It seems my Subprime Student Slaves article really struck a nerve! Nearly 250 of you subscribers wrote in to me in response to that one. Thank you.
As I said, I'm going to compile your comments, stories, and ideas in my letter to Congress and the President.
And since I think what you had to say really adds to the discussion, I want to start off today's Q&A session by sharing some of those with everyone.
Q: The obvious solution for the debt enslavement part is to change the law to allow discharge in bankruptcy. Let the racketeers eat the loss. ~ Tom S.
A: Thankfully, there is a movement towards allowing the discharge of student loans in bankruptcy. A
nd that's going to help. The fact that this hasn't been allowed before is a testament to the power of the moneylenders in America.
Q: It all starts in the home. There is way too much coddling going on out there with kids these days (strictly my opinion). They are graduating with no clue on how to get along out there in this big old world. No work ethic, no sense of responsibility when parents give them everything they want or desire. When does anyone have to "earn" what they get anymore? ~ Gomer
A: Gomer, I'm guessing you're talking about the U.S. for the most part. And if you are, I agree. However, in most other parts of the world, an education is a coveted, appreciated, and manifested endeavor, which l think you may be saying, that starts with parents instilling personal responsibility and ambition in their children.
Q: Sounds like an entitlement guru talking. We are talking LOANS here. Inherent in the concept of a loan is that it must be paid back. Do you understand that students are provided a contract when they borrow money for school? Perhaps if they did their due diligence about a field they seek employment in and READ the student loan contract prior to spending the money, they may understand these loans are not free money, cannot be forgiven, and the degree pursued may not result in employment. What ever happened to the notion of personal responsibility? ~ M.P.
A: M.P., you're not wrong. But there are other forces exerting outside influence on the inner intentions of a lot of "students" susceptible to being sold a bill of goods. Sometimes we're stupid for being conned, and sometimes the con is just so cleverly concealed.
Q: There is this misconception that college is for everyone. Truth is, not everyone has the capacity or desire to work through a college degree... Trade school at a community college would be more appropriate and more than adequate to meet the higher education needs of many college students, with the added benefit of leading to reasonable paying jobs. ~ Don (a tenured professor with 23 years in the system)
A: Don, thank you for lending your credibility as an educator to this discussion and for stating what a lot of your peers would likely not have the guts or honesty to say.
Q: The situation is worse than you depict. I have recently found out that when getting a loan, the lenders do not ask the cost of the educational program. The loan amount is often more than the students need, and as a result, they spend it on things they do not really require while getting educated (fancy accommodations, cell phones, etc., etc.). ~ Gordon
A: You're right. Lenders want to give out the money and don't care how it's spent, as long as they can force borrowers to pay them back. Sickening!
Q: Unless a kid is in a hard science or engineering school, I think the government should not give out any loans. Subsidize in areas that we need more people and the hard sciences are in dire straits trying to find qualified employees is difficult at best. ~ Sean B.
A: Sean, I like your idea. We should work on it because it makes sense and addresses a lot of the issues with too much liberal arts education funding. Not that there's anything wrong with liberal arts at all; it's just that today's world demands different, more "mechanical," if you will, skill sets.
Q: The education "problem" started years ago when the goal of education was shifted from improving the mind and learning for its own sake, to a philosophy of income enrichment. A degree was equated with more money and a financially improved life style. Schooling became synonymous with career advancement - real learning went out the window to be substituted by an "investment" in the future. Courses were "dumbed down" new "bird" courses sprouted up - anything to keep enrollment figures higher and higher - students became not scholars but numbers, and the educational empire expanded, like the housing market - where everyone was "entitled" to a college education much the same as everyone was "entitled" to a home with granite counter tops. And in both cases, the dreams turned into financial nightmares. ~ Jim
A: Jim, wow, that's hitting the nail on the head. Superbly said, sir.
Next, some interesting ideas and questions about what's happening in Europe.
Q: I expect the Greeks, and maybe the Irish to get fed up with austerity measures and choose to just outright default. I have no idea about the political fallout, and don't really care. It is up to the folks who live in Europe to work that out. But I expect European stocks to drop like rocks. At that time I am prepared to scoop up some of the better ones for pennies on the dollar. ~ Perry
A: Welcome to the club, Perry. I'll be picking up the penny stocks right next to you.
