Sunday, May 13, 2012

The Fat Can Eat No Lean - or - Too Much Pain to Pass Up

Housing prices, we'd agree, got way ahead of themselves in the mid '00s. The problem, we 'should' agree, was easy money - i.e., an over-abundance of capital and an under-abundance of prudence on the part of consumers, lenders and policymakers. Easy mortgages made big-shot bidders out of little-shot consumers, leading to fat housing prices, fat realtors and fat cat bankers.

I read a way overdone article this morning in the Times on the plight of the college student. The stats on student indebtedness are staggering. But you know the story. And, when you stop and think about it, you know the problem; it's very much like housing. Politicians promised a post-secondary education in every pot. The floodgates opened - easy cash galore! Jobless students levered up against the promises of a college degree. The result; fat colleges, and fat staff living on fat salaries. Once again; easy money.

Here's how this one plays out as the bubble bursts:

1. The job market stiffens, students feel stooged.
2. Subsidies wane, tuition spikes (the fat can eat no lean).
(1 and 2 represent the current state of affairs, 3+ is where it's headed).
3. Lending gets lean.
4. Kids (parents) get stingy.
5. Colleges compete.
6. Staff gets skinny.
7. Tuition peaks.
8. Things start making sense.

At least that's what should play out, if government steps out of the way. On second thought, scratch all that. There's too much pain (opportunity) for politicians to pass up. We should therefore expect:

1. Same as above.
2. " " "
3. Hard working taxpayer gets saddled with Sally Student's debt.
4. Ugh... stay tuned.

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