Can't believe this isnt a bigger issue!!!!

[a runner]

Just out of curiosity, can anyone explain why exactly student loans are at 6.8%?

The reason unsecured debt is so high is because financial institutions realize they can bilk the consumer right now. Prime is essentially flat, so it costs them nothing to borrow money. They relend it at the price consumers are accustomed to paying (someone mentioned 7-15%), and that's 7-15% of profit, minus the amount they're paying for the loan servicing department.

Is student loan interest a factor of a) Congress works slowly when only small constituencies benefit, b) Congress has trouble dynamically reacting to markets, c) some sort of crazy "close the budget" plan by bilking students, or d) pricing based on projections? Or e) none of the above?

The reason unsecured loans have a "high" interest rate of 7-15% isn't so banks can bilk the consumer. I think it's a combination of making up for previous bad loans they made where they're losing billions, all the while trying to hide the fact on their books that they're nearly insolvent by using accounting tricks that the SEC allows (like not requiring mark-to-market on mortgages), and the fact they need to make up for the risk of default. Imagine if 10% of people who take out an unsecured loan end up defaulting on it, then you need to charge at least some interest to make up for these losses.

As for student loans, about 20% default on their federal loans within 15 years, and 9% within just 2 years! Think about it, the lower the interest rate, the more incentive for schools to raise tuition and for students to take out more loans. If you lower interest rates, the default rate will undoubtedly rise since students will have more debt. The same thing happened in the mortgagte market. The interest rates went so low that housing prices skyrocketed because people could afford to pay more in principle since they were paying much less in interest, bidding prices up and creating a bubble, and causing housing prices to become unsustainable and unpayable. The same bubble has occurred in student loans. I don't know why it was set at 6.8% but I think it's too low, obviously, to stop the bubble from bursting. A good reason to have a reasonably high interest rate on student loans is none of the above reasons you gave, but to prevent excessive student loan debt and a bubble in the student loan market.

What is a reasonable rate? Nobody knows what the "right" rate is, and anyone who claims to know it has some serious fatal conceit (I'll be happy if anyone gets that reference without looking it up). That's why it's better to let the market determine it.

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[PharmDstudent]

Please tell me what you would do to help "reduce" poverty in this country.

The only way that I can see this being done is through hand-outs. Scary.

 

[PharmEcon]

The only way that I can see this being done is through hand-outs. Scary.

I really don't. I think history has proven enough times it doesn't work. I am much more for private philanthropy and I would much prefer a system of income inequality with high income mobility as we have had in the past than a system of income inequality (which with social programs will still exist) with low income mobility as we are moving towards.

 

[PharmDstudent]

The reason unsecured loans have a "high" interest rate of 7-15% isn't so banks can bilk the consumer. I think it's a combination of making up for previous bad loans they made where they're losing billions, all the while trying to hide the fact on their books that they're nearly insolvent by using accounting tricks that the SEC allows (like not requiring mark-to-market on mortgages), and the fact they need to make up for the risk of default. Imagine if 10% of people who take out an unsecured loan end up defaulting on it, then you need to charge at least some interest to make up for these losses.

As for student loans, about 20% default on their federal loans within 15 years, and 9% within just 2 years! Think about it, the lower the interest rate, the more incentive for schools to raise tuition and for students to take out more loans. If you lower interest rates, the default rate will undoubtedly rise since students will have more debt. The same thing happened in the mortgagte market. The interest rates went so low that housing prices skyrocketed because people could afford to pay more in principle since they were paying much less in interest, bidding prices up and creating a bubble, and causing housing prices to become unsustainable and unpayable. The same bubble has occurred in student loans. I don't know why it was set at 6.8% but I think it's too low, obviously, to stop the bubble from bursting. A good reason to have a reasonably high interest rate on student loans is none of the above reasons you gave, but to prevent excessive student loan debt and a bubble in the student loan market.

What is a reasonable rate? Nobody knows what the "right" rate is, and anyone who claims to know it has some serious fatal conceit (I'll be happy if anyone gets that reference without looking it up). That's why it's better to let the market determine it.

