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Commentary on The Capital Markets- Category [Education]

Sit down, shut up, and take responsibility for your life as the adult you are.

There.  I said it right up front.

To whom?

Sharon Gochenour.

Who is that?  The crazy chick who wrote this diatribe:

The first thing—the reason I'm writing this article, and the reason I find it almost impossible to write this article—is that I went to the Massachusetts Institute of Technology for my bachelor's, starting in September 2006 and graduating with a degree in "Art and Design" (that means architecture) in June 2010. I usually tell people who ask that I went to school in Boston. This, besides being a factual inaccuracy, adroitly captures my ambivalence about the whole experience.

Oy.  First, Sharon is upset because MIT is, well, competitive.  Guess what darling?  So is the real world.  If you don't like that then you have options.  You can flip hamburgers or spin pizzas.  You can mop floors.  You can do all sorts of things.

But what you can't do is expect world-class opportunities to be dumped in your ****ing lap because the world is not your oyster!  It is, like it or not, filled with other people who are kinda interested in eating the same lunch you want to gobble down.

Now you can take the scraps or the caviar.  But to get the caviar you might have to whack other people over the head -- or stomp on their heads.  Did your parents not tell you this?  Go bitch at them if not.

Incidentally, it's perfectly fine for you to say "No!" to all of that.

But then you don't go to MIT!

Yes, I am bitter.

I am bitter that forty-eight hours of class and study per week was the official minimum expected of us, and that sixty hours of coursework was totally unremarkable.

I am bitter that when I had personal crises -- I got dumped by my freshman-year boyfriend, my family's home and business were flooded, I felt abandoned and directionless in my major -- I had so little energy left for coping that my life slipped out of control.

What the hell do you think is going to happen in the real world?

Let's say you go get a job tomorrow drawing, well, how about buildings?  You know, what you went to study?  Yes, architecture.  Let's also say you're really good at it.

You get hired to draw a building.  A very expensive building that costs millions of dollars.  It has a schedule to be built and the guys and dolls who put that together start selling the space in it.  Space that doesn't exist yet, because, well, you have to design it so they can build it.

You know, that job you have?  Yes.  You are under quite a bit of pressure to perform, yes?

Now, something bad happens.  Your Dad dies.  That's something that happens. All people die. Your father will eventually die.  Mine recently did.  It sucked.  I'm not going to tell you it didn't, because it did.  It will suck when your father dies too, if you have any sort of relationship with him at all.

There are lots of other bad things that happen to people too.  You might get married (real good, right) but then your spouse might decide to file for divorce.  They might make your divorce into a nearly 2 year hell complete with all sorts of false claims you have to defend yourself against, never mind the crazy amount of money you will spend in the process.

That's just an example, by the way.  There are dozens of others, all of them hypothetical but all of them very real risks.  We all face them every day; that's part of life.  It's not all roses darling; there are lots of thorns along the way!

If you think that studying 60 hours a week was hard, wait until something like that happens and you have to discharge your duties at a job at the same time you're dealing with a very personal and serious issue that is consuming your mind (and possibly your wallet as well!)  

Oh, and if you don't deal with it and get fired?  Now you've got more and very-pressing issues to deal with that go far beyond psychological pressure -- like buying food, shelter and the other necessities of life!

That's real life.  That's how it works.  And yeah, it sucks real bad but this is commonly called "adulthood" and whether you like it or not it's part and parcel of being an adult.

Indeed, this is arguably the defining difference between childhood and adulthood.  When you're a child these challenges are someone else's to deal with, at least the really big ones.  Sure, you still have to handle the emotional issues but you have others who are responsible for making sure the water bill is paid so you can take a shower -- and a crap, never mind having heat in the building (or a place to sleep!)  With adulthood comes the responsibility to manage these things on your own even when life really, really sucks.

What I want to see is an educational environment where there is not so much pressure, both subtle and not-so-subtle, to cut yourself loose from your support networks to go to a school like MIT. I want for students to respect their own needs for sleep, good food, and social interaction, instead of seeing those as some sort of "concession" to their weaker human natures.

