Introducing Moar Moral Hazards - Case #2293

Posted On: Monday - June 6th 2022 5:43PM MST
In Topics: 
  University  Economics  US Feral Government  Scams  Zhou Bai Dien

See also our 2 1/2 years-ago 3 part series on student loan forgiveness. I clean forgot about them when I wrote this recent post, so this is updated 5 days later . Here they are: Part 1 -- Part 2 -- Part 3. After that, there was our post just this past April, AOC on student loan forgiveness.

The total outstanding student loan debt was ~1,700,000,000,000 as of sometime in '21.

I knew this was coming!

Through the interwebs, I have just caught up on learned the story of the student loan forgiveness plans. Well, hell, I was going to say that it'd have to be passed by Congress first, but, nah, it doesn't have to work that way anymore. Per The Hill"s article on it, Here’s who qualifies for the $25B in student loan forgiveness already approved, the Department of Education gets to just make these laws , errrr, rulings, I mean. The Senators, Congressmen, and voters need not concern themselves about it... actually more on this regarding the voters ...

What, that's only $25 measly Billion bucks, only about 5X what a southern US border barrier would have cost, at US Feral Gov't prices. OK, but it's less than the latest installment of Save Ferris the Ukraine money that Rand Paul and I didn't want spent, etc., etc. That's the beauty for big-Gov fans of the money spending. One can always point out MOAR money that was spent on something even stupider... so, you know ... why not?

This started off differently from how I would have thought. The President and his employees at the DOE can just pick schools and cancel the debt of students who went there. No suing of the schools is necessary, nor thinking twice next time a student sees something that seems worthless or too good to be true. It's a win/win, isn't it?
On Wednesday, the Department of Education announced it will discharge the outstanding federal student loans of former Corinthian Colleges students after the school faced multiple investigations and was accused of defrauding students out of millions in federally backed loans. In total, $5.8 billion in loans will be canceled for 560,000 borrowers, making it the largest single-loan discharged by the Education Department.

This is the second group discharge of student loans by the Biden administration. The first was in April when loan discharges for former students of Marinello Schools of Beauty were approved.
Whoa, one of them could have been MY hairdresser! Well, that could explain a lot ...

Oh, and, an intermediate headline notes:
Biden faces pressure to help Black borrowers with heavy student debt
I believe Biden's advisors screwed up on that one. These black borrowers would have voted for him anyway. It's just "whom they are."

The Unz Review commenter who pointed me to this article noted that this was likely just the beginning. Yep.
The White House has indicated that it is nearing a decision on broad student loan debt forgiveness, zeroing in on canceling $10,000 per borrower, but has not said that a decision is finalized. President Biden has already confirmed he “is not considering $50,000 debt reduction.”

The Federal Reserve’s analysis found forgiving $10,000 per borrower would result in roughly 11.8 million borrowers – slightly more than 31% – having their entire balance eliminated. If the Biden administration were to move forward under this plan, an estimated $321 billion in federal student loans would be forgiven.
That's 11.8 million votes, at least if you wait until after coming November 1st! That keeps the suspense up, you know. Voters like that.

Then, we learn of the true Communism:
How much student loan forgiveness you receive could be dependent on how much you make. Sources tell The Washington Post that relief could be limited to those who make less than $125,000 or $150,000 per individual tax filers or $250,000 or $300,000 for couples who file together.
Oh, there you go. Let me explain all these "moral hazards'. (It's a term that I learned from some of the Libertarian pundits.)

The problem with student loan forgiveness is not just about the money. After all, even the $321 Billion they are working toward, for now, is a month's worth of Feral Gov't spending in a normal (non-Wartime, non-PanicFest) year. We* can spare that to make all of these kids "whole" again, can't we, or at least get them out of the big holes they have dug for themselves? Definitely, another aspect of this loan forgiveness is that it's a ploy to get many votes out of the young recently college "educated" Americans. It's not a coincidence that the Bai Dien administration is making these laws , oh, wait, they can't make laws, so, uhhh, issuing "rules", to get these potential D-voters poor downtrodden, ex-party-hardy young people out of burdensome debt. Though the Red-Squad is really not much better as a whole, throughout my lifetime, the Blue-Squad (colors solidified about 2 decades ago to avoid obvious comparisons to Communism) has been know as the party that is more generous with OPM (Other People's Money). That gets the votes of the stupid and the irresponsible. Even better, it also creates more of the stupid and the irresponsible.

