“The ‘Democratization of Credit’ Is Over”

The Wall Street Journal story, “The ‘Democratization of Credit’ Is Over — Now It’s Payback Time,” is a solid piece of reporting on how credit that was once offered liberally to lower income consumers has now left a very big hangover. It’s worse than with other income strata for an obvious reason, namely, low income consumers are almost by definition budget stressed, so adding debt to the mix has high odds of leading to a bad outcome (save when used prudently as a short-term bridge, or for a long-term investment, and even then only when conservative cash flow projections confirm the debt service is manageable).

I wish the story had more on how this looked from the lenders’ side, as in what their margins and default assumptions were, but even with the focus on borrowers, the article is revealing. It focuses on Karen King, who admits that, at $36,000 in debt, she had too much of a good time and is now paying for it, literally and figuratively.

But the story glosses over two issues. Of her $36,000 owed, $26,000 is student loans:

Her biggest chunk of debt, $26,000, stems from student loans to pay for her two-year associate’s degree from a community college — loans now in the hands of collectors. The remaining $10,000 or so includes old credit-card balances, debt to a store that rents furniture, utility bills and back taxes. Another obligation is $400 a month she contributes to the rent on her grandfather’s two-bedroom apartment, where her mother, uncle and sister also live.

The story dwells on the lifestyle she had (dining out 2-3 times a week, going to movies) that presumably was a big contributor to the $10,000 she now owes, but skips past the $26,000. Ms. King worked in a shoe store and now drives a tour bus for $13 an hour plus tips. Did that associate degree do her any good in the job market? And I have to wonder if the student debt, which she was not doubt told was sensible (“an investment in your future”) desensitized her to taking on more debt. I admittedly came of age in the era before education inflation kicked in, but my mother recently found one of the old bills from college. I made some crude assumptions and compounded forward the Harvard tuition, room and board forward, and it came a bit over $20,000 a year in current dollars. Ms. King no doubt overspent, but a more important contributor to her current mess is that she threw away a lot of money on a useless degree.

The second interesting bit is she has decided not to declare bankruptcy, the reason apparently being that her impaired credit record has led her to be turned down for jobs. Her debt management decisions are driven by the impact on that scorecard:

When a utility to which she owed $300 offered to settle for less, Ms. King says, she declined, because she was told an overdue bill takes longer to come off a person’s credit report when it is settled for a partial payment.

She rejected any idea of a bankruptcy filing for the same reason. “It takes forever to come off” the credit report, she says.

Before the way to punish debtors was to send them to debtors prison. Now it appears to be to restrict their access to work. Perverse, but effective.

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  1. michael

    “Before the way to punish debtors was to send them to debtors prison. Now it appears to be to restrict their access to work. Perverse, but effective.”

    Where did the article referenced or your post allude to this “fact”?

    Default is the key to this entire facade of an economy.Default early and beat the rush.

    1. Yves Smith Post author

      With all due respect, did you read the article or my commentary? A woman who would clearly be better served by declaring bankruptcy is instead trying to pay off $36,000 of debt when she makes $13 an hour plus tips. Her decision is driven entirely by the fact that bankruptcy will damage her credit report more severely and for a longer time than struggling on showing mere delinquencies and a large debt burden. Her motivation is that she found she missed out on a job due to her credit report.

      If you have been following the media at all, it has now become routine in many jobs to pull a credit report as part of the job screening process, and to turn down applicants with troubled credit histories. The Journal has reported on this numerous times.

      This practice is logical for jobs where a person handles money (a teller, someone working a cash register) since their personal financial pressures might tempt them to steal. But for the vast majority of jobs, this is not a valid concern, yet the review of the credit report nevertheless has become widespread.

      1. GregL

        Student loans can not be cleared through bankruptcy if I remember correctly. So King’s decision not to go bankrupt over $10,000 is probably the rational one.

  2. pwm76


    If you look at the distribution of indebtedness in the US, you will actually see that the lower income households have low debt. Heavy debt loads is more of a “middle class” story.

    Not that I disagree with you in principle. Financial literacy simply is not taught in school.


  3. Michael

    I read your commentary and the article three times. Your choice to place the blame on a student loan, financial acumen of the featured debtor, and poor choices of the debtor for the financial bind she finds herself in is questionable. Plus she was supposedly informed of only ONE job her credit report impacted her possibility of receiving.

    Your response and the article seems to put a large burden on the poor when making spending decisions or following a proven path to success in seeking higher education. Obscuring the facts that the FED provided cheap money, regulators little oversight, ratings agencies with make believe ratings, and banks looking for quarterly bonuses in conjunction with wall street performance does a huge disservice to the truth of where blame lies in this crisis. What I find truly awkward is after so many months of posting accurately portraying where this crisis started and continues you choose to pinpoint a person who simply used the credit made available by the lending system.

