Who Got Rich Off the Student Debt Crisis

42 million people owe $1.3 trillion in student debt. It’s a profit center for Wall Street and the government. Here’s how we got into this mess.

A generation ago, Congress privatized a student loan program intended to give more Americans access to higher education.

In its place, lawmakers created another profit center for Wall Street and a system of college finance that has fed the nation’s cycle of inequality. Step by step, Congress has enacted one law after another to make student debt the worst kind of debt for Americans – and the best kind for banks and debt collectors.

Today, just about everyone involved in the student loan industry makes money off students – the banks, private investors, even the federal government.

Decades ago, the federal government relinquished direct control of the student loan program, opening its bank to corporations concerned with profits, not diplomas. Private equity companies and Wall Street banks seized on the flow of federal loan dollars by peddling loans that students sometimes could not afford and then collecting fees from the government to hound those students when they defaulted. 

Once in place, the privatized student loan industry has succeeded largely in preserving its status in Washington. Student loans are virtually the only consumer debt that cannot be discharged in bankruptcy except in the rarest of cases – one of the industry’s greatest lobbying triumphs.

DYI Comments:  The chart above is telegraphing the state of the economy as young people, along with older adults as well, frustrated with anemic job opportunities went back to school hoping that job prospects would have improved once they were finished.  Many have had poor to mixed results at best.

And as I've stated many times before the best way to lower the cost significantly is to do away with student loans.  The universities/colleges/technical schools would have to lower their costs or confront a substantial drop in student population forcing reduction in staff from janitors to professors along with unused facilities.  Within 3 to 5 years competition for students would be in full bloom as educational establishments drop tuition and other costs. At the end of 7 plus years costs would once again at the level of buying a car as compared to today that of a house.  Basic economics 101 and political will is required.  Unfortunately I've only heard a few lone voices pushing for ending student loans.

In New Jersey student loan program, even death may not bring a reprieve

Annie Waldman

Sunday, 3 Jul 2016 | 10:51 PM ETThe New York Times
Excellent article how New Jersey is feeding at the trough at the expense of our young people.
DYI

European News

Cash Stored in Vaults as Negative Interest Rates Spread

A new report by Finch Ratings indicates that negative interest rates are spreading rapidly. As of June 27, $11.7 trillion of sovereign debt globally was based on the purchase of bonds and other assets with negative yields. This is up by $1.3 trillion from the end of May. 

The way that this works in "normal" times is that an investor pays $95 for a bond that will pay $100 when it expires. But in today's "new normal," the demand for bonds is surging, and by the law of supply and demand, the prices of these bonds are also surging. So the investor is forced to pay $105 for the same bond that will pay only $100. That's a negative yield. 

In "normal" times, banks make money by borrowing money at low interest rates and lending it out at high interest rates. But in today's low and negative interest rate environment, it's impossible to lend it out at high interest rates, except to the riskiest borrowers, the subprime borrowers most likely to default. 

For financial institutions(including individuals) looking for a place to park their money, some of them are returning to the old days when banks stored their money in vaults. Money in a vault earns no interest, but it also doesn't lose value.

When American outlaw "Willie" Sutton was once asked why he robbed banks, he replied, "I rob banks because that's where the money is." Somewhere there may be a modern day Willie Sutton who's thinking the same thing.

DYI Comments: If interest rates go negative or zero bound basic savings will be in the form of cash, gold and silver.  Vaults will become very popular for home usage along with safety deposit boxes at the banks.  Banks will need to respond as their customers desire to hold cash so their vaults will be full.  Yep there is a new Willie Sutton first in Europe then later, IF rates go negative, here in the States.

DYI   

German Chancellor Angela Merkel "No bailouts for Italian banks!" Italy's Prime minister Renzi response: Italy will not be "lectured by a school teacher!" A Pin Looking For a Bubble????

Italian banks battered after ECB warns MPS about bad loans

The financial crisis is coming back to roost in Italy after warnings about Banco Monte dei Paschi di Siena's massive amount of non-performing loans caused Italian banking shares to plumb new depths.