Ok. I see your point about a higher rate, but I worry that a higher rate would not stop most people.
For example, I have 2 large private loans at 9.25 and 9.75%, and those rates didn't stop me. In fact, at the time, I was happy to have those loans, because they meant that I could continue my education. How else was I going to pay $10,000 a semester?

For young, eager people, the interest rate doesn't really matter. Heck, some students even put tuition and/or living expenses on their credit cards.

EDIT: I think what may happen could be even worse than the housing bubble. If the interest rates go up and the tuition goes up, and people continue to play along, then it will be mass chaos.

 

[a runner]

If it was a true free market society would the super wealthy just make the rules anyways regardless? So now it's being done under the guise of gov't regulation as opposed to unmasked control?

Very good point. That's where the legitimate function of government actually comes in, to ensure the playing field remains level and no person or group uses force or violence or monopoly power to get their way. But instead we have a government that in fact does the opposite. It uses force and violence and it's monopoly power to ensure that there is NOT a level playing field.

The way you do this is have a constitutionally limited republic that says "government cannot do X, Y, and Z (even if 95% of the people say they want it) and the only things it can do are A, B, and C" where it basically says the government is there to prevent violence and protect the people's life and liberty and property. Violence is the key here. The government uses it to assert control and create an environment that favors its special interests. Instead, government should exist to prevent violence so we can have a peaceful and free society. No one should be able to use violence to get what they want from others (including using the mechanism of government), everything should be voluntary.

 

[PharmEcon]

The rich and corporations can have lower market power in free markets than crony capitalist markets. We see this today- corporations fight for regulations (or just get them unintentionally) that increase barriers to entry, thus reducing competition because the small guy can't pay the cost, but for the big guys it is pennies. Medicare part D anyone?

The thing the capitalist fears the most is a real capitalist market- it means he actually has to please his consumers to do well.

 

[npage148]

How is that not a relevant argument? You completely throw aside my points because you don't want to move away from your previous position.

It's not even an argument it's an excuse used to continue to screw people.

Please tell me what you would do to help "reduce" poverty in this country.

Cut military spending to near nothing, tax the hell out of anymore/anything making more than 500k and close tax loopholes and regulate the markets, and nationalize the banking and healthcare system

Also please realize that I believe poverty would be lower in a freer market.

and you would believe wrong. You just said it's ok for people to be living in poverty and if it was run your way you'd keep it like that. Also, isn't Somalia a free market?

 

[xtsukiyox]

Absolutely not. They do produce something. They buy your risk for money. If they are so useless, why don't you just not buy any insurance?

Because the whole system is broken, starting with insurance companies. The cash price I would pay for a service is much higher than the contract negotiated price with insurance companies. But hospitals / networks / pharmacies are not stupid - the lower contracted rate isn't a discount. The cash price is a markup, so they can negotiate with the insurance companies.

The exception to the rule is the few primary care facilities I've seen popping up locally that don't bill insurance. I spoke with the owner & doctor at one, and he said he makes much more profit this way without having to employ several office workers to handle insurance. He had one receptionist ("to answer the phones"), one nurse, and himself. I'll admit, the profitability may be a local phenomenon, though - AZ has unique demographics around uninsured, to put it politely.

Clearly you buy it to pass on your risk in exchange for some immediate money. Not too many people know this, but the majority of insurance companies don't even make money off of premiums- they make it off of investments made with those premiums. It is much like how commercial banks don't make money off of your deposits- they make money off of loans and investments made with that money.

You used to be able to say this. The top 3-5 banks make more money from fees than from loans these days, according to profit statements I've seen.

 

[a runner]

Ok. I see your point about a higher rate, but I worry that a higher rate would not stop most people.
For example, I have 2 large private loans at 9.25 and 9.75%, and those rates didn't stop me. In fact, at the time, I was happy to have those loans, because they meant that I could continue my education. How else was I going to pay $10,000 a semester?

For young, eager people, the interest rate doesn't really matter. Heck, some students even put tuition and/or living expenses on their credit cards.

