Friday, May 2, 2014

Abstract and Bibliography


Abstract:

The privatization of certain industries in the attempt to make them more “efficient” and “profitable” for the public often creates a situation where the profit yielded from such shift in market capital provides gains for only the power elite; ultimately at the expense of the public interest. The sustainability of the ongoing privatization of higher public education in America is skeptical. With such educational institutions stuck in the cyclical cycle of trying to cope with the long-term tuition bubble that privatization has created for them, colleges are essentially stuck in a “zero-sum” game while student loan institutions like Sallie Mae profit immensely at the exploitation of such situation. Ultimately, privatization seems to yield only positive gains for a select few while conversely affecting the public negatively.



Bibliography:

American Student Assistance Organization. Life Delayed: The Impact of Student Debt on the Daily Lives of Young Americans. Rep. N.p.: ASA, 2012. Print. <http://www.asa.org/pdfs/corporate/life-delayed.pdf>

Bortolotti, Bernardo, and Valentina Milella. Privatization in Western Europe. Publication.  
Milan: U of Turin and Fondazione Eni Enrico Mattei, 2006. Print.

Collinge, Alan Michael. The Student Loan Scam. Beacon Press 2009. Print.

Loonin, Deanne. The Sallie Mae Saga: A Government-Created, Student Debt Fueled Profit Machine. Publication. National Consumer Law Center, Jan. 2014. Web. 1 Feb. 2014. <http://www.studentloanborrowerassistance.org/wp-content/uploads/File/report-sallie-mae-saga.pdf>.

Lydall, Kathrine C., and Kathleen R. Sell. "The De Facto Privatization of American Public Higher Education." (Jan./Feb. 2006): 6-13.

Meister, Bob. "Debt and Taxes: Can the Financial Industry Save Public Universities?"
Representations 16.1 (Fall 2011): 128-155. Online. 5 Jan. 2014.

Melchionda, Arthur Jr. "Interview of a Mortgage Broker." Personal interview. 10 Apr. 2014.

Nasiripour, Shahien. "Sallie Mae Reduces Disclosure Of Controversial Funding Source."The Huffington Post. TheHuffingtonPost.com, 05 Nov. 2013. Web. 06 Mar. 2014. <http://www.huffingtonpost.com/2013/11/05/sallie-mae-elizabeth-warren_n_4218834.html>.

Renda, Staci Anne. "Interview of College Loan Debtor." E-mail interview. 12 Apr. 2014.

SLM CORPORATION (formerly USA Education, Inc.) (Exact Name of Registrant as Specified in Its Charter). Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Form 10-K to the United States Securities and Exchange Commission. Delaware: Sallie Mae, 2003. Print. Web. <https://www.salliemae.com/assets/about/investors/shareholder/annual-reports/200310K.pdf>

Stiglitz, Joseph E. “The 1 Percent’s Problem”. Vanity Fair (May 31, 2012) Print and web. 5 Jan. 2014.

Tomar, Dave.The Shadow Scholar: How I Made a Living Helping College Kids Cheat.
Bloomsbury 2012. Print.







Tuesday, April 22, 2014

Counter Argument

Counter Arguments:

That the privatization of certain key industries is indeed more effective and economically sound.

The privatization of college is a good thing because it releases the burden from the taxpayers; the increase of tuition is justifiable because it is a choice to go to college whereas the tuition factored into taxes is a mandatory expense even for those who don't go to college.

That it is too soon in many cases of large-scale privatization to effectively examine the long-term pros and cons.

The evidence of general counter arguments on the notion of privatization being more effective and cost efficient for the masses is given in my essay by citing many examples. Here is a sample excerpt:


"Theoretically, privatization ought to relocate specific assets from the public sector to the private sector. This process is done widely under the assumption that the assets undergoing said process are inefficiently handled by the public sector and that the privatization of such assets ought to yield higher productivity and growth in private control (Bortolotti).  Many advocates for privatization defend that, “it may take some time for these effect to materialize, [so] one could claim that a sustained privatization policy should foster long term growth and increase output levels of the economy (13 Bortolotti)”. However, the question is, years after institutions have undergone the transplant from the public arena to the private sector, do they yield long term growth? Studies remain skeptical. In 1997 a study was done by Newbery and Pollit that investigated the restructuring and privatization of England’s Central Electricity Generating Board (CEGB) to examine the extent to which a post-privatization climate had on the growth and improvement of CEGB. The results of the study concluded that the producers and shareholders did indeed yield profitability, but in doing so the government and the consumers themselves, “lose out” (20-21 Bortolotti). Newbery and Pollit’s discovery was not unique, either. In 2000, Villalonga examined the operating efficiency of 24 Spanish firms that were fully privatized between 1985 and 1993; the examination found that the overall efficiency of the firms decreased during the time that they were in private hands (21 Bortolotti). Furthermore, in 2002, Dumontier and Laurin investigated the differences of value during the State ownership period for the 46 French companies (39 banks and 5 industrial firms) that were nationalized during 1982 and then re-privatized between 1986 and 1995. Their investigation found that the French government had actually created value in the nationalized firms, but the State and taxpayers did not benefit because of the premium that was paid to shareholders upon nationalization in conjunction with the underpricing of the companies’ IPOs at the time of privatization (21). These multiple studies all indicate rather conclusively that privatization does not necessarily generate efficiency nor does it turn over more profitability for the masses. In actuality, the profitability generated from privatization (where there actually is profitability) goes to a select power elite among the ruling body of said institutions and key investors."