Q: Throughout Europe (including the UK) politicians are losing credibility with the electorate. Watch the Greek, French, and next year German election results, and you will see just how ephemeral and weak the current leadership is in all cases. When the first country leaves the euro, there will be massive financial chaos at ordinary consumer/citizen level as well as a breakdown in law and order in many places, particularly the big city ghettoes... I should welcome any other suggestions for coping with the forthcoming mess. ~ Charles V.
A: Charles, you echo my darkest fears. The people of Europe are only going to take so much. I'm afraid of a long, hot summer that breeds resentment and riots. Spain's unemployment is 25%. But worse, youth unemployment is 50%. The other "peripheral" Euro-zone countries aren't as bad, but they're pretty bad.
I can't help but think about that old Lovin' Spoonful song, "Summer in the City:" "All around people are looking half dead, staring out the windows, hotter than a match head." Heaven help us if that match ignites the dried up hopes of the unemployed masses.
Q: "Money for nothing and chicks for free." Currency can't be printed with abandon without consequences. To believe otherwise is to have faith in... well... central bankers. Regardless, if printing money could create thousands of productive companies developing wealth-producing technologies like Apple, we'd already be colonizing Mars and mining asteroids. ~ Phil S.
A: "Ah that ain't working, that's the way they do it..." Phil, have you heard the intro to this Dire Straits song? A lot of folks don't know, but it's Sting. Oh, and I agree with your point.
Q: Shah, can you see any kind of solution to the problems within the Eurozone Creditsystem? I am afraid by June we will have the break down. ~ Heidi
A: No, I can't see a solution at this time. And, that's what's got the hair on the back of my neck standing straight up.
Now for some other really good questions and comments...
Q [Re: Here's Why Earnings Season Can't Reflect Reality]: Seemed like a couple of years ago many companies were blamed for painting a too rosy financial picture and then disappointing investors when the numbers were reviewed. Some analysts were also blamed for interpreting a rosier outlook then should have been expected. Now the opposite is the case? ~ Mike B.
A: Yes, now the opposite has been exposed as another form of manipulation.
Q: Each day as I watch the markets move thinly higher I ask what is it that I am missing? ~
Dubious
A: GREAT question. What's interesting to me is that as volatility increases on big down days, volume picks up considerably. Part of this is a function of volatility-based algorithmic (computerized) trading. I've noticed as volatility spikes and spreads widen across different instruments, the machines start stepping in, more and more. That's working now. But as these algos are "learning" that this is working and they're making money, they may be setting themselves up for the next Black Swan, fat tail event that they are "un-learning" themselves is still out there.
Volume on up days is less, besides the fact that there's very, very little "public" investing and participation, because the algos, the way they're written to value time-in-trade when there's less volatility, narrow spreads and at the same time thin out what's being bid for and offered. Volume metrics aren't what they used to be.
Q: It is my thought (maybe even my prayer) that $200 a barrel oil this summer is going to shock and shake America (as it has not been shocked or shaken before). And I fervently pray ( though I am not religious) that this turn of events will be so upsetting as to force Americans to go back to what they were born of (and have done more effectively than any other nation before or since). That is, an innate ability of realization, recognition, innovation and creation of new workable ways of getting down to business (and getting on down the road) when it's time to. ~ Philip H.
A: That's harsh medicine, Philip, and you are probably right. But that would inflict a lot of pain on a lot of people doing their best and struggling. Hopefully, there's an easier way to wake up America. Maybe we can start by putting most of our imbecile, blathering, lying, pimping, and pandering politicians to sleep.
Q: A question. Given the known practice and technique used in hammering the price of silver, how do we know that the like manipulation is not happening to certain stocks? Sudden rises and/or falls can be interpreted this way by suspicious minds that have been burnt in the past. ~ Benton M.
A: There is manipulation going on. In fact, there are so many different ways stocks and other tradable instruments can, and often are being manipulated, it would make most investors sick. What's dangerous for all of us is that manipulation is becoming part of the fabric of the markets. Mind you, I'm not saying it happens all the time, just that it happens.
Q [Re: The Markets Are About to Tell You Something]: Shah: if the markets go south, and inflation enters, what happens to commodities, and metals? ~ John S.