I mean I agree with you that for some people any interest rate short of 100% won't stop some people (and even that might not stop some really desperate people). But a higher interest rate would stop enough people, or force them to consider a shorter course of education, or at least give them incentive to choose a cheaper school or finish on time, resulting in less debt. I have some higher interest rate private loans too, but I already knew I was going to go to pharmacy school when I took them out. I doubt many people majoring in philosophy or english or journalism or history would be willing to do the same thing we did.

Of course you're right there are still a decent number of young 18-22 year olds whose judgment portion of the brain, the frontal cortex, hasn't fully developed yet until at least 25 (http://newsinhealth.nih.gov/2005/September2005/docs/01features_02.htm). They're not fully capable of making these kinds of decisions, but we just let them automatically take out whatever loans they want unchecked by any approval process. That's why I think the best situation is to eliminate automatically guaranteed federal student loans and let the banks take on the risk and they can decide if a student is worthy of a loan or have them get a cosigner. But since I don't see that happening until after the student loan bubble bursts, the next best thing is to charge a modest interest rate (unless you just want the bubble to burst faster, which I understand ).

 

[PharmEcon]

It's not even an argument it's an excuse used to continue to screw people.

Screw what people? Why don't we just set the definition of poverty to be making less than 100k per year? We'll then give everyone handouts to get up to that level and live like kings.

Saying the definition is not relevant is being intellectually dishonest. Again, if you want more equality regardless of overall outcome why not move to one of those African nations with greater income equality? Clearly income equality is often overrated.

High income mobility is EXTREMELY important in my opinion. It is the basis of the American dream. Income mobility tends to be higher with a freer market and it also means people who are poor aren't poor for long. I don't want to trap people at 30k/year when they have the oppurtunity to be at 15k/year for a few years and then move up to 60k/year for the rest of their life.

Cut military spending to near nothing, tax the hell out of anymore/anything making more than 500k and close tax loopholes and regulate the markets, and nationalize the banking and healthcare system

I am all for cutting military spending (not to near nothing though- that's foolish) as well as closing loopholes. NO to nationalization though and no to overregulation- the big banks, big industry, and wealthy have enough power

and you would believe wrong. You just said it's ok for people to be living in poverty and if it was run your way you'd keep it like that. Also, isn't Somalia a free market?

I didn't say I'd like to keep it like that, but I'd rather have the poor be 10k/year, the median be 50k/year and the rich be over 100k/year than have everyone be at 5k/year (hypothetical numbers of course)

 

[xtsukiyox]

That's why I think the best situation is to eliminate automatically guaranteed federal student loans and let the banks take on the risk and they can decide if a student is worthy of a loan or have them get a cosigner.

Dude, don't you remember when banks were giving predatory credit cards away to students with no means to pay? I don't think the industry track record in deciding risk vs students is good to rely on. I'm pretty sure student credit cards ended up being profitable for banks - which is why we had to mandate non-predatory lending, there was no reason to stop otherwise.

What you're suggesting is using the fox to guard the hen house. It is financial institutions' jobs to find a way to offer a device to as wide a' market as possible and to profit from those devices. Whether their customers profit them before or after non-payment is irrelevant.

 

[PharmEcon]

Because the whole system is broken, starting with insurance companies. The cash price I would pay for a service is much higher than the contract negotiated price with insurance companies. But hospitals / networks / pharmacies are not stupid - the lower contracted rate isn't a discount. The cash price is a markup, so they can negotiate with the insurance companies.

I know the insurance companies are a problem- that's why I don't support the Obama bill- it doesn't fix the actual problem. As I said, we need to start by allowing interstate competition in insurance.

You used to be able to say this. The top 3-5 banks make more money from fees than from loans these days, according to profit statements I've seen.

My example was strictly savings- with checking you might make the argument depending on the bank, but they aren't adding those fees for profit reasons, but instead to cover operation and regulatory costs.

 

[a runner]

Also, isn't Somalia a free market?

I don't know where you guys get the idea that Somalia is a true free market. It definitely isn't the kind we're talking about here. It's just a straw man argument to smear the idea. The definition of a free market is the absence of coercion through violence. How does Somalia in any way fit this definition?

