Thanks, Mr. Dimon.

Jamie Dimon has allowed us to witness an object demonstration of why Wall Street does, in fact, need to be regulated. Thank you, Jamie.

I hate to beat up on Jamie Dimon so badly, especially since I don’t know him personally and I’m sure he is a fine fellow, but as Bill Maher would say, hey, they give you the comedy lines and you just have to take it, right?

Any honest evaluation of the facts would conclude that JPMorgan, to its — and Jamie Dimon’s  — credit, did manage to avoid many of the bad investments that brought other banks to their knees in the 2007-2008 contagion.

His demonstration of sound judgment and careful planning gave Jamie the role of class valedictorian in Wall Street’s war to delay, and/or repeal the righteous pile of financial reform crawling its way through Congress and occasionally spewing watered-down effluence like the Dodd-Frank bill.

Mr. Dimon has been particularly open in his opposition to the so-called Volcker Rule, which would prevent banks with government-guaranteed deposits from engaging in “proprietary trading,” (basically speculating with depositors’ money). Why? Because everything at JP Morgan Chase is under control and we don’t need no stinking badges, thank you very much.

Until last week maybe. A minor screw-up. $2 Billion in trading losses. Well, there are really no excuses as Jamie said, but hey, they’re human. They make mistakes too. Still, no reason to lose our minds and start regulating like crazy; after all, it WAS their money, right? Well, not exactly. It turns out that the bank’s “money” is in fact money backed by taxpayer’s guarantees.

We know from history that banking has always been subject to  destructive panics, that occasionally threaten to bring down the entire financial system. In spite of arm-chair economists like Mitt Romney and Newt Gingrich and perhaps especially our buddy, Paul Ryan, bad banking is not always the result of government intervention or the meddling liberal fools in Congress.

In the golden ages of American Capitalism, between 1700 and 1840, or between 1890 and 1929, we had minimal government and no Fed (to speak of) and yet, we still managed a financial panic roughly once every six years. Some of them real beauts.

After the greatest depression in our history, our Congressional leaders arrived at a reasonable solution that seemed to work really well for the next 60 years or so. We implemented systems of guarantees and oversight that protected both the citizen depositors and the government who guaranteed those deposits. Deposits were insured, so that panic resulting from the perception of a failing bank was limited, and banks were prevented from gambling and abusing the privilege they enjoyed from those insured deposits, guaranteed by taxpayers.

The significance of those regulations prevented banks, holding government-guaranteed deposits, from engaging in high-risk market speculation. Speculation in investment products like CMOs and CDO tranches and Knock Out Straddles.

What? You didn’t have any Knock Out Straddles? Lehman Bothers did.

But, I guess we really didn’t like financial stability. Or, we all saw a movie in 1987 called Wall Street and decided that being Master of the Universe would be pretty cool. Jamie Dimon certainly thought so. He was 31 when that movie came out. Not surprisingly, all of these new forms of banking without government guarantees became the rage, while 50 years of banking regulation was over-turned (by a Democrat by the way) and banks were allowed to take on increasing risks. We, the people, got exactly what we deserved.

It is mind-blowing to me that we have to debate and argue about whether we should restore the safeguards that brought us 50 years without a major banking panic. We, the people who got shafted by the bankers, their lobbyists and the politicians they bankroll, have to cajole our Congressmen to re-instate the Glass-Steagall act of 1933? After we allowed those very same bankers to be bailed out by our own tax dollars? Why?

We are the same people, at least 48-50% of us, who want to cast a vote for a guy who has promised to repeal Dodd-Frank and any other banking regulations that come down the pipe? Really?

We can thank Jamie and JP Morgan for shining a spotlight on the reasons we need to tighten regulations on banks, but it really won’t do any good as long as we continue to pretend that none of this matters. Or, that we can’t make a difference. Or, that it’s all too weird and hard to understand and the banks won’t really do anything that stupid again, would they?

You may not be able to fix it, but with one vote, you could make it worse.

Student Loan Debt. Can You Hear That Train A’Coming?

The federal student loan program seemed like a great idea back in 1965: Borrow to go to college now, pay it back later when you have a job. But back then, my tuition at Cal was $230 a year, so even with my first job offer as a junior copywriter at Hoefer, Dietrich and Brown, at that time the largest independent ad agency west of the Mississippi (John Hoefer, brilliant Creative Director third from left), I had income of $12,400 a year, of which I could have easily made that 2.36% payment and had that $920. paid off in like 4 years.