Moreover -- though this would require change in the entire American system -- a strong educational environment needs to be free of the overhanging shadow of debt. Debt forces people into untenable and unproductive situations, like taking seventy hours of coursework rather than registering for another semester, or dropping activities they love rather than risking their grades over a scholarship.

Well, you got one thing right -- get the damn debt monster out of education.  You know how you do that?  You get the government out of it.  You stop treating student loans as "special" and instead treat them as unsecured credit cards as they were before the 1980s and beyond.  

Now lenders won't loan you crazy amounts of money because if you blow up they lose it instead of being able to hound you for it.

I suspect you had a basic economics class at MIT.  If you did you probably heard of this thing called "supply and demand."  It works everywhere it's allowed to.  We destroyed it in the 1970s and 80s by creating the ability to borrow money to go to school through various vehicles, all of them backed in some form by government force.  This of course created a lot of people who showed up waving money at colleges and they responded by ratcheting up the price.

Like every financialized thing we ever do the colleges and lenders got together and figured out how to take all but one dime of the value of their education out of your ass right up front.  This is why your "education" was so damned expensive and why, on balance, it's usually not worth it if you have to go for more than four years -- and often even if you can manage to get out on the original plan!

HOWEVER, YOU ARE RESPONSIBLE FOR THIS BECAUSE YOU CONSENTED AND WERE PART OF EVERYONE WHO ALSO CONSENTED.  IN OTHER WORDS, WITHOUT YOU AND THE THOUSANDS OF OTHER YOUNG ADULTS AT MIT WHO ALSO CONSENTED IT COULD NOT HAVE HAPPENED IN THE FIRST PLACE.

YOU MAY HAVE BEEN HOODWINKED INTO CONSENTING BUT YOU WERE AN ADULT WHEN YOU WENT AND YOU WERE WILLING TO LISTEN TO THE PIE IN THE SKY RAINBOW-CHASING BULL**** SPEWED BY THOSE WHO YOU LISTENED TO AND SOLD YOU ON THAT PATH BEING A GOOD IDEA.

Well, guess what?  It was rainbow-chasing bull****!

Now I understand being bitter that you were deceived.  But you should be bitter at the college, at your High School which probably pimped this path to you in exactly that fashion emotionally if not financially and you probably ought to be really*****ed at your parents who probably did the same because their first and foremost job as parents is to give you the tools, emotionally and otherwise, to be able to deal with life (including detecting and calling "BS" on those who run this sort of exploitive crap) as an adult.

Students (even very smart ones!) are people, not tools needing to be ground into their proper shapes. They need to be encouraged and allowed to grow. 

You're an adult, Sharon.

Yes, you were hoodwinked.  I'll give you that without seeing your evidence, because I'm damn near sure it's true.  I've been writing about this very point for years; indeed, it's part and parcel of the book you can find advertised to the right of this article.

But there are two options available to you when this sort of realization visits you as an adult.  

One is constructive and one is destructive.

The destructive (to yourself) choice is to bitch, whine, and blame other people, while putting forward vague claims that others have a "duty" to "encourage and allow you to grow."  That's self-destructive because you are refusing to recognize the part of the scheme that you willingly participated in and, in addition, you're not altering your behavior and evaluation of others -- which played a major part in how this happened to you.

The constructive choice (for yourself and others) is to make damn sure the people responsible are held to account to the extent you were lied to or misled, take responsibility for the part of it that was your unrealistic expectations and the chasing of claims that you should have known with even a basic understanding of mathematics were impossible to achieve and do your level best to change things so those who follow you cannot be similarly hoodwinked as you were.

Your choice Sharon.

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What's "conservative" about indentured servitude?

WASHINGTON (Reuters) - U.S. Republican Senator Marco Rubio, a possible 2016 White House contender, unveiled legislation on Wednesday to broaden the use of financial vehicles known as "income share agreements" that students can use to fund their higher education costs.

Under the agreements, which are marketed as an alternative to traditional student loans, private investors or organizations provide students with financing for their education costs in exchange for a percentage of their future earnings.

