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> the government takes risks with the taxpayers' money that private lendors would not take with their own > Because as a country, you shoulder the cost - throu

> the government takes risks with the taxpayers' money that private lendors would not take with their own > Because as a country, you shoulder the cost - through your government's wasteful allocation of capital. The US Government made $41.3 billion in profit on student loans last year. http://www.usatoday.com/story/news/nation/2014/02/10/federal-student-loan-profits/5361955/ http://www.usatoday.com/story/news/nation/2014/02/10/federal...

nirnira 13y ago
Mmmhmm. Several problems: 1) Is that the most money they could have made with these loans? Are they getting a market return on investment? If not, then they're wasting the country's money. It doesn't matter if it's still "profitable." A lot of shit investments still make money - just less than they could have if they were better invested. 2) Are the loans profitable at market rates? Then why have students taken on seemingly such high debtloads? Ah, because everyone knows that with governments, unlike private lendors, you get this: >"I think they should break even, but it's just wrong that they are making money on it." >"This is obscene. The government should not be making $66 billion in profits off the backs of our students," >Warren and eight other U.S. senators committed to wring government profits out of student loans and address the $1.2 trillion in outstanding student loan debt they say is crushing families and putting a strain on the economy. >"It's time to end the practice of profiting from young people who are trying to get an education and refinance existing loans." Great, look forward to any at-market performance of your loans being shredded through political pressure. Another way of saying that your government just threw away your money.
- dasil003 13y ago
  Wow, talk about moving the goalposts.
  - nirnira 13y ago
    If you think that, I think you didn't read both of my posts carefully enough. First I argued that the government was making bad loans. The respondent replied that they were making profit (implying they were good loans.) Then I noted that that doesn't necessarily mean the government made the most profit possible with the loans - I didn't say that was definite, just possible. And then I showed how political pressure is mounting for even this meagre profit to be slashed to cost price. Because that's the great thing about borrowing from the government. If enough people do it, you can bank on political pressure to hamstring any honest attempt to get a market return. So you wind up with a distorted allocation of capital to this market (student loans.) PS. If anyone remembers, this is exact same mistake which drove the 2008 recession - the American government's junk home loan program. Exact same high ideals - help people get into homes! - exact same result - people went for bigger homes than they would have otherwise - savvy hedge fund managers smelled the free money and pounced. And we all know how that turned out. PPS. If you're interested, check out: http://mises.org/books/economics_in_one_lesson_hazlitt.pdf http://mises.org/books/economics_in_one_lesson_hazlitt.pdf (pages 25-32).
    - dlp211 13y ago
      That is not at all what drove what happened in 2007-2008. I suggest you read The Big Short by Michael Lewis.
bradleyjg 13y ago
If anyone in the private sector used the type of accounting that the government uses for loans, people would be lead away in handcuffs. Here's the somewhat understated footnote in the CBO report that underlies that news article. "CBO’s calculations of subsidy costs for student loans follow the procedures specified in the Federal Credit Reform Act of 1990 (FCRA). Under FCRA, the discounted present value of expected income from federal student loans made during the 2014–2024 period is projected to exceed the discounted present value of the government’s costs. (Present value is a single number that expresses a flow of current and future income or payments in terms of an equivalent lump sum received or paid today; the present value depends on the rate of interest—known as the discount rate—that is used to translate future cash flows into current dollars.) Credit programs that produce net income rather than net outlays are said to have “negative subsidy rates,” which result in negative outlays. The original subsidy calculation for a set of loans or loan guarantees may be increased or decreased by a “credit subsidy reestimate” in subsequent years, on the basis of updated valuations of the present-value costs of the cash flows associated with the outstanding loans and loan guarantees. FCRA accounting, however, does not consider some costs borne by the government. In particular, it omits the risk taxpayers face because federal receipts from interest and principal payments on student loans tend to be low when economic and financial conditions are poor and resources therefore are more valuable. Fair-value accounting methods account for such risk and, as a result, the program’s savings are less (or its costs are greater) under fair-value accounting than they are under FCRA’s rules." On page 63 of: http://www.cbo.gov/sites/default/files/cbofiles/attachments/45010-Outlook2014_Feb.pdf http://www.cbo.gov/sites/default/files/cbofiles/attachments/... See also: http://www.cbo.gov/sites/default/files/cbofiles/attachments/03-05-FairValue_Brief.pdf http://www.cbo.gov/sites/default/files/cbofiles/attachments/... (Fair Value Accounting for for Federal Credit Programs) and http://www.cbo.gov/sites/default/files/cbofiles/attachments/06-28-FairValue.pdf http://www.cbo.gov/sites/default/files/cbofiles/attachments/... (Fair-Value Estimates of the Cost of Federal Credit Programs in 2013)