Here's the real destruction:

Moral Hazard:

1) The risk to an insurance company that the holder of a policy will destroy the insured property in order to collect the monetary reimbursement available under the policy. No, no, no, this isn't about insurance companies. Look at (2) and (3) though:

2) The risk that an individual or organization will behave recklessly or immorally when protected from the consequences.

3) The prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk.

There are really 3 pieces of moral hazard that have been pinched off and dropped onto American soil with this one, of different sizes. Let's just think first about how a young person who had scrimped a bit in college, worked as much as he could, and maybe not bought that large pick-up truck on payments and not partied as hardy during his 4 years at the U, to keep his loans under $10,000, might happen to feel upon reading this news.

A significant number of graduates (or not) have been blowing off these loans, too.

How about a guy who did accumulate more of a loan than he could have but made up for it by finding one of the fewer decent jobs left, working hard after college, and shoving money into that loan to be rid of it for peace of mind? He was too upright of a person to blow the loans off. How about that guy who spent another couple of years in graduate school, listened to his Dad about the job market, got married to a hard-working yuppie gal, OK, hopefully a hot yuppie, and they have not only paid off half their loans in 3 years, but they are making a lot of money, at least per the IRS tax forms?

Besides all the taxpayers who really don't have the hours in a day to think of all the ways the Feral Gov't is screwing them over, all of these people are getting royally screwed over too. Their responsibility was not rewarded. Instead the Feral Gov't is now making them into suckers. The 1st guy, like many, was responsible and forward-thinking enough to not accumulate as much debt as the banks and the university would have been glad to lend him. The 2nd guy made a great effort to pay off the loan quickly, in order to get ahead in life. The 3rd guy got ahead in terms of earnings, so the Commie part got him. All of them are losing out to the irresponsible who have done none of this.

What are you supposed to think now? I know I'd decide soon enough that being responsible does not pay in this country. Next government project that comes along to "help" the American people? "I'll take advantage of all of it, and I'm not gonna sweat it." I know I'd be thinking like this. This sort of thing, being treated unfairly, really, really pisses people off.

Since the US Feral Government starting back-stopping these loans, the banks had nothing to lose, creating a moral hazard there. A a loan officer was no longer a reason to be responsible and keep risk of bad student loans down. For the universities, the moral hazard was that there was now nothing to lose by raising tuition. Students could all pay. The banks, as backed up by the taxpayers, would see to that.

Now, something I didn't see coming is that the DOE can just pick schools that they say are scams (they probably were), but there's no risk in creating a scam college anyway. The banks will loan the money to the students, and instead of getting sued by former students at any point, the US Gov't will just blow off those students' loans, so everyone's happy. (Yeah, you have to shut down, but you keep your money, so I'd call that a successful scam.)

Moar Moral Hazards all around! It's the way modern America operates. Does anyone still expect to have an upstanding and responsible population in a few more years? Why? How?

* I don't really mean "we", Kemosabe, as that's not me. I'm not gonna be the holding much money in US Dollars when the music's over.

Thursday - June 16th 2022 4:55AM MST
PS: Mr. Russell, I meant to add:

... OR, nobody "backs" these loans, so the banks would be careful and loan based on risk, which is all free-markety and stuff. That's the way it used to be, so there weren't nearly as many students with loans at all, and other than medical students not many with anything approaching house-mortgage size.

One more thing - the universities raise tuition and "fees" (as in, more tuition) in concert with the ability of the students to borrow, cause, why the heck not? Oh, yeah, there are more (just white collar) people there who don't teach than those who do, and there are so many (not-so-pretty, really) new buildings, I can barely recognize the place ...
Thursday - June 16th 2022 4:51AM MST
PS: Mr. Russell, people have discussed the U's being on the hook. I think a way to implement "a good (better?) job or your money back" would be difficult to come up with. Colleges being responsible for the deadbeats, loan-wise, as in having to pay back any delinquent loans, well, I'd be all for that. Take the guarantee off of the taxpayers and lay in on the universities. Sounds good to me!
Thursday - June 16th 2022 4:48AM MST
PS: Yes, Sam, the bankers made bank by more than this "measly" amount of money, but then they make bank on this one too. (I guess you know that, and it's not your point.) I just don't agree, sorry.

