Juggling Dynamite

Lowering the interest rates and capping the maximum payments as a portion of income is the easy part of alleviating a paralyzing student loan burden. Getting bloated schools to restructure and deflate their fees to more affordable pricing (now that student debt has hit toxic levels) will be the harder but necessary part of the puzzle.

The $1.2 trillion student loan problem is easy to fix if Congress has the will to do it, Sen. Elizabeth Warren, D-Mass., told CNBC Tuesday…

For-profit colleges are covering 10 percent of all students, “sucking down” 25 percent of student loans and are responsible for about 48 percent of all student loan defaults, she said. And it’s the taxpayers and students on the hook for those loans—not the college.

“We need to align the incentives so that colleges have an incentive to keep down their costs … to graduate students on time with degrees in areas where they’re going to be able to get jobs and going to be able to pay back those loans,” Warren said. Here is a direct video link.

More on the math of schools acting like taxpayer subsidized hedge funds…Here is a direct video link.

We know that a number of class action law suits have been launched in the wake of the revelations in “Flash Boys”. Now this just in…

“High-frequency trading will face high-profile scrutiny next week when exchanges, brokerages and institutional investors come before a Senate panel looking for evidence of conflicts of interest in U.S. stock markets.

The Permanent Subcommittee on Investigation, led by Senator Carl Levin, is holding a June 17 hearing to examine the impact of conflicts on consumer confidence, he said in a statement yesterday. The panel will focus on how brokers balance the obligation to give customers best execution against services they provide for other brokers and trading venues, according to the statement.” See: High Speed Trading to be examined by Levin next week.

Faith in financial alchemy the past 15 years has convinced the masses that investment risk can solve all their financial needs. The suggestion is that one can afford all the lifestyle items as well as fund kids’ education and a comfortable, long retirement, all at the same time. The truth is that most cannot. For 99.9% of the population, conscious choices must be made to control lifestyle spending and set reasonable guidelines around what one can afford for living expenses and to aid children and grandchildren.

This segment talks about some of the key issues impacting individuals and financial plans. Ironically the main speaker is from Bank of America, Merrill Lynch who like most broker/dealers, makes their highest fees by allocating savings to the highest risk financial products. After highlighting some of the key challenges well, he is then quick to suggest that his firm can provide portfolios and strategies that will not require the client to chose savings over present consumption…which is false.

Here is a direct video link.

The answers lie in conscious prioritization and controlled spending as well as limiting the risk that savings is exposed to once it is amassed. The fact is that once we have savings, we have more downside than upside in risk markets. “It takes money to lose money” is not a slogan widely advertised, and yet useful risk management must start there. As discussed in this article, worse-case financial outcomes are actually fairly common in today’s highly levered, over-valued, low yield, heavily marketed financial markets.