A: If the markets go south, in a steep swoon, commodities and metals will take a hard hit and inflation will give way to deflation. Don't forget, all the stimulus around the world was aimed at preventing deflation. Commodities and metals (basically the same asset class, with gold being the exception... sometimes) are fast-buck trading vehicles, especially with the advent of ETFs, so if there's a market plunge, all boats that investors have piled into will spring leaks. Inflation will be a problem once the world gets back on its collective feet. Then commodities will rise, and they will be the best investment vehicles around, for a long time. But that's going to take a lot of global growth, which is coming, just not yet.
Q: I too think disaster is brewing... Things are really not much better than 2008 except now I have a job after not having one for over two years. But I also make 50% less than I did in 2008 and the cost of living certainly isn't 50% less. Something has to give. ~ Corvette D.
A: Dear Vette, I'm glad you've gotten a job. I can only imagine how tough it's been. Not that getting paid half of what you're used to is a gift in any way. I believe you're right, something has to give. And, I think it will. I'm just afraid that it's going to get worse before it finally starts getting better. Keep hanging in there. You're a hero to me.
Q: Possibly shale gas could be enough to bring back manufacturing [and] help our balance of payments, due to less oil importing. But can it evolve fast enough to save us? We and Europe had better hope so. ~ Joanne R.
A: Yes, Joanne, it can happen. Sadly, I doubt it will. There's too much money in the old oil business, and it will take time for the oil majors to "capitalize" their existing investment in exploration, wells, pipelines, storage, etc., to see natural gas rise to where it is our go-to fuel.
Q: Only in recent times I am noticing your tilt towards a non-existent "free market" and against any extra-market intervention (howsoever imperfect it may be) in the workings of the imperfect markets. If governments and monetary authority intervene, there is a purpose beyond swindling and cheating. When a company like Goldman Sachs manipulates the market (financial or energy) the whole and sole purpose is swindling... I am hoping to see more sanity from you instead of pandering to the already mythological "free market." ~ Viswa G.
A: Viswa, please allow me to clarify my thoughts on free markets and regulation.
I'm for free markets with regulation. There's no such thing as one without the other, unless we're living in theory... but I just pinched myself, so I think I am, therefore... I get into heated debates with "theorists" who ridicule me for advocating free markets and regulation. They say I don't get real free markets if I am calling for regulation of them... How can they be free, I'm asked. To me, free means the least amount of "friction" with that friction being prudent, concise, and transparent regulatory oversight.
Q: Please continue your "Tell it the way it is, people" articles. I think it is what people already know but can't believe it until it is in black and white. You, my friend, get a trophy for your game face alone! ~ T.
A: I'm laughing, thank you. I get really angry at what I see sometimes, and I'm very fortunate to not care who hates me because I say what I say. And believe me, there are folks out there that hate me.
Q: Did you admit you were wrong last year about shorting bonds? ~ Ray
A: No, I didn't admit it. But I'll admit it now. Thankfully we didn't put on any big positions, but as usual, wanted to "leg" further into a hopefully profitable position. When it went against us by a digestible percent, we got out and stayed on the sidelines. However, the bond market has been almost as volatile as stocks in the past few quarters. There's a lot of money to be made in the bond market. We will focus more on that and I will throw out some trading ideas to you. I'm not always right. But I'm less wrong.
Q: I have a follow-up question concerning the housing market.If someone has a long investing horizon, say 5+ years, would it be prudent to invest now in real estate, whether directly or in related equities, or is there still significant downside risk?~ Dominick S.
A: Dominick, I think we have more to go before we bottom out in housing. But we're getting close, and a turn can happen any time. I just don't expect it to be a reversal. There will be a pop, but not a rocket ride. Taking positions now on housing and adding to them on dips isn't going to hurt you if you have a long horizon and can carry the positions.
Q: What happened to the real issues in America? Elect Romney and you will see a repeat of Bush but with even more incompetence and more extreme measures because that's the direction the Right has taken. The Left isn't much better, bending over and leaning toward the Right asking for permission to live. Democracy is in serious trouble. What do you think we can do?I'd really like to know.I feel paralyzed with fear and loathing. ~ Beverly J.