I didn’t need to though, because I didn’t borrow a student loan to pay for school, and didn’t know anyone who did. This was not due to some stupid pride thing, but the program wasn’t put in place until I was almost out of Berkeley.

Surging above $1 trillion, U.S. student loan debt has surpassed credit card and auto-loan debt. This debt explosion jeopardizes the fragile recovery, increases the burden on taxpayers and possibly sets the stage for a new economic crisis. With a still-wobbly jobs market, these loans are increasingly hard to pay off. Unable to find work, many students have returned to school, further driving up their indebtedness.

It isn’t surprising that average student loan debt recently topped $25,000, up 25 percent in 10 years. And the mushrooming debt has direct implications for taxpayers, since 8 in 10 of these loans are government-issued or guaranteed. Yet, the primary driver for the problem, dramatically increasing public college tuition remains unchecked. For some reason, there are now more administrators and fewer teachers, and the gap ratio seems to be expanding. Public universities in the United States are suffering from administrative bloat, according to the Goldwater Institute. From 1993 to 2011, four-year public institutions of higher learning expanded their ratio of administrative staff per 100 students by 39%, while teaching and research staff levels grew by less than 10%. The same disparity did not apply to private universities, where the ratio growth of administrators and instructors was roughly the same (40%).

At some public universities, the disparity was particularly dramatic. Arizona State University increased the number of administrators per 100 students by 94% while reducing the number of faculty, research and service personnel by 2%. While this obviously drives up costs, it appears to do nothing to increase the quality of education, but that is the topic for another post.

In an attempt to address the growing problem with student loans, President Obama has offered a raft of proposals aimed at fine-tuning the system and making repayments easier. Yet the predicament of debt-burdened former students has failed to generate much notice in the GOP presidential campaign. Instead, the candidates are dismissive of government student loan programs in general and Obama’s proposals in particular.

Rick Santorum went so far as to label Obama “a snob” for urging all Americans to try to obtain some form of post-high-school education — even though some polls show over 90 percent of parents expect their children to go to college. Front-runner Mitt Romney denounces what he calls a “government takeover” of the program. Newt Gingrich calls student loans a “Ponzi scheme” under which students spend the borrowed money now but will “have to pay off the national debt” later in life as taxpayers. And Ron Paul wants to abolish the program entirely.

Lifting student debt higher and higher is the escalating cost of attending schools, with tuition increasing far faster than the rate of inflation. And enrollment has been rising for years, a trend that accelerated through the recent recession, fueling even more borrowing. Mark Zandi, chief economist at Moody’s Analytics, argues that government loans and subsidies are not particularly cost-effective for taxpayers because “universities and colleges just raise their tuition. It doesn’t improve affordability and it doesn’t make it easier to go to college.”

“Of course, it’s very hard on the kids who have gone through this, because they’re on the hook,” Zandi added. “And they’re not going to be able to get off the hook.”

It’s not just young adults who are saddled.

“Parents and the federal government shoulder a substantial part of the postsecondary education bill,” said a new report by the Federal Reserve Bank of New York. And some of the borrowers are baby boomers, near or at retirement age. The Fed research found that Americans 60 and older still owe about $36 billion in student loans.

Overall, nearly 3 in 10 of all student loans have past-due balances of 30 days or more, the report said.

Complicating the picture further: Like child support and income taxes, student loans usually can’t be discharged or reduced in bankruptcy proceedings, as can most other delinquent debt. This restriction was extended in 2005 to also include student loans made by banks and other private financial institutions.

“This could very well be the next debt bomb for the U.S. economy,” said William Brewer, president of the National Association of Consumer Bankruptcy Attorneys.

“As bankruptcy lawyers, we’re the first to see the cracks in the foundation,” Brewer said. “We were warning of mortgage problems in 2006 and 2007. The industry was saying we’ve got it under control. Nobody had it under control. Now we’re seeing the same signs of distress. We’re seeing huge defaults on student loans and people driven into financial difficulties because of them.”

A report by his group noted that missing just one student loan payment puts a borrower in delinquent status. After nine months, the borrower is in default. Once a default occurs, the full amount of the loan is due immediately. For those with federal student loans, the government has vast collection powers, including the ability to garnishee a borrower’s wages and to seize tax refunds and Social Security and other federal benefit payments.

