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Elizabeth Warren Needs to Talk to Her Own Party’s President and Topple the House of Cards NOW

April 26, 2016

A Facebook post from MoveOn.org caught my eye this morning as I scrolled through while my coffee was brewing. It was a picture of Elizabeth Warren behind a lectern forcefully gesturing with her index figure with this tweet-worthy phrase superimposed in bold white lettering:

The Federal Government will make $51 billion dollars in profits off student loans.               That’s more than wrong. That’s obscene! 

She’s right in her analysis, but MoveOn should know that the source of this obscene wrongdoing is not the Republican Congress but the supposedly liberal leadership in the White House who came up with student loan interest as a revenue stream to offset the need for taxes. In doing so, they chose the lesser of two evils: they could advocate tax increases, which would probably lead to them not getting elected to office, or they could devise a workaround that involved some kind of market-based solution whereby banks could take a risk extending loans to otherwise unqualified recipients with the understanding that that taxpayers would bail them out if the borrowers couldn’t pay it back. In the meantime, the banks and the government would split the revenue stream generated by the interest payments made by the students. So the banks make a profit, the government can avoid raising taxes and expand the Department of Education’s services and staff, and if some of the loan payments never materialize the taxpayers will bail out both of them! What a great scheme!

The problem with this, like the problem with the housing loans the government guaranteed, is that the ultimate risk might exceed the short-term reward…. and when the house of cards topples— which is especially likely to happen when big-ticket privatized post secondary schools are un-regulated—  half the public is angry at the banks for being bailed out by taxpayers and the other half is angry at the government for enabling unqualified lenders to borrow money.

So the problem really isn’t that the Federal government benefits from the profits: the problem is the lack of courage on the part of legislators to raise the taxes needed to provide a high-quality K-12 program that will prepare more students to enter college with the wherewithal to succeed. And here’s the perverse irony: the bill that the taxpayers will “have to pay” for the bailout when the house of cards topples will go into the pockets of the bankers and the bank shareholders who made the de facto no-risk loans and the borrowers will be plagued with indebtedness or a poor financial record for decades afterward: the loan-makers are rewarded and the loan-takers are punished…. and THAT’s more than wrong… it’s obscene!

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