The eurozone central bank also ordered MPS to present by October 3 its plans to cut the ratio of doubtful loans to 20 percent of its total loan portfolio by 2018. 

At the Milan stock exchange, the request was seen as an ultimatum and in effect as a call to the country's entire ailing banking sector, which is burdened by fragile balance sheets and a staggering 360 billion euros in bad loans. 

Other Italian banks also fell heavily, with top bank Unicredit declining 3.6 percent. Since January, the FTSE Italia All-Share Banks index has plunged 55 percent.

 Generational Dynamics

Italy bank crisis more dangerous to EU than Brexit

Italy's prime minister Matteo Renzi is considering "unilateral action" to bail out Italian banks with taxpayer money, in violation of EU rules. Action is needed because Italy's already fragile banking system has a staggering $420 billion of bad loans on its books. Italy's bank crisis and confrontation with the EU has gotten so deep that some analysts that it threatens the European Union "worse than Brexit." 

Italy's largest bank is Banco Monte dei Paschi di Siena (MPS), founded in 1472, and the world's oldest operating bank. Its share of bad loans comes to $55.2 billion. There may be a major crisis on July 29, when the ECB announces the results of the latest rounds of bank "stress tests." It's believed that these stress tests will force major recapitalizations on MSP and other Italian banks. 

MPS's stock price has fallen 80% in the last year, and fell 14% on Monday, following reports that the European Central Bank is going to issue an "ultimatum" to reduce its bad loans portfolio to $32.2 billion by 2018. 

The European Union put these banking union rules into place in 2015, and already they're facing a major confrontation, which may turn into a major crisis on July 29, when the ECB's stress tests of Italy's banks will be published. If Italy follows the rules, hundreds of thousands of additional people will lose their life savings. That's why prime minister Matteo Renzi has issued his ultimatum that he will violate EU rules and bail out the banks with taxpayer money. However, this will only "kick the can down the road," in a familiar process where one crisis is solved, but a new one emerges a few months later. 

Italy readies rogue bank bailout

The country has been labelled the biggest European threat to the Single Market in post-Brexit Europe...

Several Italian officials and bankers have told the media that the PM is determined to intervene to protect the country's banks despite warnings from Brussels and Berlin. New rules hope to shift the financial burden of assisting troubled banks on to creditors and away from taxpayers. 

"We are willing to do whatever is necessary [to defend the banks], and do not rule out acting unilaterally, although that would only be as a last resort," one source told The Financial Times. 

Last week, German Chancellor Angela Merkel signalled that she would not support requests to temporarily suspend state aid and bail-in rules to recapitalise Italian banks - arguing that is would end the European banking union. Prime Minister Renzi responded by saying he will not be "lectured by a school teacher."

DYI Comments:  I've stated many times over if you want to know where the next set of fire works would emanate from, look no further, the Italian banks.  It appears that a black swan event is brewing where multiple negative events happen simultaneously.  England possibly leaving the EU(they haven't formally evoke article 50) Italian banks on the skids and uncontrolled mass migration from mid east and northern African countries who's culture and religion incompatible to Europeans. 

The most likely scenario is a continuous grinding down of the European economy with nations breaking away from the Union.  Bank bailouts and bailins along with countries who leave the EU who will devalue their currency through inflation so they can export their way out.  Within 7 to 10 years from now the debt issues private or government will be lowered to more than acceptable levels. Actually, I see Europeans pushing the debt levels to very low levels to their respective GDP's. Simply human nature.  The generation that is coming up have become very debt adverse and will push debt reduction as their number one priority.

The biggest reform needed for ALL 1st world countries including the U.S. are their version of Social Security and medical care(Medicare).  The birth rate is so low, that's right women having babies, there are always far less future taxpayers to care for the elder's social programs.  To make up the short fall their governments have borrowed massively.  These high levels of borrowing are like a ship attempting to leave port while dragging its anchor on the bottom of the ocean.  Meager GDP growth exacerbating their ability to service their debts.

