As you know from the Opening Bell, change is in the wind for student loans, but not exactly in the way we expected. Sallie Mae is down 40% today on the news that subsidies for student loans may well be a thing of the past if Obama’s budget gets its way.
It will come as no surprise that we are hardly fans of subsidies, but we are hard pressed to find a subsidy we like better. True, this may have the effect of deflating the bubble in higher educational costs, but Sallie is only about a fifth of the size of Fannie.
This isn’t exactly the place we’d look to shock the system just now. (Now that we think of it, however, it would get a bunch of those snotty college kids and MBAs into the workforce filling potholes).
Hmmm. Dumb the country down. Reduce the number of property owners. This way we could make millions of jobs building dams and manufacturing solar panels by hand. Could work.
Obama Calls for End to Loan Subsidy for Sallie Mae, Citigroup [Bloomberg]
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- Use the Bloomberg command
NH BLG_DEALBREAKER <GO>
to access Dealbreaker
Ignorance is Strength
Good tag :)
flowers for pres
How hypocritical of EP to criticize the reduction/elimination of a freebie government program. What would Ayn Rand say? tsk tsk….
Could sallie mae go down? If so, what happens to all of those loans? Help me obi wan kinobe – ur my only hope.
For those who will not bother to read the bloomberg, here’s a paragraph that puts this in perspective:
“Obama said shifting to direct [government] student loans would save more than $4 billion a year, which would be used for more student aid. Private companies would service the loans. In 2007, President George W. Bush signed legislation cutting subsidies to providers by $20.9 billion over five years. ”
It sounds like a sensible plan, unless you want to play gotcha politics.
@$ They just get sold at fire sale prices to third parties. There is no escape.
Don’t be mad
UPS is hirin
Looks like the money we save by deflating the education bubble will be used for… reflating the education bubble. At least we get to cut out the middleman.
At some point, the present value of the college degree or MBA is going to start coming in under its cost. I suspect for many degrees it’s already there.
Can we BK our student loans away?
Apollo, ITT, they are all shorts. I wonder whether Viking has blown out of them yet.
If change is in the wind then we need to break the wind.
There are 25 other places to pick up student loans. Sallie is far from responsible for the tuition inflation. Parents and students fund their education at almost any cost. The schools know this and charge whatever they can get.
@8
Totally is beneath the cost. $160,000 for an undergrad degree? These yuppie fuckers are crazy to pay that for their kids. But what do they know? More than forty years on, they insist on throwing the baby out with the bathwater.
Note the latest trend in undergrad colleges. Instead of 4 years at 15 credits a semester, many are offering full degree at 18 credits per semester, out in three, 25% savings. Even the schools know the shark has been jumped here.
Not much of a mystery when they need to offer remedial math and English to incoming frosh.
@10
Somehow I doubt that any measurable proportion of student loans go to either Apollo or ITT, so, while I don’t deny your conclusion, I’m curious as to your rationale.
8 – I’ve been saying the NPV on education thing for years. Costs are ridiculous and all the spending on buildings and technology is insane. I think they forget that the core product is knowledge. Accept that it’s an intangible good and stop trying to substantiate it by constantly spending huge sums on window dressing (note that I’m not saying we need all ghetto campuses here, just some basic thought behind the budget).
@3, Ayn Rand would say it’s just even worse and just one step closer to collectivism.
Rather than subsidizing the loans the govt. will be handing out then money directly.
and no, @9, you can’t.
“It sounds like a sensible plan, unless you want to play gotcha politics.”
You have not thought this out.
If the subsidies and guarantees are being eliminated to save costs, how are you going to carry the same amount of loans on the governmental balance sheet and save costs?
Not to mention that you can’t get away with just paying out for defaults (guarantee program) if you are doing all the lending. Much as they annoy me as a price distorter, the government guarantee is a good multiplier short term because you don’t have to inflate the treasury’s balance sheet. (Of course, when underwriting and defaults show the effects, you have to clean up the mess in the long term).
The obvious answer to anyone who isn’t bloated on Obama Kool-Aid or in lust with Robert Gibbs, is that this is a major reduction in loan assistance and a major increase in loan rates- or it is a total lie as a cost savings program. Take your pick.
@15
I went to a very famous University steeped in history. Having graduated 20 years ago, the campus is unrecognizable. All the open space (miles of fields and woods) has been developed. Food and lodging were rather spartan back then, these kids today check into a four star resort with ALL the amenities. Not sure the education part is even part of the mix these days.
Does that mean I don’t have to pay my wife’s student loans?