The free market in Somalia is almost non-existant because the power structure in the country uses violence to control the economic system. Free market means you are free to produce whatever goods or services you like without fear of violence, without fear of someone coming along and taking a part or all of your labors (whether this be the government or a warlord), and being free to trade this (obviously through currency) for other goods and services. There is a legitimate role for government and that is to protect this free market and prevent the violence that is rampant in Somalia, preventing a peaceful free society. And yes, any form of warfare perpetrated by the government negates from the freedom we have because it takes via violence the labors of the people to perpetrate further violence on people in a distant land.

 

[PharmEcon]

I don't know where you guys get the idea that Somalia is a true free market. It definitely isn't the kind we're talking about here. It's just a straw man argument to smear the idea. The definition of a free market is the absence of coercion through violence. How does Somalia in any way fit this definition?

The free market in Somalia is almost non-existant because the power structure in the country uses violence to control the economic system. Free market means you are free to produce whatever goods or services you like without fear of violence, without fear of someone coming along and taking a part or all of your labors (whether this be the government or a warlord), and being free to trade this (obviously through currency) for other goods and services. There is a legitimate role for government and that is to protect this free market and prevent the violence that is rampant in Somalia, preventing a peaceful free society. And yes, any form of warfare perpetrated by the government negates from the freedom we have because it takes via violence the labors of the people to perpetrate further violence on people in a distant land.

Yep, I just ignored that comment because it was just more sensationalism instead of intellectual conversation from the poster. Also, everything is relative. Take a look at Somalia before and during its current state and things have improved. Either way, free market in the sense it is usually used means J.S. Mill's harm principle still applies.

 

[a runner]

Dude, don't you remember when banks were giving predatory credit cards away to students with no means to pay? I don't think the industry track record in deciding risk vs students is good to rely on. I'm pretty sure student credit cards ended up being profitable for banks - which is why we had to mandate non-predatory lending, there was no reason to stop otherwise.

What you're suggesting is using the fox to guard the hen house. It is financial institutions' jobs to find a way to offer a device to as wide a' market as possible and to profit from those devices. Whether their customers profit them before or after non-payment is irrelevant.

Well the answer to this should be that banks who make bad loans to students will end up going out of business. The problem with that is we have a government intent on distorting this fact of free markets by giving bailouts and not forcing the banks to show their true numbers and continuing to allow them to cook the books.

 

[PharmDstudent]

I don't know where you guys get the idea that Somalia is a true free market. It definitely isn't the kind we're talking about here. It's just a straw man argument to smear the idea. The definition of a free market is the absence of coercion through violence. How does Somalia in any way fit this definition?

The free market in Somalia is almost non-existant because the power structure in the country uses violence to control the economic system. Free market means you are free to produce whatever goods or services you like without fear of violence, without fear of someone coming along and taking a part or all of your labors (whether this be the government or a warlord), and being free to trade this (obviously through currency) for other goods and services. There is a legitimate role for government and that is to protect this free market and prevent the violence that is rampant in Somalia, preventing a peaceful free society. And yes, any form of warfare perpetrated by the government negates from the freedom we have because it takes via violence the labors of the people to perpetrate further violence on people in a distant land.

I don't know anything about Somalia.

Well the answer to this should be that banks who make bad loans to students will end up going out of business. The problem with that is we have a government intent on distorting this fact of free markets by giving bailouts and not forcing the banks to show their true numbers and continuing to allow them to cook the books.

Why does the government even care?

 

[a runner]

Yep, I just ignored that comment because it was just more sensationalism instead of intellectual conversation from the poster. Also, everything is relative. Take a look at Somalia before and during its current state and things have improved. Either way, free market in the sense it is usually used means J.S. Mill's harm principle still applies.

What can you do right? You get some people come on here, act like they know it all, call us stupid or idiots, then make a bunch of sensationalist comments without backing any of it up with facts or at least economic or philosophic theory.

 

[a runner]

Why does the government even care?

