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(photo: dionhinchcliffe/flickr)
One of the main reasons that the housing bubble grew unchecked is that major media outlets like the Washington Post refused to present the views of those trying to call attention to the unprecedented run-up in house prices and the disaster that would inevitably follow its collapse. Instead the Washington Post was obsessed with reporting on the budget deficit, following the lead of billionaire investment banker Peter Peterson and his dependents, even though the deficits at the time were very modest by any reasonable measure.
The Washington Post refuses to allow its catastrophic failure in its non-coverage of the housing bubble affect its reporting in the least. It continues to obsess on the budget deficit, relying almost exclusively for sources on “experts” who were unable to recognize the $8 trillion housing bubble.
It also continues to view the beneficiaries of Peter Peterson’s largesse as valuable sources. Today it ran a piece from the Peter Peterson funded Fiscal Times warning about the “debt bomb” from student loan debt. (The Post did not identify Peter Peterson as the funding source for the Fiscal Times.)
The piece manages to get just about everything wrong. To start with, the piece did not even get the rate of student debt accumulation right. It told readers:
“The amount of student borrowing skyrocketed from $100 billion in 2010 to $867 billion last year.”
The data show that student debt was around $800 billion in 2010. It was already near $200 billion in 2000. The incredible rate of debt accumulation described in this sentence should have raised eyebrows among editors at the Fiscal Times and Washington Post, if they have any.
Perhaps more importantly, the basic premise of the piece is absurd on its face. The third paragraph has a quote from William Brewer, the head of the National Association of Bankruptcy Attorneys:
” ‘This could very well be the next debt bomb for the U.S. economy’ — something akin to the housing mortgage loan crisis that triggered the U.S. financial crisis.”
This is an absurd statement and any serious reporter should have been able to recognize that fact instantly. At the peak of the housing bubble in 2006, the residential housing market in the United States was worth more than $22 trillion. It has since lost close to $8 trillion in real wealth, which is the basis of the current downturn.
As the article explained, the student loan market is now valued at $867 billion, less than 1/25th the size of the housing market at its bubble peak. Furthermore, all of it will not default and the defaults that do occur will be spread over many years. How is this supposed to have the same impact as the collapse of the housing bubble?
None of this should be taken as minimizing the plight of recent college graduates who face a serious debt burden in an economy offering few jobs and even fewer good paying jobs. However, it makes no sense to compare this situation to the housing bubble; there is no relationship.
This is like comparing every atrocity to the Holocaust. There are many horrible atrocities that have occurred in the last sixty five years but few, if any, can rightly be compared to the Holocaust and it is foolish to do so. The advocates for students should make their case in a more honest manner and competent reporters should know better than to fall for this sort of hyperbolic nonsense.
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Economist Dean Baker is co-founder of Center for Economic Policy and Research and writes regularly on CEPR’s Beat the Press blog, where this post first appeared.
22 Comments
Pete Peterson effectively owns the Washington Post and Obama.
Fixed it for ya.
peterson & the post notwithstanding, we do have a growing student loan “problem” (dean can own the term “bubble” to describe housing); all the growth in the growing consumer credit numbers can be attributed to student debt, as i explain in my most recent post
Thanks, Dean. It’s good to have this stuff put into perspective.
Shouldn’t the discussion be about why college students have to take out large burdensome amounts of loans, in a country that professes to value education so highly?
True – the power of the student loan industry was shown in the 2005 change to our bankruptcy laws that ended the ability to get out from under student loans via bankruptcy.
We have a private college industry – colleges that should not exist but do because they provide a good income for the owners – that depends on student loans to those that will never be able to pay them back. A sick sick situation that sells itself by saying the rich and corporate are not selling out America by sending jobs overseas, the rich and corporate are just waiting for the population to get more educated at your local private college. And Obama sells the “get educated” solution for the jobs problem.
Obama is loyal to his corporate/rich masters.
That same could be said of housing defaults not occuring all at once but over many years, which this feature of the housing bubble having been discussed on FDL previously along with the amount of shadow inventory being spread over time also being discussed on FDL by frontpages. Also I’m not seeing what you quoted from the article in them saying the impact would be the “same impact.”
The student loan market is actually extremely similar to the housing market as both have operated with CDOs where student loans have been packaged together and then sold on Wall Street. And the student loan CDO market collapsed concurrent with the mortgage CDO market.
I do expect student loan debt to be an ongoing drag on the economy as students have been suckered into worthless training based on fraudulent advertising, which this fraud has even extended to top universities. I don’t think lots of young people going BK because they can’t find a job with their worthless training is exactly good for the economy. Actually the one thing I’ve given Obama credit for – and I’ve been a huge critic of Obama’s – is how he’s expressly gone after private educational schools and their funding due to all the abuse that has happened there.