The Gloomberg Report offers a satirical look at the economy. Additionally, it has an educational side where you can learn about interviews, personal finance, and hot deals. Learn. Laugh. Daily. It’s Bloomberg with spunk!
http://gloombergnews.com – Home of “The Gloomberg Report”
@16
I don’t have a problem with direct government loans. These are not grants, so private industry may want to compete for that loan business, but without the subsidies.
I couldn’t care less about Ayn Rand and her works of fiction.
Isn’t there something kind of wrong with a company of Sallie’s size having 40% of its market cap dependent on a single government subsidy in the first place?
The Gloomberg Report offers a satirical look at the economy. Additionally, it has an educational side where you can learn about interviews, personal finance, and hot deals. Learn. Laugh. Daily. It’s Bloomberg with spunk!
http://gloombergnews.com – Home of “The Gloomberg Report”
Education is Barrack’s #1 priority, he said so himself.
Hope AND Change for ’12
@17
See @21.
“I don’t have a problem with direct government loans. These are not grants, so private industry may want to compete for that loan business, but without the subsidies.”
Ok, what are you thinking?
What is the purpose of government loaning unless it is to reduce cost? Ergo, government is either:
1. Underpricing risk.
2. Charging too much.
I won’t even get into the “who handles administration costs better” discussion.
If the former, then you are not going to have private competition of any substance. Or if you do, it will end like Countrywide.
If the latter, then you will have no loan program unless you forbid private loans.
So what the hell is the point?
I mean seriously, people. Do you not bother to think before you comment? Or do you really not have the ability to understand this?
serious question@24-”Education is Barrack’s #1 priority, he said so himself. ”
why is that a bad thing?
Welcome to Costco, I love you.
Newsflash: unlike Fannie Mae (currently nationalized), which has always been a hybrid public/private entity, Sallie Mae is, and has been for quite some time, a for-profit, private enterprise.
1. Why exactly should the taxpayer subsidize a for-profit, private corporation ?
2. Why should educational loans — education being a non-profit endeavor — subsidize the profits of a private corporation ?
There is no reason for Sallie Mae to exist in its current form. It can either survive as a for-profit bank, extending credit, or it can go under.
Forget MBA candidates for a moment…there may be some current MBA’s grateful for the opportunity to dig potholes very shortly!
@25
Government will have a budget on how much it’s going to lend, like it does today. Private loans will be available, just without the subsidy.
If college enrollment falls, colleges will have more incentives to cut costs and become more affordable. If not, then offer more of its own endowments to offer more financial aid to those who deserve it.
Even in today’s regime, the current economy is forcing colleges to find more ways to offer financial aid. Otherwise, they see their enrollments go down.
For example, this I got from MIT’s President one week ago:
“Financial aid and tuition: By this point in a typical year, 10-20 student families would have asked us to reconsider their financial aid standing because of a lost job or other change in circumstances. This year, we have already approved more than 40 such requests, and we can expect that the downturn’s impact on MIT families will grow. As we have stated before, we will retain our commitment to need-blind admission and need-based undergraduate financial aid. Taking into account increased need, particularly among middle-income families, and decreased Institute revenues, MIT’s budget for next year includes a substantial increase for financial aid and only a modest increase in tuition.”
at least those greedy charities won’t be getting as big a chunk of the loot after the write-down reduction.
and wtf is this cartoon on cnbc, seriously. as george said, the entire universe is against me.
“1. Why exactly should the taxpayer subsidize a for-profit, private corporation ?
2. Why should educational loans — education being a non-profit endeavor — subsidize the profits of a private corporation ?
There is no reason for Sallie Mae to exist in its current form. It can either survive as a for-profit bank, extending credit, or it can go under.”
I’m fine with these. But what, then, is the purpose of direct government loans?
If Obama et al want to save the costs, eliminate the subsidies. Fine. I think that’s the wrong place to be shocking the system right now (given unemployment) but ok… go crazy.
Now, why shift to a program where, if your goal is to stimulate low-cost lending, you get rid of the cheapest tool you have: Government guarantees, so that you can instead take all the liability on a government balance sheet? That makes even less sense if you are trying to save costs.
Again, I’m not a Sallie fan. But if you don’t like Sallie you have to hate government direct loans too because the only reason for them is to lend for less than market rates, and you do that cheaper by backing private loans to some extent.
This administration is just clueless, I suspect- and we all have to just stop trying to understand, because there is no arguing with scatterbrained insanity.
@33:
“But what, then, is the purpose of direct government loans?”
I would imagine there are two purposes:
1. Control costs. Educational costs have been rising at a rate several times the rate of inflation, for at least two decades. There is no economic justification for this rate of increase. Education (at any level) is a non-profit endeavor: the compensation structure of faculty, or academic staff, need not, and should not match the compensation of the private, for-profit sector. Faculty and academic staff have other employment advantages in comparison with the private sector, the least of which being job security (tenure).
