Wednesday, April 25, 2012

Obama's College Loan and Student Loan Bubble

President Obama is visiting three universities, all are incidentally situated in states critical for his re-elections, asking Congress to extend a subsidized low interest rate for Federal student loans (called 'Stafford Loans'). The speech was very well received with tons of applause. 'Stafford Loans' are Federally guaranteed loans (no credit check etc) for student at an interest rate of 3.4% for the subsidized Stafford Loans. The subsidized loan rates (not unsubsidized Stafford Loans) of 3.4% expire on July 1st 2012 and rates would double to 6.8%. This is financial disaster for many parents. Presumptive Republican nominee Mitt Romney too has come out in support of extending the lower rates though it would add to the deficit. I too agree. An educated workforce is an economic asset in the long run. Beside health care cost the other major area of cost increase in USA is college tuition fee. College tuition is a runaway nightmare with college costs projected for a private college is set to rise from $119,000 (2010) to $340,000 (2028, when my daughter goes to college). This is the prime driver for families scrounging to save and gargantuan loans that are now approaching debt loads that sap the entire working life of a graduate.

Economist in an article, "Student Loans in America: The next bubble" identified that federally backed loans given to students pursuing any course, regardless of economic utility, is a prime reason for inflating college costs. It is simple economics. Here is the government stepping in to guaranteeing a loan regardless of what returns a student can earn for a degree he/she pursues this skews market pricing. This is inflationary. Naturally the seller who sees a cash influx keeps raising the price without any corresponding change in productivity or efficiency. New York Fed, Economist says, puts the total student debt at $500 Billion with an asterisk that the figure may be under reported. LBJ, Economist cites, started the loan to help students get education that would bring gainful employment but (as with any Government program) was immediately altered to cover all courses.

In 2011 I met an Occupy Wall Street protester at the famous Zuccotti park. He was a student who railed against banks, Wall Street, 1% etc. His main grouse was that he could not get a job 4 years after graduating. He had graduated in "visual communications". He is now facing debt that he has no way to repay. Of course that means tax payer is waiting for payment. Even in the super heated Clinton economy he would not have found a job that easily. Why in God's earth should I pay for somebody pursuing his 'passion' knowing fully well that that 'passion' has very meagre returns?

The much respected "The Atlantic" ran a piece on college debt and argued that free borrowing inflates costs, "colleges have embraced a host of extraneous activities - from obscure sports to overseas centers - and tacked most or all of their tabs onto students' bills. Unlike businesses, which cut losing operations, colleges simply hike their tuition". Availability of loans makes parents complacent about saving for their children's education, "Only half of entering freshmen say their parents had put anything aside; and of those who did, half had banked less than $20,000". Yeah sure why not sock the rich while I go holidaying. Colleges pad costs recklessly says Atlantic, "Bowdoin's menu features vegetable polenta and butternut soup, while Penn State provides legal downloads of music numbering two million songs a week. But let's be clear. It's not the colleges which are paying for these and similar amenities. It's the students, mainly by borrowing, which the colleges actively encourage. " Sure why not, some poor soul will pay for it with taxes. Bring it on, pass the soup please.

Added to the above are salaries paid to Football coaches and Professors. Joe Paterno, legendary Football coach at University of Pennsylvania (U.Penn) was a million, $200,000 MORE than the salary of the University President and way above the average salary of a professor. Dodd-Frank compels financial institutions to report on the ratio of CEO pay to average salary of the rest. Of course its an obvious attempt to incite envy (a CEO salary is any way publicly reported). Would Obama ask why should a football coach be paid so much more than possibly the best Physics professor on campus? What is the prime objective of an University, to churn out footballers or physicists? Jack Welch's contract with GE post-retirement spilled out during his divorce proceeding and caused, well deserved, consternation at the outrageous perks he got. Joe Paterno, though dead, got $5 million in final settlement from U.Penn. This, to a guy who left in a cloud of shame for not dealing firmly with his subordinate who abused children. 

Robert H. Frank, economics professor at Cornell, wrote an op-ed in NYT suggesting that students flock to Ivy League's only because they are tempted by what they could potentially earn with an Ivy League degree which makes the Ivy League universities or any prestigious university to hike fees. His remedy is simple, hike the taxes on the high earners taking away the incentive for an Ivy League university. This, my friends, is truly what he calls, remedy. If this is logic from Cornell, I am now convinced that Ivy Leagues are just a mythical aura of excellence. 