Just look at the top donors to Obama and Romney (hint: it's not individuals, try Goldman Sachs and Citigroup) to see why the government cares so much about making sure the banks get bailed out, don't have to adjust their books to market conditions, and keep getting more regulations that only help the biggest banks.

 

[owlegrad]

1) Who said there would be less student loan money? Where do you think government gets its money?

2) Why do you think tuition has gotten so high in recent decades? Look at government loan growth and it correlates extremely well with tuition growth. If you don't believe me, please go take a look at economic analyses of this- this is a point that in academic economics is much more one-sided than it is in the mainstream public. Tuition growth has LARGELY been fueled by INCREASED government student loans because the willingness to pay of the students increases. The best way to reduce tuition is to reduce student loans.

3) Again you can't really assess what you'd be doing in that situation since you don't actually know what the situation would be. There are plenty of people decades ago who worked their way through school- nearly impossible now due to increased student loans and in turn, increased tuitions.




Absolutely not. They do produce something. They buy your risk for money. If they are so useless, why don't you just not buy any insurance?

Clearly you buy it to pass on your risk in exchange for some immediate money. Not too many people know this, but the majority of insurance companies don't even make money off of premiums- they make it off of investments made with those premiums. It is much like how commercial banks don't make money off of your deposits- they make money off of loans and investments made with that money.

1) Huh? I thought we were discussing the removal of government interference with the free market loan system? Or do you mean I would just get my loans in the private market? Fair point. In many ways that would be better, part of what makes student loans so terrible is the way the government protects them from default.

2) I like that you used correlation in your argument, because that is exactly what it is. As tuition rose, loans rose. Or vice versa. Correlation is not causation.

I don't think eliminating government loans would lower tuition. It might put some colleges out of business (unless the free market took over the job of loaning students money), but I doubt many colleges (particularly state colleges) would lower tuition. I go to a state college so I am sure that colors my perspective.

3) I can't argue with this. I think my point is that I am on government loans and without them I wouldn't be able to attend school. If you are arguing that in some fictional alternative world I would be able to pay for school by working, perhaps you are correct. That is certainly not the case for me right now though.

4) Ah the risk exchange argument. I would almost buy that argument, except that it is in the ins companies best interest to reduce risk, which they do through per-existing condition clauses and other loop holes when left to their own devices. It is simple business really, they need you to pay your premium and never make any claims. Pointing out that they make money through investment is not really helpful, the bottom line is that their whole business model is one big conflict of interest. They employ claims adjusters who make bonuses based on the number of claims they can reject. They do audits not to find fraud but so they can reject claims that they already paid. They are a drain on the healthcare system, they do not produce anything. What do you claim they produce?

I would love to live in a system where I have the option to not have insurance. Unfortunately my current choices are ins or pay out of pocket. One of those is impractical, the other is a necessary evil in our current system.

 

[owlegrad]

Because the whole system is broken, starting with insurance companies.

 

[xtsukiyox]

My example was strictly savings- with checking you might make the argument depending on the bank, but they aren't adding those fees for profit reasons, but instead to cover operation and regulatory costs.

You just made me snort my drink. Do you really believe that? Financial institutions are making record profits, and they're responsible to shareholders who don't want to see those profits go down (despite the precipitous loss in mortgage income).

Example: Mandated maximums on card processing fees, which were designed (in part) to eliminate those charges the stores pass on to the consumer. Fine - the banks can't make their money there? Start charging a flat fee straight to consumers to have a debit card. I believe all of the top 3 will be charging this fee soon.

Also, last I checked the regulations, a percentage of checking account balances count towards the depository requirement for making loans. Savings products count at a higher percentage. I appreciate you clarifying, but the argument you are making is flawed if you're not counting all "deposits" as you stated.

Well the answer to this should be that banks who make bad loans to students will end up going out of business. The problem with that is we have a government intent on distorting this fact of free markets by giving bailouts and not forcing the banks to show their true numbers and continuing to allow them to cook the books.

No, the credit card example I used did not force financial institutions playing the game out of business. Any bank will diversify the devices they offer, and there is an acceptable default rate. The problem comes that devices can be engineered to make money even when they default.