2. By controlling costs, as per [1], make education more affordable, and create a social layer of highly educated individuals who do not graduate with an debt burden which is not correlated to the compensation structures available in the private sector.
@33:
Presumably SLM does, or intends to make a risk-adjusted profit on student loans including the government subsidy.
If the government were to make the loans directly and stop paying the subsidy, isn’t the taxpayer just claiming that risk-adjusted profit?
From what I understand, there are very few loans going out these days. This seems to be an attempt by the President to insure that students get the financing they need.
The banks are in a state of hopeless funk. By the end of next week Citi and BOA will effectively be under govt. control. Regardless it will take months if not years for the feds to sort through the mess (the boys have created). In the meantime, we have students who need to go to school.
I also think that this will enable the feds to put more pressure on schools to bring tuitions in line with what people can afford. They are not profit making entitites and need to get back to their mission. The days of glam and glitter are hopefully over for our campuses.
Control costs where?
A. If on interest to students by pushing lower interest rates: Great. Except now you have two problems:
1. You’ve increased the amount of capital flowing to universities. (Inflating tuition).
2. You are underpricing risk by charging below market interest.
B. If on students by deflating tuition by reducing total debt available to pump into tuition: Great. Except now you have two problems:
1. Students have to pay more interest.
2. You are now pitting a government lending program against private lending. Unless you were planning to underbid private lenders, you have to beat them on cost (otherwise, why bother?) So, is the government going to run the call center? The payment processing center? Wow, that sounds like a great idea!
C. If on government by removing expenses related to subsidies: Great on the dropping subsidies, not so great on direct loans. Direct loaning is more expensive than any other option (except grants).
D. If on government by charging above market interest rates: Great! But you better ban private loans first.
All you have to do is think about this stuff to see how obtuse it is.
EP is phenomenally sexy when she so thoroughly owns commenters.
Nationalize the university system…take the endowments of the top schools and use that to buy all the toxic assets from bank balance sheets…voila! all problems solved! your welcome
looks like Lone Pine bought 26mm shares of SLM around 2/10. oops.
@37:
“1. You’ve increased the amount of capital flowing to universities. (Inflating tuition).”
How ? Limits on borrowing still apply. The main reason universities were able to inflate tuition was the availability of supplemental loans.
“2. You are underpricing risk by charging below market interest.”
Don’t care. This is the government. It is a government subsidy by definition. Just not for SLM’s profit.
“1. Students have to pay more interest.”
Hmmm. Why ?
“2. You are now pitting a government lending program against private lending.”
Yes. That’s the point. Private lending is for-profit. Educational government lending is not-for-profit, and it is subsidized, by definition.
“So, is the government going to run the call center? The payment processing center? Wow, that sounds like a great idea!”
Yes, as opposed to for-profit-run call centers, which work so well. Stellar examples: Cingular/AT&T Wireless, Bank Of America, Citibank, BestBuy, etc etc etc. Should I continue ?
“C. If on government by removing expenses related to subsidies: Great on the dropping subsidies, not so great on direct loans. Direct loaning is more expensive than any other option (except grants).”
References in support of this assertion ? Preferably not authored by Sallie Mae, or Citibank.
“D. If on government by charging above market interest rates: Great! But you better ban private loans first.”
Not ban, and will charge below market rates. Repeat after me: this is a subsidy. It is also Darwinian elimination.
39 – we see how well public education works at the pre-collegiate level. I’ll take advice from those that can spell “you’re” thank you very much.
As an aside, there is one reason for the government to subsidize student loans … it is easier for the government to go after your tax returns for repayment. That then reduces the risk premium the lender has to charge.
Agree with EP though, cheaper loans have only inflated the university system making it larger and less efficient. As soon as the credit tightens this bubble, like all others, will deflate. This might be a stretch, but seeing the liberal attitudes of most universities, there is no way a liberal government is going to let that bubble deflate. Hence, just directly give students move to give directly to universities.
I concur with EP on principle. The government basically just told the free markets, no you cannot allocate capital to education that’s our job. Go loan money somewhere else. And the timing of this idea just sucks. It stinks of a power grab, IMO.
The article did say the servicing would still be outsourced.
disclaimer: I generally don’t think before I post. It just gets in the way.
@42 Not so relevant, but have you ever dealt with the IRS call center?! It is a JOY dealing with Citibank after that.
@42 In talking about inflating tuition you are only talking about larger universities that charge over the Stafford loan limits. What about inflating at the other state and local universities, that make up the majority of the college population? What about all the schools that would not exist except for all the students that can get cheap loans? There are a few articles out there on the housing market you might want to catch up on.
@42
References in support of this assertion ? Preferably not authored by Sallie Mae, or Citibank.
