Amerika

Bernie Sanders Got Something Half Right

Politicians aren’t dangerous when they are so bad it isn’t even wrong anymore. They become amusing. They are so ridiculous they have no power to break anything. The electorate will tend to not trust them with anything much that they can’t eat or pay for. It’s when they begin to kinda-sorta make some sense that the hairs should stand up on the back of your neck. The Bern has just become at least somewhat frightening.

Sen. Bernie Sanders, I-Vt., will propose on Monday eliminating all $1.6 trillion of student debt held in the United States, a significant escalation of the policy fight in the 2020 Democratic presidential primary two days before the candidates’ first debate in Miami. Sanders is proposing that the federal government pay to wipe clean the student debt held by 45 million Americans – including all private and graduate school debt – as part of a package that also would make public universities, community colleges and trade schools tuition-free.

A lot of people get hammered by school loans. A fairly large cohort amongst them would never have even gone to college given their preference. People feel coerced into college as a means of getting the ticket out or the ticket in. Four years of undergraduate education isn’t yet technically compulsory in the United States. It isn’t very easy to get into remunerative professional work without the sheepskin. There is also the social and sexual marketplace pressures. The degree is not just a work credential. Since everyone seems to screen for something via the college degree, colleges and universities have become OP’d. OP’d, in video game parlance, means overpowered.

Thus, a lot of angry potential voters are fixing the Fraps, no whip, down at Starbucks or Caribou. They don’t feel like they spent four years learning DiffyQs and Deontology just to be stuck with this. I can personally empathize. Teaching Geometry to 30 people who were dragged in their against their wills was not my idea of what a degree in Applied Mathematics with some grad work thrown in for good measure would entail. Young people, with impressive-sounding degrees; will typically sail forth into the economy and spend a good five years having the piss taken out of them.

From a philosophical viewpoint that encompasses a nice, low, reasonable time preference; this is dues paying. An awful lot of us start out like the backup minor league catcher that gets to catch the fireballing hotshot in numerous bullpen sessions, but will not exactly be the guy at the plate when his team has the bases loaded. We raise our children incorrectly because we tell them college will let them skip all that. The colleges then compound the issue by ripping people’s faces off with tuition charges. This leaves a lot of poorly prepared young adults in a trap.

Colleges long ago left the business of molding young human clay for future greatness. If this were still the case, less than 20% of our young men and women would ever see a college campus for any reason other than tourism or curiosity. One out of five people are smart enough to do higher-level thinking. If it sounds unfair of me to say that, that’s because it is. We frequently say very unfair things when we transmit the fulsome and scurvy truth to others.

Colleges and universities are now in the same business that mortgage lenders and MBS vendors were in during the Late 90’s and Early Oughts. They see a pile of money being driven past them. They are naturally motivated to wet their beaks. If everyone needs to go through college, the smart guys at Polytech U know that it will now turn into a joke anyway. This is particularly true if they get pressured to leave no moron behind. So they do what economic organisms do when they face a huge demand for a limited service. They jack prices through the roof to reap the windfall.

The average price of one year’s tuition is now greater than the median income. It looks like college is going to be the only acceptable credential to get out of poverty, and that most people treading water or doing worse financially will never be able to afford college. There is a poverty trap present. This gives hucksters like The Bern a golden opportunity. He can make the big, bad student loan debts go away. He’s Santa Bern. You gotta’ vote for him. Especially, if you are dumb enough to believe in Santa. Here’s how he and the elves intend to fill the Christmas Sleigh with toys.

Sanders is proposing to pay for the legislation with a new tax on financial transactions, including a 0.5% tax on stock transactions and a 0.1% tax on bonds. Such a levy would curb Wall Street speculation while reducing income inequality, according to a report by the Century Foundation, a left-leaning think tank, though conservatives warn it would stunt economic growth and investment.

Now this totally sticks it to The Man. It makes !THE RICH! pay for my college. What could be more fair? Nothing. Until I want to actually retire on the cash in my IRA or 401K. Then every transaction gets taxed. For Leftists who have been attempting to further penalize Roth IRAs this is paydirt. For nominally Leftist unions who want to manage a huge retirement and stock option accounts on behalf of the members, BOHICA. If you are a member of the UAW, you may want to squint twice at your next pay stub. That amount that’s being withheld for dues just got curiously larger….

In case I’ve failed to convince you that Cuckservatives and Stonertarians are worthless at opposing the Socialist Left, read the following and laugh if you are cynical.

“The cost will march toward $3 trillion and benefit a lot of wealthy families and future high-earners,” said Brian Riedl, an analyst at the Manhattan Institute, a libertarian-leaning think tank. “Of all problems requiring a $3 trillion federal expenditure, the college costs of middle- and upper-class college graduates seem lower-priority.”