The mortgage portfolios stopped making money because their default rate went above the calculated amount. A major way to recoup hard dollars when a mortgage goes bad is to sell the house if the borrowers aren't going to pay. When houses don't sell for an extended time, property maintenance begins to eat into whatever moneys you would have recouped. When you have to hire more staff than you'd allotted for because your department's overworked due to a spike in defaults, it eats into the money. Then when you have to hire lawyers & auditors to defend / fix the mistakes your overworked department made, that eats into the money. Pretty soon there's nothing left. You can only "cook the books" (if you want to call it that) so far, then the house of cards crumbles.

I'ma leave in that last paragraph, although it sounds more like stating the obvious. I'm not disagreeing with your sentiment about the mortgage bailouts, I think I'm more trying to elaborate why it's apples and oranges when it comes to unsecured student debt.

 

[PharmDstudent]

Just look at the top donors to Obama and Romney (hint: it's not individuals, try Goldman Sachs and Citigroup) to see why the government cares so much about making sure the banks get bailed out, don't have to adjust their books to market conditions, and keep getting more regulations that only help the biggest banks.

That is exactly why we need minimal government.

You just made me snort my drink. Do you really believe that? Financial institutions are making record profits, and they're responsible to shareholders who don't want to see those profits go down (despite the precipitous loss in mortgage income).

Example: Mandated maximums on card processing fees, which were designed (in part) to eliminate those charges the stores pass on to the consumer. Fine - the banks can't make their money there? Start charging a flat fee straight to consumers to have a debit card. I believe all of the top 3 will be charging this fee soon.

When people start to close their accounts or cancel their debit cards because of this, then what? My debit card is handy, but it's not necessary.
I feel the same way about student loans... I don't have to keep paying on them f-o-r-e-v-e-r (unless they offer me a great rate).

 

[a runner]

No, the credit card example I used did not force financial institutions playing the game out of business. Any bank will diversify the devices they offer, and there is an acceptable default rate. The problem comes that devices can be engineered to make money even when they default.

The mortgage portfolios stopped making money because their default rate went above the calculated amount. A major way to recoup hard dollars when a mortgage goes bad is to sell the house if the borrowers aren't going to pay. When houses don't sell for an extended time, property maintenance begins to eat into whatever moneys you would have recouped. When you have to hire more staff than you'd allotted for because your department's overworked due to a spike in defaults, it eats into the money. Then when you have to hire lawyers & auditors to defend / fix the mistakes your overworked department made, that eats into the money. Pretty soon there's nothing left. You can only "cook the books" (if you want to call it that) so far, then the house of cards crumbles.

I'ma leave in that last paragraph, although it sounds more like stating the obvious. I'm not disagreeing with your sentiment about the mortgage bailouts, I think I'm more trying to elaborate why it's apples and oranges when it comes to unsecured student debt.

The credit card example didn't force them out of business, but they were profitable for the bank, otherwise they would have stopped making those credit card loans. My point is that they raised the interest rates on those young borrowers to the point where it made up for the risk of lending to this highly risky group of borrowers. It makes sense. Yeah there is an acceptable default rate. You lend to these kids knowing a large portion won't pay you back, that's why you charge such a high interest rate to recoup those losses. Competition between banks makes sure the profits don't run too high. Unless you have excessive government regulations that hurt smaller banks (increased entry barriers and fixed costs) and bailouts for big banks, then monopolies occur and competition is stifled. I had to say that last sentence too in case someone reads the part of profits not going too high and says "that's not true! it's the markets fault!" in a hysterical voice.

I actually agree with everything you said about the mortgage business. And eventually the house of cards will fall down, unless the big banks keep getting bailed out, which the Fed is basically doing by lending endless money at zero interest via the discount window.

 

[PharmEcon]

1) Huh? I thought we were discussing the removal of government interference with the free market loan system? Or do you mean I would just get my loans in the private market? Fair point. In many ways that would be better, part of what makes student loans so terrible is the way the government protects them from default.

