If
you only know when things happened and not why, then you are
economically ignorant and therefore part of the problem. FDR, by
raising taxes to balance the budget whose revenues had dropped
because so many people were out of work and not paying taxes thus
reducing disposable income which in turn lowered demand for products
and services, plus by enacting trade barriers to imports which other
nations retaliated, causing entire industries on both sides of the
Atlantic Ocean to collapse, throwing many more people out of work is
the reason why it took 10 years and a World War to get out of the
economic mess of the Great Depression. The recession of 2008 was the
result of high defaults on home mortgages. The high default rate
occurred because in the 1990s, Bill Clinton put Jimmy Carter's
Community Reinvestment Act, which put pressure on banks and mortgage
lenders to lower borrowing standards "so that the poor can buy
homes" on steroids. Not surprisingly, these loans had high
default rates. It took years for the percentage of these type of
loans to total loans to all borrowers to become large enough to have
a meaningful impact on the economy, To his credit, Bush recognized
the problem early on in his first term in office and tried to change
the law 18 different times. However, the Democrats, led by
Congressman Barney Frank screaming "don't fix what isn't broken"
blocked passage of the bill. When the inevitable happened and too
many loans defaulted sinking the economy, Democrats lied and blamed
"greedy banks" for the problem. Gullible people bought it.
The Democrats passed all sorts of new regulations after Obama got
elected, but none of them fixed the real problem - the Community
Reinvestment Act forcing banks to give loans to unqualified buyers.
Therefore, history is likely to repeat itself in the future and the
economically ignorant will not have a clue as to the cause.
Monday, December 21, 2015
Student Loans
The
very ease of getting a student loan plus the financial ignorance of
the students have been exploited by colleges to raise tuition, plus
room and board, much faster than inflation and also to expand their
Administrative staffs to bloated levels while paying ridiculous
salaries to "star" professors. Given that over half of
college students never graduate, no student should get a college loan
for the first two years. Let them go to cheap Community colleges
instead (and work part time if they need to). If they don't drop out
after qualifying for their junior year, then consider college loans,
but put a cap on it of no more than $15,000 a year. Also, no loan
unless the college the student plans to transfer to, accepts all the
student's college earned credits to be transferred (otherwise,
expensive colleges will deliberately reject many of the credits
forcing the financially naive student to spend more time and money at
the college he/she transferred to). Some Community colleges have
expanded from two years to four years. Encourage more to do so. That
way, many more students could graduate inexpensive colleges without
the need for student loans. Now, with less demand for their services,
the expensive colleges will be forced to compete for students by
lowering costs to reasonable levels and also utilizing alumni
donations to help students instead of constructing new buildings and
monuments to themselves. Everyone benefits.
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