telling people, well get lost when it comes to healthcare. .. And you have a governor Mr. Chairman, who is running around this country talking about the evils of healthcare when millions of people are benefiting from what happened. … Your frustration is millions and millions and millions of people are benefiting, have healthcare when they did not before.

Paul Ryan covering up the truth.

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We Believe ? ? ?

Almost one year old (July 18, 2014) this speech by Senator Elizabeth Warren. We Believe:

– “We believe that Wall Street needs stronger rules and tougher enforcement, and we’re willing to fight for it.”

– “We believe in science, and that means that we have a responsibility to protect this Earth.”

– “We believe that the Internet shouldn’t be rigged to benefit big corporations, and that means real net neutrality.”

– “We believe that no one should work full-time and still live in poverty, and that means raising the minimum wage.”

– “We believe that fast-food workers deserve a livable wage, and that means that when they take to the picket line, we are proud to fight alongside them.”

– “We believe that students are entitled to get an education without being crushed by debt.”

– “We believe that after a lifetime of work, people are entitled to retire with dignity, and that means protecting Social Security, Medicare, and pensions.”

– “We believe—I can’t believe I have to say this in 2014—we believe in equal pay for equal work.”

– “We believe that equal means equal, and that’s true in marriage, it’s true in the workplace, it’s true in all of America.”

– “We believe that immigration has made this country strong and vibrant, and that means reform.”

– “And we believe that corporations are not people, that women have a right to their bodies. We will overturn Hobby Lobby and we will fight for it. We will fight for it!”

Reference: Elizabeth Warren’s 11 Commandments of Progressivism

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