Are you an idiot? Do you really need references?
#45, Read Senator Byrd’s letter to presbo lately? The guy is sort of a big fan of “The Constitution”. so the kids who went to city and state schools in their state will be fine but, the ones who go toprivate institutions won’t. Interesting. And didn’t education add jobs almost as fast as the govt?
@42:
You need a remedial reading class. There’s no point discussing with you if you can’t be bothered to read carefully.
#45, Read Senator Byrd’s letter to presbo lately? The guy is sort of a big fan of “The Constitution”. so the kids who went to city and state schools in their state will be fine but, the ones who go toprivate institutions won’t. Interesting. And didn’t education add jobs almost as fast as the govt?
@42
You saved me some time as I was about to reply to @37. Just one point, as @5 noted above, loan servicing will be outsourced to private companies. That makes sense to me. No need to have, for example, government call centers doing that function. Ultimately is not who does this well, is who does it cheaply. At least that’s exactly how private industry makes those decisions.
Finally, on the surface this looked like the writer was blasting Obama for cutting subsidies (something that Bush started). But now it’s starting to look like the issue might be that he doesn’t want direct government lending at all.
So that leaves us wondering whether the writer really likes the status quo when he said:
“This isn’t exactly the place we’d look to shock the system just now. ”
Bait and switch? No need to respond. I’m over and out.
@42:
I am talking about state universities. Tuition inflation has been rampant at state universities.
@47:
Student loans are available (by law) for students attending any accredited institution, regardless of size, and regardless of whether or not it is a state school [ Example: SUNY System ], hybrid [ Example: UMich/Ann Arbor ], or private [ Exapmle: Yale ].
There is no difference in loan availability based on school size: the only determinant is accreditation. I’m not sure I see your point re: state and local universities.
@51 Read Senator Byrd’s letter to Senator Bilbo in 1945? The guy is sort of big fan of lynching.
EP, I haven’t done my homework on this, but couldn’t it just be that the government is claiming margin that now belongs to SLM?
I mean, presumably they make money offering student loans. If the gov’t does that in-house, that profit accrues to the gov’t. Given how cheaply the government can borrow, it could make more money on the spread than anybody else without raising the rates paid on student loans at all.
Damm. I am such a putz! I paid off both my student loan and my mortgage. How could I have been soooo stipid?
Flame me. I deserve it…..
werd up on the positive externalities of education
@ 42
I think you’re unfamiliar with the concept of multiple choice.
EP’s point is that there is not a reasonable way to cut education costs by having the federal gov’t increase its role as direct lender
“You saved me some time as I was about to reply to @37. Just one point, as @5 noted above, loan servicing will be outsourced to private companies. That makes sense to me. No need to have, for example, government call centers doing that function. Ultimately is not who does this well, is who does it cheaply. At least that’s exactly how private industry makes those decisions.”
This betrays a rather substantial lack of understanding of the outsource servicing business and the way it charges fees (look here: http://www.calculatedriskblog.com/2007/02/tanta-mortgage-servicing-for-ubernerds.html – in fact, no one who has not read this entire series should really be talking about mortgage or student loans). I leave it as an exercise for the reader to analyze the compensation structure for these providers against a not-for-profit entity client and decide if the government is going to get hosed here.
This is a classic government program mistake. They handle outsourcing and contracting VERY poorly and are simply not positioned to get anything but raped by servicing providers except it the most limited circumstances.
Again, the reason they are supposed to be in this business is either because it is cheaper for the government or because they are making it cheaper for students (you cant do both). I find it hard to imagine an argument that will make expansion of direct loan programs “cheaper.” Feel free to make one. The only way they can make it cheaper to students is to lend below market rates (a subsidy) and thereby misprice risk for the rest of the market to the extent they are even loaning enough to make a splash. And if they aren’t planning to make a splash why bother at all? And if they do? They just continue to inflate tuition.
I am totally against subsidies. I would like to see these cut entirely. This is not the way to do it, or the time to do it and adding/expanding direct loan programs makes zero sense unless the administration is trying to do something they are not telling us (which is not just the most obvious explanation, but the most likely). Selling this as cost savings is total bullshit.
Any way you cut it this is a daft plan.
My goodness. At first I think – great, no subsidies! That will drive the cost of education down by (finally) putting cost pressures on universities. No more free money for students means Universities will have to stop with the gold-plated gyms and obscure faculty positions.
Then I see the whole expanding government lending directly and I go oh’oh, that will drive the cost back up and be more costly to the taxpayer in the long run.
This president’s economic instincts seem to be consistently backwards. It’s as if he and his advisors just don’t understand the way markets work.
Scary times.
