Thousands of Student who are about to attend college are about to have a rather nasty surprise. Their Federal Student Loans while approved are not to be funded. My Rich Uncle is a public trade company, the parent company's name is MRU HOLDINGS INC (Nasdaq-GM: UNCL). They are a well know advertiser with right wing sock puppets, Dennis Miller and Dennis Prager. Their funder allegedly DEUTSCHE BANK AG (NYSE: DB) has decided not to fund anymore Student Loans. Management has know this for the last 10 days and has yet to inform any of the students, which could number into the thousand that their approved Student Loans, are no more!!

The two most important economic stories in the last 30 years have quietly slipped past us. The first is the Fed bailout of Freddie and Fannie. The second is the joint Treasury/Federal Reserve request to Congress for increased regulatory powers.

The cornerstone of NeoConservative economic philosophy and policy is that free markets are self regulating. They have spent decades dismantling federal regulations and enforcement of all market activity based solely on the dogmatic worship of free market capitalism.

In the past week they have not only been forced to acknowledge the failure of this dogma, but are actually embracing the progressive philosophy and policy of government regulation and control of business misconduct.

Lord have mercy. Thirty years of Republican NeoCon dogma down the drain and nobody even notices (and for those of us from Orange county whose parents embraced the John Birch Society lunacy, this goes back to the 1950's).

There's some odd similarities between the current credit crisis and Kurt Vonnegut's book "Hocus Pocus."

 I ran across an interesting article by Danny Schechter, who writes in Los Angeles CityBeat, via Metroland in Albany, NY. "Titled House of Cards", it was alarming enough that I thought I'd do a heads up on it here.  Schecter's 2nd paragraph lays out what he sees coming.

While many eyes are focusing on the housing meltdown and its hugely negative effect on an economy clearly moving into recession, few are paying attention to the next bubble expected to burst: credit cards. Combined with the subprime losses, such a credit card nightmare has the potential, experts say, of bringing down the entire financial system and global economy. You and your credit card have become key players in the highly unstable financial crunch. Mortgage lender cupidity and bank credit card greed wedded to financial institution deregulation supported by both political parties, have been made manifestly worse by Bush administration support-the-rich policies. It has brought us to a brink not seen since just before the Great Depression.

emphasis added

Well, people...  Today was a big day in the financial arena.  So, in that light I want to post a few resources to mark the day.  

First I want to start with clarifying something that many know but not all.  And that is the difference between a bear market and bull market.  There are technical definitions, but all you really need to know to understand what is meant is to think of the animals themselves.  

A bull is a gentle giant that you can put a yoke on and capture his power to work for you.  Clearly this is a good thing as a metaphor for the markets.

A bear is unpredictable, destructive, and will eat you if he has the chance.  Clearly this is not a good thing as a metaphor for the markets.  Apparently today, the bear walked into the market.

The Career College Association continues to breathlessly proclaim that the decision by some major lenders to stop providing subprime private loans to students attending for-profit trade schools of dubious quality is leading to a major college access crisis.

On Wednesday, the U.S. Department of Education offered a full-scale plan to bail out the student loan industry. Under the plan, the Department will not only buy student loans from lenders, as Congress authorized it to do, but it will also purchase interests in pools of loans to provide lenders with additional liquidity.

Despite these aggressive actions, Rep. Paul Kanjorski (D-PA) wants more. He applauded Education Secretary Margaret Spellings for her "initial plans" but urged her to take even stronger steps "to maintain an effective student loan distribution system."

The Department of Education recently announced modifications to its lender of last resort program as part of its effort to prepare for the possibility of federal student loan shortages as a result of the credit crunch. The net result is a contraption Rube Goldberg would be proud of -- what in effect are direct student loans that are more difficult to administer and more costly for taxpayers than the regular Direct Loan program.

Chains of publicly-traded, for-profit trade schools have made a number of deals with loan providers like Sallie Mae that have allowed them to push low- and moderate-income students to take out high cost, subprime private loans. But for-profit colleges are not the only higher education institutions that have forged these kinds of arrangements and put students in harm's way. Many expensive non-profit private colleges have come to rely on these arrangements as essential tools in carrying out their enrollment management plans.

Yesterday, Bernanke testified on capital hill.  His testimony, which is available on the Federal Reserve's website, offers a good overview of how the Fed views the economy.

In trying to raise panic over the student loan crunch, much of the student loan industry has had a not so hidden agenda: to get Congress to revisit lender subsidy cuts it made last fall.

The great expansion is over and the deleveraging of the global economy has begun in earnest. This is not a minor event that may lead to a mild recession, but a systemic financial crisis that is already well on the way to ushering in the second Great Depression.

Leverage can carry an economy a long way up by borrowing from the future in order to create the impression of great wealth, but that wealth is illusory. Once the speculative process of bidding up the value of assets comes to an end, leverage kicks into reverse and begins to magnify losses to the same extent it once magnified gains. What appeared to be wealth becomes nothing more than a pile of worthless IOUs.

A little stroll down the FEC website  and you find why politicians espouse certain "solutions" in times of crisis.

Hillary's Campaign PAC list reveals this:

Bank of America........................$5,000
Citizens Financial Group Inc...........$9,000

Fifth Third Bancorp PAC................$2,300

International Bank of Commerce
Committe for the Improvement and
Betterment of the Country..............$2,000

New York Bankers Association...........$4,600

New York Mercantile Exchange...........$10,000

Price Waterhouse Coopers...............$15,000

::more::

Sallie Mae is facing a potential series of class action lawsuits from angry investors who believe the student loan giant misled them about the amount of risk the company was taking on in pushing high-cost private loans on subprime borrowers attending poor-performing trade schools.

You may have noticed that the stock ticker these past few days is tapping out a happy tune.  The immediate crisis is over.  So now our bold  candidates are emerging from their bunkers to lubricate their index fingers and pronounce in forthright terms how the Federal government should respond post haste.

"If the Fed can extend $30 billion to help Bear Stearns address their financial crisis," she said, "the federal government should provide at least that much emergency help to families and communities address theirs." - Hillary Clinton, March 24, 2008

More below

Forget about Obama's pastor.  Forget about Hillary's needle threading to get the nomination.

Forget even about the fact that John McCain is an absolute blithering idiot.

That's not what the rest of the world, or at least international business travelers and Europeans are seeing.

That's below the fold...

With any panic, there comes a point when cool heads have to stop saying "don’t worry" and start offering solutions to real and perceived phenomena. Unfortunately, we’ve reached that point when it comes to fears about the credit crunch and student loans. Today, here are some policy options.

In John K. Galbraith's The Affluent Society, he examines the economic structure of developed economies.  It's a fantastic book, and while it's a bit dated even though he revised it over the years (last updated in 1998, it still did not fully recognize the impact of globalization on a domestic economy) it highlights important macroeconomic trends which are pertinent to our current economic situation.  

While rereading it recently, I realized that Galbraith's critique underscores the severity of our current economic crisis.  It also points out how structural changes in the economy have made it more difficult to correct the problems.

More below the fold...