Well, Cleatus, what in the heck do you think Socialism was designed for? That crap about helping the poor? What-a-joke! Doing System ID on socialism tells you exactly what it is. It’s a robbery and killing machine. What The Bern is proposing to do here is pay the tuition of all 49 of Mitt Romney’s offspring using a transaction tax levied against the pension fund and health insurance portfolios of the Salt Lake City Municipal Janitor’s Union. The impact of this on health insurance costs will be ObamaCare on cattle steroids. Health plans pay out of investment pools that generally execute a staggering number of money market, hedge fund, ETF and stock transactions. Tax all of those at 1 to 5 mils, and you might not even have a payout pool when poor Junior falls off a bike and springs a bum wrist.

Since the working classes will no longer be able to afford health insurance or a decent retirement anymore, they will need someone to provide them with that. The Bern will be happy to take care of that to. He’s all about having the government help you. They’ll just love on you until it kills you. So how do you squeeze your way out of this ratchet?

This requires a reevaluation of why we have colleges and universities. They are not supposed to be credential mills, dating apps, or finishing schools. These are the things that they are currently doing, and it has totally buried their original purpose of being the breeding and curation grounds for intellect and knowledge. The question then becomes how do we get it put back in its appropriate box. The obvious answer is to reconnect financial risk to moral hazard.

We can still have student loans, they just need to have a more equitable risk distribution. Give the repayment risk to our eager young scholar and make the loan legally dischargeable via bankruptcy at a time 7 years after the last attendance of the institution where the loan was intended to pay tuition. Give a portion of the bad consequences of non-payment risk to the educational institution and make them hold collateral equal to 33% of their outstanding loan values. As soon as any loan that sent a student to that institution non-performs, hit them with a margin call against that reserve for their 1/2 of the loan debt. Finally, put the loan originator on the hook for the last 1/2 and make them hold a 10% loss reserve on the books, in cash or money market securities.

Letting Genius Junior discharge these obligations under bankruptcy laws makes a bailout unnecessary. Give away the ability to get credit for a while, and Genius can crawl out of the hole without messing up a single Frappachino due to financial angst. It also sets up a big rethink of how both universities and financial institutions view these loans. Where does Miskatonic University get their loan loss reserve? Good question. One that MU had better find an intelligent and fiscally sustainable answer to before they accept any tuition payments via student loan money.

And the financial institutions? This is a great way to enforce the standards on who gets into college that college won’t actually enforce. If Bank of America needs collateral on the books against people walking on the loans via bankruptcy, then B of A will conduct due diligence on just what risks could prevent a prospective borrower from being above water 7 years after the final date of university attendance. People not smart enough for MU? They’re a risk. Maybe you give them a subprime loan rate based on past performance and test scores. It could be harder to get the money for college than it would be to actually get into the college. People that major in a subject that doesn’t lead to monetary remuneration? They’re a risk too. Change majors to game this? Put a clause on the loan that links the final rate you pay interest at to what, if anything, your final degree ends up being in.

All of this would end up making banks and colleges do something Dumb Old Dad isn’t doing enough of these days. Take these kids in hand and act like Dumb Old Dad. Colleges would be accepting fewer potential reprobates on loan packages because the unversity would suffer in accordance with adverse student outcomes. Colleges and universities would be advising and helping these people and perhaps trying to slow down the rates at which people destroy themselves while attending their institutions. Financial institutions would have to take bankruptcy risk into account before cutting paperwork for some budding Horatio Alger at Miskatonic U. They would also have to put money to sleep in order to hold a loan loss reserve against this possibility.

You see, Bernie Sanders is half-right on this issue. A bunch of people owe way too much in student loan debt. Therefore, something should be done. For The Bern, this is an opportunity for Government to take over another aspect of both the economy and the society that economy is designed to help facilitate. This makes him very badly wrong, but not wrong enough to get laughed out of the building. In politics, this is a good place to be. He will have a band of supporters behind him who are wounded and scared because of the impact of these loans on their financial futures.

Another card he holds in a very strong hand consists of the natural aversion we all have for crisis or pain. Everyone wants the government to avoid having the apple cart upset. When discussing any optimal fix for this situation, the road to get there involves obvious pain.

J. Kyle Bass famously claimed the US mortgage market needed a “Darwinian Flush.” The average Joe isn’t going to volunteer for that sort of enema. The Bern can offer a supposed easy way out. It’s an easy way out until you figure out how much it starts costing to make something free. Let’s hope The Bern gets stuffed on this and we never have to find out just what that cost would be.

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