Undercover tests at 15 for-profit colleges found that 4 colleges encouraged fraudulent practices and that all 15 made deceptive or otherwise questionable statements to GAO's undercover applicants. Four undercover applicants were encouraged by college personnel to falsify their financial aid forms to qualify for federal aid--for example, one admissions representative told an applicant to fraudulently remove $250,000 in savings. Other college representatives exaggerated undercover applicants' potential salary after graduation and failed to provide clear information about the college's program duration, costs, or graduation rate despite federal regulations requiring them to do so. For example, staff commonly told GAO's applicants they would attend classes for 12 months a year, but stated the annual cost of attendance for 9 months of classes, misleading applicants about the total cost of tuition. Admissions staff used other deceptive practices, such as pressuring applicants to sign a contract for enrollment before allowing them to speak to a financial advisor about program cost and financing options.
There's a large difference here, in that banks and investment houses have a wide variety of options available for making money. They were not forced to take ever-increasing risks in order to continue their business. For many who attend college, however, there is no other option than to take loans out.
Not as large as you would have it.
You're right, the firms that responded to governmental pressure and incentives to try and find a way to make money on bad risks and survive the downside, did not have to do so. They could have resisted the pressure and ignored the incentives. They would have seen their profits decrease significantly and subjected themselves to takeover efforts or shareholder suits, but they could have continued to exist as businesses. The choice was not flatly existential
The choice for students wasn't either. Certainly their lives would have continued if they withdrew from school rather than taking out loans, and not at all necessarily in a ruined sense. They even could have continued their education in an unconventional but still substantive way.
Neither group had their decisions forced upon them, and it's not fair to suggest that the motives for making these decisions were on the one hand solely motivated by greed and on the other solely motivated by personal growth and development.
For all we know, the young woman who took out the loans that are now crushing her did so not because she was committed to continuing her education and obtaining her degree, but because she very much enjoyed the social life at college and didn't want it to end, or her boyfriend was also taking out a loan to remain enrolled, or she would have been too embarrassed to tell her friends back home that wasn't able to stick it out.
I think BOTH groups should be held responsible for their decisions, regardless of the motivations or logic that lead to their earlier decisions. The girl who took out loans should pay them back, and the bankers investors who took giant risks in the name of profits should be held responsible for the destruction that has been brought about by their doing so - something which certainly hasn't happened.
We very much agree in principle but I think we might not agree on what "held responsible" precisely means.
To re-focus on the overall point of the thread,
The protestors should begin to winnow their concerns down to something very easy to understand and repeat: Privatized profits and Socialized losses cannot continue to exist. It benefits society in no way for such a situation to exist - only a tiny segment of people benefit from this. In order to keep this from happening in the future, the structure of the banking and investment system in our country must be changed, so that businesses who fail, fail - without destroying our markets and country in the process.
The devil is always in the detail, but again we very much agree in principle
As for the personal, anti-wealthy attitude that many of them seem caught up on, those concerns should be narrowed as well; removal of the foolish rules which allow the wealthiest to pay almost nothing in taxes whatsoever. This would affect only a handful of people, but restore a sense of fairness to an essentially screwed tax system.
To the extent that there are a handful of extremely wealthy people paying almost nothing in taxes, we again agree, but I suspect that there is a whole lot of room for disagreement within this subject.
I don't know what it says or means, but it's interesting that we can at least appear to be in such close agreement on these matters. Of course, sooner or later, my delusion of divine right or your egg shell fragile ego will split us asunder once more.
Cycloptichorn
There's a large difference here, in that banks and investment houses have a wide variety of options available for making money. They were not forced to take ever-increasing risks in order to continue their business.
From: http://online.wsj.com/article/SB122212948811465427.html
Beginning in 1992, the government required Fannie Mae and Freddie Mac to direct a substantial portion of their mortgage financing to borrowers who were at or below the median income in their communities. The original legislative quota was 30%. But the Department of Housing and Urban Development was given authority to adjust it, and through the Bill Clinton and George W. Bush administrations HUD raised the quota to 50% by 2000 and 55% by 2007.
It is certainly possible to find prime borrowers among people with incomes below the median. But when more than half of the mortgages Fannie and Freddie were required to buy were required to have that characteristic, these two government-sponsored enterprises had to significantly reduce their underwriting standards.
Fannie and Freddie were not the only government-backed or government-controlled organizations that were enlisted in this process. The Federal Housing Administration was competing with Fannie and Freddie for the same mortgages. And thanks to rules adopted in 1995 under the Community Reinvestment Act, regulated banks as well as savings and loan associations had to make a certain number of loans to borrowers who were at or below 80% of the median income in the areas they served.
Research by Edward Pinto, a former chief credit officer of Fannie Mae (now a colleague of mine at the American Enterprise Institute) has shown that 27 million loans—half of all mortgages in the U.S.—were subprime or otherwise weak by 2008. That is, the loans were made to borrowers with blemished credit, or were loans with no or low down payments, no documentation, or required only interest payments.
