Tag Archives: OWS

The Impact of Obama’s Student Loan Legislation

I previously blogged about how Obama’s student loan legislation proposals will have short-term benefits with long-term costs. Daniel Indiviglio examines the three major pieces of the proposed legislation – consolidation, payment limits, and loan forgiveness – and how they will affect the average borrower. The answer: not much. I may have been far too generous in saying it will have a short-term benefit. Perhaps it only offers long-term costs.

Consolidation

The first would clearly be the most significant, because it is aimed at helping more student loan borrowers. How much would an interest rate reduction of up to 0.5% affect payments?

For the average borrower, the impact would be small. In 2011, Bachelor’s degree recipients graduating with debt had an average balance of $27,204, according to an analysis done by finaid.org, based on Department of Education data. That average has ballooned from just $17,646 over the past decade.

Using these values as the high and low bounds of average student debt over the last ten years, the monthly savings for the average student loan borrower would be between $4.50 and $7.75 per month. Clearly, this isn’t going to save the economy. While borrowers with bigger balances would save more, this is the average. And even someone with $100,000 in loans would only cut their monthly payments by $28.50.

The provisions on payment limits and loan forgiveness will have an even smaller impact. Indiviglio concludes:

By calling for these measures, President Obama seeks to respond directly to young Americans stressed about their student loans. Indeed, one of the vague objectives of the Occupy Wall Street movement is for student debt forgiveness. But from a practical standpoint, these executive orders won’t have much of an impact on the economy. To take on the student debt problem more aggressively, the president would need some actual legislation that would shake the fundamental framework of the student loan system.

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Filed under Domestic Politics, Education

“How Mr. Volcker Would Fix It”

Last month Paul Volcker, former Chairman of the Federal Reserve, presented to the Group of 30, an organization devoted to international economic issues, a speech entitled “Three Years Later: Unfinished Business in Financial Reform.”

The real treasures were found in his to-do list for further reforms. That heavy lifting includes addressing capital requirements (make them tough and enforceable), derivatives(make them more standardized and transparent) and auditors (ensure that they are truly independent by rotating them periodically).

He also spoke of the perils of institutions that are too large or interconnected to be allowed to fail. Calling this the greatest structural challenge facing the financial system, he said we must shrink the risks these companies pose, “whether by reducing their size, curtailing their interconnections or limiting their activities.”

He also discussed with Gretchen Morgenson, the author of the article, the unmentioned problems with money market accounts:

Money market funds held $2.63 trillion as of last Wednesday, and, Mr. Volcker said, many people mistakenly think that these funds are as safe as bank accounts. But the safeguards on bank deposits — strong bank capital requirements and federal deposit insurance, for example — do not exist for most money market funds. There is also little official surveillance of the funds’ investment practices.

I was pleased to see that Fannie Mae and Freddie Mac also received his attention.

THE other area that cries out for change, Mr. Volcker said, is the nation’s mortgage market, now controlled by Fannie Mae and Freddie Mac, the taxpayer-owned mortgage giants.

“We simply should not countenance a residential mortgage market, the largest part of our capital market, dominated by so-called government-sponsored enterprises,” Mr. Volcker said in his speech. “The financial breakdown was in fact triggered by extremely lax, government-tolerated underwriting standards, an important ingredient in the housing bubble.”

While he acknowledges that we cannot eliminate Fannie and Freddie anytime soon, “it is important that planning proceed now on the assumption that government-sponsored enterprises will no longer be a part of the structure of the market,” he said.

TOTPS is not fan of Fannie and Freddie – they played a significant role in inflating the housing bubble with their unaccountable lending and buying practices. (And where is OWS in complaining about the bonuses paid to their CEOs?!) Fannie and Freddie will eventually go away, and the sooner the better. They were unnecessary since inception – Volcker: “You ought to be either public or private; don’t mix up private profit-making opportunities with an institution that is going to be protected by the government but not controlled by it.” – and proved themselves disastrous.

But I digress. Volcker makes solid and vital recommendations that are both simple and enforceable. Of course the devil will be in the details, but he clearly does not feel that Dodd-Frank was sufficient. (Joe Klein describes Dodd-Frank as “the watered-down, overly complicated and difficult-to-enforce” reform package.)

One wonders where Obama, Geithner, et al. will attack next, but they should start with a few large-scale reforms. First, allow the Republicans to repeal Dodd-Frank. It is… well… as Klein described it. (They would never do this for political reasons, but it is a lesson in the dangers of rushing important legislation and on how not to spend political capital.)

Second, return the Glass-Steagall Act which prohibited commercial banks from engaging in the investment business,  and third, repeal the Commodity Futures Modernization Act of 2000 which prohibits the federal government from regulating financial derivatives.

Third, increase capital requirements for banks (so they are not over leveraged) and lower the lending requirements of banks (so they can more easily extend credit). Banks do business by borrowing and lending. Increased capital requirements lower their exposure; lowered lending requirements allows them to lend more. They will not easily be able to securitize those mortgages and sell them to others. The will most likely keep those mortgages and loans on their books where they belong. With the separation of commercial and investment banks and the regulation of derivatives, markets should be calmed over concerns with imprudent lending and risky investments tools. Allow commercial banks the ability to lend as they see fit, not according to a one-size-fits-all policy.