 Frank, author of "Winner take all society: why the few at the top get so much more than the rest" (the title says it all) cites "Baumol's cost disease" as the reason for high professor salaries. Really!!!! Baumol, Princeton Economist, studied the rise of salaries in NY Philharmonic and came up with that theory which said that though a musicians productivity in playing a symphony can never change (a symphony takes however long to play in 2012 as it took in 1700's for Mozart to play that piece) his salary could increase in order to match corresponding increases in other industries where salaries rise due to productivity increase. Frank reasons that Professors are highly compensated to match salaries in other industries and is subject to Baumol's disease.

David Levy, educationist, ripped into professors for high  prices in a stinging oped "Do professors really work hard" in Washington Post. He points out that purely teaching only universities pay their professors similar to what a research university pays its professors. Then he lists the meager hours professors work compared to general workforce etc. Note, college professors also enjoy very generous perks and they are virtually impossible to fire once they get 'tenure'. 'Tenure' was a tool used to give security to professors to teach freely any idea without fearing dismissal but it is now purely a shield from being fired for incompetency.

Elizabeth Warren, Harvard Professor and Consumer advocate in Obama administration, is a poster child for salary excess amongst professors. Warren, now running for Massachusetts Senate, is a heroine for liberals for her speech railing against the rich that went viral. Warren drew a salary of $430,000 for PART-TIME work while drawing a salary of $170,000 from the tax payer for working on Consumer protection in Obama's administration. The guy who came up with the greatest scientific theory worked in a patent office. What is Ms Warren's earth shaking revolutionary idea that warrants a half million dollar salary for part time work. No wonder Harvard is now becoming so expensive that only Mitt Romney's son can afford it.

Cornel West, a much celebrated Afro-American sociologist, drawing a high six figure salary from Harvard neglected classes and went to campaign for a democratic Presidential nominee (and acting in the 'Matrix trilogy'). When Harvard dean Larry Summers called him out West huffed and puffed and off he went to Princeton.

With all these to contend with Obama offers platitudes on student loan. He affably jokes, taking a characteristically unsubtle swipe at his opponent Romney, that he understands students' difficulties since he (Columbia+Harvard) and Michelle (Princeton+Harvard) experienced that and did not read it in a policy note to speak (unlike the Rich Romney being the implication). Obama went on to say, to applause, that he could repay his loan only 8 years before his Presidency. The Ivy League students cheered. The President forgot to mention a few facts.

Obama finished his BA for Columbia (1983, age 22, Political science and international relations) and went on to work, by his choice, as community organizer. After 5 years, he went to Harvard to complete Law (1991, age 30). By age 30 he had become famous too thanks to his historic election as President of Harvard  Law Review. He even signed a book contract. Then he became a law professor. He was always focused on elected office and ran for state congressman (unsuccessfully), state senator (1997), US senator (2004), US President (2008). In this stellar hurried rise to become US President at 47 he did not go after jobs that would have maximized his earnings his targets were always at the ultimate prize. When he complains of not being able to pay his loans earlier it is completely facetious and misleading.

Michelle Obama, graduated from Harvard in 1988 and started earning $273,000 in 2008. They were a power couple who made conscious choices on careers to suit their long term political ambitions rather than short term economic gains. Mark my words, Obama as ex-President will open the cash spigot with memoirs and speeches making Bill Clinton look underpaid.

UNC Chapel Hill senior Domonique Garland introduced Obama and said in her remarks that if the interest rates rise then she would have to "worry about paying of her loan and focus more on that rather than enjoying the college experience. I'd have to do some part time work cutting into my extra curricular activities". Her mother, Pamela Hampton Garland, a PhD, posted a comment on a town online newspaper of how she is struggling to get a job commensurate to her PhD and her family's sacrifice to educate their children. Pamela had spent time working on now disgraced candidate John Edwards's campaign. GIVE ME A BREAK. WHY should I foot her bill? Why should I pay for her loans for doing a PhD that probably has no scope for a decent job? Why should I pay for her daughter who is loath to doing any part-time work lest her 'extra curricular activities' are curbed? 

