Tag Archives: Depression

News

Obama’s irresponsible student loan policies leave taxpayers with trillion-dollar bubble

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President Obama's student loan bubble
President Obama’s student loan bubble

This is from Investors Business Daily.

It says:

In 2010, Obama eliminated the federal guaranteed loan program, which let private lenders offer student loans at low interest rates. Now, the Department of Education is the only place to go for such loans.

Obama sold this government takeover as a way to save money — why bear the costs of guaranteeing private loans, he said, when the government could cut out the middleman and lend the money itself?

The cost savings didn’t happen. In fact, the Congressional Budget Office just increased its 10-year forecast for the loan program’s costs by $27 billion, or 30%.

What did happen was an explosive growth in the amount of federal student loan debt. President Clinton phased in direct federal lending in 1993 as an option, but over the next 15 years the amount of loans was fairly stable. The result of Obama’s action is striking. In each of the past six years, federal direct student loan debt has climbed by more than $100 billion. (See chart.)

And since Obama keeps making it easier and easier to avoid repaying those loans, it’s a problem that taxpayers will eventually have to shoulder.

Through words and actions, Obama has encouraged irresponsibility on the part of student borrowers. He constantly talks as if student debt were an unfair burden they unknowingly had foisted upon them.

At the same time, he’s made it easier and easier to avoid paying back student loans in full. Earlier this year, for example, Obama expanded eligibility for his “pay as you earn” program, which limits loan payments to 10% of income, with any debt left after 20 years forgiven.

Students got the message. The St. Louis Fed reports that 27.3% of student loans in repayment are at least a month behind in payments. That’s a far higher delinquency rate than any other kind of debt, and it’s significantly higher than the delinquency rate 10 years ago.

“This overall level of delinquency is very concerning,” concluded authors Juan Sanchez and Lijin Zhu.

A 2013 Consumer Financial Protection Board report found that less than half of this federal loan money was actually being paid. About 30% was held by borrowers still in school or in a grace period, another chunk in deferment or forbearance, and almost 14% was in default.

The problem here is that whenever the government nationalizes something that the private sector is doing, it always creates a problem. Let me explain. If student loans (or mortgage loans) are run solely by the private sector, then the motivation for lending money out at interest is to make money for the bank’s depositors and investors. In other words, because the bankers are in a free market and have to compete for depositors and investors, they have an interest in making sure that the loans they make get paid back.

But when the government takes over loans, they are not interested in being wise with the money they lend out – it’s not their money. They want to lend out as much as possible today in order to buy votes, and then kick the can down the road on the repayment. So instead of being careful about asking “will this get paid back?” they ask “how can I borrow from the future in order to buy as many votes as I can right now?” And that’s how we got the housing crisis of 2008, as well as this trillion-dollar student loan crisis.

When you take the profit motive out of the lending decision, then money gets lend to people who will never be able to pay it back. No private bank that has to answer to shareholders hands out money to students who want to study underwater basket-weaving. But the government does. They want to buy as many votes as possible. And besides, this is not their money. They are borrowing it from the future earnings of the very students they are giving it to! That’s what happens when you let big government decide everything.

Whenever big government politicians want to buy votes with taxpayer money, they always sell it to the people with sob stories about some poor, helpless group of people will suffer through no fault of their own. There are a lot of voters who will vote for politicians who cry crocodile tears for them, especially ones who don’t understand economics. There is no free lunch – somebody has to pay. Democrats are basically throwing a party for students, and then mailing them the (unexpected) bill for it, with interest.

Commentary

Is marriage a good deal for men? How can we make it a better deal for men?

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The Elusive Wapiti, a Christian men’s rights blogger, posted this video from Dr. Helen Reynolds, author of “The Marriage Strike”. In the video, she gives 6 reasons why men are shying away from marriage. I agree with some of her reasons, but I wanted to respond and give the positive case for marriage. Also, I think it is worth reading a very challenging comment from “Gaza” in that post, who says that women are pushing marriage off for too long so that they end up not being prepared for it even if they meet a marriage-minded man.