One thing you wrote about, the "known push for college degrees", would just be made worse, wouldn't it? Even more people would go to college for worthless degrees and get indoctrinated in the wokeness - which is ALL of our problem - than ever before. There is getting to be nothing to lose.
Jack Russell
Monday - June 13th 2022 5:45PM MST
PS Seems to me the only way to avoid this moral hazard is for the schools to be on the hook for the bad loans. The school knows better than anyone the value of their own degrees, and are in a better position to evaluate the student's prospects for eventual success. If a bad student shows up and wants to get a worthless degree, the gatekeeper needs to be the school, not the DoE (who has neither the knowledge or a reason to care) or the bank (ditto.) When the graduate (or dropout) of their program goes back to working at Burger Doodle and can't pay, the school needs to take it in the shorts, not the taxpayer. It also would incentivize the school to control costs, the opposite of what we have now.
Sam J.
Saturday - June 11th 2022 5:27PM MST

I fully understand Moral Hazard. Also understand the problems with it but...Context.

If we can give the bankers $800 billion cash and "known" $16 trillion in close to zero interest loans and the numbers teased out from government documents show more like $40 trillion in zero interest loans they used to buy "everything", and I mean everything. Then helping students pay off a far smaller sum given the known push for college degrees is not outrageous. It's like we had a music go round sit down game and when the bankers played it we added chairs every time the music stopped but when average citizens played it they took away chairs.
Wednesday - June 8th 2022 1:15PM MST
PS: Mr. Hail, regarding your comment on the fare-shirkers. There are decent upright people of all races, but when I think about the blacks in the big cities and those buses and subways, I know that they tend to stick together, tribally. The black kid gets on and says "hey, brother, left my change at home", and the bus driver likely winks. That doesn't fly with most, almost all White people. It shouldn't We want to do what's right more. However, the difference in attitudes (personalities, genetics) makes this completely unfair.

It was better when everyone knew that when a law is made, it will be enforced, on everyone. Can you do that under massive multiculturalism? Probably not.
Wednesday - June 8th 2022 6:34AM MST
PS: "Whatever the denominator chosen,..." I agree there, of course, Mr. Hail. We are just looking at things on a big scale, and a factor of even 2 or 1/2 is not the point. Yeah, just one year's military spending could pay for all this "forgiveness" ($1.7 Trillion, if you're gonna hit everyone). It's that moral hazard that's the really bad part.

Of course, I'm all for cutting the military spending massively. We just need a "common defense", as per the Founders, not a "common offense". BTW, I'll put up a great Peter Schiff video later on - along with everything else I completely agree with, he had a couple of very good lines about this too.
Wednesday - June 8th 2022 6:30AM MST
PS: Thanks for the additional info. on the story, Mr. Smith. I perused the Tampa Bay News story. You said it best with:

'An insult to her intelligence. Lol... Hardly. If Ms. Dieffenbacher were intelligent she wouldn't have taken on $67,000 in debt for a worthless degree from a scam college. A 50% discharge of her student loan seems like a pretty good deal in her situation. Certainly better than a kick in the face (or nothing)."

Right, that's the moral hazard already generally in place. If there were no chance of the Feral Gov't stepping in in all kinds of matters like this with that wonderful taxpayer (future wheelbarrow-pusher's?) money, people would make much better decisions.

And no, they are not grateful for even that whole $33,000, that the lady probably couldn't save in 5 years. They are the Free Shit Army. Like any army they march on their stomachs, not on gratitude. (Or something like that, haha!)
Wednesday - June 8th 2022 6:00AM MST

Adam Smith says: "Mrs. Smith says they're just fucking with people with policies like this. “It's unfair,” she says."

There was a social-justice trend in the late 2010s to (explicitly and publicly) decriminalize and non-enforce "fare evasion" law on public transportation in the USA because they said it disproportionately targeted Historically Marginalized Nonwhite Minorities. A few years later now, a two-tier system exists of fare-payment has developed: those who boldly do not pay and those who shuffle along as usual, both groups large.