Country	2004	2005	2006	2007	2008	2009	2010	2013	2014
European Union	1.48	1.47	1.47	1.5	1.5	1.51	1.58	1.59	1.6

Replacement is 2.1 to maintain population

First world stock markets mean invert.  A fancy way of describing a secular (very long term) change in stock and bond valuations.  The U.S. market peaked on a secular basis in the year 2000 and despite two massive sell offs we are once again in bubble territory.  As reported by John Hussman of the Hussman Funds the median stock valuation is greater than the year 2000 grand Daddy of bubbles.  Be as that may as measured by the Shiller PE U.S. stocks(S&P 500) are clearly overvalued.

  

7-1-16 Shiller PE is 26.00

To mean invert valuations will move below the Shiller PE of 10.  This will take two or three cyclical moves to achieve this ultra low valuation.  The S&P 500 has formed a two year plus arch.  This is a topping formation for this current cyclical down side move.  Of course to get the selling going a pin is needed to burst this bubble.  The Italian banks fits the bill.

 Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 7/1/16

Active Allocation Bands (excluding cash) 0% to 60%

87% - Cash -Short Term Bond Index - VBIRX

13% -Gold- Precious Metals & Mining - VGPMX

 0% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

                                                             [See Disclaimer]

   DYI

Technology changes but human nature is time immemorial.

Our founding fathers had a heighten awareness of mans desire to in slave the populous through tyranny. Their study of history and then living under their current oppressor King George made for a heighten awareness of  the oppressive nature of governments in its drive to control the opposition.  Or despite best of intentions, governments become tyrannical in their never ending quest to provide security over freedom.     

Today our rights are under assault from both fronts.  A populous that is demanding security over freedom and elites colluding with big government to enrich themselves further at citizens expense.

Today many of our citizens are clamoring for gun control in their emotional desire to end the mass shootings.  The major reason our founding fathers placed into the Bill of Rights your freedom to bear arms to place the people on equal footing with their government.  Along with your right of self defense. 

Government enforcement is never voluntary.  This is the major over riding reason the police and other government agencies have guns.  Enforcement,  threat of and incarceration with the possible use of deadly force maintains broad adherence of laws by our citizens.

Unfortunately their are a small subset of our society who have a complete disdain for civil behavior.  No matter how restrictive or out right ban they will obtain firearms.  Even if a ban was accomplished criminals or the mentally ill would seek alternative weapons.  This places our citizens at RISK!  FOR THEIR SAFETY OUR CITIZENS NEED TO BE ARMED!  

    

Our Federal Government is now in bed with big business with trade deals, attempted in secret, if passed, will supersede the constitution.  This is TREASON!  When politicians are elected they are required to take an oath of office to support and defend the constitution.  Any politician who actively endorses obvious unconstitutional bills or treatise is committing an act of sedition.

The money centered banks are routinely fined for illegal misdeeds yet deals are struck so that no one goes to prison.  This is a partnership between government and the banks; with the government pocketing(fines) a portion of their ill received gains.

The list goes on and on.  There are some positives.  Many of our 50 states are pushing back against this oppressive government.

I'll leave that for a post for another day.  I need to clean out the grill put the new charcoal in, ready the food and chill the beer.  When friends and relatives arrive it is a day to celebrate our breaking away from King George.  

The fight continues to maintain freedom through eternal vigilance!

Cheers!

     DYI          

Oil Is Still Heading to $10 a Barrel

191

JUNE 28, 2016 12:00 PM EDT

By

A. Gary Shilling

An oil price drop to below $20 per barrel would be a shock reminiscent of the dotcom collapse in the late 1990s and the subprime mortgage debacle that produced the 2008 financial crisis -- both of which triggered recessions. Of course, oil prices would not stay in the $10 to $20 barrel range indefinitely; recession would squeeze out excess energy production and prices would recover, likely to the average cost of new production. But the deflation that might accompany a worldwide economic downturn might mean the new equilibrium price for oil is between $40 and $50 a barrel -- well below the $82 average in the first half of this decade, and lower than the assumptions in the business plans of energy producers.