So, onto to the positive aspects of marriage for men.

Let me quote from this NIH publication, which argues that marriage is a great value for men.

Look:

One of the strongest, most consistent benefits of marriage is better physical health and its consequence, longer life. Married people are less likely than unmarried people to suffer from long-term illness or disability (Murphy et al. 1997), and they have better survival rates for some illnesses (Goodwin et al. 1987). They have fewer physical problems and a lower risk of death from various causes, especially those with a behavioral component; the health benefits are generally larger for men (Ross et al. 1990).

A longitudinal analysis based on data from the Panel Study of Income Dynamics, a large national sample, documents a significantly lower mortality rate for married individuals (Lillard and Waite 1995). For example, simulations based on this research show that, other factors held constant, nine out of ten married women alive at age 48 would still be alive at age 65; by contrast, eight out of ten never-married women would survive to age 65. The corresponding comparison for men reveals a more pronounced difference: nine out of ten for the married group versus only six out of ten for those who were never married (Waite and Gallagher 2000).

And more:

Recent studies based on longitudinal data have found that getting married (and staying married to the same person) is associated with better mental health outcomes. Horwitz et al. (1996), Marks and Lambert (1998), and Simon (2002) present evidence of improvements in emotional well-being following marriage, and declines following the end of a union. Marks and Lambert (1998) report that marital gain affects men and women in the same way, but marital loss is generally more depressing for women. Analyses that control for the selection of the psychologically healthy into marriage, and also include a wider range of measures of mental well-being, find that although there are differences by sex in the types of emotional responses to marital transitions, the psychological benefits associated with marriage apply equally to men and women (Horwitz et al. 1996; Simon 2002).

Marriage is also associated with greater overall happiness. Analysis of data from the General Social Surveys of 1972–96 shows that, other factors held constant, the likelihood that a respondent would report being happy with life in general is substantially higher among those who are currently married than among those who have never been married or have been previously married; the magnitude of the gap has remained fairly stable over the past 35 years and is similar for men and women (Waite 2000).

And more:

A large body of literature documents that married men earn higher wages than their single counterparts. This differential, known as the “marriage premium,” is sizable. A rigorous and thorough statistical analysis by Korenman and Neumark (1991) reports that married white men in America earn 11 percent more than their never-married counterparts, controlling for all the standard human capital variables. Between 50 and 80 percent of the effect remains, depending on the specification, after correcting for selectivity into marriage based on fixed unobservable characteristics. Other research shows that married people have higher family income than the nonmarried, with the gap between the family income of married and single women being wider than that between married and single men (Hahn 1993). In addition, married people on average have higher levels of wealth and assets (Lupton and Smith 2003). The magnitude of the difference depends on the precise measure used, but in all cases is far more than twice that of other household types, suggesting that this result is not merely due to the aggregation of two persons’ wealth.

And more:

Beyond its integrative function, emphasized above, marriage also has a regulative function. Married individuals, especially men, are more likely than their single counterparts to have someone who closely monitors their health-related conduct; marriage also contributes to self-regulation and the internalization of norms for healthful behavior (Umberson 1987). Positive and negative externalities within marriage also play a role: when an individual behaves in a way that is conducive to good health, the benefits spill over to the spouse; similarly, unhealthy behaviors inflict damage not only on the individual but also on the partner. In this way, marriage promotes healthy conduct. In addition, the enhanced sense of meaning and purpose provided by marriage inhibits self-destructive activities (Gove 1973). Consistent with this channel of causality, married individuals have lower rates of mortality for virtually all causes of death in which the person’s psychological condition and behavior play a major role, including suicide and cirrhosis of the liver (Gove 1973). Lillard and Waite (1995) find that for men(but not for women) there is a substantial decline in the risk of death immediately after marriage, which suggests that the regulation of health behaviors is a key mechanism linking marriage to physical health benefits in the case of men.