Moulshri Mohan, rejected by Delhi University was accepted at Dartmouth (with scholarship), caused quite a stir meriting an article in New York Times. While Dartmouth does provide for her tuition fee, Mohan's very lower middle class family has to scrounge to pay for all other expenses. I can bet that Moulshri is NOT thinking of extra curricular activities but of the numerous loans that her family is taking that she would have to repay. I am all for supporting weaker sections especially on education however some effort on their part is actually a good character that would go a long way in instilling a zeal to succeed and surpass those with a silver spoon in their mouth. Every university and school will have rich and poor kids. A decent society MUST help poor students BUT not to the level where a student can fool herself into thinking she is entitled to relaxation. Note, these loans are very generous when it comes to the conditions for repayment and that is relaxation enough.

I am all for keeping the low interest rate but this is unsustainable. College costs must be reined in. I am not one for wage controls but there are other ways of compelling colleges to rein in salaries. Obama has indeed told colleges that Federal subsidies will be cut if costs are not reined in. Students also must understand that a loan is to be repaid and career choices should reflect that responsibility.

Politico reports that Obama, as senator, missed two key votes on similar bills to give low interest rates to students. He was busy campaigning with students swooning at his rallies while being absent on bills related to their chief concern. Today Obama is calling on students to campaign on twitter #dontdoublemyrate. What a guy?

Sunday, April 15, 2012

An Evening With "Occupy Princeton"

Last fall a rash of protests across America, especially New York City, called "Occupy Wall Street" exploded on the political scene. Every liberal and left wing sympathizer felt their cockles warmed and day dreamed about the Marxian moment, "revolt by the working class in capitalist countries". I met with a group of protesters for 2 hours at the famous location, Zuccotti Park, near Wall Street. It was very entertaining and I need to blog about that separately. Once townships, that spent hundreds of thousands of dollars amidst budget crises in each city lost their patience, especially after the protesters started acting like ruffians committing acts of public indecency, called it enough most locations were closed down. The onset of winter too added to the dampening. Now it is spring and they are back.

Almost every weekend I go to Princeton to take a stroll and spend time in what is probably the only remaining 'true' book store in all of NJ. I simply love "Labrynth bookstore" which, though not owned by Princeton University, caters primarily to the University students. The selection of books is amazing and it is possibly one of the very few mainstream book stores in USA to stock an entire shelf of Marxist writings including authors like Rosa Luxemborg, Emma Goldman, Antonio Gramsci and of course Marx himself. This being Princeton there is no dearth of left wing enthusiasm. On a warm Sunday in April a group calling itself "Occupy Princeton" decided to hold a meeting in the open space in front of a public library (made possible by the astronomical taxes collected from well heeled Princetonians). Given the curious cat that I am I paid a visit. Life is charming only when we step out of our comfort zones and try to actively engage with ideological opposites.

The meeting started with 5 people, including a couple of Princeton University students. Apparently the group is trying to organize a march in NYC on May 1st to observe May Day (which actually originated in USA, just like the 8 hour work day and profit sharing for employees at assembly line). For 20 minutes the group lazily conversed about the march just repeating a few sentences, no active agenda, no focus, not even active rambling. The organizer, of sorts, mentioned about a picnic at Princeton on the might before May Day, "we are having a picnic, just come over". A woman asked "do we have to bring anything", the organizer replied "no, just food for yourself and one other person, just come over and do whatever you want". Yeah, the agenda was "do whatever".

A lead guy then narrated how Princeton University was trying to move the Princeton 'dinky station' (a small train station that connects Princeton to another main train junction 5 minutes away). That guy, warmly seconded by Princeton University students, spoke about how Princeton University is trying to muscle its idea through the township against the wishes of the people. I was wondering what connection does a very local issue have to the Occupy crowd that is going to congregate in NYC to protest against what they claim as inequities in America, particularly against the financial industry.

Another guy helpfully passed around leaflets that asked "is Princeton supporting sex trafficking", "is Princeton supporting apartheid" etc. His contention was that the Princeton Endowment fund is invested in Wall Street firms, particularly Goldman Sachs, which, in his opinion, aided all those unspeakable horrors of life. The speaker then freely added "we really do not know where Princeton University invests but we think they invest with those firms and Goldman Sachs". I used to have respect for Ivy League students and the American method of education that lays stress on critical thinking etc. I am not sure how this guy aced SAT's. His rationale for those flyers is a complete mockery of anything called "logic". He does not know for sure where Princeton University invests, he makes an assumption and then shamefully accuses the firms of indulging in activities that are basically illegal.