    Responsible lending disappeared and now is making a big comeback from the shadows from where it should never have been banished. Defaulting on debt that is unpayable or being the servant to a FICO score with the hope for future credit is a fantasy choice in this economic environment. Defaulting and starting fresh is the correct choice. Student loans will follow this path due simply to the reported 52% unemployment in the 18-24 cohort. Debt that cannot be repaid won’t be.

    Please stay focused on the big picture of the fraud and corruption of the FIRE sector. I have always deeply respected your courage for speaking out and revealing truth on your blog. M.

    1. Yves Smith Post author

      You seem to have chosen to misread everything I wrote, which is pretty curious given your claim to have read the post three times.

      I do not know where you are reading “blame” into what I wrote. This is frankly your projection. I point out, as does the Journal, that Ms. King holds herself responsible for the mess she is in. I am merely repeating her assessment of her situation. I also said it was disappointing that the Journal focused on the borrowers (with Ms. King as a prime example) without looking at the profit equation to the lenders. I did not pinpoint Ms. King; the Wall Street Journal did, and I am parsing a front page article. Again, it is you who seem awfully keen to assign blame.

      I in fact take issue with the characterization that she is as much to “blame” as she believes and the article suggests. For reasons unexplained, Ms. King invested quite a lot of money on some post high school education that represents more than 2/3 of her total debt and does not appear to have helped her advance herself one iota. Saying that does not make me an opponent of education, merely overpriced ripoffs masquerading as upward mobility, which this appears to have been.

      What was this program, exactly? As far as I can tell, she was at least misled, perhaps exploited. What was the premise of her taking these courses? They do not appear to have been vocational (say training her to be a lab tech or a paralegal). And if she went to a community college for two years of general education, that was foolish. Kids who go to regular four year colleges still need to be mindful of their career choices. A community college is frankly a questionable investment, and I wonder about the motives of those who promote them as of benefit to people of modest means who lack the options (and resources) of the middle class.

      You also chose to completely misread my comments on her decision not to file for bankruptcy. I find it bizarre that she is not willing to go this route, but she appears to believe that filing for bankruptcy would be far more damaging than struggling to repay her debts. I assume she has valid reasons for making this decision, and it represents a trap, as I indicate, a modern analogue to debtors’ prison. Yet you somehow, remarkably and incorrectly, contend that I am applauding the fact that she believes, perhaps accurately, that filing for bankruptcy would represent a worse outcome for her.

      1. Abby

        Yves –

        Re: bankrupty question. Student loan debt cannot be discharged in bankruptcy under US bankruptcy laws (with certain very narrow exceptions such as total disability).

        Ms. King could discharge her $10,000 credit card debt, but cannot ever get rid of her $28,000 student loan debt. This non-dschargeability is the reason why so many lenders are happy to make student loans – the debtor carries them for life (unlike a mortgage where you can default and walk away).

    2. Dan Duncan


      Sorry for the all cap histrionics…but it’s a boring headline that, nevertheless, does need to be sensationalized.

      Let’s take the subset of low-income minorities as an example. [The following could just as easily be applied to the low income majority.]

      The way to prevent them from ever being taken advantage of again is very simple education…GET 3 GODDAMN GOOD FAITH ESTIMATES. Comparison shop. It is that simple. Go to 3 different mortgage lenders and compare. Magically…they will get a better interest rate and lower fees. Guaranteed.

      Why, haven’t the leaders in the minority communities hammered this simple, easy, fool-proof message home? Go in front of the churches, speak at the rallies and just say the following: “GET 3 GODDAMNED GOOD FAITH ESTIMATES FROM 3 DIFFERENT LENDERS!”

      But they won’t do it.

      And instead, we’re left with turgid, irrelevant discussions on whether an MBA is worth the cost…

      Education is not limited to college degrees.

      Educate lower-income people that they should never get a mortgage without going to 3 different lenders. Educate minorities that just because your loan officer shares your ethnic heritage, it does not mean they share your interest in getting the best deal possible. [And why haven’t these Urban Studies groups done a single study on not only the race of the borrower, but the race of the loan officer?? Talk to anybody in the mortgage industry and they’ll give an entirely new perspective on the prevalence of “Black on Black Crime”.]

      Democratization of credit….Krugman on education…MBAs and the “nexus between ‘education’ and scientific and technological advancement”….

      Yeah, these issues are of practical significance to low income borrowers. Very important.

      What a joke.