Fourth, privatize Fannie and Freddie. The government will lose money, but they have lost already, and can end the liabilities once and for all. Fifth, consider regulating money market accounts as deposit accounts – strong bank capital requirements in exchange for federal deposit insurance. I’m not convinced it is necessary, but out of deference to Mr. Volcker it should be considered.

Lastly, wait and see where things fall. The market may not respond immediately, and the last thing we need is more legislation rushed through Congress for fear of doing nothing.

 

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Filed under Domestic Politics, Economics

Taxpayers Ought to Protest

Thomas Sowell offers some new random thoughts:

Have you ever heard anyone as incoherent as the people staging protests across the country? Taxpayers ought to be protesting against having their money spent to educate people who end up unable to say anything beyond repeating political catch phrases.

There are a few other gems in the column on everything from food stamps and welfare to political “solutions” and Republican debates.

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Filed under Domestic Politics

Getting More Specific

The OWS protesters have more clearly defined their complaints.

Or at least one of them has. This is a specific attack on Goldman Sachs, and a well-deserved one.

Photo credit.

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Filed under Domestic Politics, Economy

What is Krugman Showing?

I’m a little late to see this post, but Paul Krugman, in a post entitled “Times Square, Earlier Today,” uploaded a photo sent to him by Robin, who I assume is his wife Robin Wells, also an economist.

I’m not sure what the photo is meant to show.

Crowds? A particular sign? Something humorous or out of the ordinary? Something encouraging or ominous? I honestly don’t know. I think he was trying to show how many people were out protesting so early in the morning.

One reader quipped:

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Filed under Miscellaneous

Martin Luther King, Jr. Endorses Obama

President Obama speaking at the MLK Memorial dedication this morning in DC. (Full text here.)

And so at this moment, when our politics appear so sharply polarized, and faith in our institutions so greatly diminished, we need more than ever to take heed of Dr. King’s teachings. He calls on us to stand in the other person’s shoes; to see through their eyes; to understand their pain. He tells us that we have a duty to fight against poverty, even if we are well off; to care about the child in the decrepit school even if our own children are doing fine; to show compassion toward the immigrant family, with the knowledge that most of us are only a few generations removed from similar hardships. (Applause.)

To say that we are bound together as one people, and must constantly strive to see ourselves in one another, is not to argue for a false unity that papers over our differences and ratifies an unjust status quo. As was true 50 years ago, as has been true throughout human history, those with power and privilege will often decry any call for change as “divisive.” They’ll say any challenge to the existing arrangements are unwise and destabilizing. Dr. King understood that peace without justice was no peace at all; that aligning our reality with our ideals often requires the speaking of uncomfortable truths and the creative tension of non-violent protest.

But he also understood that to bring about true and lasting change, there must be the possibility of reconciliation; that any social movement has to channel this tension through the spirit of love and mutuality.

If he were alive today, I believe he would remind us that the unemployed worker can rightly challenge the excesses of Wall Street without demonizing all who work there; that the businessman can enter tough negotiations with his company’s union without vilifying the right to collectively bargain. He would want us to know we can argue fiercely about the proper size and role of government without questioning each other’s love for this country — (applause) — with the knowledge that in this democracy, government is no distant object but is rather an expression of our common commitments to one another. He would call on us to assume the best in each other rather than the worst, and challenge one another in ways that ultimately heal rather than wound.

The Washington Post reported that the speech “at times seemed to link King’s own struggles for civil rights with Obama’s political struggles during the economic downturn.” Is using the speech for these purposes is appropriate or not? Does it cheapen the event, or would King want Obama to use the event as an opportunity for social change? I tend to side with the former. Let the speech just be a commemoration of the great man to whom it is dedicated, and don’t cheapen it by making it more political, at least in such specific terms, i.e. “I believe he would remind us that the unemployed worker can rightly challenge the excesses of Wall Street without demonizing all who work there,” or, “Government is not distant object, but rather an expression of our common commitments to one another.”

Additionally, what would King have thought of the inverted American flags or protesters singing “F*ck the USA”? (H/t to Drudge).

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Filed under Domestic Politics, Election 2012, Role of Government

Obama Offers More Support for the Protesters?

Colin Monahan from the NYT reported this morning from the OWS protests in NY for ABC’s “This Week.” In the background was an inverted American flag.

Source.

As of this writing, the “Drudge Report” leads with the headline, “Obama Offers More Support to the Protesters.”

Supporting a group, that while possessing the same frustrations as ordinary Americas also has a strong anti-capitalist and anti-American bent, is not smart politics for a president running a reelection campaign. OWS is protesting so their voices are heard. The more their voices are heard – and then what? – the more politicians will have to lend support or offer rebuke. Republicans will welcome disquiet among the Left. It could possibly fracture their vote while offending the moderate middle of the electorate, of whom few support protestors with bandanas across their faces and American flags under their feet. Obama may try to harness this frustration as energy in his campaign, but it is a difficult maneuver. He must use his pulpit to define the narrative of his campaign. “We Are All Frustrated” just doesn’t have the same ring as “Hope and Change.”

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Filed under Domestic Politics, Election 2012