Gary Shilling Blog

OPEC is a cartel and why oil could fall to $10

Cartels exist to keep prices above equilibrium-that's the only reason for that-and that encourages cheating; somebody in or out of the cartel wants more than their share and so the leader of the cartel's job is to cut its own production to accommodate the cheaters. 

Well, the Saudis-the leader of the OPEC cartel-decided that they were not going to go along with that. They thought they could outlast others and when you're in a price war, the cost of meeting budgets isn't the number that counts. It's the point where free cash flow disappears and that in the Permian Basin in Texas is $10 to $20 a barrel and it's even less in the Persian Gulf.

DYI

Hawaii Becomes First State to Put Gun Owners in FBI Database

Hawaii passed a law making it the first state to put gun owners on a federal criminal record database and monitor them. 

Hawaii Governor David Ige signed the bill Thursday, which allows police to enroll firearms applicants and individuals who are registering their firearms into “Rap Back,” a Federal Bureau of Investigation database that monitors criminal activities by people under investigation or in positions of trust, Reuters reported. 

The law takes effect immediately. “Rap Back” allows Hawaii police to be notified when a Hawaii firearm owner is arrested anywhere in the U.S. In addition, the law allows Hawaii police to evaluate whether a firearm owner should continue owning a gun after being arrested.

Hawaii: Gun Owners May Be Monitored More Closely Than Criminals Under New Law

                                                                      BY NRA-ILA STAFF | FRIDAY, JUNE 24, 2016

 Yesterday, Governor Ige announced that he signed two anti-gun bills, Senate Bill 2954 and House Bill 625, into law.  Both bills took effect immediately upon his approval.  Apparently the Governor thinks that law-abiding Hawaiians should be entered into a federal criminal database for continuous monitoring because that is exactly what SB 2954 will do.  Under SB 2954, the existing registration requirement will be expanded and law-abiding Hawaii gun owners, and visitors, will be entered into the federal “Rap Back” system, which is a biometric database managed by the FBI for continuous monitoring. 

The exercise of an individual’s Second Amendment rights is not inherently suspicious and should not require a person to surrender other civil liberties, including unwarranted invasions of privacy or unequal treatment under the law. The lawful acquisition, possession, carrying, or use of a firearm does not justify subjecting citizens to ongoing monitoring. 

Governor Ige also signed HB 625, which expands prohibited possessors to include certain misdemeanor crimes.  Constitutional rights are generally restricted only upon conviction of a felony.  The reasons for this are two-fold.  It limits restrictions on constitutional rights to only the most serious offenses, and, perhaps more importantly, felony convictions provide greater procedural protections to the accused, which results in more reliable convictions.  The right to keep and bear arms should not be treated as a second-class right and should be restricted only upon conviction of a felony

DYI Comments: Placing gun owners on the FBI's data base is no doubt an invasion of privacy and is definitely unequal treatment under the law.  Exercise your 2nd amendment rights, which is not a crime, yet in Hawaii you will be placed on the Fed's criminal database. That is blatant unequal treatment under the law.

I also find this legislation to be nefarious as the State of Hawaii involves the Fed's; a rampant abuse of the 10th amendment as well.  Of course if this data base was only with State of Hawaii it still would be unconstitutional as it is an infringement upon gun ownership.

Also if a person convicted of a crime and has done his time shouldn't his constitutional rights be returned?  Doesn't a returned felon have the same right to self protection?  Take away the 2nd why not their 4th or 5th amendments as well.  Don't get me wrong I'm not here to coddle criminals.  But how long should we punish? Till death?  If they are that dangerous why aren't they in prison?  If our founding fathers were alive today I believe after convicted criminal paid his debt to society(prison time) all rights under the constitution are returned.  The slippery slope of doing away with one right begets disparagement of additional rights.