  4. Michael

    It seems we are talking past each other and not finding the common ground necessary. I stand by my interpretation of the WSJ article and your supporting comments. Good luck with the new book and your blog. Kind Regards, M

  5. Which is worse: bankers or terrorists


    I really love your blog. Perhaps off topic, but I question your statement “A community college is frankly a questionable investment”. Just getting the associates by itself, I would agree, but for many it is a very cost effective alternative to doing all 4 years at the state school of their choosing, which to me is a good argument to all of those who question the cost effectiveness of a 4-year degree.

    There’s lot of discussion surrounding the viability of a college education in the current economic environment. I’m a former California real estate development professional now relocated to Asia. One thing I see here, not necessarily in the short term but in the medium and long-term is the nearly desperate need for western management expertise. If only all the people investing in emerging market ETFs knew how inefficient things are over here. It is accurate from my desk to say that lower income jobs are being drained away from America to Asia, but there is all tremendous need for management expertise from upper-income Americans and Europeans, at least in my view. I’ve thought of it as perhaps the greatest geographic misallocation of labor in human history. If you can cause some of the high-growth emerging markets to have companies with greater efficiency and productivity, we accelerate the process of rebalancing the global economy as I see it. The problem to me is not Americans getting out of college and not being able to find a job, it is middle-income American professionals persisting in trying to work in the wrong place….they should be working in Asia. Trying to grow your career in places where there isn’t growth is nearly the definition of insanity.

    I don’t get the Amero-centric and western focused nature of some of these blogs. The sooner we recognize and embrace our position in a global economy, the sooner we make more moves to all of the imbalances and help America and western countries along.

    Thanks so much again for all of your hard work on this blog.

    1. KD

      “[T]hey should be working in Asia. Trying to grow your career in places where there isn’t growth is nearly the definition of insanity.”

      Being Japanese, I couldn’t agree more. Working in Japan these days looks like being accustomed to the hopelessness each day. From my point of view, US looks like a heaven on earth, irrespective of whether you think that US is crushed in the current crisis. Japan is much worse, indeed.

      By the way, I would put one caveat to your sentense. It should be “they should be working in Asia excluding Japan”. Remember, “excluding Japan” is very important to talk about rising Asia.

      Thank you for reading.

  6. Vinny G.

    There are several important topics covered by your posting and by the readers’ comments, but I think there needs to be some clarifications, and then I’ll add a few comments:

    1. I agree with you, Yves, that Ms. King was probably misled, and herded into signing up for her student loans. It is outrageously easy to get a student loan.

    2. Even if Ms. King did not reject the idea of bankruptcy, it would still not be a viable solution for her because student loans are not discharged by bankruptcy.

    3. Default is an option for her credit card debt, but again, it does not work for student loans. If somebody cannot pay his or her student loans, the bank allows for up to a maximum of 3 years of deferment, after which they collect from the government, and then the person owes Uncle Sam. By law, Uncle Sam can withhold such people’s tax refunds, federal pensions, and up to 25% of their social security payments. Unfortunately, death is the only option allowing non payment of student loans.

    4. Indeed, more and more employers are now checking credit as part of their employment screening, even for jobs where it is irrelevant. Credit scores are now used as a “measure of good character”. It is utterly absurd, abusive, and I am angered by this practice every time I hear about it.

    5. I believe that student loans are the next train wreck to happen, and I hope it happens quickly because it is destroying an entire generation of young people. As I stated here in the past, I also teach graduate students and doctors. Most of these young people worked very hard to get where they are, but they graduate with between $200,000 and $600,000 in student loans. Yes, that was six hundred thousand fiat dollars in debt! Some of them will earn enough to pay that back by the time they are in their 50s, however many will simply not be able to do so simply because they will not earn enough.

    6. To contrast this disastrous situation in the US, my wife went to dental school in Europe, where her entire education was state subsidized. She graduated with zero debt, started a practice a month after graduation, and became profitable immediately. In America anaverage dentist would never be able to do this.

    When I write about this topic I get really sickened with this country, and I wonder what the heck I am still doing here anymore. One of these days, I’ll get that one-way ticket to Greece, and never set foot here again. Heck, I think I can get used to living in a place without freeways and stray dogs in the streets…

    Vinny G.

  7. bob

    A friend of a friend recently went through a divorce. Long story short, the husband of the doomed marriage went out and paid off his student loans with a HELOC against the house that they had bought. The wife clearly did not know what was going on, and the ultimate motivation behind it.

    I was amazed at the cold calculating nature of this, he knew exactly what he was doing, the only reason he did it was to get rid of the student loans.

    How many other HELOCs were taken out to pay for student loans?