He had one fair question though. He wanted Princeton University to be transparent about how its endowment is invested. As a student who pays tuition he could be told. The only point I interceded was to tell the crowd (10 people) that one of USA's largest union, AFSCME, is an institutional investor in GS. WSJ in an article had said that AFSCME is moving a stock holder vote to force Goldman to separate its CEO and Chairman roles, both currently held by Lloyd Blankfein. It's a responsible request by the union. I asked the crowd that would they hold a leaflet asking for AFSCME, active supporter and mobilizer for these protests, to disinvest from Goldman Sachs. Its a sweet irony that the Union members, wearing union garb, march decrying the institution while entrusting the same institution to handle its pension funds, the most sacrosanct of all monies a Union can have.

A woman who until then was speaking about the dinky station and May day rally chimed in "is it true? I think you should start an online petition" and glibly passed on. The rest who were all emphatically designing posters accusing Princeton University of abetting illegal activities by investing in Goldman Sachs (while conceding that they did not know if the University invested) acted as if they did not hear anything and moved on.

Then another guy, an Afro-American, got up and said "we are also organizing marchers as 'occupy the hood', and we are getting some tea-partiers too". 'Occupy the hood' is a reference to a killing in Florida of a Afro-American teenager Trayvon Martin, by a Hispanic neighborhood watch guy who suspected Martin of acting "suspiciously". Martin,  wearing a hoodie, had a sachet of skittles and a soda in his hands, he was unarmed. The killing has enraged the nation re-opening racial wounds. The more surprising mention was saying that tea-partiers would join. Tea Party, another rag tag amorphous group, arose in the days Obama's healthcare was debated. This self-styled group assumed a name that rang a familiar echo of another group that challenged an overseas government. Tea Partiers used to organize marches and meetings that simmered with rage against Obama and sometimes overtly racist cartoons of Obama were carried. Tea Party (not a registered party) was accused of racism. It was puzzling for the group to be involved with the Occupy group which is all for regulations and bigger government roles but what is stunning is an Afro-American inviting them.

Tea party and Occupy groups are tied at the hip only by their complete distrust of government. Tea party believes government can do nothing right. Occupy group believes that the government has been bought out by the 1% rich. John Lewis, a civil rights icon who has sustained severe beating in that struggle, was spat upon, allegedly, by a tea partier as Lewis was entering the congress to vote for Obama's health reform bill. Tea Party had assailed the bill socialism. Later when the Occupy protests sprouted John Lewis went to the protesters at Atlanta to show solidarity. In a stunning rebuke the Occupy protesters declined permission for John Lewis to speak saying that "as part of the Government he too is part of the problem".

Having spent 30 minutes I left amused. Here is a group that is protesting against a train station change, accusing an University (a liberal icon at that) of abetting illegal acts, inviting a group with who they have nothing in common except mistrust of government, blind to acts of their own supporters, adding an agenda covering a shootout that has racial overtones. POT POURRI anyone.

PS: Is it a sweet coincidence that May Day is also used to connote a 'sinking ship' or a 'flight in danger'.

Monday, April 2, 2012

UK Road Trip: Edinburgh Castle, Scotch Whiskey and Walter Scott.

My brother and I left for Edinburgh (pronounced more like Edinbra or Edinborough) around 6 PM from Oxford. Our road trip started. Its a 6 hour drive from Oxford to Edinburgh.

I am not sure how England started with the right hand side driving unlike US and rest of Europe. Other than that orientation problem driving around England would be easy with a GPS. I travel frequently between New Jersey and Virginia (Fairfax, VA) on I-95 which is very well punctuated by 'rest areas', most of them are open 24 hours including the restaurants inside not just the toilets. Many of those rest areas are well constructed and even pleasant to spend some time. I was eager to see what UK had to offer motorists. No such luck. The rest areas, called service areas, were innovatively built overlooking the highway like a bridge other than that nothing remarkable. Most service areas were dirty, the Burger King or KFC outlets close at 9PM, only the toilets are open. If one took an exit and went into the town that too would not help. The only thing that always irritated me about Europe was that they shutdown by 9 PM. Having been used to TGI friday's open until 1 AM, 24 Hour McDonalds (especially near highways), a city that never sleeps Europe irks me on this.

