Student Loan Repayment Strike

I went to college in the Pleistocene epoch when colleges did not cost as much as they do today. I was fortunate enough to have an almost full academic scholarship, some money saved from summer jobs, access to Pell grants and finally a supportive and demanding father who would and did move heaven and earth to ensure that I graduated on time with no excuses and no debts. The idea of taking out massive loans just to obtain an undergraduate degree was completely foreign to me. The world has changed since the days of yore. It's much more difficult to obtain scholarships and grants. The cost of private and public colleges has skyrocketed. Free money has dried up. If you want to go to college and are not a child of either the 1% or parents who are obsessive savers, loans will likely be a large part of how you pay for your schooling. The obvious problem with loans, as opposed to scholarships, personal savings, grants and money from Mom and Dad, is that you have to pay the loans back. Nobody lends money with any other expectation. That's why they're called loans and not gifts. Although a college degree has increasingly become a requirement for a chance to enter the precarious middle class, it is also more important than ever to get the proper college degree from a respectable university. Just having the B.S. or B.A. behind your name isn't at all a guarantee of finding a good job, particularly if you are of visible/undeniable African descent , but that is a different post. Getting a BS degree from a BS university may only net you a BS job. Many people find this out the hard way when they graduate only to discover that their current skill sets and newly minted alleged education will get them a job that barely allows them to make rent and loan payments each month, if they're lucky. It is a financial pain in the tuchus to pay back student loans. Generally speaking, the loan can't be discharged in bankruptcy. Some former students or actual dropouts have decided that their best plan of action is to refuse to pay back their loans.

WASHINGTON (AP) -- Sarah Dieffenbacher is on a debt strike. She's refusing to make payments on the more than $100,000 in federal and private loans she says she owes for studies at a for-profit college that she now considers so worthless she doesn't include it on her resume. The "debt strike" sentiment is catching on. Calling themselves the "Corinthian 100" — named for the troubled Corinthian Colleges, Inc., which operated Everest College, Heald College and WyoTech before agreeing last summer to sell or close its 100-plus campuses — about 100 current and former students are refusing to pay back their loans, according to the Debt Collective group behind the strike.

They're meeting Tuesday with officials from the Consumer Financial Protection Bureau, an independent government agency that already has asked the courts to grant relief to Corinthian students who collectively have taken out more than $500 million in private student loans. The Education Department is the group's primary target, because they want the department to discharge their loans. A senior department official is scheduled to attend the meeting.

Dieffenbacher said she received an associate's degree in paralegal studies from Everest College in Ontario, California, and later went back for a bachelor's in criminal justice before later dropping out. She said she left school with about $80,000 in federal loans and $30,000 in private loans, but when she went to apply for jobs at law firms she was told her studies didn't count for anything.

Dieffenbacher, who works in collections for a property management company, said she was allowed at first to defer her loan payments, but now should be paying about $1,500 a month that she can't afford. Makenzie Vasquez, of Santa Cruz, California, said she left an eight-month program to become a medical assistant at Everest College in San Jose after six months because she couldn't afford the monthly fees. She said she owes about $31,000 and went into default in November because she hasn't started repayment.

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I've been around for a while now. I have financial obligations that can be tiresome. Sometimes people advised me to take or avoid a certain course of action. Sometimes I listened. Sometimes I didn't. Although not every decision I made worked well I can say that ultimately all of the decisions were mine. Once you're over 18 and certainly once you're over 21, you're an adult. You get to make your own choices. If you decided to attend a sketchy college and overpay for coursework of dubious value that's your fault. If you are wise you will learn from that choice and not do anything that foolish again. I'm not sure you should get a do-over. Although there are a few cases where they are arguably warranted, bailouts almost by definition come with a huge moral hazard problem. The people who get bailed out don't pay the costs of their foolish behavior and thus are more likely to repeat such bad behavior in the future. Additionally other people who are playing by the rules of the game start to feel like suckers. Rationally it may also make sense for them to ignore the rules and default on their debt if the consequences for doing so are no longer punitive. If too many people start to do this the interest rates and fees for loans will increase. Institutions will be less likely to make loans. In extreme situations the market will grind to a halt. But maybe that is the wrong way to look at this. Maybe we should examine this situation not through the lens of loan repayment but rather through consumer protection. If someone sells me something I didn't ask for or is totally worthless then I should have the ability to complain to a consumer protection agency and get some sort of relief. That is the argument the Corinthian 100 are making. If the education was fraudulent should they pay?