I have sometimes played a game of "guess who will pay and who won't," and have gotten quite good at it. One of the boldest I have seen even jumped faregates with a full bicycle, right in front of a system employee who said nothing but grinned (both Black). Fare payment is now an honor system. "

The student loan thing is "unfair" alright, but one example of many. This is contrary to the norms of our civilization, but I don't know if the Biden Student Loan Forgiveness thing will galvanize people or not. I would guess not. Most people are frightened and quiet in the face of Woke Leviathan (note the arrest and coming imprisonment of Peter Navarro over unspecified political crimes, once one of the top US government officials). Many among us, presumably, are ready for the Monkeypox Lockdowns and will embrace them.
Wednesday - June 8th 2022 5:46AM MST

"Rand Paul...used 80 million as the number of income taxpayers"

In my calculation (on how much the Biden Student Loan Forgiveness Surtax on Non-Borrowers would cost the losers in the deal), I think I used "all adults." Your and Dr Paul The Younger's figure, net-income-tax-payers only, could be used. Although most people even who are not net-income-tax-payers have value as upholders of society one way or another. The idea with the all adults thing is, what scale of hypothetical "free government check" (like the Corona-Panic-payouts) would non-beneficiaries be losing under the Biden Plan.

Whatever the denominator chosen, the important thing for our purposes of feeling out "scale" may be that it is about equal to 5 months' worth of total US military spending.

The Brown University study on the cost of the Afghanistan War over twenty years came up with $2,300,000,000,000 (two point three trillion in 2021 dollars) (equivalent well over 2.5 trillion by mid-2022 with inflation0. That is well above the total balance of all student loan debt in the USA. (A less-"sexy" version of this comparison is: Reduce US military spending 5% for nine years and in theory this Biden Student Loan Surtax would be paid for.)
Adam Smith
Tuesday - June 7th 2022 3:12PM MST
PS: One more link, from last week...

“Tens of thousands of former Corinthian students were already eligible for debt cancellation, but they had to file paperwork and navigate an application process that advocates say is confusing. Now, the relief will be made automatic and extended to additional borrowers.”

“Those with a remaining balance on their Corinthian debt will also get refunds on payments already made, department officials said. But the action does not apply to loans paid in full. A spokesperson for the Education Department did not respond to a question about why that decision was made.”

Those with a remaining balance on their Corinthian debt will get refunds on payments already made, but the action does not apply to loans paid in full...

Seems like a good way to piss off some of the more responsible people caught up in this fraud.

Mrs. Smith says they're just fucking with people with policies like this. “It's unfair,” she says.

Adam Smith
Tuesday - June 7th 2022 2:57PM MST
PS: Greetings, Mr. Moderator,

Check this out...

“Under President Barack Obama, tens of thousands of students deceived by Corinthian and other schools had more than $550 million in federal student loans canceled in full.”

So, this is not the first round of bailouts for the perpetrators and (some of the) victims of Corinthian College.

This part kinda made me laugh (and then shake my head)...

“Two weeks ago, Sarah Dieffenbacher, a California health care worker, (phlebotomist), received a letter saying the agency would only discharge 50 percent of her student loans. The mother of four had borrowed about $67,000 to train as a paralegal at Everest college in Ontario, California, part of the Corinthian chain, but was unable to land a single job in the field.”

(Here's a little more info about her case.)

“In her first interview since receiving the agency's decision, Dieffenbacher told the AP Thursday that the decision was utterly unfair.”

"I think it's an insult to my intelligence, I think it's a kick in my face, I think it's degrading," Dieffenbacher said. "I received no valuable education from them."

An insult to her intelligence. Lol... Hardly. If Ms. Dieffenbacher were intelligent she wouldn't have taken on $67,000 in debt for a worthless degree from a scam college. A 50% discharge of her student loan seems like a pretty good deal in her situation. Certainly better than a kick in the face (or nothing).

I'd think that someone being bailed out (to the tune of $33,500) for their own stupidity, gullibility and/or poor planning would be more grateful, appreciative or thankful.

Guess not.

Tuesday - June 7th 2022 2:08PM MST
PS: Double Doctor Chou, I don't know if I've ever met one of your illustrious Trans Studies or Fat Studies graduates. I did have a nice discussion with one of your Trans-Fat double major PhD advisees a few days ago. All I remember is that he was interested in whether "I wanted fries with that?"