nirnira 13y ago

Mmmhmm. Several problems: 1) Is that the most money they could have made with these loans? Are they getting a market return on investment? If not, then they're wasting the country's money. It doesn't matter if it's still "profitable." A lot of shit investments still make money - just less than they could have if they were better invested. 2) Are the loans profitable at market rates? Then why have students taken on seemingly such high debtloads? Ah, because everyone knows that with governments, unlike private lendors, you get this: >"I think they should break even, but it's just wrong that they are making money on it." >"This is obscene. The government should not be making $66 billion in profits off the backs of our students," >Warren and eight other U.S. senators committed to wring government profits out of student loans and address the $1.2 trillion in outstanding student loan debt they say is crushing families and putting a strain on the economy. >"It's time to end the practice of profiting from young people who are trying to get an education and refinance existing loans." Great, look forward to any at-market performance of your loans being shredded through political pressure. Another way of saying that your government just threw away your money.

dasil003 13y ago
Wow, talk about moving the goalposts.
- nirnira 13y ago
  If you think that, I think you didn't read both of my posts carefully enough. First I argued that the government was making bad loans. The respondent replied that they were making profit (implying they were good loans.) Then I noted that that doesn't necessarily mean the government made the most profit possible with the loans - I didn't say that was definite, just possible. And then I showed how political pressure is mounting for even this meagre profit to be slashed to cost price. Because that's the great thing about borrowing from the government. If enough people do it, you can bank on political pressure to hamstring any honest attempt to get a market return. So you wind up with a distorted allocation of capital to this market (student loans.) PS. If anyone remembers, this is exact same mistake which drove the 2008 recession - the American government's junk home loan program. Exact same high ideals - help people get into homes! - exact same result - people went for bigger homes than they would have otherwise - savvy hedge fund managers smelled the free money and pounced. And we all know how that turned out. PPS. If you're interested, check out: http://mises.org/books/economics_in_one_lesson_hazlitt.pdf http://mises.org/books/economics_in_one_lesson_hazlitt.pdf (pages 25-32).
  - dlp211 13y ago
    That is not at all what drove what happened in 2007-2008. I suggest you read The Big Short by Michael Lewis.

bradleyjg 13y ago

If anyone in the private sector used the type of accounting that the government uses for loans, people would be lead away in handcuffs. Here's the somewhat understated footnote in the CBO report that underlies that news article. "CBO’s calculations of subsidy costs for student loans follow the procedures specified in the Federal Credit Reform Act of 1990 (FCRA). Under FCRA, the discounted present value of expected income from federal student loans made during the 2014–2024 period is projected to exceed the discounted present value of the government’s costs. (Present value is a single number that expresses a flow of current and future income or payments in terms of an equivalent lump sum received or paid today; the present value depends on the rate of interest—known as the discount rate—that is used to translate future cash flows into current dollars.) Credit programs that produce net income rather than net outlays are said to have “negative subsidy rates,” which result in negative outlays. The original subsidy calculation for a set of loans or loan guarantees may be increased or decreased by a “credit subsidy reestimate” in subsequent years, on the basis of updated valuations of the present-value costs of the cash flows associated with the outstanding loans and loan guarantees. FCRA accounting, however, does not consider some costs borne by the government. In particular, it omits the risk taxpayers face because federal receipts from interest and principal payments on student loans tend to be low when economic and financial conditions are poor and resources therefore are more valuable. Fair-value accounting methods account for such risk and, as a result, the program’s savings are less (or its costs are greater) under fair-value accounting than they are under FCRA’s rules." On page 63 of: http://www.cbo.gov/sites/default/files/cbofiles/attachments/45010-Outlook2014_Feb.pdf http://www.cbo.gov/sites/default/files/cbofiles/attachments/... See also: http://www.cbo.gov/sites/default/files/cbofiles/attachments/03-05-FairValue_Brief.pdf http://www.cbo.gov/sites/default/files/cbofiles/attachments/... (Fair Value Accounting for for Federal Credit Programs) and http://www.cbo.gov/sites/default/files/cbofiles/attachments/06-28-FairValue.pdf http://www.cbo.gov/sites/default/files/cbofiles/attachments/... (Fair-Value Estimates of the Cost of Federal Credit Programs in 2013)