Of these, over 70% were held or guaranteed by Fannie and Freddie or some other government agency or government-regulated institution. Thus it is clear where the demand for these deficient mortgages came from.
The huge government investment in subprime mortgages achieved its purpose. Home ownership in the U.S. increased to 69% from 65% (where it had been for 30 years). But it also led to the biggest housing bubble in American history. This bubble, which lasted from 1997 to 2007, also created a huge private market for mortgage-backed securities (MBS) based on pools of subprime loans.
For many who attend college, however, there is no other option than to take loans out.
I think BOTH groups should be held responsible for their decisions, regardless of the motivations or logic that lead to their earlier decisions. The girl who took out loans should pay them back, and the bankers investors who took giant risks in the name of profits should be held responsible for the destruction that has been brought about by their doing so - something which certainly hasn't happened.
To re-focus on the overall point of the thread,
The protestors should begin to winnow their concerns down to something very easy to understand and repeat: Privatized profits and Socialized losses cannot continue to exist. It benefits society in no way for such a situation to exist - only a tiny segment of people benefit from this. In order to keep this from happening in the future, the structure of the banking and investment system in our country must be changed, so that businesses who fail, fail - without destroying our markets and country in the process.
As for the personal, anti-wealthy attitude that many of them seem caught up on, those concerns should be narrowed as well; removal of the foolish rules which allow the wealthiest to pay almost nothing in taxes whatsoever. This would affect only a handful of people, but restore a sense of fairness to an essentially screwed tax system.
I propose a solution that I think addresses the core of your problem though: socialized losses. If the public needs to bail out a bank, the public should take full control over it in the process. The bank should then not be privatized except when it is in the interests of the public.
The big problem was that the bailouts came with very little in way of strings, and very little in way of leverage for the public. The bailouts just need to come with real strings and conditions, and privatization is an easy way to codify this.
Well, I think the WSJ is the least trustworthy source on this issue you could possibly link to..
I strongly suggest that you check out the piece I posted in response to George, wherein the Dallas Fed looked at this very question and came to a very different conclusion than the WSJ.
The WSJ conveniently fails to mention that a huge percentage of the 'toxic' loans that were handed out came from mortgage brokers like Countrywide - who were bound by none of the regulations that the WSJ talks about at all.
Gasp! Socialism!
Not that I disagree with you, but you'd have a more difficult time selling this solution in the current political environment than one in which banks were simply broken into pieces, and then allowed to continue doing business as normal.
If that is so, you should be able to dispute the message and not focus on the messenger. Dispute my claims, not my sources.
"That which can be asserted without evidence, can be dismissed without evidence" (Christopher Hitchens). The Wall Street Journal's opinion page is not a source of evidence.
As its name says, it's a source of opinion---from the same conglomerate that brought you the opinions of Sean Hannity, Bill O'Reilly, and Glenn Beck. Why wouldn't Cycloptichorn reasonably dismiss it out of hand?
Yeah? Then why don't you point out what was wrong with the claim, instead of just dismissing it out of hand because of the source?
Because churning out unsupported assertions and demanding that your correspondents refute them works out as a denial-of-service attack on everybody who gives a **** about evidence.
It's what creationists on this forum do all the time, and as a rule I'm not bothering with them either. To be sure, in your case I trust that it's an accident, not a strategy. Still, I'm not playing this game, sorry. Provide evidence from independent sources for your claim, and I'll look at it.
But somebody's say-so in an opinion piece does not rise to the level of evidence.
Just point one of them out then that you feel is unsupported and we'll go from there.
70% of the sub-prime mortgages were held by companies that the government required to have increasing quotas of loans going to sub-average income homes.
Furthermore, the sub-
prime market had reduced its risk exposure by
limiting the loan amount of higher-risk loans and
imposing prepayment penalties on the majority
of ARMs and low credit-score loans.
70% of the sub-prime mortgages were held by companies that the government required to have increasing quotas of loans going to sub-average income homes.
70% of the sub-prime mortgages were held by companies that the government required to have increasing quotas of loans going to sub-average income homes.
The GSEs Fannie Mae and Freddie Mac
accounted for a more substantial 40% of MBSs issued in 2006.
....
The remaining 56% of MBSs issued in
2006 were packaged by private sector
financial institutions. Most of these MBSs
included securities backed by high-
quality (prime) loans, subprime loans,
or “Alt-A” loans.
Nonagency
securitizations, or private-label securitizations, are issued by entities other than the GSEs,
Given the finding that private-label securitization are associated with the funding of riskier
mortgages, and given the disastrous loan performance of California mortgages towards the end of the
2000s, one obvious question is whether the growth of private-label securitization somehow eroded
underwriting standards, perhaps by exacerbating the many potential agency problems endemic to
mortgage loan production.