  8. craazyman

    Yo, Vinny G! I will be right behind you. Not sure if Greece is my place but at least they have the balls to riot and the wisdom to elect socialists. Ha ha. I don’t know where to go. Maybe the back woods in Maine, with a cabin and a few broken down pickup trucks in the yard and a library full of hardcover classics picked up at used book sales, where I can just dim the lights and fade away between fly fishing and camping trips, with my mind in the clouds. Whoa. Heaven.

    $26000 for a community college eduction — on loans. Holy ConMan! No bigger rip off in Amerikka than the Educational Industrial Complex — and I include even the Ivy League in that, too. Most of the white collar work force comes from the “better” schools, and once they sleep, fornicate and drink through their 4 years they’re ready to apply their ‘education’ to stuff that requires only the ability to read and write and shallowly think from time to time — none of which require anything remotely close to a college education. Probably 6th grade would do it.

    It’s funny. Most jobs don’t require much of anything. And if someone wants to learn something, the library is a great place to start. You only need a library card. Or the internet. And the whole world of thought is there, with the doors wide open.

    The big hoax. That college does anything at all outside some of the sciences and medical profession.

    The vast majority, vast majority, of jobs in the economy could be performed quite well by folks who learn on the job. And that includes nearly all of finance, too. I know whereof I speak because that’s my “field” too.

    As Gertrude Stein famously said of San Francisco, “There’s no there there”.

    But then, the great machine needs a vetting mechanism to thin the herd of scrubbed-faced kids to make HR’s job as easy as possible. College does that. But little else. Except its exctraction of an “employment tax” on anyone who wants a more than subsistence wage.

    1. Anonymous Jones

      Another great post, craazyman. I work in a well compensated field that requires post-graduate education, which I find absurd. There is no doubt in my mind I could teach anyone who cared to learn how to do what I do, as long as they were willing to work hard and be an apprentice for five years or so (the world is unfortunately complex).

      I myself loved the school experience, but to argue that someone *must* go through it to be productive seems inaccurate. In fact, most of my now-highly compensated classmates seemed to have graduated without any critical-thinking skills at all!

    2. Vinny G.

      Yo craazyman,

      I hear ya! I’m not sure about Greece either, because usually after a month of being there I’m ready to ditch the place. I mean, there’s nice weather, good food, friendly people (except when they had just too much Metaxa), but I can’t deal with tons and tons of trash in the street, stray dogs all over, dirt roads, and conversations that unavoidably gravitate toward how great it is to be Greek…LOL Mind you, most of those people who talk like that never left their village of origin, and I have to admit that people in larger cities tent to be a bit more worldly.

      But if this Global Warming thing would just speed up a bit so to turn Maine into a nice tropical area in, say, a year or two, I’d certainly trade that over Greece or any place in Europe. :)

      Vinny G.

  9. Fred

    hi. the thing that isnt clear is how someone spends 26K on a 2 yr degree from a community college? Either they spend 10 yrs getting a 2 yr degree or theyre being ripped off.
    Example where I live(Raleigh)..Wake Tech CC..you can attend in state full time(16 credit hrs) for $800/semester. Thats $3200 for a 2 yr degree(hopefully in something useful).

  10. But What do I Know?

    I hear you on the education thing, Yves. From my own (limited) personal experience, much money is being wasted on “education,” especially in the graduate degree arena. I know four people who have paid and worked to get MBA’s at night or on weekends and it hasn’t done any of them a bit of good–they are all still working the same jobs as before, with no prospect for advancement. Admittedly, a bachelor’s degree will improve your job prospects, but only because some many employers require it–not for any specific skills which a BS certifies, but because it is an easy screening tool.

    A lot of politicians and people in the education business constantly opine that we need to spend more money on education to “remain competitive.” In reality, most people learn their useful job skills on the job, not in college. I would challenge anyone in a technical field to tell me what they learned in college twenty years ago that is still relevant to their employment.

    If you are in the middle-class and want your children to stay there, you really have no choice but to pay through the nose for a four-year degree in the vague hopes that somehow your child can find employment when they get out. They’ve got you and they know it.

    1. RM

      What you’re seeing with the MBA is what I’ve seen with people who have earned a MS in Engineering. They go out and get their MSE and either stay in the same job or take a job for which their degree was inappropriate. The bachelors degree is the new high school diploma. An associates degree is pretty much two more years of high school but with higher costs and a fancier piece of paper to show for it.

      That said, I haven’t been an engineer yet for 20yrs. Only half that. I’m not yet sure of the cause, whether it’s the corporate culture or the educational institution, but there is a profound lack in understanding of engineering fundamentals. It is truly amazing. People would rather kick the can on to someone else rather than use the gray matter between their ears. It doesn’t take 4yrs of engineering school to be lazy and make uninformed decisions.