I am not 100% unsympathetic to this argument, just 90% unsympathetic. There is no guarantee that a college education will provide any particular individual a path to a well paid career. It's an important factor but ultimately just one among many. Connections, career interest, personal drive, intelligence and the larger economy all play a role. A college or graduate school may boast about its alumni salaries and income but all they are really selling you is an education. What you do with that education is up to you. Still, if someone just doesn't have the money they don't have the money. I would be willing to allow student debt to be discharged in bankruptcy, which is currently not the case. That requires a change in the law. But I would not be willing to allow someone to default just because they entered the real world and learned that they weren't a special snowflake. We do need to rethink how we finance higher education in this country. The structure of loan based financial aid may have done little more than give colleges incentives to raise tuition and salary packages.  There is more than $1 trillion in student debt. We can't keep on in this way. We will see more stories like this.

How do you see this story?

Should the Corinthian 100 be able to walk away from their debt?

Should everyone else be able to walk away from their mortgages or auto loans?

Detroit Files for Bankruptcy

As predicted here recently, the City of Detroit just became the largest municipality in US history to file for bankruptcy. Typically for the ways things are done around here, even the filing was filled with some shenanigans as Governor Snyder and Emergency Manager Orr filed the bankruptcy just before a judge was set to grant a temporary restraining order preventing such a filing. I think this is a sad day. But it is probably one that was necessary. My only interest now is in hoping that the retirees and their dependents, some of whom are very close to me, don't get the shaft in whatever comes out of this process. But being the pessimistic sort I think they probably will.

The city of Detroit filed the largest municipal bankruptcy case in U.S. history Thursday afternoon, culminating a decades-long slide that transformed the nation’s iconic industrial town into a model of urban decline crippled by population loss, a dwindling tax base and financial problems. The 16-page petition was filed in U.S. Bankruptcy Court in Detroit.

Gov. Rick Snyder’s office was making plans this afternoon to hold a 10 a.m. Friday morning news conference at the Maccabees Building, 5057 Woodward in Midtown, according to his office. It’s the same location where the governor declared a financial emergency for Detroit on March 1.  Snyder authorized Emergency Manager Kevyn Orr to file bankruptcy under a law the Legislature passed in December that replaced the previous emergency manager law voted repealed last November.

The bankruptcy filing came minutes before Ingham County Circuit Judge Rosemarie Aquilina was set to hold an emergency hearing Thursday afternoon on a request for a temporary restraining order blocking Snyder from authorizing a bankruptcy filing. “It was my intention to grant you your request completely,” Aquilina told lawyers for Detroit’s pension boards.

The judge did grant temporary restraining orders against Snyder and Orr taking further action in the bankruptcy proceedings. Ronald King, an attorney representing the police/fire and general retirement pension systems, said he may file a motion Friday in the case seeking to require Orr, an officer of the state, to withdraw the bankruptcy filing. After the hearing, King expressed frustration with the governor’s office after filing a motion for a temporary restraining order at 3:37 p.m. and giving Snyder’s attorney extra time to get to the downtown Lansing courthouse. The bankruptcy case was filed at 4:06 p.m. and Aquilina convened the emergency hearing at 4:11 p.m.

The Chapter 9 filing could take years, experts say, despite hopes by the governor and Orr that the case can be wrapped up in a year. A bankruptcy judge could trump the state constitution by slashing retiree pensions, ripping up contracts and paying creditors roughly a dime on the dollar for unsecured claims worth $11.45 billion. During a month of negotiations, Orr has reached a settlement with only two creditors: Bank of America Corp. and UBS AG. They have agreed to accept 75 cents on the dollar for approximately $340 million in swaps liabilities, according to a source familiar with the deal.

The bankruptcy plan was expected to closely follow Orr’s restructuring proposal that was unveiled to creditors on June 14 — a proposal that drew criticism from some creditors who said the cuts were too deep and did not include the sale of city assets, including Belle Isle and a Detroit Institute of Arts collection worth billions. He proposed paying most of the money owed to secured creditors while pension funds, unions and unsecured bondholders would receive, in some cases, 10 cents on the dollar.