The main reason college costs are out of control is that Senior Administrators are multiplying like bunnies & in many places, e.g. Cal, outnumber faculty.
Good luck on ever seeing that story in the WaPo – although, come to think of it, maybe it could be sold to them as a pro-Kaplan slant.
OT: Sorry, but the Catholic Church so rarely gives anyone a reason to praise anything that their leadership does:
Rev. Marcel Guarnizo Suspended: Priest Who Denied Communion To Lesbian Barbara Johnson, Withdrawn For ‘Intimidating Behavior’
As papau pointed out above. The main difference between the housing bubble and student loan bubble is a homeowner can declare bankruptcy and walk away from their home loan. Not so with government backed student loans.
Cancel your subscriptions to the washington post if you feel their coverage of political and economic issues is nonsense that makes your families future more difficult
Progressives will eventually “come around” to the Idea that all student loan debt be transferred to the books at the Federal Bank Systemic, and done with the corresponding financial adjustments, in keeping with the notional that if “personhood” is ascribed to financial institutions, students are indeed part and parcel to today’s “personhood.”
Jaango
Is that the same Pete Peterson I saw on Bravo – a rich high school kid that goes to clubs and wears clothes I’ll never afford?
If the FT adn WaPo have any editors, of the editors have eyebrow?
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However you slice it the ballooning of student debt is bad. It is bad for housing as its hard to get a mortgage when you have a big student loan.
But the real problem is the unconstrained year over year increases in the cost of a college education. This problem is exacerbated by the availability of easy credit.
Here is my suggestion.
1. Make student loans dischargable in bankruptcy, say after ten years.
2. Require any college that accepts student loan money to cosign the loan.
Colleges would have incentive to keep costs down and to turn out graduates with marketable skills.
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Damn, left it too long for edit. S/b “If the FT and WaPo have any editors, or if the editors have eyebrows?” — but you knew that.
People!! In a civilized society, all education should be free to PhD level. That is how you ‘grow’ betterness (for rightwingers, that includes GDP).
As a businessperson, I just don’t understand how cutting back on infrastructure (roads, education, airports, oh, education) is supposed to make the economy better. I suspect they don’t either, in which case I call *BULLSHIT*.
First, blaming this mess on Obama is sick. The system was rolling full speed and with every legal convenience before he was elected Senator from Illinois.
Second, college students from the 1960s and 1970s didn’t get hit with student loan debt. We lived under a sensible tax structure. Similar to what happens if Obama succeeds ending both the Bush tax cuts and the break given to capital gains income under Clinton.
D’oh.
Student loans in the 50′s and 60′s were by the university endowment with help from the Federal Gov – repayment was by a chosen plan that you chose – over “10″ or “15″ years with no payment for the first 24 months. The schedule was interest only at 3% (some schools as high as 5%) with payment adding principal repayment and growing each year to pay all off by the end, or as a flat annual payment that was level each year.
Students graduated with debt equal to two years salary at a max normally.
It was not that different from today – except if you really got into trouble the GW Bush you can not do bankruptcy 2005 law was not held over your head – and except the new private schools see no problem putting you into debt for 4 years income, and the Medical schools see no problem with loans of $200,000 to $300,000 because the rising cost of medicine meant your rising fees can carry that amount as if it was a loan for 2 years income.
Obama has no intention of doing any such thing… not without somehow enabling further empowerment of the <1% in return.
It's most likely that Obama will substitute his usual set of carefully-crafted policies that sound better but are substantially the same or worse.
After all, that’s worked well for him so far…
In 1976 tuition at a good private school was $3000. Now it’s $40,000. Back then, you could work your way through college without debt.
The basic problem is just that college costs too much, mostly due to administrative bloat & the proliferation of Ass. Deans.
People who do not have jobs with good compensation cannot pay off mortgages, nor can they pay off student loans running $50K-$100K. Especially if they have graduate degrees.
Have these student loans totaling $867 billion been rebundled into derivatives packages and sold to investors worldwide, like sub-prime mortgages were rebundled into fraud-rated derivatives packages and sold to investors?
The WSJ and Pete Petersen just launched a preemptive defense, but of whom? Since the “cook the books by crooks” numbers in the article are trying to deflect attention (and accountability) away from the previous GW Bush years, heaping blame on President Obama, we’re seeing another right-wing orchestrated smear campaign against our current president, but also one meant to hide what occurred during the eight years of Bush.
So, I go back to my original question. Did Wall Street gamblers pull a stunt with student loans during the Bush years like they did with home mortgage loans? And was this even possible regarding student loans during the Bush years?