I meant the capital stays in the private sector, so yes, the second thing you said

2) I like that you used correlation in your argument, because that is exactly what it is. As tuition rose, loans rose. Or vice versa. Correlation is not causation.

I am not here to give political talking points and hence, I try to always be intellectually honest- yes it is correlation, but it is a strong correlation. More so, there are empirical economic studies which suggest the behavior could certainly be causative given the situation. All that aside, it makes so much more sense. Let me ask you, what do you think is the primary reason why college tuition has increased so much?

I don't think eliminating government loans would lower tuition. It might put some colleges out of business (unless the free market took over the job of loaning students money), but I doubt many colleges (particularly state colleges) would lower tuition. I go to a state college so I am sure that colors my perspective.

I also go to a state college, but I will tell you what would happen if government money got out- colleges would struggle to find students who can pay their huge fees leading to massive cost cutting and in turn lower tuitions. We had it decades ago and we can have it again. College can be affordable if we just get rid of the movie theaters, pools, gyms, subsidized concerts, free this and that, and on and on that is found on so many campuses today.

That speculation aside, this current rise in tuition cannot and will not last. Eventually people will say, college just isn't worth it anymore. That's when the bubble bursts and you have a bigger mess on your hands. This whole situation is eerily similar to the housing crisis we just went through.

3) I can't argue with this. I think my point is that I am on government loans and without them I wouldn't be able to attend school. If you are arguing that in some fictional alternative world I would be able to pay for school by working, perhaps you are correct. That is certainly not the case for me right now though.

I understand that. And I am not condemning anyone for taking government loans, etc. That is the somewhat ironic and often misunderstood thing about government policy: it can be horrible for everyone, but sometimes it is still beneficial to the individual to parttake so long as the policy is still on the books. I am saying that this system cannot and will not last and they need to start moving out of the market if we don't want to end up in an even bigger mess. I can almost guarantee you that by the time I have children (I am in my 20s), they will not have the opportunity to take government loans to pay for school as you are if current policy continues. If things continue I doubt the middle class notion of sending all kids to college will stick around too- trade schools and community colleges will become more popular.

4) Ah the risk exchange argument. I would almost buy that argument, except that it is in the ins companies best interest to reduce risk, which they do through per-existing condition clauses and other loop holes when left to their own devices. It is simple business really, they need you to pay your premium and never make any claims. Pointing out that they make money through investment is not really helpful, the bottom line is that their whole business model is one big conflict of interest. They employ claims adjusters who make bonuses based on the number of claims they can reject. They do audits not to find fraud but so they can reject claims that they already paid. They are a drain on the healthcare system, they do not produce anything. What do you claim they produce?

THEY BUY RISK. I am sorry but that is something they produce/offer. Our ENTIRE financial system right now relies on such buying and selling of risk. Every major firm hedges, buys CDSs, etc. etc. Risk is a tradeable item.

The preexisting conditions/denial of coverage, etc. is not something they can do on a whim. It is a matter of contractual law and the contact that the insuree and insurer BOTH sign. If you agree to it, you have to live up to it. If you don't like their conditions, don't sign. This brings me to the point why interstate insurance sales should be legalized- more competition means more choices for the consumer- if you don't like one firm's terms, go to another one. More choices.

From a financial standpoint, preexisting conditions drastically increase the risk pool of money. This means that the insurance company has to hold more money at any given time (and hence has less for investment purposes) to make sure it can meet obligations. That means that premiums would have to go up- tremendously. The problem is that if an insurance company that previously didn't cover a preexisting condition started to cover it, the increase in the risk pool means a big increase in premiums, which means a lot of the healthier insurees drop the plan, which means an even greater increase in premiums for the sick. At this point people would probably criticize the companies for offering insurance that is literally not affordable. Preexisting conditions increase the risk of payout a lot and hence, cost a lot.

I would love to live in a system where I have the option to not have insurance. Unfortunately my current choices are ins or pay out of pocket. One of those is impractical, the other is a necessary evil in our current system.

So you do see a function for insurance? That aside, the out of pocket costs need to be reduced- that's another area where reform is needed. That is again another area where the Obama bill didn't do enough. Want to reduce prices? Start with easing licensing laws. And here come the various boards of medicine/pharm/etc. about to attack me.