A-G, man the SLM "corporation" (arm of government) has about $13 Billion in assets! Ron Paul in his latest column, instead of urging "Audit the FED" finally said "End the FED". I think that'd be better for Americans than just auditing it.
Tuesday - June 7th 2022 2:01PM MST
PS: WSA, yep, I guess they can just pick and choose the schools that they want to call worthless and give those students their money back. No corruption could possibly be involved, right?

Speaking of this, Adam, the minor fines but the keeping of the $12 million they raked in is one thing. That factor of 58 in the amound of loan money forgiven and the $100 million is indeed even more odd. Thank you for looking into that. I didn't notice, s the whole idea disgusted me.

Thanks too for your "Daily Stupid" article today, Mr. Smith. Believe it or not, I didn't forget about your newspaper version from 1/2 a year (maybe more?) back. I was thinking of it this morning, to break up the thing into a few for some blog posts. Very creative!
Tuesday - June 7th 2022 1:45PM MST
PS It's a very safe bet that the Fed's balance sheet includes lots of paper from Sallie Mae but the exact composition of its balance sheet is something the Fed doesn't like publicizing.
Adam Smith
Tuesday - June 7th 2022 1:31PM MST
PS: Good afternoon, everyone,

The whole situation smells funny, and the numbers don't quite add up...

According to the Los Angeles Times (March 6, 2019)...

“Corinthian Colleges was a higher-education scam that defrauded tens of thousands of low-income students out of as much as $100 million in federally backed loans.”

“The Securities and Exchange Commission just settled its case against Jack D. Massimino and Robert C. Owen, the leading perpetrators of this deception, for a pittance.”

“The penalties imposed for their alleged violations of securities laws: $80,000 against Massimino and $20,000 against Owen. Neither had to admit wrongdoing and neither is barred from serving again as an officer or director of another publicly traded company.”

(CEO Jack Massimino received at least $12.9 Million between 2009-13)

So, either the Los Angeles Times article is grossly minimizing the numbers involved (through incompetence or malice?), or there is some sort of corruption involved with this $5.8 Billion (with a B) bailout. How does “$100 million in federally backed loans” in 2019 become a $5.8B bailout in 2022. I know inflation is out of control, but still...

And that's before we even get into some of the moral questions involved, many of which you summarized so nicely, Mr. Moderator.
But about that moral hazard...

What does a situation like this say to other would be scammers?
$12.9M - $80k = $12,820,000 (not much more than a rounding error.)

Yet another example of the people masquerading as “government” subsidizing the irresponsible and criminal while screwing good, honest, prudent, responsible people.

Moar Moral Hazards everywhere!

The Daily Stupid
Tuesday - June 7th 2022 11:53AM MST
PS: Cancelling student debt popular among people with absolutely worthless degrees

A new Pew Pew Institute poll shows the socialist concept of cancelling student debt promoted by Bernie Sanders and Elizabeth Warren is gaining popularity, especially among irresponsible students and graduates with absolutely worthless degrees.

“I have a Trans-Siberian Aquamarine Gender Studies degree,” said Bella Forlorn, who uses the ‘they’, ‘their’, and ‘aquaman’ pronouns. “And I can’t seem to find a job to pay off my $125,000 education, so yeah, I do think we should cancel all student debt.”

Many see education as a right—even education for absolutely insane degrees as Intersectional Diabetes Management and Postmodern Marxism in Patriarchal Scandinavia.

“I suppose everyone who wants to keep us enslaved to our student loan debt is just completely innumerate.” Forlorn said. "Cancelling student debt is good for the economy!"

The push comes at a time when employers are finding many college degrees to not be worth the paper they are printed on. Many college graduates lack reading, writing, math, critical thinking, and any other marketable skills.

“Yeah, education should be free! The government should pay for it!”

Mx. Sandra Chou, PhD. PhD.
Tuesday - June 7th 2022 11:39AM MST
PS: If capitalism is so great, why can’t a Trans and Fat Studies double PhD find a job?

I’m going to type it on my $500 iPhone: I’ve had enough of this whole capitalism thing.