Thursday, April 17, 2014

Lit Review V










SOURCE: Bortolotti, Bernardo, and Valentina Milella. Privatization in Western Europe. Publication. Milan: U of Turin and Fondazione Eni Enrico Mattei, 2006. Print.

SUMMARY: 
The report done by Bortolotti clearly outlines the privatization of Western Europe over the course of roughly 35 years. It also explains the complications arising from privatization, the implementation of such, the results of implementation, areas and financial markets effected, and the regulations therein. 

ABOUT THE AUTHOR:
Bortolotti and Milella are experts in analyzing privatization and are currently working at a research institution for the University of Milan, Italy. They do work and lectures all throughout Europe.

KEY TERMS:
Privatization, Socialism, Capitalism, Report, Thatcher, Early privatization


QUOTES:

“The 1977 public offer of British Petroleum (BP) is usually considered – after the failed German attempts of the 1950s under the Adenauer government – the first large-scale privatization in modern times. Shortly after, in the mid- 1980s privatization started to spread out also in Continental Europe. IN 1985 Italy undertook the long lasting process of the denationalization of the State holding company IRI… in 1986 the newly elected French conservative government pushed ahead a highly politicized (re)privatization… in 1989 Portugal, Spain, the Netherlands and Sweden entered the process. Italy, Portugal and Turkey reported their first large-scale sales in 1993. Throughout the 1990s also Belgium, Greece and Ireland joined the process.” -3

“The extent of privatization appears higher in countries with higher per capita GDP and lower growth rates, which in turns means that privatization characterizes a relatively advanced stage of economic development. The inverse relation found between (lagged) growth rates and privatization could also indicate that governments tend to resort to privatization when the economic outlook deteriorates, in order to foster economic activity via an increase in private investment. Fiscal conditions are also particularly relevant, as we find the debt ratio always highly statistically significant. Indeed, privatizing countries are often financially distressed, and they allocate revenues to amortization funds that allows directly to reduce the debt, and indirectly to improve the fiscal budget due to lower interest payments.” - 11

“Not surprisingly, privatization is more likely where large and liquid stock markets are in place. The coefficients of the (lagged) market capitalization and the turnover ratio are positive and statistically significant. Well-developed financial markets are key as they allow the absorption of big share issues. Liquidity is also particularly important as after market liquidity is discounted in privatization prices, allowing governments to raise more proceeds. The turnover ratio is also a measure of market activity, which typically increases with a bull market. The positive sign of the coefficient can also be interpreted as governments taking advantage of “hot markets” to float companies, in order to fetch a better price.” – 11

“In principle, the purpose of privatization is to achieve a redeployment of assets from the public to private sector. Under the assumption that assets are used inefficiently by the public sector, privatization should spur productivity and the growth of the aggregate output. Given that it may take some time for these effect to materialize, one could claim that a sustained privatization policy should foster long term growth and increase output levels of the economy” – 13

“To evaluate these effects, it is important first to establish the valuation differential of the assets in public vs. private hands, namely the difference between the present value of income streams generated under public and private ownership. Second, an assumption should be made about the allocation of privatization proceeds.” -13

“Newbery and Pollit (1997) perform a counter-factual analysis of the 1990 restructuring and privatization of the UK’s Central Electricity Generating Board (CEGB), and document significant post-privatization performance improvements. However, they find that the producers and their shareholders capture all of the financial rewards of this improvements and more, whereas the government and consumers lose out” -21

“Villalonga (2000) examines the effect of privatization on the operating efficiency of 24 Spanish firms that were fully divested between 1985 and 1993. Privatization seems to decrease efficiency over the intermediate term (5 and 6 years after divestiture). -21

“Dumontier and Laurin (2002), investigate the value that was created or lost during the State ownership period for each of the 46 French companies (39 banks and 5 industrial firms) that were nationalized during 1982 and then re-privatized between 1986 and 1995…. They find that the French government created value in the nationalized firms, but the State and taxpayers did not benefit because of the premium that was paid to shareholders upon nationalization, and because of the underpricing of the IPOs at the time of privatization.
  