DYI   

7-1-16
Updated Monthly

Secular Market Top - Since January 2000

+  56.0% Dow       

+151.4% Transports 

+152.9% Utilities

+42.9%  S&P 500

+19.0%  Nasdaq

+64.4%  30yr Treasury Bond

+355.2% Gold

  +88.8% Oil
  +61.7% Swiss Franc's

    

From High to Low

+355.2% Gold

+152.9% Utilities

+151.4% Transports

+  88.8% Oil
+  64.4% 30 year Treasury bond

+  61.7% Swiss Franc's

+  56.0%  Dow
+  42.9% S&P 500

+  19.0% Nasdaq

It is easily seen that in the year 2000 the Nasdaq was horribly overvalued and gold was on the give away table, such lopsided returns 15 years later!

Also of interest the stodgy 30 year Treasury bond has outperformed the Dow, S&P 500, and Nasdaq since the year 2000.  The modern portfolio crowd back in the year 2000 would find this a very low probability outcome.  Value player's, due to extreme valuations, would have recognized this as the most likely outcome (close to a no-brainer!).  

The Q Ratio and Market Valuation: A Revised Update

June 9, 2016

by Doug Short

The Message of Q: Overvaluation 

Of course periods of over- and under-valuation can last for many years at a time, so the Q Ratio is not a useful indicator for short-term investment timelines. This metric is more appropriate for formulating expectations for long-term market performance. As we can see in the next chart, peaks in the Q Ratio are correlated with secular market tops, the Tech Bubble peak being an extreme outlier.

DYI Comments:  More evidence of an overvalued market.  What is not shown the median stock valuation is now greater than the year 2000.  All levels of the market except precious metals mining companies are way overblown in price giving the appearance of normalcy.  From secular top (year 2000) to secular bottom will be many years in the future.  Normally this journey would have taken 12 to 15 years but due to massive world wide central banks with their sub atomic/negative interest rates the full trip may take as long as 20 years.  Who knows for sure.  However, you can bet as measured by the exponential regression line - stocks will be way below as in 1922, 1932, 1942, and 1982.

The Great Wait Continues

DYI

Greenspan Warns A Crisis Is Imminent, Urges A Return To The Gold Standard | Zero Hedge

 June 27, 2016 

“We’re dealing now in very early days a crisis which has got a way to go.  If we went back on the gold standard and we adhered to the actual structure of the gold standard as it exited prior to 1913, we’d be fine.  Remember that the period 1870 to 1913 was one of the most aggressive periods economically that we’ve had in the United States, and that was a golden period of the gold standard.”

DYI Comments:  Prior to his tenure as Chairman of the Federal Reserve Alan Greenspan was, using short hand "a gold bug."  As soon as he became Chairman he presided over aggressively dropping interest rates and systematically increasing the money stock. All aspects in complete contradiction to any version of a gold standard.  Well God bless him at least at the age of 90 he is back on track to honest money.

To be honest this puts me at wits end.  This on top of another thousand reasons is why this central bank needs to be closed.  Historically America closed three banks before for smany of the same reasons.  Maybe fourth time is a charm.

DYI    

June 29, 2016

Syrian migrants menace NB high school — Could UK rape gangs happen in Canada?

EZRA LEVANTREBEL COMMANDER

Have you been watching Faith Goldy’s investigative reports into the Syrian migrants to Canada, who were dumped into Fredericton High School in New Brunswick? 

These Muslim students were demanding sex segregation of classes, were swearing at teachers, hitting on uncovered Canadian girls, and more. 

Some of these Muslim students are in their early twenties. 

All I can think about is Rotherham, in the UK. Over a decade, Muslim gangs blackmailed, raped and prostituted 1,400 British girls. Social workers detected it. Police and politicians were advised. 

But no-one wanted to be called racist, so nothing was done. 

We’re not at Rotherham yet. But for two days now, we’ve broken the news about Fredericton High School, and there's been total silence from the rest of the media.