    2. Captain Teeb

      I accept your challenge. The field: computer science.
      The things I learned in the 80s that are still relevant:

      Unix operating-system internals
      How to build a compiler or interpreter
      Relational-database theory
      Turing machines
      Context-free grammars
      Finite-state machines
      How to run a complex programming project

      … and many more.

  11. edwardo

    Um, craazyman, your (self) education has failed you with respect to the observations of Gertrude Stein. The there of “There is no there there” fame was Oakland not San Francisco.

  12. DownSouth

    Paul Krugman jumped on the education express yesterday:


    “If you had to explain America’s economic success with one word, that word would be ‘education’,” Krugman tells us.

    It is obvious that Krugman is no student of history. For if he were he would know that America’s economic success was a combination of 1) a vast, virgin continent, rich with natural resources, comfortably isolated from Europe’s many troubles; and 2) scientific and technological advancement. Beginning in the latter 19th century I would add to these two the highly successful implementation of American neo-imperialism.

    It never seems to cross Krugman’s mind to ask what America would be like without the internal combustion engine, or the oil to run it.

    Now granted, there may be some nexus between “education” and scientific and technological advancement. But the interplay is far, far less than what Krugman would be willing to admit. “Education” is one of the many ruses used by those who do little to create wealth or prosperity to nevertheless claim a disproportionate share of it.

  13. danm

    Before the way to punish debtors was to send them to debtors prison. Now it appears to be to restrict their access to work. Perverse, but effective.
    Effective? In the grand scheme of things, wouldn’t it be more effective if she could actually work at a better job, pay it off faster and become a more productive part of society? She is now taking the job of someone else lower down the food chain.

    Interestingly it has always been about the the debtor when in fact in takes 2 to tango. The lender is just as faulty for actually lending without properly assessing the borrower’s ability to pay back.

    This debtor’s prison’s roots extend to the Magna Carta. Middle Ages philosophy that is. It shows you how much we’ve evolved!

  14. danm

    The whole system will implode.

    Something like 75% of the wealth is owned by 55+ and 2/3 of boomers probably have less than 200K in net worth. Most of this wealth is in real estate.

    The problem is that over the next decade a huge amount of boomers will need to take this money out of their homes. Reverse mortgage? Sell?

    Many will have to sell their 3000 square feet (which will be costly to maintain)overpriced homes to someone younger who a) has no money b) already overlevered.

    So either we get asset inflation or deflation. No matter what the outcome is, it will be taking aways from the 55+ and transfering it to the younger generation.

    Of course, the 55+ will fight like crazy to stop the transfer and that will surely contribute to a drop in productivity that will only help accelerate the process.

    1. danm

      I never said all boomers did it. What I am saying is that most boomers are retiring with mortgages. And 2/3 with les than 200K in net worth.

      You don’t go far with 200K, especially when most of it is in your house. Bricks aren’t very easy to eat.

      Historical data also shows that 40% of 50+ are forced into early retirement (health, layoff…)

      What I am saying is that enough of them did not plan their future accordingly and they will effect a huge shock on the system.

      Just wait and see.

  15. NS

    @danm: Not all of the boomers did this. In fact, there were practitioners of economics 101. Now what of them who are not indebted, saved more than the average bear but didn’t buy into the ‘investment’ schemes?

    If after uber discipline, living below ones means, OWNING property outright and continuing a modest lifestyle we aren’t able to survive, then what? If that wasn’t adequate and by savings I mean cash, plus over 20% into a traditional pension, plus another 20%+ into cash, plus SS equaling nearly 50% of earnings; just who can find shelter and be allowed to LIVE? eh? I think that will end badly if superhero attempts at securing ones future proves to be fodder for robbery and a path into poverty.

    1. danm

      Our survival depends on resources. One quick look at who owns resources and how we’ve been using them gives us a good indication of what lies ahead. And it ain’t pretty.

      Our system has blinded us to the fact we are animals amid unfairly distributed resources. Do you think mother nature cares about proper financial planning? Those are constructs of human society and go through shock every now and then.

      Too many people today think they have rights when in reality these could be taken away in a second. Just think of the soldiers sent to die at war or the deported Jews. Do you think it is a natural right to have a good retirement because you practiced financial conservatism. Life is a perpetual battle and I think the Western World has been sitting on its laurels for too long.

      Winners in the last few decades are those who understood it was time to take on debt. The ones who will survive in the future are the ones who know whether it is currently time to take on more debt, to save, run for the hills, join the army…

      Like someone said above, winning is all about adapting.