VALUE:
The information provided by this source will make up the bulk of my formulation about privatization and will be a key part of the backbone to my essay. I hope to open up the questions of efficiency of privatization and other quagmires and then lead into Sallie Mae from the starting of the research acquired by said source.

Lit Review IV









SOURCE:
Collinge, Alan Michael. The Student Loan Scam. Beacon Press 2009. Print.

SUMMARY: 
Collinge provides a very well thought out, detailed expose on the way that Sallie Mae operates, has evolved, and its role with Congress, Congressmen, and the marketplace.

ABOUT THE AUTHOR:
Collinge is a writer and at one time a person who had somewhat considerable student loan debt. He is also the f
ounder of StudentLoanJustice.Org, a grassroots organization, and political action committee. He holds B.S., M.S., and Eng. Degrees in aerospace engineering from the University of Southern California. 


KEY TERMS:
Collinge, Sallie Mae, Congress, Student Loan Scam, debt, StudentLoanJustice.org


QUOTES:

"Gradually due to the aggressive lobbying of financial institutions, legislators began to pass laws and mandates that were in favor of the loan companies instead of protecting the interests of the consumers (4 The Student Loan Scam).

“Concurrently, draconian collection tools were legislated into existence, and they provided unprecedented and unrivaled collection powers to the loan industry, including giving the ability to garnishee a borrower's wages, tax returns, Social Security, and disability income - all without a court order. Today the student loan is an inescapable and profitable debt instrument unlike any other” (Collinge, 4-5).


VALUE:
I will use these quotes and the knowledge gained by Collinge in the section of my paper that deals specifically with the way in which Sallie Mae operates. 

Sunday, April 13, 2014

Interview Quotes


Interviews:

Arthur Melchionda Jr. (Mortgage Broker):

"The increasing amount of student loan debt in the market place an among younger graduates and newly hired professionals is certainly creating major issues that I see on an everyday basis. First of all, many people with a graduate degree or undergraduate education have a high debt-to-income ratio. This problem does not seem to dissipate slowly and many emerging professionals are left with the problem of dealing with student debt even as they begin to face bigger financial issues: car loans, home mortgages, the price of having kids, etc. Secondly, I see many people who graduate with a high amount of student loan debt who pursue low paying careers. This is really pragmatic for them because they are faced with an extremely high debt-to-income ratio with (oftentimes) very little insight on how to remedy the financial situation they put themselves in".

"Another issue that arises related to the higher debt-to-income ratio of many student loan debtors is establishing or maintaining a decent credit rating. High amounts of debt prevent many individuals from having the ability to have a good credit rating or indirectly do so by inhibiting them from things like paying other bills on time, having sufficient savings, etc."

Staci Anne Renda (Medical School Debtor):

"Since graduating with student loan debt, I have been faced with additional problems that I didn't really expect to a certain extent. I knew I would have to worry about finding a job - perhaps even just a semi-temporary one before I start a career - but the pressure to do so has been even heightened by the fact that my student loans come knocking on my door every month for payment."

"Granted, I don't have much debt, but it nonetheless has has a big impact on my after-school life. It cuts back on the amount of additional spending money I have. I have to keep a tighter budget and lessen some little luxuries: like getting my nails done or going drinking with friends every weekend."




*** These quotes will help me shape two perspectives of the student loan debt issue. These interviews provided me with exclusive insight of a professional's opinion of the impacts of student loan debt and how it affects an actual debtor. I hope to include a few quotes from my interviews into my paper or at least paraphrase their ideas to reflect a more well rounded, dynamic voice in my paper.

Tuesday, April 1, 2014

Revising Final Argument


The financial and legislative bodies responsible have drastically had a powerful hand in facilitating the growth of the student loan market in order to control the exploitation of it; thus monopolizing their hold on the profits. One of the largest and most aggressive agents in this odyssey is Sallie Mae which has turned into an impenetrable monster of never-ending profitability through the use of crude business deals and with the aid of corruptive coaxing of legislators. The peculiar rise in student loan debt is not necessarily the result of privatization, per se, but the abusive mechanics behind legislative and financial moguls who have sought to control this new-found expanding territory of profit.

Visual