Friday, May 28, 2010

Steve Eisman Blasts For-Profits, Arguing "Subprime Goes To College"

As a result of a lot of reading and research on this topic, I've mentioned the same thing, i.e., that the subprime mess looks pretty much the same when it comes to the student lending industry. In fact, I made a point to discuss the way in which Deutsche Bank and others have invested in student loans. I think it's all well and good that Steve Eisman is turning his attention to for-profit schools and blasting them for carrying out the same sort of unscrupulous activities as those  did on Wall Street. (Mr. Eisman, incidentally, was chronicled by author Michael Lewis in the Big Short for his open criticism of the subprime gambling on Wall St). Indeed, this problem needs to be exposed. However, I find this sole focus on the for-profits to be disconcerting for one important reason. It's great that Mr. Eisman has noted, as I have countless times (along with other student loan advocates) that we're on the "cusp of a social disaster." I would actually disagree with Mr. Eisman and say we're not on the cusp, we're there. It is noteworthy that he compares this situation to those who lost their homes. Even worse, as most of my readers know, student loan debtors can't flee from their debts (in some cases it follows you to the grave). If we can't make education affordable, as I've said countless times, we can say hello to becoming a Third World Country. This crisis is problem that I think needs to be addressed and needs to be solved immediately. I write that with different and deeper views on education as a result of the time I am spending here in South Korea as an instructor. But I digress. My biggest concern is this: it's not just the for-profits who should be scrutinized. The entire system is a disaster, and that means that all universities and colleges should be forced to reconsider the way in which they are allowed to increase tuition whenever they so choose.

On another note, I've referred to us for a long time as the indentured educated class, and it turns out . . . student loan-backed securities are labeled as indenture instruments. That's right! Now, if that doens't make your stomach turn as an indentured educated citizen, I don't know what does . . . Yikes.


Bill said...


You are so right that the entire system needs to be torn down, not just the for-profits. They are a symptom of the blight that is student loans, and to a larger extent, the bloated cost of higher education in general. Until we either shutter a large portion of the masses of ungodly expensive higher educational sinkholes, or permanently reduce tuition to a manageable cost, we are going to ride right off the same cliff that the subprime mortgage bubble built a big ramp on and did it's own "Evil Knievel" off into the Grand Canyon...and we know how that ended.

This precipe that we are uncontrollably hurtling towards will buckle an already weakened financial system and ruin whatever illusion the sheep believe they see of a "recovery". God help us all.

Thanks for the work you do!


Anthony said...

By naming an investment vehicle "indenture instruments" I can only assume that they know exactly what they are doing to students. There really is no other explanation...

Anonymous said...

Giving anyone with a pulse virtually unlimited federal loans, to go to any shit college, for any shit degree, many of which offer no realistic means of repaying the debt, is a disaster.

When schools know that they can charge anything they want, because the feds foot the bill, and 18-24 year olds have no real-world experience with money and cannot fathom how impoverished they will be, tuition subsequently goes through the roof.

Anonymous said...

Don't pay. Thats the myth: something terrible will come out of the shadows if you don't. The reality is nothing changes with your life except you are not paying a bill. They sue, so what it turns into a judgment. They still have to collect it.

C. Cryn Johannsen said...

I don't agree that you shouldn't pay. In fact, I've urged people to avoid defaulting. It's not a myth. If you don't pay, you're heading into a hell from which you may never escape.

Anonymous said...

You define Hell. Its only a hell if you let it be. Money comes in and goes out. Living goes on. The banksters lose. That is the myth.

Future Biff said...

The non-dischargability of student loans is unique and means that unless you run away, your creditor can find you and garnish your income as you try to restart your life (assuming you stopped paying and playing by the rules) For reference read this article:

No escape

That point was dramatized last month when the U.S. Supreme Court ruled the government could garnish Social Security payments to pay for old student loans.

James Lockhart, 67, of Seattle was living on $874 a month in disability and eligible for food stamps three years ago, when the government began seizing 15 percent of his check to pay for student loans he'd incurred during the 1980s.

Lockhart, a diabetic who has had double-bypass heart surgery, lives in public housing and is barely getting by, said his attorney, Brian Wolfman, who works with Public Citizen Litigation Group, non-profit consumer advocacy group based in Washington, D.C.

"For someone on that level of income -- it was devastating," he said. Lockhart declined through his attorney to be interviewed.

Hows this for a definition of hell?

Anonymous said...

I am a strong advocate of pursuing higher education. However, when one does not secure an employment upon graduation that's when I question who's "at-fault".

I strongly believe that self-perseverance equates to better economic status. People who choose the academic route forgo current earning capacity and actually takes on a very heavy burden of debt loads and only expects to be able to secure a position to break-even and perhaps makre more.

But, what-if the current environment no longer supports such an idea.

Who is to blame? I blame the fat-cats that are in-the know who constantly prey on people from lower rung of society.