@53 My only point in 47 was that state schools are a whole bunch cheaper than many elite private schools. Therefore, those going to many of these not so elite schools don’t require private loans on top of their public subsidies.
Want to decrease the cost of education?
Start recruiting at state schools!
While we are on the subject, EP, are you also against government funding for state schools, or just student loan subsidies?
Most colleges/universities operate at a loss in the actual education business. They often rely on distributions from their endowment or state appropriations to be profitable and grow. I think tuition is increasing so rapidly because schools are spending more rapidly to have state of the art campuses, dining halls, sports facilities and research facilities because that’s what students demand. Unless that changes I’m not sure tuition levels will decrease very much.
@43…unemployed banker…degree in english…still paying student loans
@53:
“state schools are a whole bunch cheaper than many elite private schools”.
I agree: yes they are.
But the problem is that state schools have also become unreasonably expensive, and that in spite of the fact that they receive subsidies from the State, and in many cases the subsidies are in excess of 50% of the schools’ budget. These State subsidies are in addition to any Federal subsidies, or research grants individual departments may already receive through separate channels.
@59:
“The only way they can make it cheaper to students is to lend below market rates (a subsidy) and thereby misprice risk for the rest of the market [ ... ]”
Yes. This is a taxpayer subsidy. Feel free to think outside the box: educational loans are a form of government subsidy. They just won’t subsidize Sallie Mae, or Citibank any longer.
The Federal Government can lend at 0% for educational loans, if it so chooses. Boo-hoo if it misprices your risk. Maybe your Student Loans backed CDO pricing was a work of fiction in the first place.
Still waiting for your fact-checking “private loans are cheaper than 0% financing” references.
1. Government direct lending (Stafford Loan) is capped by the budget. There is likely to be more demand for loans than government funds available, as usual. Therefore, private lending will not go away unless everyone who wants to go to college is sufficiently rich.
2. Cutting the subsidy saves $4 billion dollars a year to the government. The government can decide to save that money, or just use some of it to increase the direct loan program or Pell Grants budgets, for example.
So subsidies going away is a good thing for the tax payers.
However, removing the government from the direct student loan business is a totally different policy decision that is not under discussion. And I would think that the bank lobbyists will have that issue in the back burner for a long time.
http://www.uspirg.org/home/reports/report-archives/affordable-higher-education/affordable-higher-education-reports/easy-money-how-congress-could-increase-federal-student-aid-funding-at-no-additional-cost-to-taxpayers#sZJtUvIUS_Ryq-5w4tYEYw
@27
If it is his #1 priority, why is he doing this? He is making college education less attractive and more expensive for those who rely upon these loans. By and large, that means upper middle class students on down to the poor will now have to pay substantially higher interest rates.
That is, assuming there is still a secondary market for any securitized product after he is done rewriting contracts and destroying investors.
“Fool me once shame on you. . . fool me twice. . . well we can’t get fooled again.”
- One who would rather have a bumbling moron in charge than a man who is bent on razing the edifice of capitalism and spreading around the wealth
Well, at least Equity Private’s views on the administration are now out in the open (see 33). Not that there was much doubt about them before.
Look, Sallie Mae is in need of dire reform if it is ever to re-emerge as a private institution. Frankly I am glad that the government is removing this leech on the system and saving $4 billion. That’s hardly drinking the “Obama Kool-Aid”; it’s simply getting rid of a bloated tumor on the education racket that has been criticized before for its lending practices.
The government should work with universities to curb the costs of education. Some solutions might include consolidation of campuses and expanded distance learning programs.
It seems that no one really pays attention as to why the unversities keep jacking their fees. It’s as if people stop with “oh, it just costs more to operate” and leave it at that.
Of course it costs more to operate, the question is why?
And the answer is because universities are under limited presure to operate efficiently and reduce costs when they can continue to pass the cost on to the federal government by increasing the subsidies or direct federal loans.
And as to private vs. public schools. Public schools have a different mission, defined by the residents of a state. If a state wants to have a free or cheap public school in its state, go ahead and pay for it directly. That serves a good goal.
The problem is that the university prices are not under the same pressure as other business precisely because the federal government keeps shifting the costs away from universities.
El Presidente just offered us the chance to exacerbate that.
Watch in a few years when the news guys start asking why the price keeps going up for universities even after this change.
Or alternatively, we will all be talking about how the price has gone down but the product is significantly inferior and the news stories will talk about how the golden age of American universities has ended.
I think the first scenario is much more likely.
“Still waiting for your fact-checking “private loans are cheaper than 0% financing” references.”
Your not getting any, because I never claimed that. What I claimed was that if the goal is reducing loan costs to students the method that costs the government least in the short term was guaranteeing private debt. If this isn’t obvious to you, (no matter what the interest rate of the competing government program), then you are beyond my (or anyone’s) help. (How does one actually argue that a lender is better off loaning at 0% than taking a second loss position on the same debt unless there is a serious mental break involved?)