      1. danm

        I’m not sure what your definition of survive entails.

        In the true definition of the word, it does not take much to survive but in the definition of a North American, I think many will find themselves dead.

  16. Fresno dan

    I was very interested to learn that student loans cannot be discharged through bankruptcy.

    Does anyone know or have a reference to how many graduates of “diploma mills” go bankrupt? In comparison to a state run community college?
    As I don’t have access to the WSJ on weekends, is the 26K due to tuition, or due to living expenses, or did the article address this point?

  17. kevinearick

    The intelligent kids could care less about credit reports,
    job certifications, or national id cards; those are tools
    of inert capital (non-performing assets subject to
    recycling). If capital doesn’t wake up soon, it will not
    wake up. The kids never fell for the patriotic nonsense
    contrived by multi-nationals to contain populations.

    Capital must employ talent if it wishes to retire
    comfortably. Talent, natural selection, is the future.
    Capital has no choice but to chase talent.

    The current implementation employs computers, so you want
    to be smarter than a computer, which isn’t hard. Computers
    have no tolerance for unexpected input, and profit depends
    entirely on the abilty to adapt.

    the kids are wired differently:

    The human mind comes with a default timeline memory
    system. It’s incredibly efficient, but increasingly
    ineffective. Throw it out. If you have done any memory
    programming, draw a little diagram for a simple retrieval
    and you’ll see why.

    Replace it with a pointer system, pointing to, instead of
    storing facts, which are relevant. This removes the
    artificial filter against new information, increases
    capacity for analysis, and pulls analysis closer to the
    root for increased power.

    Over time these pointers to pointers will naturally align
    with the algorithm of History. It becomes a matching
    program, like DNA. You can confirm, set aside for
    additional investigation, or invalidate. Each period of
    History changes its clothing, and fragments, but they are
    essentially similar. The universe is a recursive program.

    increasing pressure, decreasing volume.

    we call that a …. bomb.

    watch tax receipts.

    credit epansion was never democratic. it’s about feeding
    the cattle in preparation for slaughter.

    1. malingerer

      I loved this line.. “credit expansion was never democratic. it’s about feeding the cattle in preparation for slaughter…” unite the proletariat brother.. unfortunately, for you, the time for revolution has passed..

      1. kevinearick

        and yes, I am merely a spectator to the show,
        watching through the looking glass, from the
        comfort of my rocking chair.

        winter warlock

      2. winterwarlock

        you have seen me before.

        maybe you will recognize this:

        All constitutions are an agreement between the
        old families and the new families. The old families
        provide the capital, and the new families provide
        the talent, so long as the old families operate
        within the limit of their specifically alloted scope –
        capital allocation.

        Talent, natural selection, is a function of evolutionary
        pressure, which is why nearly all of it resides with
        with new family formation. Durable new family
        formation results in durable durable goods orders,
        which results in durable jobs, which results in
        maximum economic NPV relative to alternative
        economies, always made available in the
        environment. Basic evolution

        The general equation for the old families is
        E = I + C + G + friction. The equation for new
        family formation is (I – C) / G. New families may
        elect to eliminate C & G at will. The old families

        The old families exceeded their scope of authority
        provided under the US Constitution by establishing
        Family Law, abridging two safeties, the all rights
        reserved clause and the establishment of religion
        clause. Those clauses were specifically drafted
        to protect the majority from creating the blackhole
        you now see before you.

        They did an end around through the States, violating
        the supremecy clause, then then tied it back together
        in a defacto national policy of criminal prosecution,
        violating your liberty rights to occupation, identity,
        and, most importantly, your right to vote with your
        feet, established under common law, which is why
        Arpanet was developed into the Internet, as a
        temporary bridge across Nation / States that
        adopted similar best business practices.

        Believing in God is beside the point. Religion and
        the scientific method (Al Gore & Obama – Nobel?),
        which the old families removed from public education,
        are like a pair of glasses, providing triangulation. A
        portfolio of religions (& atheism) extends system

        That was the US Constitution. The Affies know their
        fulcrums. They are cavedwellers themselves. They
        also know basic physics, which we have replaced
        with economic priests.

        see you next time, next place.

  18. gsinbe

    As another commenter pointed out, the $28,000 is far more than any CC tuition expenses. The student loan industry (private and for profit) will happily overaward any student applying for a loan, which the student can then use for whatever they want.

    If you’re going to bash higher education for being overpriced for its intrinsic worth, I’d suggest you chose another target than community colleges – remarkably affordable, and one of the few places where a practical, technical education is still offered in the US.

  19. rbm411

    Community college in New Jersey is about 6K per year. Was she on the 4 year plan to get a two year degree?