A: Super good question. You and I - and the rest of America - will be addressing the real issues wherever and whenever we can. It's just going to be hard to get our self-serving politicians to do the same. But, with your help, we'll reach out to as many of them as we can, and whack them with our furled-up flags.
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You Asked, He Answered: Shah Gilani on China, Ben Bernanke, the Fed and Much More... - Money Morning:
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.
Thanks for your letter on the student loan problem. It is and always has been the plan of some of the big banks to use the same loan-debt-enslavement to not only trap people but also companies and whole countries. They have the whole world enslaved and addicted to their so called 'money', they can't break the trance and end up giving resources and sovereignty over to them.
It's interesting to note how Gaddafi was one person who had a gold standard and was encouraging other African nations not to fall for the trap… and we see what happened to him. World wide propaganda smear, fake humanitarian civilian protection and destruction, even to the people the banker backed Nato said they were trying to protect
The picture, "The International" addresses the loan-debt-enslavement scenario you refer to above. You should see it.
Well, I am getting in on the back end of the comment questions regarding student loans. I am a Viet Nam veteran, when I returned home and attended school I was spite on and received no mercy from professors, never expected any. Even though I had the GI Bill, Wasn't much, I also had a family of four. I worked nights attended school days. One semester took 24 units, very hard. But I worked and earned my way and was successful in all of my endeavors. if a student chooses not to repay a loan, I have a sister like that, pull the degree, and see how the bleeding hearts feel. I agree with the one gentleman; it is a contract and shame on us if we are so stupid not to read it or get help understanding it. By-the-way my sister also filed bankruptcy after college graduation. Hmmm, she was a Business Major. I guess they never discussed credit cards…it should only be used like a check book unless it is being used as a very short bridge loan for property not a new car, OMG.
How ethical is the government-backed Student Loan business?
If you ever due to whatever reason cannot pay your monthly dues, you can request for a LOAN FORBEARANCE.
What it REALLY means, is the aggregate of the monthly payments that you cannot fulfill, will be be ADDED to your principal loan balance. It is NOT that you just add some monthly payments to your total number of months of payments.
Example:
Principal balance of $45,000 at the time you lost your job in 2008,
Number of month you could not pay: 9
Monthly Payment for Principal and Interest: $500
Total amount of Forbearance: 9 x $500 = $4,500
New Principal: 45,000 + $4,500 = $49,500
Now the contract stipulates that you pay Interest on $49,500 and you pay 9 months longer.
It would be OK, if you would pay 9 months longer. But WHY 9 months longer on a NEW and much HIGHER principal amount. THAT IS USURY in potency!
Our banksters pressed these loan laws through that make this usury legal and GOVERNMENT-BACKED!
Is there anybody who is convinced that the average congressman has the understanding what he did to the student, citizen or student parent?
Is there anybody who is convinced that the average senator is aware how much he screwed the loan taker?
Surely the lenders know and knew!
Why did the big banks get money under the motto "too big to fail" while the student loan debtor is subject to notorious usury?
7% interest over 10 years time, double the principal.
Is it not time that for those who could not pay their government-backed student loans (PLUS, etc) off within the last 10 or more years, that the government will FORGIVE the outstanding loan balance?
Aggregate Interest paid is under these conditions is in most cases equal or more than the original Principal balance!
Shah, calculate an example with rounded figures on a 15-year Student Loan of $50,000 and make your case with the government! Down with government-backed USURY!
More power to you, Shah!
Get President Obama or the new President to sign it and you will be the hero!
I graduated college in 1964 and guess what, I did it on no loans and worked my way through college. What a strange concept today. I wonder how people got college degrees before you had big brother dishing out enslavement money? If kids have to work to earn something they will apprecicate it more and value it. Taking dole money that which is neither earned or worked for is not valued or appreciated. But hey, don't you guys get it, this is what the Government is all about, getting people enslaved, controlled and marginalized.
The financial crash that is being engineered by those in power know exactly what they are doing to set the stage for their global government with them at the helm. That is what is happening and their incremental plans are in high gear as so many are waking up to their goals.