I mean, if capitalism is so great, why can’t a Trans and Fat Studies double PhD find a job? And not a Starbucks job. A real meaningful job using their degrees?

If capitalism can’t supply good jobs for a person with two–count them two–PhD degrees, then what good is it for?

Like, what was I working so hard for the last 12 years for at school anyway? To feel good about myself and procrastinate entering the real world?

Not only do I have $150,000 in student loans to pay back, now I don’t have a way to pay them back. Of course, I could take a job as an Uber Eats driver, but I feel like people wouldn’t understand why I ate half their meals while delivering them to them. It’s like, stop being so fat-phobic!

No. It’s clear that the problem is 100% capitalism.

There should be a job for everyone, especially people with the type of lived experience that a trans and fat Trans and Fat Studies double PhD has. And clearly, the only way for that to happen is if we live in a social justice communist state.

Ugh, I can’t believe I have to explain this to you people anymore!

West South Africa
Tuesday - June 7th 2022 11:11AM MST
PS Most favored apparatchik conveyor belt schools will get first dibs? (rhetorical)
The I don't understand it, it must be true cry emanates from our esteemed think-holes-in-a-boilerplate "intellectual" classes.
Oh wait, we don't have any class system in the unity collective Chiquitastan.
A third world turd in two years, how historic!
Tuesday - June 7th 2022 5:48AM MST
PS: You saw that latest post, then, Mr. Hail. I shouldn't have been so harsh, but then I was incredulous that one could still take it all at face value. Mr. Sailer is usually a very realistic guy, but if he thinks black people have taken the Kung Flu seriously lately and are acting "accordingly", well, ... I don't know what to say.

Regarding your 3rd comment here, indeed that was why the Constitutional process for war, a declaration by Congress and then a raising of militias, was the idea. The Congressmen would have a lot at stake when telling their constituents that it was time to send their men and boys off to war. It had better have been for a good reason. I suppose one could say that, the War of Northern Aggression being a whole nother subject that after the Barbary pirates, the British in 1812, or maybe the Mexicans in Texas, there was not another need to raise army's to defend America since then.
Tuesday - June 7th 2022 5:42AM MST
PS: Mr. Hail, I noted in the recent post I put up about Rand Paul (in the postscript) that he used 80 million as the number of income taxpayers. That's pretty close to the 100 million figure I've been using. That'd be single adult Americans, couples, and families, but only ones who actually pay net money each year fo the Feral Gov't, not an illegal alien who gets what's called a "refund", which is a direct PAYMENT in fact, not a refund for anything paid in.

Anyway, that said, yes, your $1,500 would get us to $120 billion. Which number were you using for this forgiveness amount? Whenever I do any calculation like this, when I think of the rest, the military expenditures, etc, I realize that this simply can't be paid off by increasing taxes on these 80 million ACTUAL taxpayers even for 20 years. It must be borrowed with, well the same idea as in this article, blowing it off later on. That won't go so well with the Treasury Bond holders though ...
Tuesday - June 7th 2022 5:26AM MST

"The risk that an individual or organization will behave recklessly or immorally when protected from the consequences....The prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk.

The principle applies also to US military spending and US foreign-war "interventionisms." Maybe a trite point to make, but Congress would not likely authorize these wars and interventions if they themselves were directly tied to the consequences, or even if they just had to vote on them rather than the current system of pay-ahead,-hands-off,-do-whatever-ism plus bonus migrants by the million.

The proposed hit of the defacto Biden Student-Loan-Forgiveness Tax is "only" equivalent to less than 6 months' worth of military spending, and some calculable number of months' worth of 'welfare' payouts.
Tuesday - June 7th 2022 4:12AM MST

(I see Steve Sailer has returned to Corona-Panic-pushing, has seen fit to "show the flag.")
Tuesday - June 7th 2022 4:12AM MST

I was trying to calculate the value of the de-facto net tax imposed on non-borrowers. I came up with $1500 for every adult not currently on the student loan list.

A fifteen-hundred-dollar, one-time special Biden Tax on all Non Student Loan Borrowers. If others have calculated this or seen it, I wonder if other calculations line up.

(That's still a lot less you pay (per taxpaying 'head' per annum) for the Woke Military and dumping a hundred thousand Afghanistan migrants by the cargo-plane-load on the USA.)
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