DYI Comments:  Any common sense American knows this is coming to the U.S. soon or already has occurred yet not being reported due to political correctness.  Our emigration policy is nothing more than open borders with mass migration now centered with central American nations along with the Obama administration bringing in refugees from the middle eastern countries the U.S./U.K./NATO/E.U. alliance destabilized.

Here's a emigration policy that is easily comprehended.  Hire up recruiters and search the world over for their best and brightest among their young people.  Such as an open heart surgeon from Finland who is still in his 30's.  Or a German with advanced degrees in industrial sciences. See where I'm going with this?  Think any of these people will be on welfare?  Not a chance! Possible job creators?  You bet they will!  This should have been America's primary emigration program from day one. 

DYI

 Concealed Carry Prevents Mass Shooting at SC Night Club

A man with a concealed carry license stopped a shooter after the latter opened fire on a crowd of people at a nightclub in South Carolina early Sunday morning, according to WISTV.com. 

After getting into a fight with another person, the 32-year-old suspect pulled out a gun and began to fire at a crowd of people gathered outside of the club, hitting and injuring four, WISTV reports. One of the victims, who holds a concealed-carry permit, shot back in self-defense, hitting the suspect in the leg. 

The suspect has been charged with four counts of attempted murder. He was also charged for unlawfully carrying a weapon and for carrying one while committing a violent crime. 

The concealed carrier who shot back won’t be facing any charges, as his permit to carry was valid.

Same incident as reported  from channel 10 news South Carolina

Wistv.com

                                        LYMAN, SC (FOX Carolina) -

Deputies with Spartanburg County said a man faces multiple attempted murder charges after opening fire outside a nightclub early Sunday morning. 

The shooting happened around 3:30 a.m. at Playoffz nightclub on Inman Road in Lyman. 

Deputies said 32-year-old Jody Ray Thompson pulled out a gun after getting into an argument with another man and fired several rounds toward a crowd that had gathered out in front of the club. 

"His rounds struck 3 victims, and almost struck a fourth victim, who in self-defense, pulled his own weapon and fired, striking Thompson in the leg," Lt. Kevin Bobo said. 

Bobo said the man who shot Thompson has a valid concealed weapons permit, cooperated with investigators, and won’t be facing any charges.

DYI Comments:  Our founding fathers placed into the Bill of Rights our second amendment for three reasons.  One: if or when our government becomes tyrannical our citizens has some means of fighting back.  Two:  Invasion from a foreign power providing our citizens some means to resist.  Three:  Self protection against criminal acts especially in cases of deadly force.

One:  Tyrannical government.  Read your history; the first thing dictators or politburo style governments do is systematically disarm the populous.  Gun control/confiscating is inversely proportional to the level of freedom in any country around the world.  The latest gun grab was in Venezuela by the late ballot box stuffing dictator Hugo Chavez.  Now that socialism reigns Venezuela populous is starving along with rampant crime.  The current ballot box stuffing dictator Nicolas Maduro massive army military exercise in Venezuela in order to intimidate the his citizens into compliance.  If the citizens were well armed Maduro would think twice before unleashing the army. 

Two:  Invasion from a foreign power.  A saying that has been inaccurately attributed to Admiral Yamamoto of Japan during WWII regarding possible invasion of America's west coast: "There will be a rifle behind every blade of grass."  Admiral Yamamoto didn't say those words but the point is well made.  Or....Switzerland has the same mentality only they have gone much further with a large army reserves who keep their military fully automatic weapons with massive amounts of ammunition at home!          

Three:  Self protection.  When it comes to the national main stream press mass shootings are blamed on; "the gun."  Not the person pulling the trigger or to go against political correctness to declare "radical Islamist terrorists."  Now we have a situation where a law biding citizen ends a potential mass killing(not a terrorist) with the use of a hand gun.  Will this be reported in the national main steam press.  Not likely.  If it is, it will be covered quickly with zero emphasis on the positives of gun ownership.

DYI