I noted that one of the responders mentioned that the young people of today are to pariphrase "lazy". That is not exactly what was said but in the long run that is what was meant. I was going to leave this alone but the more I think about it the angrier I get. Much of this generation has issues, but if you are going to blame it on some one, look to the parenting and not just in coddling. Many of the younger people I have met had no real guidance as teens. Once the parents thought they were old enough, they went out and got a life. Leaving the kids to "figure it out ont their own." Add to that the fact that I have worked with a very diverse group of people ages for 18 to 72. I have met as many lazy 56 year old people in my job as 18. Age is not the only thing that seems to make some people believe the world owes them something.
We do ourselves no good by judging on bases of age, race or sex. One more thing before you criticize another person, you should have to know them.
Student loan forgivness by bankruptcy, HOW DOES THIS TEACH PERSONAL RESPONSIBILITY????
I am a senior attorney, always looking for associates to hire. We have to search hard for new recuits with a work ethic, but they're out there. The associates from middle class and lower, less privileged families remain the best bets for us. They work hard, have their parent's work ethic, they graduated from college wanting to be an attorney, they're grateful to have a job and they're paying their loans as best they can. Entrance requirements need to be tightened up – there's a glut of law school graduates, so we're able to hire on the cheap. There is a huge number of graduates who went to law school because they didn't know what else to do, have NO passion for the law and are easily weeded out in the interview process. (Perhaps this explains the statistic that an estimated 85% of all lawyers are dissatisfied with their profession at any given point. I love being an attorney.) For those with the heart for the law, a graduated repayment plan coupled with a required a savings plan that caps in 20 years would hold out some hope for building a retirement while their loans are being paid commensuate with their income. As it stands now, loans are paid when the attorney turns 50, maybe. That's a tough 15 years within which to build your retirement.
University/College Expense Control:
Excerpted from a letter to the President of San Diego State University…
2. Every student should have an "education contract" with the university. Each student would have a contract for a stated degree (and/or certificate), over specified time periods at guaranteed cost.
Adjustments for time required for completion are provided with built in cost "caps", refunds, and penalties, for all parties.
3. Each student should be able to immediately enter their "major" field of study with their 1st undertaken class. Perhaps students could then complete their major study in two or three years, instead of the customary four to five years currently required. This would mean reduced cost per student for their degree and, with a quicker turnover of students, more students could be serviced by the system.
A huge win for students, and the faculty would remain fully employed. Of course, this means so-called general education prep and discretionary courses would have to be addressed in a new fashion.
4. The current Bookstore, study-material availability process, needs to be blown up. It is outrageous what the University, professors, and publishers have colluded in, with regards to course material provision.
Course materials are grossly over-priced, sometimes updated with a mere new paragraph or so-called "study CD" to qualify as "new", to capture inflated pricing for old material – disguised as new. And with the same updating-scam for used study material, this group effectively destroys a fair and reasonable re-sale market. This sham of a scam is crying out for a "class-action" lawsuit.
5. The University should co-join every field of study with sponsoring employers, contractually bound to hire students for a period of time following the students' graduation and/or pay them during the study process.
Regarding student education loan – and declaring bankruptcy for not being able to service the loan,
one does risk a black pointr on the criminal record register, doesn't one? And in which case, excludes from the possibility of obtaining a job!! What is your take?
Your screen makes it difficult to reply. I repeat-why has college costs doubled that of CPI? I have 2 sons who teach and their salary is poor. One teaches in private school (Goldman
schs) and they want to slash salary because they know labor market is so bad. I am retired (81 years old) and have seen it all. Myopini0on we need more unions. Wage disparity is still getting worse. I guess I am still idealist. I feel sorry for college kids-their future is not sunny.
Your writers seem to wander.
PS my grand children will go college and face uncertain or worse future. From 1948-1952 my public university was FREE.
I do not understand your comment about moderation.
I may have pressed SUBMIT twice.I regret error.
Moderation? If my health permitted I would occupy WALL ST. They are on right track by raising issues.My heart, not bank account, is with the 99%.
student loans are granted without adequate risk assessment. In a society with a moral compass that points somewhere other than hell, it is the lender's responsibility to know the risk of the loan, and to bear the losses of bad loans. Student loans are treated as social legislation up front, but on the back-end, it's worse than business as usual, because the holders of student loans receive privileges no where else to be found in consumer credit. as you pointed out, slaves to student debt. This situation foretells the end of our democracy and prosperity just as surely as the FDIC guaranteeing hedge funds with derivatives.