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As I wrote previously there is no good reason that anyone with a working brain would accept 10% of what they're owed when someone else is getting 75% of what they're owed. You'd have to be extra special stupid to go for that deal. And how convenient is it that two of the more criminal banks that could be said to exist were going to get most of what they claim they were owed. It feels good to be a bank, no?  From a purely public interest standpoint there could be an interesting legal battle to determine if federal bankruptcy law can ignore the Michigan constitution which has generally been understood to prevent the alteration of public pensions. As we know in most cases the federal rules reign supreme. But there are still a few areas where the states can tell the feds to back up and go away. But of course it's not the state which is filing bankruptcy but the city. So yes this will all be "interesting". But that aside there are some good people who are gonna get hurt. Some of them I know. So this is not a good thing. 

Detroit has been on a downward spiral financially for years. This day has been probably inevitable since at least the late nineties. That was the time then to make the changes required to avoid this. The city needed to get rid of useless assets, collect taxes that were owed, cut taxes where possible to stop driving off businesses and citizens, deal with an intransigent and occasionally corrupt bureaucracy, take steps to get the crime under control, start an aggressive program to demolish abandoned homes, be unapologetic about requiring that Detroiters get work on projects inside the city (made more difficult by state rules against affirmative action), and do everything possible to bring in more revenue while cutting costs. Unlike the federal government cities can't create Keynesian stimulus on their own. They have to pay back their creditors. But for a variety of reasons, some good but mostly bad much of these things did not happen and here we are. Ironically some of the people that were cheerful about Detroit bankruptcy because they enjoyed seeing bad things happen to Detroit are suddenly somewhat worried about what a Detroit bankruptcy could mean to other (ie. THEIR) municipal or state borrowing costs. So stay tuned sports fans! This is going to be messy.

Thoughts?

Detroit's Last Stand?

You're surrounded and running low on ammo. You're outnumbered at least 20-1. The cavalry tried to come to your rescue but they all got mowed down in a hail of machine gun fire. Your erstwhile allies are the ones who set you up for what's turned into a massacre. Most of your best soldiers are dead or dying. You and your remaining ride or die loyalists are badly wounded and probably won't make it through the night. Your troops are telling each other "It's been an honor serving with you" and "See you on the other side". Your enemies are really not all that interested in accepting your surrender. Even if they were your pride certainly wouldn't allow you to stoop to offer it. In short there's nothing for it left but to ante up and kick in. You'll live on in stories. You drive into that roadblock. You go out hard and take as many of the SOB's with you as you can in a Bolivian Army ending.

That's the way it is in movies of course. Film often imitates real life. I haven't written about it for a while but my home city of Detroit is pretty much at that point. If you hadn't heard Detroit is under the control of Michigan Governor Rick Snyder appointee Emergency Manager Kevyn Orr, who over the last week released his reports on Detroit's dire financial situation as well as some of his plans to potentially avoid bankruptcy, which he is publicly willing to state is a 50/50 proposition. Looking at some of the numbers I think that if Orr is okay with revealing that bankruptcy is that likely, I think it's even likelier than that.

Detroit: Governor Snyder says Emergency Manager is needed

In a decision that should surprise absolutely no one Michigan Republican governor Rick Snyder today announced that the City of Detroit would have to have an emergency manager. It doesn't give me any pleasure to see this announcement but it's one of those things that's probably long overdue. Detroit simply can't continue to go on as it is. One thing that really bothers me about all this is that now that a white Republican is calling attention to the dysfunction that is Detroit, Detroiters near and far are coming out of the woodwork to say that an emergency manager is not needed and this is plantation politics and so on. Well maybe. I don't automatically believe that Snyder or anyone he appoints will necessarily have the best interest of the citizens of Detroit at heart. There was a similar state takeover of the Detroit School Board that actually made things worse financially.


 

However there does come a time when you have to put everything else aside and just look at simple math. As much as I might like to purchase The Biltmore, or the Wurzburg Residenz I have neither the income nor capital to arrange such purchases or handle the expenses of such estates. So I have to make do with something a little less extravagant. Similarly Detroit, in which virtually half of property owners refuse to pay their lawful taxes , just can't afford to spend the money or do the things it used to do. Snyder did not cause this. I don't politically agree with Snyder. I don't particularly like Snyder. I did not vote for Snyder. But we must be real. It may make some people feel good to call Snyder everything but a child of God over the next few weeks. But that won't change the math. As the more expansive emergency manager law was recently repealed by Michigan voters, the new emergency manager would not quite have the almost dictatorial powers which would have been available under the old law.