In other words rather than address the reason that college credit hours have gone up 600% faster in cost than the minimum wage has risen, taking college from something you could buy with a minimum-wage job in the summer to something you can't, what Rubio wants to do is add more and more ways for you to destroy your financial future.

This is "conservative"?

Like hell.

The entire reason we have such a problem with college costs in the first place is that the government made "free money" the order of the day.  By grossly-expanding the ability to borrow beyond Stafford loan limits and Pell Grants (which by themselves had ratcheted up costs!) the spiral was on.

The free market -- or if you prefer conservative -- solution is to remove the special privileges that these loans "enjoy."  Specifically, return them to the same status as any other unsecured debt -- like a credit card.

Now lenders have a reason to prospectively monitor students and only extend credit that makes sense on a semester-by-semester basis.  If the terms are too onerous then the students can default and declare bankruptcy.  There is a natural check and balance here -- students will have little reason to do that provided the amount of money borrowed and terms of payment are rational, as the impact of a bankruptcy on one's life is quite material.

By the same token if the amount borrowed is outrageous and the compensation available after doing so small, the incentive to declare bankruptcy and (legally) avoid the debt is quite large in relationship to the harm done by undertaking this course of action.

The original push to make bankruptcy unavailable came from the outrageous amount of debt that was taken on by some medical students, who (quite-rationally) decided that the harm done by a bankruptcy was small in comparison to the economic advantage of doing so.  The answer to this "problem", rather than allowing the market to work (which would have dramatically cut the cost of said education as support for that outrageous level of cost would have disappeared) was to make doing that illegal.

Note that corporations evaluate this decision path every single day, and many do indeed strategically default -- or threaten to do so in order to secure better terms.  This is good, not bad, as it keeps the balance between that which one can borrow and that which one demands for a given good or service.  

If either party tries to exploit the other then the bankruptcy court provides the answer; you avoid the debt, but your assets are taken and liquidated, such as they are.  This prevents lenders from letting you borrow money for which there is no rational means of repayment, because the risk of that happening lies with them.

That's how it should be and indeed that risk is exactly why borrowing money costs something (known as "interest"); in part you are paying a fee against the possibility that you will not be able to (or choose to) pay and the lender will suffer a loss.

Markets only work when they're allowed to.  When we pass special laws allowing certain people to evade the market's discipline on bad behavior then we got more bad behavior.

In this case what we've done over the last 30 years is destroy any resemblance of decency and honesty when it comes to college financing and cost.

Rubio's plan is in fact not half-baked -- it's actively malicious.

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2014-04-07 08:32 by Karl Denninger
in Education , 203 references
 

Gee, you just figured this out?

For decades, it's probably the most troublesome question facing education: Why are results for U.S. public school students so mediocre, despite the billions of taxpayer dollars spent? 

Andrew Coulson thinks he's got the answer: Because there is no discernible correlation between spending and outcomes. 

No, really?

But then the really dumb comes:

"That is remarkably unusual," Coulson wrote in his study. "In virtually every other field, productivity has risen over this period thanks to the adoption of countless technological advances - advances that, in many cases, would seem ideally suited to facilitating learning. And yet, surrounded by this torrent of progress, education has remained anchored to the riverbed, watching the rest of the world rush past it." 

Why is this "remarkably unusual"?

There has never been any evidence that spending more money, especially when it comes to technology, correlates with educational outcomes.  Ever.

Indeed, what correlates with educational outcome is consequences for failure.  This should not be a surprise; failure is a shockingly-effectively motivational tool, even though it has uneven application.  That is, some people who fail will give up.  But others are motivated to try harder or repetitively, until they succeed.

What damages outcomes is rewarding failure, whether it is "social promotion" or handing more and more money to schools that fail to educate students.

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There's an interesting article in The Atlantic that contains a graph you should pay attention to:

This is the number of hours you must work at minimum wage to pay for a credit hour at Michigan State University.

In 1979 it was about 10.  Now it's about 60.