I also point out that there is a trade off, specifically, that this has the long-term effect of putting a bunch of mispriced debt on private books- which (owing to Basel, etc) then gets pawned off to third parties. The effects of mispriced risk on the willingness of underwriters to hold on their books (instead of securitizing and thereby reducing transparency and pushing the mispriced assets down to less informed investors) debt is left as an exercise for the student (loan recipient).
“Boo-hoo if it misprices your risk.”
This glib dismissal pretty much disqualifies you from this discussion. Mispricing the risk of debt in EXACTLY THIS WAY is what got us where we are. There is no free lunch here. Just smoke and mirrors. Since I cannot imagine you are working productively at the moment, it might interest you that the Treasury is hiring. You’d fit right in.
“Cutting the subsidy saves $4 billion dollars a year to the government.”
Only if, when the difference is made up with direct loaning, the risk isn’t sufficiently mispriced to eat this up. (Not to mention the additional expense of administering loans in a direct loan program). Hint: This is exactly the mistake made with Fannie and Freddie. We “lowered the cost of the dream of home ownership” and transferred all the risk (which started off mispriced) to… the taxpayers. Great. Imagine if someone a few years ago said “Let’s gut these home subsidies and Fannie and Freddie and just loan directly from the government.” Housing would be SUPER cheap for everyone for years! Wow, that would have been just fantastic. Until it wasn’t anymore.
“However, removing the government from the direct student loan business is a totally different policy decision that is not under discussion. And I would think that the bank lobbyists will have that issue in the back burner for a long time.”
Does this kind of intellectual dishonesty actually work in your usual circles?
This President is crazy. That is the only explanation I have left.
It’s as if he completely ignored the economic lessons of the past 30 years.
What drives me nuts is he explains it as if he is non-ideological, its all just rational to him.
@71:
“This glib dismissal pretty much disqualifies you from this discussion. Mispricing the risk of debt in EXACTLY THIS WAY is what got us where we are. There is no free lunch here. Just smoke and mirrors. Since I cannot imagine you are working productively at the moment, it might interest you that the Treasury is hiring. You’d fit right in.”
Actually, I am currently, gainfully employed.
But, since you are so willing to display such in-depth understanding of finance, please derive Black-Scholes. I’ll make it easy for you: european put. No need to mess with that pesky european call.
[ ... ]
I didn’t think so.
Am with 69, especially on quality distance learning.
Seen from Europe (UK excepted) there quite clearly is a huge education bubble in the US.
Let’s think about this as if you are a trustee of a university.
Let’s say the government is going to remove the subsidies for the private market loans and replace it with direct loans. To what effect?
Ok, your students will in the future be getting what appears to be a good deal on loans…cheaper for them if the government gets its wish. What does any business do when all of a sudden its customers can afford to pay more for its product? Any guesses?
The news story 5 years from now will be all these big guys scratching their heads as to why after Obama replaced subsidies with direct loans the price of a university tuition kept going up.
It’s as if the administration thinks that Universities are run by people whose primary focus is keeping costs down but they just haven’t managed to do that with all the government help there has already been. They really want to charge less but they can’t.
BS – like every entity that charges a price for its service, a university will charge the highest price the market will bear. If students can pay more because loans rates are controlled, universities will charge more.
And oh, by the way, thats a ton of lost jobs at lenders who used to be in business.
@71, what guarantee is there that Sallie Mae will correctly price risk going forward? What evidence was there that “quants” at Wall Street firms had any expertise at quantifying the risks associated with mortgage debt and securitized car loans? Given the implosion of Merrill, Bear Stearns, AIG and Lehman, I think your belief in the great valuing prowess of private firms might be misplaced.
The government could potentially use its weight to curb costs at universities, perhaps tying continued funding to reductions in tuition increases. Since major research universities typically count on hundreds of millions in research funding, they will likely be open to curbing costs to continue this stream.
@76
I think you just suggested price controls?
Seriously?
“But, since you are so willing to display such in-depth understanding of finance, please derive Black-Scholes….”
The nice thing about progressing through your finance career is that make-work tasks that have little practical use for immediate recall from memory after their first exercise, except for the professor insofar as they keep you busy, aren’t important anymore. For the record, I’ve gone through that exercise, along with similar stints with Bjerksund-Stensland and the like along with quite a bit of work from my physics days with the Dirac equation (and worse).
None of this is relevant. Particularly where I’m being asked to present my finance credentials to someone who doesn’t appreciate the importance of risk pricing. I might as well ask you to do some Lorentz Transformations.
[...]
