Posts Tagged ‘Borrowing’
Now I think I’ve seen it all.
Let’s cut the crap — colleges market themselves to young men and women on the premise that their educational services will provide you a means to get a better job than you would otherwise obtain. That’s the entire purpose of a career-focused education and the only justification for the outrageous tuition charges they assess.
Well, as it turns out if you fail to benefit from the alleged “education” that these people sold you, and in the process you borrowed money using Perkins loans, the college is very likely to come after you, including in court!
Oh, and lest you think they’ll just sue to the principal and accrued interest, nope.
As I’ve pointed out to a number of High Schoolers contemplating going to college and taking out loans, there are statutory penalties that apply if you default. In the case of Perkins loans these amount to an additional 30% of the principal, increasing to 40% on a second collection attempt and another 40% on top of that if they sue.
That basically doubles the amount you owe.
Of course colleges don’t talk about this before you matriculate. After all, “education” as offered in these edifices is only partial, and the representations, both expressed and implied are many — but the warranties few.
My advice to young adults stands: DO NOT BORROW MONEY TO GO TO COLLEGE.
My advice to parents stands: DO NOT, UNDER ANY CIRCUMSTANCES, CONTRIBUTE TO YOUR NOW-ADULT KIDS BEING BAMBOOZLED BY THESE FINANCIAL TRAINWRECKS KNOWN AS “UNIVERSITIES” AND “COLLEGES.”
Discussion (registration required to post)
When you’ve done something over and over and over again and it hasn’t worked, it’s time to stop.
Europe’s leaders can’t save their currency union without figuring out a way to salvage the region’s banks. Spain is a perfect place to start.
Perhaps no country better illustrates the mutually reinforcing links among the euro area’s banking, sovereign-debt and economic crises than Spain. Its banks are largely paralyzed amid concerns about heavy losses on real estate loans that, by various estimates, could require as much as 120 billion euros ($150 billion) in fresh capital to offset. Tight bank credit has in turn deepened the country’s economic slump, increasing banks’potential losses and fueling fears that bailout costs will overwhelm the Spanish government’s already stretched finances. The longer the situation lasts, the worse it gets: Nervous investors pushed Spain’s 10-year borrowing rate as high as 6.7 percent Wednesday, up from less than 5 percent in early March.
There is no solution to the problem you’ve laid out.
The reason is simple — the limits of debt-leverage, which inherently is a naked short on the currency and thus debases purchasing power, have been reached.
For a while — sometimes for a good long while — this strategy appears to work. Consumers lose purchasing power but they “make it up” by borrowing more money, buying ever-more-levered homes, for example. This masks the bad effects of what has been done — for a while.
But all these acts do is build more and more leverage into the system and take a greater percentage of the total economic population (of companies, of individuals, of governments) from stable, surplus-consuming entities (that is, entities who produce something, consume some part of it on necessities, then consume the rest on discretionary items) and shift them into debt peonage where only through ever-greater borrowing do they manage to avoid economic disaster.
In short you shift the population from a thriving consumer-based economy to one where everyone is using a cash advance on a new credit card to roll over the old one that has hit its spending limit!
Eventually you run out of the ability to roll over these debts and you also run out of people who are both able and willing to borrow more money. The last bastion of this is when the government starts doing the same thing.
That’s where we are now, and you know the end of the line has been reached when the borrowing rate for the government starts to rise precipitously.
There is no way out of this box through borrowing more money.
There is only bankruptcy for the over-levered and a return to spending within one’s means, both for the people and the government.
Nothing else will work. There is no avoidance path for the pain that must be accepted. There is no means to continue the debt-financed spending.
It must end or disaster will ensue.
The flaw in all of these arguments about a “rescue” is that all are simply an attempt to find a way to not adjust behavior — that is, to not stop the excessive spending pattern that led to the problem in the first place.
In short this is nothing more than a desperate attempt to scrounge in the carpet for just one more hit of crack to avoid the oncoming and very unpleasant withdrawal.
There is no means to do so that will work.
The reason is simple — indefinite compound growth is always mathematically impossible, and yet even when you are within the last “doubling time” before disaster strikes you only see that half of the available resource has been consumed. Nonetheless you are literally, at that point, just one step away from disaster.
Spain, and the rest of Europe, need a payments clearing system.
Europe, and Spain, (and the United States) do not need the specific banks they have today.
That is, what’s important is that you can clear a payment — not the name on the door. And the deflationary impact of defaulting all of the bad debt will be good, not bad, as it will cause over-levered asset prices to collapse, making them affordable again.
Yes, those overlevered banks will blow up. So what? The next day a bright-eyed entrepreneur will open a new bank. This time the government can enforce “One Dollar of Capital” and by doing so prohibit the debt ponzi from being reinflated at the common man’s expense. Banks will have to obtain actual capital from either shareholders or bondholders to back all unsecured credit positions, one to one.
Oh sure, those who have a vested interest in overlevered prices of “assets” don’t want to hear this. They don’t want it to happen either, because despite all appearances they are not really rich — most of them have someone else debts, and if they don’t pay their alleged “asset” is shown to be worthless. Since most of them have borrowed heavily against these alleged “assets” when this occurs they’re rendered bankrupt as well.
But that a bunch of rich and powerful people will be financially destroyed doesn’t change what the right path forward is for Europe.
Or for the United States.
The common United States consumer has lost nearly 30% of his purchasing power in the last four years due to the manipulations of the government and Federal Reserve. Most Europeans are in similar if not worse financial condition. Sure, some have done better and some have actually increased purchasing power (such as the big bank traders and CEOs) but most Americans and Europeans have lost. They have had their wealth and purchasing power stolen by government and given to these big banks. It’s theft — legalized, but theft nonetheless, and that purchasing power has then been replaced (lest the people starve!) with EBT cards and other handouts.
This cannot continue, as the government doesn’t have the money either, nor can government continue to borrow indefinitely on commercially-reasonable terms to obtain ever-more to hand out, as each such new iteration of this scheme is in fact a negative-sum game. That is it costs more than the economy benefits.
Stop the stupid before the fraudulent edifice you keep overloading with more and more debt collapses on your head.