  20. Benny Lava

    I’m surprised no one pointed this out yet, but you CAN NOT discharge student loan debt through bankruptcy! Student loan debt is forever. There is no way for her to discharge the 26k of debt other than to work hard and live in penury. What good is bankruptcy if it can only discharge 27% of your debt?

  21. Benny Lava

    Also, for those scratching their heads about the size of the student loan debt, remember that tuition is only a portion of the debt. Room and board is most likely a large chunk, unless you can be a student and live in a homeless shelter figure at student ghetto prices at the very least 14,400 for rent and ramen noodles for two years. An honest accounting shows that 26k in student loan debt for a worthless 2 year associate is on the conservative side.

    I’d be curious to learn what her major was.

    1. Benny Lava

      I’m sorry Wayne, but did you not read a thing written? 26k is not only reasonable, it is lowball.

      Why is 26k of debt the only thing fools here are debating? Isn’t the more salient point the fact of a college graduate unable to find work in her field? Why aren’t you discussing this?

      1. van

        The most important question should be: what is her field? What is her “degree” in? Is there a market or demand for what it is that she wanted to do?

        We always hear about how college students can’t find work; well, what is the degree in- finger painting?!

  22. Wayne Martin

    Most states subsidize community colleges quite heavily. Costs typically range from $15-$75 per-credit-hour. So, how can anyone spend the kind of money this person claims at a community college? The article should have looked into this claim a little more than it did.

  23. kena

    Why are we arguing these points at all. It’s far to expensive (if not impossible) to depend on natural consequences to discipline borrowers.

  24. MG

    Couple of points:

    1. Yves can mention moving to Greece all he wants but I guarantee that he would be like any other person who has money in Greece and send their kids abroad to the US/Britain for secondary education. This is a good reason for this because Greece’s university are generally horrendous. I was visiting a friend this summer who is working on a dig outside of Athens and was kind amazed at his descriptions of how pathetic the available resources/personnel were for his Greek university counterparts.

    2. Amazed at how glib some of the commentary has been on community colleges. Community colleges and state-based public universities were an essential avenue of providing much-needed educational access to certain classes of Americans who were not allowed/could not afford them through the early 20th century and contiuniung into today.

    If the US is going to successfully integrate is newest immigrants (which is mainly Latinos) and allow them to successfully migrate up the economic food chain, community colleges are going to play a vital and critical role in this.

    3. $26k figure likely was abused to some degree as the financial institution allowed the individual to take out larger amount of loans they needed. Some of this falls on the individual for making some poor choices and some of this falls on the predatory institutions that target certain individuals/socioeconomic groups with half-truths and plenty of nondisclosures.

    4. State-run university which are public have done a very poor job of affordability and it isn’t a simple answer. Some of it is greater expectation of the college experience, rampant and out-of-control building by universities, poor allocation of resources, greater availability of federal and private loans to keep up with cost increases, and a real falloff in state support which literally is 1/2 of what (if not less) than it was in the 1960s. Some university presidents have spoken up about this but it generally has gotten sort shift.

    Everybody yells and screams here about what is affecting the “middle class” but the reality is what really has hurt Americans the past 10-15 years has been two things:

    – Healthcare inflation and education inflation

    Most Americans are paying 2x out of pocket of what they did several years ago even adjusted for overall inflation for healthcare expenses and employers (especially smaller employers) have absorbed even greater costs. As for the individual market, good luck with that. If you have a preexisting medical condition or are over 55, you aren’t to find someone who will underwrite you coverage.

    Education inflation has been nearly as bad and even the cost of a state-run university have skyrocketed. Private universities have skyrocketed too but I have less of an issue with that. If an individual chooses to go to a private university, they should aware of the costs but the reality is that a bunch of people are even being squeezed out of the reality of affording a 4-year state-run university.

    1. Vinny G.


      I was joking about moving to Greece. It wasn’t Yves who said that. Again, I was joking about it. Indeed, education is good in the US, especially at state universities and many private schools. And, indeed, many Greeks send their kids to get educated in the US, UK, or Eastern Europe because education in Greece is, as you say, a joke.

      I was never disputing the fact that American education is very good. I too was educated in the US and had to work very hard.

      However, please also see my comment here about online American education which is a joke and a scam to defraud the government.

      Vinny G.