I didn’t think so.
@77 I did not suggest price controls, I suggested that universities become more efficient with how they spend the dollars they receive as tuition and board from households stressed by the current crisis. Having attended and worked at a wealthy university, I can tell you that it (and likely others) could be more efficient with how they spend their money. Just as one example, the multi-million dollar budget on lawn maintenance could probably be slashed in half without anyone noticing a difference.
“But, since you are so willing to display such in-depth understanding of finance, please derive Black-Scholes….”
The nice thing about progressing through your finance career is that make-work tasks that have little practical use for immediate recall from memory after their first exercise, except for the professor insofar as they keep you busy, aren’t important anymore. For the record, I’ve gone through that exercise, along with similar stints with Bjerksund-Stensland and the like along with quite a bit of work from my physics days with the Dirac equation (and worse).
None of this is relevant. Particularly where I’m being asked to present my finance credentials to someone who doesn’t appreciate the importance of risk pricing. I might as well ask you to do some Lorentz Transformations.
[...]
I didn’t think so.
@77 I did not suggest price controls, I suggested that universities become more efficient with how they spend the dollars they receive as tuition and board from households stressed by the current crisis. Having attended and worked at a wealthy university, I can tell you that it (and likely others) could be more efficient with how they spend their money. Just as one example, the multi-million dollar budget on lawn maintenance could probably be slashed in half without anyone noticing a difference.
@77 I did not suggest price controls, I suggested that universities become more efficient with how they spend the dollars they receive as tuition and board from households stressed by the current crisis. Having attended and worked at a wealthy university, I can tell you that it (and likely others) could be more efficient with how they spend their money. Just as one example, the multi-million dollar budget on lawn maintenance could probably be slashed in half without anyone noticing a difference.
@80 Why do you think they are not efficient? I totally agree with you that they are not containing costs in some ways that other businesses would.
But why?
Could it possibly be that they don’t have to under the current market? Or is it that they are ALL run by people who are collectively, well, dumber than the government? They just need the smart government to do it for them?
Of course not. They have no incentive to contain costs because they can continue to increase tuition to cover any cost growth. They can continue to increase tuition because the government continues to subsidize student loans.
And the President just offered to double-down on that approach.
Cost control does not come from government help, it comes from market pressure. The universities have a distorted market pressure because their customers do not pay for the entire cost of their product. Taxpayers do.
So instead on passing on the new gold-platted gym, they build it and claim they need it to recruit top students and then go ask Uncle Sam to increase the subsidies or, now direct funding.
@71
OK, so how much of the $4 billion will be used to service the loans? That’s what would eat into the savings. What remains is discretionary.
This thread reads schizophrenic. Some argue it’s a bad thing that there are no subsidies because students will end up paying more for loans, while direct loans increase college costs, though private loans also increase college costs, so let colleges go bankrupt without students, but let students borrow more, which will aid education, and therefore the issue is what?
Politically you can’t remove the government from the direct student loan business. George Bush did start the move to cut out the private lending subsidies, but he didn’t move to remove the government from the direct loan business. Obama is just following the trend, but he’s setting up a firm end to the private lender subsidies. However, he’s going to continue the TARP, the TALF and other alphabet soup to keep those lenders afloat.
But to some, that’s the end of the world.
Ha!
@81:
“The nice thing about progressing through your finance career is that make-work tasks that have little practical use for immediate recall from memory after their first exercise, except for the professor insofar as they keep you busy, aren’t important anymore.”
Actually, they are important.
Because, had you ever actually worked with any of these “make-work tasks” — as you call them — you would have known that, in any pricing environment for structured debt financing, every branch of the trinomial tree reduces to a Black-Scholes. And at this very point, this so-called “make-work task” becomes really, really important. No need for Dirac, or Lorentz transforms.
But, you did not know that. Or you worked at Merill, in which case you didn’t even need to know that.
On the other hand, your handle is “Equity Private”. In Equities, you only need to make pretty pie charts.
Yes yes, I can race back through e.g., Hull too and quote all day long and re-enact fantasies of Good Will Hunting scenes. That’s not going to convince me your penis is any larger than it is, and none of this supports your position on school loans.
@87:
“That’s not going to convince me your penis is any larger than it is [ ... ].”
Glad you brought up my penis. Can I call you sometime ?
@87:
“That’s not going to convince me your penis is any larger than it is [ ... ].”
Glad you brought up my penis. Can I call you sometime ?
86- You are every overhyped overrated quant douchebag I ever met concentrated in a caspium spray and applied directly to the eyes. Watching you limp through this post with a flaccid flop of a big swinging dick impression was both the most comic and most tragic part of my day. Comic because your overcompensation is so obvious and infantile. Tragic because I am reminded that somewhere some badly overcompensated MD was actually high enough on hiring day to put you in somewhere where real money is at stake. She’s not going to fuck you, so stop trying and learn to distinguish coy hard to get flirting from total revulsion. It will be easier on everyone.