Note that a "full load" is generally considered over 12 credit hours per semester; let's take the minimum (you usually need 120 hours to graduate, so this would be a "five year" plan); this means you would need to work 120 hours (or about 10 hours a week) to pay for school while in school.  That can be done along with the academic load.  It also can be done during the summer. Note too that tuition is nowhere near the entire cost; the usual "all in" price is about double tuition expense, so you would need to work 20 hours a week to cover it.  Again, that's doable -- two 8 hour shifts on the weekend and an hour four nights a week, and you're good.

Today, at six times that cost, it cannot.

The conclusion, however, is backward:

Is it any surprise that so many students today are suckered into taking out non-dischargeable loans, in growing chunks, to pay for their bachelor's degrees?

Wrong answer.

The reason the price went up 600% is the availability of those loans.

That is, it was the financialization of education that made this possible, because it is through financialization that entities sit down and figure out exactly how much they can extract from others in a transaction, causing the price to rise right to that limit.  At the same time they lobby vigorously for "ever-easier-appearing" (but more-onerous in fact) terms that increasingly transfer the fruits of the result of whatever has been financialized from the buyer to the seller through that increased price!

The result of this paradigm and the unholy alliance between banks, Wall Street, Washington DC and the colleges themselves is that the marginal utility of college degrees for many, perhaps even the majority of students, is now negative.

Remember that the school, the lender, Wall Street and Washington DC do not care about individual outcomes.  They could give a damn about whether college is a good deal for you.

That is what happens when anything becomes financialized; the only metric that matters is the aggregate outcome for the financial chef; that is, his goal is to strip all but one penny of the benefit on average from the participants and keep it. 

The closer he gets to that goal the more money he makes.  He does not care about your outcome, only that in aggregate the pool of "buyers" keep just enough that the next group will come in the door.

In other words so long as they can point to a few rocket scientists that make $100,000 a year right out of school that you can only make $30,000 and leave school with $150,000 in non-dischargeable debt,  thereby virtually guaranteeing financial hardship if not outright bankruptcy, does not matter to them at all!

The colleges are not only aware of this they are willing participants in that they have their own finance offices that will help you arrange for your own fiscal destruction and, if they (or you) can talk your parents into it, theirs as well.

This must be stopped -- but until the financialization of education is reversed it won't be.  Until that day comes the best you can do is to take a long, hard look at the numbers and figure out how to get the education you want without taking any debt at all.  If that cannot be done given your specific set of circumstances then in most cases what you're proposing to do is objectively a bad deal.

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It was just a matter of time...

In a ruling that could revolutionize college athletics, a federal agency ruled Wednesday that college football players at Northwestern University can unionize.

The decision by a regional director of the National Labor Relations Board means it agrees football players at the Big Ten school qualify as employees under federal law and therefore can create the nation's first college athlete's union..

When colleges turned athletics into an economic decision rather than a sportsmanship one, and that has been going on for a very long time, they asked for this.

And now, they got it.  Good, long and hard.

The problem for many schools is going to be that only a small percentage have actual positive earnings from their sports programs -- and then only from a few of them, like football.  In the rest of the circumstances the students wind up subsidizing the rest as those programs are a money sink in two ways -- first for the program itself and then again in subsidizing the "educations" of the players.

No matter -- this game-playing by the colleges has finally been recognized as what it is -- exploitation of athletic prowess for monetary purposes.

Whether you win in that exploitation is not material; not all businesses make money and many of them in fact fail.  You still had employees whether you succeed or not as you intended to succeed.

Northwestern of course "strongly disagrees", but the balance sheets say something else -- both there and at the other NCAA schools.

I can't get irked about this; the schools brought it on themselves and deserve it.  If they don't like it then they can spend their time and money teaching engineering, differential equations and chemistry instead of basket weaving and how to run a play fake.

I've never understood what football or any other sport has to do with learning a trade and becoming educated, still don't, and still find it incredibly offensive that those who do not participate in the school's pet sport programs are expected to subsidize in some form or fashion the ridiculous opulence that is found in these athletic departments, whether it be in stadiums and arenas or so-called "scholarships."

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