Nigel Gault, chief U.S. economist at IHS Global Insight, said the student loan crisis may not torpedo the financial sector as the mortgage meltdown nearly did in 2008, but it could slam taxpayers and the still-ailing housing market.

“When student loans don’t get repaid, debts are going to be transferred from the borrower to the taxpayer,” further raising federal deficits, he said. And overburdened student-loan borrowers may fail to qualify for mortgages and “stay much longer in their parents’ homes,” Gault said. Young adults forming households have historically been the bulk of first-time home buyers — and their scarcity could dampen any housing recovery. “When kids do graduate, the most daunting challenge can be the cost of college,” Obama said in his State of the Union address, asking Congress to extend a temporary cut — due to expire in July — in federal student-loan rates. The reduced federal rate is now 3.4 percent. It the cuts aren’t extended, it will rise to 6.8 percent.

Still, Obama said: “We can’t just keep subsidizing skyrocketing tuition. We’ll run out of money.”

The Democratic minority on the House Education Committee and Workforce Committee released new figures showing that more than seven million students will incur an additional $6.3 billion in repayment costs for the 2012-2013 school year if student loan interest rates double on July 1. Obama also asked Congress to extend the current tuition tax credit, double work-study jobs over five years and let borrowers consolidate multiple student loans at reduced interest rates.

But in this intensely partisan year, any congressional action seems dubious.

“I wish I could tell you that there’s a place to find really cheap money or free money and pay for everyone’s education, but that’s just not going to happen,” Romney says. “Now the government is taking over the student loan business. I think you’ll get less competition.”

The government has not taken over the student loan business. The private loan industry is still writing student loans, usually at interest rates far above the government ones.

What the Republicans are zeroing in on is a section in Obama’s health care overhaul that eliminated big banks as middlemen in managing federal school-loan programs. Also, the new federal Consumer Financial Protection Bureau is clamping down on the lightly regulated private student loan industry.

Santorum, who now says calling Obama a “snob” for promoting higher education was “probably not the smartest” choice of words, has been seeking to rally blue-collar support by emphasizing that many jobs do not require college degrees — and suggesting many colleges are liberal bastions. None of which goes anywhere toward solving our next financial crises. That would be $1Trillion, with a capital T. Can you hear the train a’coming? 

Gas Prices Have Doubled Since Obama Took Office. Really?

Higher gas prices are an easy target. Newt Gingrich has been asking people to tweet “Newt = $2.50 gas.” Not that any president can do anything about gas prices, but politicians don’t care and assume that we are as stupid as we usually are, and that we don’t understand the first thing about economics or commodity speculation.

Where does the new wave of gas price anger come from? Well, it comes from higher gas prices. But we should be used to those. They were high one year ago, spiking because of new uncertainty in the Middle East (which hasn’t really ended) and because of seasonal demands. Commodities economists could take politicians into a nice, air-conditioned room and explain this stuff to them, but they wouldn’t listen. High prices are proof, for Republicans, that the Keystone Pipeline should have been approved yesterday and built at double-size. They are proof, for Democrats, that the Koch Brothers are truly heinous, “keeping oil off the market, storing it in offshore tankers and waiting to cash in when the cost of oil rises.”

But most of the carping is coming from Republicans. They have a killer line: Gas prices have doubled since Obama was inaugurated. The first indication that this might be misleading is that Michele Bachmann coined it. The second indication: Actual data. Look at a chart of gas prices since 2008:

This is a true statement: At the end of 2008, gas prices were half of what they are now. The twist is that the end of 2008 was also the financial apocalypse. The day that Obama was sworn in, the Dow plunged to 7,949. It’s now above 13,000 again. The month that Obama was sworn in, the economy shed around 600,000 jobs — the third consecutive month with a loss that size.

Three years ago, if you wanted to point to data and say “See? This is how Obama is failing us,” you had a lot to choose from, but you couldn’t choose gas prices. Today, you can’t really attack Obama on stock prices; the argument about unemployment is complicated, and involves discussion of the “real unemployment rate.” Instead, you have to argue that commodities of all kinds — gas prices especially — are more expensive because of Obama’s screw-ups. Maybe we should invade Iraq again. That worked out pretty good the last time.