Reprinted from Counterpunch
A couple weeks ago the Wall Street Journal confirmed our worst fears about the student loan program, that is, that it was going to blow up in the government's face just like all the other gigantic debt-bubbles that preceded it. For the sake of background, here's a brief excerpt from the article that will bring readers up-to-date:
"More than 40% of Americans who borrowed from the government's main student-loan program aren't making payments or are behind on more than $200 billion owed, raising worries that millions of them may never repay.
"The new figures represent the fallout of a decade long borrowing boom as record numbers of students enrolled in trade schools, universities and graduate schools.
"While most have since left school and joined the workforce, 43% of the roughly 22 million Americans with federal student loans weren't making payments as of Jan. 1, according to a quarterly snapshot of the Education Department's $1.2 trillion student-loan portfolio." (More Than 40% of Student Borrowers Aren't Making Payments, Wall Street Journal)
While it all sounds very shocking, the real eye-popper was buried deep in the text where it was most likely to be ignored. Here it is:
"Carlo Salerno, an economist who studies higher education and has consulted for the private student-lending industry, noted that the government imposes virtually no credit checks on borrowers, requires no cosigners and doesn't screen people for their preparedness for college-level course work. 'On what planet does a financing vehicle with those kinds of terms and those kinds of performance metrics make sense,' he said." (WSJ)
Let's see if I got this right: The Fed, government regulators and the entire political establishment looked the other way while the mortgage industry cranked out trillions of dollars of "toxic" subprime liar's loans that Wall Street bundled into garbage bonds that wound up blowing up the entire global financial system and plunging the world into a severe recession from which we still haven't recovered. Then, a couple years later, they start pumping up another lethal trillion-dollar credit bubble, this time comprised of equally toxic "student liar's loans"?
Is that what they're saying?
That's it, alright. This is why there should be blanket amnesty for all the student debt generated in the last decade. It's because the whole thing was another filthy credit-swindle from the get go.
And let's be honest; it's not the government lenders who were scammed in this deal, it's the students. They're the victims, in the same way that the applicants, who borrowed hundreds of thousands of dollars for mortgages they could never repay, were the victims. The lender is ALWAYS responsible when a loan that goes belly up. ALWAYS. Because it's their freaking job to figure out who can pay and who can't. Period. That's all they do, lend money. And they're pretty damn good at it too, when they actually expect to get repaid, which in this case, they don't. That's why we know it's a scam.
So now we're supposed to believe that no one could have foreseen this trainwreck ahead of time. Is that it? Is that what Obama and the media and the rest of the crooked financial establishment want us to believe; that no one could have known that 40 percent of the borrowers were going to "stiff" the government?
Baloney. The handwriting was on the wall from the very beginning. Take a look at this interview I did with professor Alan Nasser in 2011.
"M Whitney -- Is it fair to say that the student loan industry is a scam that targets borrowers who will never be able to repay their debts?
"Alan Nasser -- It's as fair as fair can be. First, the student loan industry is huge -- a large majority of students from every type of school are in debt. Debt is held by 62 percent of students enrolled at public colleges and universities, 72 percent at private nonprofit schools and 96 percent at private, for-profit ("proprietary") schools. It was announced last summer that total student loan debt, at $830 billion, now exceeds total US credit card debt, which is itself bloated to the bubble level of $827 billion. And student loan debt is growing at the rate of $90 billion a year. So we're not talking small change.
"How many of these students are subprime borrowers? That is, how closely do student loans resemble junk mortgages? The answer hinges on three factors: how these loans are rated, how likely the borrower is to repay, and the default rate on student loans.