Best columns: Business
Why we still need Wall Street
William Cohan Los Angeles Times
“If we want to actually fix what’s wrong with Wall Street, we will need to stop mindlessly villainizing it,” said William Cohan. Modern finance has many flaws, but “our way of life would not be remotely possible” without it. Wall Street is the reason air travel is affordable, the internet is ubiquitous, and millions of credit card owners have access to credit—because Wall Street “provides capital at a fair price to people who want it.” Yet it “has become shorthand for everything that is wrong with the American economic system.” Of course, major financial firms earned much of their terrible reputation through their role in the financial crisis. Reckless bankers and traders collected huge bonuses to package shoddy mortgages that they should have known would never be paid back. But “they did so because that’s exactly what they got paid to do.” Fixing that problem “requires a scalpel, not a sledgehammer.” If President Trump is smart, he’ll demand that Wall Street change its compensation system “to reward prudent risk-taking and accountability,” and in exchange, he will scrap regulations that make it harder to do business. That way, Wall Street can continue to play its “essential role while also penalizing bankers, traders, and executives if they dare to blow things up again.”
The coming student loan debt bomb
Rana Foroohar Financial Times
Student loan debt is starting to look a lot like the housing bubble, said Rana Foroohar. “Rapid runups in debt are the single biggest predictor of market trouble,” and student loan debt has grown by 170 percent over the past 10 years—to an incredible $1.4 trillion. The average college graduate now carries about $34,000 in debt, a burden that has been linked to everything from decreased homeownership to marital problems and depression. Making matters worse, many students holding debt don’t even graduate, meaning they miss out on the income boost provided by a college degree. What can be done? We should start by looking at for-profit colleges, “where default rates are more than double those” at private schools. Increased transparency would also help. Only a quarter of first-year college students can predict their debt load within 10 percent of the correct future amount. We can’t ignore this problem forever. “In an eerie echo of the housing crisis, debt is already flowing out of the private sector, and into the public,” with 90 percent of new loans originating with the Department of Education. Apparently, “socialization of risk” is how America deals with its debt bubbles now, as with the infamous bank bailouts. Perhaps if we made college free we could at least socialize the benefits of education as well.