As mentioned yesterday, the president's delving into finance, and especially loans such as home mortgages, hit a hot button with me because I've spent most of my own career in commercial lending. Specifically, the financing and leasing of equipment.
During that time, one of the key things I learned was that most people, even quite sophisticated one's, know very little about how money really works, especially when it comes to borrowing. And the reason has nothing to do with their intellectual acumen, knowledge, or education. It's simply that most folks, even those operating sizable businesses, aren't involved in financial transactions very often at all.
Most folks, regardless of their financial condition, and except for the extremely wealthy don't purchase houses too often, thus they have no real need to be expert in the details of mortgages. Even the vast majority of businesses don't make real estate or large equipment acquisitions frequently either. So, as a result, most people have no real base of borrowing knowledge at all.
That's why a great deal of time is invested by those who sell financial services in educating prospective clients, simply to bring them up to speed on what the various alternatives currently are, and the pro's and con's of each. And what the best, and most reliable, lenders all have in common is that while they're aware of the fact that most borrowers need assistance in decision making due to lack of knowledge, they don't use that unawareness to try to take advantage, but honestly try to help.
Now, don't get me wrong. I'm not saying that the best lenders ride on white horses and deserve pedestals in the Honesty Hall of Fame. I'm simply noting they're smart enough to know that satisfied customers tend to pay their bills, come back again in the future and recommend others, and the one's not quite so pleased tend to call their lawyers or the cops.
So, what the preceding sets up is my thought for today. Because in step two of the president's plan for bailing out deadbeats is letting students who took out loans in supposedly good faith to get off the hook.
First, he'll accelerate a measure passed by Congress reducing the maximum repayment on student loans from 15 percent of discretionary income annually to 10 percent. Additionally, the remaining debt would be forgiven after 20 years, instead of 25. About 1.6 million borrowers could be affected.
Secondly, borrowers having loans from both the Family Education Loan Program and a direct loan from the government can now consolidate them into one loan, lowering interest rates to half a percentage point less. This could affect 5.8 million more borrowers.
The White House said the changes will carry no additional costs to taxpayers (which is impossible.)
Education Secretary Arne Duncan told reporters on a conference call that the changes could save some borrowers hundreds of dollars a month. "These are real savings that will help these graduates get started in their careers and help them make ends meet."
However, in all the governmental rhetoric, I didn't see any reference to the integrity of the original loans that the borrowers entered or the loss of income to the lenders. Yet it seems to me the borrowers happily took the money, found out they can't get jobs and now don't want to honor their obligations to pay it back.
So, what does the government do? The president sets a new precedent saying it's alright to whine and cry about your financial mistakes and occupational ineptitude, because Uncle Sam will get you off the hook. And all it costs you is your credit rating, your integrity, and of course a vote for the guy who bought it.
That's it for today folks.
Adios
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