Now I want to talk about is policies that will help to promote marriage, because that will help to make marriage safer and more attractive to men.

And for that, we go to the Family Research Council.

They write:

Our tax policy should protect and encourage marriage. The marriage penalty should be eliminated, so that married couples do not pay higher taxes than single people or cohabiting couples. Along with the aim of strengthening marriage, our tax policy should encourage childbearing and adoption. The 2001 tax relief bill signed by President Bush provided a gradual phase-out of part of the marriage penalty[75] by 2010, a phased-in doubling of the child tax credit from $500 to $1,000, and a doubling of the adoption tax credit from $5,000 to $10,000. But this tax bill expires in 2011. In his 2003 State of the Union address, President Bush called for more prompt tax relief, including immediate marriage-penalty relief and a permanent increase in the child tax credit to $1,000. Representative Jim DeMint (R-S.C.) recently introduced the Adoption Tax Relief Guarantee Act, which would make the adoption tax credit permanent. These tax measures would ensure that married couples do not pay higher taxes simply because they are married and that families receive much-needed tax relief.

Along with providing tax credits, the government should adequately fund abstinence-until-marriage programs, which are very effective in teaching young people how to save sex for marriage. With one out of three babies born out of wedlock today, young people need this message more than ever. The federal government has provided some abstinence-until-marriage funding in recent years, but comprehensive sex education/contraception programs, which downplay abstinence and encourage sexual activity and condom use, are vastly over-funded in comparison. In 2002, abstinence-until-marriage programs received $102 million, while teen sex education and contraception programs received at least $427.7 million.

[…]Welfare reform should aim to strengthen marriage, because the breakdown of marriage is a root cause of poverty, as most welfare recipients are never-married or divorced mothers.

[…]Historically, welfare laws in the United States have been anti-marriage. The old welfare system, under the Aid to Dependent Families program (AFDC), taught single mothers two lessons: don’t work and don’t get married, or your benefits will decrease. Even though the landmark welfare reform law of 1996 encouraged marriage and imposed the family cap ending the reward for illegitimacy, marriage penalties still exist in the welfare law. The welfare system is composed largely of means-tested aid programs, which reduce benefits as non-welfare income increases. This means that if a single mother marries, she will lose welfare benefits; therefore, it is more lucrative for her to stay single. This anti-marriage bias should be removed or at least reduced in order to encourage marriage and discourage single parenthood and cohabitation.

The problem with that last one is that Obama gutted the Welfare Reform Act of 1996. I think that was favorable to the people who tend to vote Democrat, but not good for those of us who favor marriage. In fact, Democrats in general oppose all three of those pro-marriage policies, as well as supporting no-fault divorce laws and opposing shared parenting laws.

So I guess I am posting these ideas to let women who want to get married know that there are definitely things that are scaring men off of marriage, and that nothing makes a man less scared of marriage than a woman who is aware of these dangers, enthusiastic about the benefits for men, and passionate about pro-marriage policies.

 

News

Obama administration pressuring banks to lower mortgage lending standards

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Remember the housing bubble and the mortgage lending crisis of 2008? Well guess what – the Democrats want an encore.

Investors Business Daily explains.

Bankers warn the administration’s new “disparate impact” home-lending regulation will wreak havoc in credit markets, replacing merit standards with political correctness.

The Department of Housing and Urban Development issued the controversial new anti-discrimination rule earlier this year. Now enforced by every federal regulator dealing with banks, it has the effect of criminalizing credit standards used to qualify borrowers for home loans.

Last week, the Mortgage Bankers Association and Independent Community Bankers of America jointly filed a Supreme Court brief arguing that under the new HUD rule:

“Virtually every lender in the United States could be sued for using non-discriminatory credit standards simply because variations in economic and credit characteristics produce different credit outcomes among racial and ethnic groups.”