Temper, temper Equity Private. I don’t think 86 was going there. But don’t worry, I’ll keep it above the belt.
Getting rid of Sallie Mae is not about consigning future Americans to jobs as assembly line workers in green factories (like your smug blurb about “dumb[ing] the country down” suggests). It is about shaking up the student loan system and questioning why a private, for-profit entity has acted as lender and collector of student loans without effective supervision for decades.
Finally, there is a real case to be made for more Americans going into vocational training rather than university. Raising the profile of practical skills and trades could be far more useful for a society rebuilding its entire infrastructure than churning out thousands and thousands of communications majors year after year. I am not disparaging all communications majors, but it could be useful to have more students directed to national polytechnics and mechanical engineering programs. This would of course be contingent on reform of pre-university education as well, but that’s a whole other discussion.
@86:
You must have been the captain of your high school debate team. It’s obvious.
Sorry, that should have been:
@90:
You must have been the captain of your high school debate team. It’s obvious.
To err is human.
@87
WTF?
@90
Who the hell are you? EP is the one who brought penis to this food fight. Let EP handle it.
I went to the taping of the townhall meeting and Erin looked the same: BEAUTIFUL.
Jim Cramer’s HUGE! Maybe some football in his background??
CNBC had female interns working as ‘pages’. They were all gorgeous! So if you ever want to intern in TV or have a son or daughter who wants in on TV, they BETTER be good-looking.
ONE MORE THING:
Drive Southbound on the Henry Hudson Parkway beginning at the George Washington Bridge. there is a HUGE and DISGUSTING billboard of MARIA BARTIROMO.
IS THAT NECESSARY?!?!?
Jeff Zucker was asked a while ago if there is anyone on CNBC that is the ‘stand out star’, his response was no, CNBC is a team effort.
YOU CALL THAT BILLBOARD ‘TEAM EFFORT’?!?!
Looks like MARIA is the FACE OF CNBC. Might as well replace the peacock with her face.
ERIN BURNETT IS THE FUTURE OF NBC NEWS!!
@94 Amen.
Student Loan Finance 101 – Student takes out a FFELP loan (Stafford or PLUS). Govt. sets the fixed rate the student pays on the loan. Private sector lender (SLM, STU, NNI) originates, holds and services the loan. The government subsidy, the special allowance payment (SAP) converts the lender’s yield from the fixed rate the student pays to H-15CP index plus a spread. Private sector lender (used to) sells floating rate ABS or ARS to finance the loans and makes a net spread. Now – no more SAP. US Treasury buys student loans it has set a fixed rate on directly. No more student loan ABS market (except for privates). There is your $4bn in savings.
@86, I’ll bet you’re one of those people that gets lost in the details. Every problem is not a nail so put away your BS hammer.
Lesson for the day: a model is only good as its inputs.
On that note (and since EP already broke the seal),
If there are any female models out there that need a penis as input, look me up sometime.
@98:
“I’ll bet you’re one of those people that gets lost in the details.”
Bet away. You don’t know me, therefore you cannot possibly make that inference.
“Every problem is not a nail so put away your BS hammer.”
I think the saying goes: “With a big enough hammer, everything’s a nail.”
Not sure how trinomial trees, lognormal probability distributions and Black-Scholes relate to hammers or nails. I’ll try to come up with an intuitive analogy for ABS/CDO pricing, and I promise it will involve hammers and nails, so you can understand it.
It’s interesting that proponents of government involvement never get beyond the first iteration of “what will happen when I create this policy.” They only think of what could immediately happen. Tuition subsidy is one such case. Many thought it would lower tuition costs for students and making higher education more affordable.
Unfortunately all that did was give colleges free rein to increase tuition, as we have seen from the tuition cost increases being significantly higher than inflation. I’m not sure those graduating today are that much more knowledgeable than those who graduated 10 years ago, but they sure paid a helluva lot more.
Another case of a misguided government policy to “make things more affordable” is healthcare. Medicare has a most favored nation clause which forces providers to charge Medicare the lowest price they charge any other private payer. This strengthens the position of the providers to avoid discounting. Thus dispersion in pricing is lower, but all prices are higher. Where are the savings here?
Government involvement masks the underlying market forces and causes inefficiencies and mispricing in that market. We need to minimize government subsidies and any effort to make things affordable as much as possible.
@28. The most prescient film of our time. I wish that I were kidding.
EP works for AIG
BURN!!!
http://www.ed.gov/news/pressreleases/2009/02/02262009.html