We Call This Capitalism

If anyone out there can make any sense of this article and the circumstances surrounding it, I sure would be happy to hear from you. It’s about the student loan industry and it seems to me like it’s a gigantic Madoff in the making. 

Here is a taste of it from the NY Times:

The newest initiative was announced late last fall when there was great concern about the ability of college students and their families to get continued financing for education. The most likely size of the program, detailed in the Federal Register on Jan. 15, was $25 billion.

But in a contract signed just four days later, on the last day of the Bush administration, the Education Department effectively agreed to buy up to $60 billion in loans, $35 billion more than the figure published in the Federal Register. That is almost enough to purchase all the federal loans made to students last year.

The government already pays a subsidy to banks and others making what are called federally guaranteed student loans. It also covers nearly all the losses if a student defaults on such a loan. In the current economic crisis, it is buying the loans, thereby providing the banks with capital for new lending. That has caused critics to say they wonder whether a middleman is really needed in this business.

“What has happened is, we set up a system in which we ensure liquidity by allowing them to dump their paper on us,” said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers. If lenders rely on the government for money to make more loans, he continued, “What is the purpose of the loan industry?”

It goes on and on and becomes more obtuse with each paragraph. It’s late and perhaps the synapses aren’t firing but all I can conjure out of it is a sense that someone is getting rich again at my expense.

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