But he or she would still be the person ultimately responsible for financially saving the city of Detroit or, more likely shepherding it through bankruptcy. And I do think that bankruptcy remains the most probable and reasonable outcome. An emergency manager will be able to do some things that mayor and council can't do.

Q: If an EFM is appointed, will Detroit elections for mayor and City Council still go forward?

A: Yes. Detroiters will have a primary election in August and a general in November. What powers those elected officials will have will be up to the EFM.

Q: Who pays the salary of an emergency financial manager?

A: Under state law, the local government pays the EFM. The salary is set by the Emergency Financial Assistance Loan Board, which also approves any necessary expenses that the EFM incurs. But under Public Act 436, which goes into effect March 28, the state, rather than the financially distressed local government, will pay the emergency manager's salary and other costs.

Q: Does an EFM have the authority to change existing labor contracts without negotiation?

A: No. While EFMs are authorized to renegotiate labor contracts, they are not authorized to do away with such contracts or obligations under Public Act 72. Under Public Act 436, an emergency manager may impose new labor terms if negotiations with unions fail and the state approves doing so.

Q: Does an EFM have the authority to eliminate a department or transfer functions of one department to another, or eliminate positions?

A: Yes. Notwithstanding the provisions of any charter to the contrary, an emergency financial manager may consolidate departments of a unit of local government, or transfer functions from one department to another department, and may appoint, supervise, and, at his or her discretion, remove heads of departments other than elected officials, the clerk of the unit of local government, or any ombudsman position in the unit of local government.

But the emergency manager can't MAKE people pay their taxes. Under Michigan law he can't stop pension payments. And he can't tell creditors that he's not going to pay them. Given the virulence of racism in SE Michigan and the hypersensitivity of Detroiters at being dictated to by whites suburbanites/non-Detroiters and the rage of whites suburbanites/non-Detroiters at being forced to pony up money for Detroit (there are truths to both perceptions although each is limited) I still say the smartest move politically would have been for Governor Snyder to stay out of it entirely. If I were him I would have said "I believe that Detroiters can solve their own problems" and shrugged off all questions and most importantly, any requests for state financial assistance. It's unfortunately human nature but by putting an emergency manager in charge that emergency manager will become the focus of Detroiter vitriol instead of bad decisions and bad management by past and current Detroit leaders. Detroit's problems were not all caused by Detroiters. But I strongly believe that letting people stand on their own two feet and make their own decisions is preferable in most cases than trying to do for them. Of course, in dire emergencies this "each man is the captain of his own ship" attitude doesn't work. And Detroit is in such an emergency. We'll see how it goes. I worry that no one really cares if Detroit survives. One group of people will just be angered by what they see as another instance of white paternalism and fight everything on that basis. Another group will be made ecstatic by what they see as another instance of black malfeasance that confirms their racist baseline ideas. And like monkeys in the zoo they will be throwing their s*** at each other. So it goes.

How do you see it? Is this the death of democracy? What would you do as governor?

Vice-President Biden, Chains, Wall Street and Black People

If I stood in front of an audience which had a sizable proportion of Jewish Americans and claimed (even tongue in cheek) that my political opponent would have them "back in death camps" some people might consider that a desperate attempt for votes and something of a slanderous low blow. I might even get a verbal brush back from the ADL or AIPAC chiding me for lightly using such metaphors. But Vice-President Joe Biden is not a person who is worried about such things. In Danville, VA , a city that is roughly half black and happens to have been the final capital of the Confederacy, and in front of an audience which NBC News stated was representative of the city, Vice-President Biden spoke dismissively of Republican plans to change Wall Street regulation.

Vice President Joe Biden said Tuesday that a Republican-led effort to loosen new regulations on Wall Street would put voters "back in chains." "Romney wants to, he said in the first 100 days, he's gonna let the big banks again write their own rules," Biden said of the GOP nominee's proposals to roll back the Obama administration's financial reforms. "'Unchain Wall Street!'" Lowering his voice, Biden added, "They're going to put you all back in chains."

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Now of course the Administration in the person of one Stephanie Cutter, Obama deputy campaign manager, strongly defended Vice-President Biden's statements. 

We have no problem with those comments," said Obama deputy campaign manager Stephanie Cutter on MSNBC's "Andrea Mitchell Reports."
Pressed on whether President Obama himself agrees with those comments, Cutter said the full context of the remarks was important.
"[Obama] probably agrees with Joe Biden's sentiments," Cutter said. "He's using a metaphor to talk about what's going to happen."