We reached Edinburgh around 1 AM and checked into a very nice Marriott. Breakfast was just wonderful and, I was told, typical of Scottish breakfast. The silverware was nice. Off we went to Edinburgh castle.

This trip was mostly to spend time with my brother and have a taste of what a 'road trip' be like for 5 days going around UK. Thanks to my brother I did not have to bother about driving. Also he had lived in Scotland for 2 years and knows it pretty well so we went only to the best spots. The castle if 400-500 years old depending on how you look at its history. Its an architectural marvel in that it is constructed atop a hill (atop a volcano). A view of Edinburgh from the castle is stunningly picturesque. A nice cafe with an overlook is added bonus. Cafes in Europe are very tasteful compared to anything, except the pricey ones, in USA. The way they serve coffee in a nice cup with a good clean strong but smooth spoon alongside a toffee is charming. Then add the sing song lilt of British English accent from a waitress. Whether it is Zurich, or Paris, or London or Edinburgh even the ordinary cafes have a certain charm. Having been used to paper cups and plastic stirrers (or wooden) in Starbucks this is welcome change.

The most striking place of the castle was the prison. The progress of civilization is marked by how prisoners are treated. Across the ages we have progressed from treating prisoners as worse than animals to conferring certain human rights to them. Prisoners from America's war of independence were lodged here and one such prisoner had carved the US flag on a door which is showcased for exhibition. As always the castle has its share of blood as it is with any European historical place.

After the castle visit we went to a Scotch whiskey distillery. A very entertaining tour of how whiskey is made followed by a short lecture on the various flavors of whiskey from parts of Scotland were very interesting. I was reminded of the movie "Sideways" where two friends go on a wine tasting tour in California. Whiskey burnt my throat that was salved only by a grand lunch in an adjoining restaurant. A nice "Aberdeen Angus Beef" with some wine to wash it down and a tasty chocolate cake to round off was good.

Our next stop was the Scottish Parliament. To me it appeared like a grotesque monstrosity of bamboo madness, check the picture below:

The interior was very modern and contemporary, in fact spartan one could say.

We bypassed the Holyrood castle wanting to have a taste of Edinburgh's famous shopping strip. We went to Princes Street for some shopping. I stopped by "House of Frasers". Food, clothing and perfumes are what Europeans excel at. Most brands I saw at Frasers are available in Nordstrom or other upscale department stores in USA. However the kinds of clothes I saw there were very different and trendy. Brand like Polo and Tommy though were priced higher for similar clothing seen in USA. I bought a nice Valentino ladies perfume. I later learned that Nordstrom in New Jersey just got that perfume for sale while it had been selling for several months in UK. A Chanel men's perfume I saw at a Harrod's outlet in Heathrow is yet to arrive in USA. My stop in a Birmingham mall emphasized this further.

As we walked along Princes Street a monument caught my attention, it was the Walter Scott monument.

I remembered Scott's famous poem "breathes there a man with soul so dead" from my school days. Seeing a fantastic monument for a literary persona made me envious of that culture. As an Indian one can only sigh how men of arts and letters are celebrated in the west. Tamils might hurry to point out the gargantuan Thiruvalluvar statue. That is a monstrosity because it was erected purely out of chauvinism and is a monument of jingoism run amuck. We do not know for certain who was the genius who wrote those immortal verses, we know too little or nothing of Valluvar's life, even his name is open for speculation let alone his appearance. That statue, if one wants to be charitable, is a monument to a literature and not a man.

I did not have much time to visit other places or memorials associated with Scottish Enlightenment. Most notable of others are Adam Smith, author of capitalism's bible 'Wealth of Nations, famous classical biographer James Boswell etc. Britain has honored Adam Smith by placing his picture on the 20  pound note. Thankfully they did not desecrate their currency with a picture of England's most famous political philosopher, Karl Marx. One could say that England put Adam Smith on the currency to pay for its almost Marxian welfare state.

Later in the evening we left for York.