In their 33-page brief, filed in support of a landmark housing case pending before the court, they complain that HUD recently launched 22 separate investigations against lenders alleging that their policies of requiring minimum credit scores “had a disparate impact on minorities in violation of the Fair Housing Act.”

Dozens of similar actions have been brought against lenders by Attorney General Eric Holder. He is basing claims of bias on statistics showing differences in loan outcomes by race while ignoring racially neutral credit-risk factors that explain those differences.

Under disparate impact’s low standard of proof, the government doesn’t have to show lenders intentionally discriminated against borrowers.

For the first time in history, businesses are being ordered to justify the necessity of a certain level of return on investment given the racial impact resulting from the use of credit-score thresholds.

The mortgage trade groups argue the formalized disparate-impact rule also effectively criminalizes other legitimate business practices, including minimum down-payment requirements, sliding loan rates and the charging of brokers’ fees.

Banks today face increased litigation risk simply by complying with sensible lending standards for hedging against risk.

[…]The social engineers and race demagogues in this administration are trying to enforce a balance in financial outcomes that risks another collapse of the housing market. The Supreme Court must put an end to a scheme so reckless, unfair and unconstitutional.

Does that sound familiar? Yes. In the last recession, the government forced banks to make risky loans in order to increase home ownership. That is exactly what gave us the 2008 recession.

Excerpt:

[Democrat] Congressman [Barney] Frank, of course, blamed the financial crisis on the failure adequately to regulate the banks. In this, he is following the traditional Washington practice of blaming others for his own mistakes. For most of his career, Barney Frank was the principal advocate in Congress for using the government’s authority to force lower underwriting standards in the business of housing finance. Although he claims to have tried to reverse course as early as 2003, that was the year he made the oft-quoted remark, “I want to roll the dice a little bit more in this situation toward subsidized housing.” Rather than reversing course, he was pressing on when others were beginning to have doubts.

His most successful effort was to impose what were called “affordable housing” requirements on Fannie Mae and Freddie Mac in 1992. Before that time, these two government sponsored enterprises (GSEs) had been required to buy only mortgages that institutional investors would buy–in other words, prime mortgages–but Frank and others thought these standards made it too difficult for low income borrowers to buy homes. The affordable housing law required Fannie and Freddie to meet government quotas when they bought loans from banks and other mortgage originators.

At first, this quota was 30%; that is, of all the loans they bought, 30% had to be made to people at or below the median income in their communities. HUD, however, was given authority to administer these quotas, and between 1992 and 2007, the quotas were raised from 30% to 50% under Clinton in 2000 and to 55% under Bush in 2007.

[…]It is certainly possible to find prime mortgages among borrowers below the median income, but when half or more of the mortgages the GSEs bought had to be made to people below that income level, it was inevitable that underwriting standards had to decline. And they did. By 2000, Fannie was offering no-downpayment loans. By 2002, Fannie and Freddie had bought well over $1 trillion of subprime and other low quality loans. Fannie and Freddie were by far the largest part of this effort, but the FHA, Federal Home Loan Banks, Veterans Administration and other agencies–all under congressional and HUD pressure–followed suit. This continued through the 1990s and 2000s until the housing bubble–created by all this government-backed spending–collapsed in 2007. As a result, in 2008, before the mortgage meltdown that triggered the crisis, there were 27 million subprime and other low quality mortgages in the US financial system. That was half of all mortgages. Of these, over 70% (19.2 million) were on the books of government agencies like Fannie and Freddie, so there is no doubt that the government created the demand for these weak loans; less than 30% (7.8 million) were held or distributed by the banks, which profited from the opportunity created by the government. When these mortgages failed in unprecedented numbers in 2008, driving down housing prices throughout the U.S., they weakened all financial institutions and caused the financial crisis.

Reduced lending standards caused the last recession, and now the same party that pushed for reduced lending standards are pushing for reduced lending standards again. Hold onto your hats, there’s a storm coming.