Ok. Fair enough. I think it's a bit odd to be using language that could be interpreted as fear mongering of a return to SLAVERY because of different ideas about Wall Street regulation but there you are. Perhaps leaving Wall Street to its own devices, free from regulation or the long arm of the criminal law really is akin to putting Americans -especially Black Americans - back in chains. So maybe I should thank Vice-President Joe Biden for having the courage and the commitment to stand up and say negative things about his political rivals, the Republicans. I mean it must take a lot of moxie to talk bad about your rivals. Not everyone has the guts to criticize people on the other side politically. As Biden implied, maybe those evil Republicans really do want to protect big banks and their executives from justice and not put those dastardly devils, those rascally reprobates, those piggish parasites into prison where they so richly deserve to be.

There's just one problem with Biden's self-serving narrative of the Administration being the one that wants to go after Wall Street while the Republicans want to coddle and protect Wall Street.

It's not true.

In news which was ignored by too many people the Justice Department recently announced that it would not be prosecuting Goldman Sachs or any of its employees for financial wrongdoing arising out of the 2008 financial crisis. This would be the same Goldman Sachs that was selling crappy bundled mortgage backed securities to clients and telling them they were A+ rated while describing them as crap in internal documents. This would be the same Goldman Sachs that journalist Matt Taibbi famously described as a vampire squid. for its centrality to the financial rot at the heart of American finance. And this would be the same Justice Department that is headed by Eric Holder, whose former law firm has Goldman Sachs as a client and whose boss, the President, received over $1 million in campaign contributions from Goldman Sachs in 2008 alone. The relative lack of engagement in going after systematic misdeeds by financial institutions has been noticed.

The problem isn't a shortage of scandalous stories. We've seen a lot of those. What we haven't seen, at least here in the United States, is a single indictment of a senior Wall Street banker from the United States Department of Justice. And that's what has these political insiders concerned.

Questions raised

A growing number of people are privately expressing concern at the Justice Department's long-standing pattern of inactivity, obfuscation and obstruction. Mr. Holder's past as a highly-paid lawyer for a top Wall Street firm, Covington and Burling, is being discussed more openly among insiders. Covington & Burling was the law firm which devised the MERS shell corporation that has since been implicated in many cases of mortgage and foreclosure fraud. Wells Fargo has already been implicated in the laundering of money for the Mexican drug cartels that have murdered as many as sixty thousand people, as well as having been found to have engaged in some of the most egregious borrower fraud. Now, as attorney Field notes, it's even illegally closing the bank accounts of unfriendly bloggers to extract revenge.

Despite its massive rap sheet, which includes investor fraud and the bribing of Alabama officials, and despite the SEC investigation of its "London whale" debacle, JPMorgan Chase is is defying a subpoena in California and refusing to turn its emails over to a judge. It's charged with the same kind of criminal activity that was behind the Enron scandal: manipulating energy markets. And despite Jamie Dimon's suggestion that the head of the "London whale's" group would be forced to return her ill-gotten millions, she was allowed to resign and keep the money. There's no sign that a criminal investigation of this affair is underway, despite Dimon's own admission that laws may have been broken.

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In short, Biden is in a very flimsy glass house when it comes to throwing stones about who's gonna be tough on Wall Street. Very flimsy indeed. So if Biden wants to make the argument that Romney and Ryan are going to put Americans "back in chains" based on their love of Wall Street I would ask Biden when did he or Obama ever take the chains off? Is Biden really going to argue that I should vote for him because the Republicans won't prosecute Wall Street either? O-kay.

The problem as I see it is that the political establishment and the financial establishment are far too closely intertwined. When you can throw millions at a candidate, they're going to listen to what you say and return your phone calls. And when there is a revolving door between government and business, there should be no surprise that some of the people in government who are supposed to be regulating or even prosecuting business, occasionally need reminders of what their job description really is.

The Republicans, who have spent the past four years calling President Obama everything but a child of God, certainly do not have any room for sanctimonious outrage over Biden's remarks. But just because their hands are dirty doesn't mean that Biden's (and Obama's) hands are clean. There's some other analysis I want to get into about fear mongering, black people, progressives and the fall election but that will have to wait for a later post. Suffice it to say for now that no I don't believe that the world as we know it will come to an end if the "wrong" man should win.

What's your take?

Were Biden's comments appropriate?

Are the Republicans misconstruing them? Is this minor league nonsense?

Is there any difference between the two parties and their devotion to capital?