  25. Vinny G.

    Many here have wondered how could a community college education cost $26,000. Again, since I am also a professor, I am very familiar with how the system works, so please let me explain this: the amount of money a student borrows during a given academic year is not by any means limited to tuition costs. There are usually very generous upper limits (around $15,000 a year, plus another $12,000+ if somebody is in a graduate program, and another $14,000+ a year if the program is health-care related). And these are just the “Stanford” type loans that are guaranteed by the federal government. If somebody wants even more than that, then they get a private loan, which before this crisis were not very hard to get (I’m not sure how that is now, but I know the guaranteed loans are just as easy to get). Therefore, Ms. King could have easily borrowed at least $30,000 while in community college for 2 years.

    But once again, I want to repeat a very important fact. Student loans (those that are government guaranteed) are not dischargeable in bankruptcy. The bank will recoup its money one way or another either from the individual or the government, but the debtor, whether unemployed or not will be liable to pay them back for the rest of his or her life. In my opinion, student loans are one of the most vicious forms of enslavement of our young people.

    Another point I want to make here is that education has been heavily deregulated across the world by a move that was initiated by the WTO about 18 years ago, when education was reframed as a service-type activity no different from, say an auto repair shop. This drastically lowered the standards, and led to massive privatization of education across the world. This led to truly horrific situations, such as licensed physicians who entered the workforce after having obtained their medical degrees from “accredited” medical and dental schools that did not require their students to be present in class during lectures, and did not require much hands-on clinical training. This still happens today in Eastern Europe. I know of doctors in Poland, Romania, and other EU nations who have attended such schools and who are legally allowed to perform things like surgery, however who have no clue about human anatomy. It is scary!

    Right now there is a major phenomena occurring in the US that deals with online education. Many small but established schools, some of which were quality Catholic or private institutions have recently been bought by investors who now use these schools’ names in order to run online undergraduate, masters, and even doctorate programs. Anybody who qualifies for a student loan will be admitted. A year ago I taught a few classes at such an institution, and it was made clear to me that the name of the game is “retention”. I “taught” anatomy and physiology and biochemistry courses, which normally are extremely difficult courses, however in the online environment the course had nothing to do with the subject at hand. The entire course is prepackaged by the school, all tests are open book and usually can be retaken many times, and the professor is not allowed to change anything. My job did not involve any teaching per se, rather I just had to answer a few student messaged in the discussion threads where students had to “discuss” things such as “discuss two benefits and one drawback of stem cell research”.

    What was most shocking to me during my online teaching experience was the unbelievably high level of semi-illiteracy of at least half of my students. I am talking about at least 5 spelling and grammar errors in a sentence fragment and at least 20 such errors in a run-on sentence. Oftentimes I simply graded their grammar and little else.

    During the past year in particular, I have noticed that many otherwise rich and respectable universities have jumped on the bandwagon. Harvard, Northwestern, Loyola, and many others are doing this. And believe me, their online standards are not much higher than what I described above. The lure of profits was just too great to resist.

    So, these will be the MBAs of tomorrow (and today). Some will become educators themselves. Some may very well be the nurse that has to decide whether your doctor’s order is gravely mistaken. Be careful, my friends!…

    And, all this is financed by student loans guaranteed by this stupid government of ours. What else can I say?…

    Vinny G.

  26. ComparedToWhat?

    Vinny G, your last post was an eye-opener. I was involved for years in adult education overseas where it was well understood by all that it was mostly entertainment…

    Yves and others concerned with how the bottom half deals with money could do worse than check this from The Economist, published last December.

    “I SUPPOSE I could be described as financially literate. I have a doctorate in economics; my dissertation focused on financial decision-making. I write about economics and finance, and I’ve worked in the financial industry, designing investment strategies. But, when I look at the balance of my brokerage account (those low-fee global-equity index funds do not seem like such a good idea at the moment) or my credit card statement (peppered with frivolous impulse purchases), I question my financial savvy.

    “Nonetheless, I have volunteered to provide financial-literacy training to young mothers at a local homeless shelter.”

    The money talks: an economist descends into the trenches.

  27. Frank Fitton

    Mistakes were made by both sides in the lending game, but the credit card companies side was much more insulated and able to survive their mistakes. People that weren’t making that much money, and had relied on credit now find themselves saddled with debt and without the money to pay for it.

    Credit card companies gave people that couldn’t budget the rope, and naturally they hanged themselves with it.The situation was just one that set people up for disaster. The bottom had to fall out on this thing at some point, it was just inevitable. It’s going to be a slow climb back out of this whole, but eventually I believe it will happen. The only thing we can hope is that people learn from these mistakes and try and pass on the lessons to their children. Our financial climate has changed, and right now what were seeing is a transitory period. It’s not an enjoyable thing to have to go through, but I have hope that a stronger, more secure culture based on a strong foundation will one day emerge.

    Check out my blog on the end of our credit card democracy at… http://www.thedebtgazette.com/2009/10/credit-card-democracy/

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