 

[PharmEcon]

You just made me snort my drink. Do you really believe that? Financial institutions are making record profits, and they're responsible to shareholders who don't want to see those profits go down (despite the precipitous loss in mortgage income).

You really think that charging you a dollar or two (or whatever it is at your bank) for certain actions is making them tremendous profits especially when those actions are starting to cost them net money as they can't invest as much of it as they used to yet still have to pay operating costs to get the actions to go through?

They are making their billions in stashing reserves at the Fed, QE where they know the sell price before buying, playing the yield curve, etc. depending on which firm we are talking about.Then you have the firms that aren't making money- the Bank of Americas which still face tremendous capitalization problems.

Also, last I checked the regulations, a percentage of checking account balances count towards the depository requirement for making loans. Savings products count at a higher percentage. I appreciate you clarifying, but the argument you are making is flawed if you're not counting all "deposits" as you stated.

Again, it was an analogy. That aside, before these new regulations and fees with all the free checking plans, etc. they clearly made the vast majority of money off the investments and not the actual checking.

 

[Sparda29]

I'd rather see all student loans being mandated by the government to have ZERO interest, including loans from private companies.

 

[xtsukiyox]

When people start to close their accounts or cancel their debit cards because of this, then what? My debit card is handy, but it's not necessary.
I feel the same way about student loans... I don't have to keep paying on them f-o-r-e-v-e-r (unless they offer me a great rate).

If you can answer that question in a way that will keep the shareholders, board, "main street," and government happy, you could make beaucoup bucks consulting for the big dogs. I have no idea what else is up their sleeves, but I can't imagine it will be good for the little guy. We may see a show of corporate responsibility, but I doubt we'll see an about-face to lasting changes. I really hope I'm wrong, though.

 

[xtsukiyox]

You really think that charging you a dollar or two (or whatever it is at your bank) for certain actions is making them tremendous profits especially when those actions are starting to cost them net money as they can't invest as much of it as they used to yet still have to pay operating costs to get the actions to go through?

They are making their billions in stashing reserves at the Fed, QE where they know the sell price before buying, playing the yield curve, etc. depending on which firm we are talking about.Then you have the firms that aren't making money- the Bank of Americas which still face tremendous capitalization problems.

B of A has already made an announcement that they are charging $5 per month for the debit card. Add this to the overwhelming variety of other fees they already charge and yes, this does have a huge impact on their bottom line. Your point is that $1 doesn't matter - it does, when you charge millions of people that $1, and it's not just $1 - next month, it's another $1. While B of A may not be making money due largely to their Countrywide portfolio and the brand damage they've sustained, the other top banks are - and they are charging the same fees.

My argument is that the fees are holding their profits high - not necessarily that they're making hand-over-fist money simply because of them. They are replacing a good amount of the revenue stream from the "investments" you're referring to with these fees.

On one hand, you seem to be saying that banks aren't making money (they have to charge fees to cover operating costs), but on the other you're claiming they're making so much money investing ("billions" at the Fed). They've twisted the lingo & you've bought into it. The business will still continue to operate, using the profits from the "investments" if need be. What they're really covering (and are loathe to cut) are profits, whatever form they end up taking in the twisted world of bank accounting.

These fees aren't going away any time soon, even when the market recovers & their other revenue streams recover.

Again, it was an analogy. That aside, before these new regulations and fees with all the free checking plans, etc. they clearly made the vast majority of money off the investments and not the actual checking.

I suppose at one time, if you count direct consumer loan interest as "investments" for the institutions that were making them. The point was, for this day & age (post-housing bubble), they are making more of their money from fees. Shocked the heck out of me when I read the numbers, too, in 2007.

 

[PharmEcon]

I'd rather see all student loans being mandated by the government to have ZERO interest, including loans from private companies.

Moral hazard.

On one hand, you seem to be saying that banks aren't making money (they have to charge fees to cover operating costs), but on the other you're claiming they're making so much money investing ("billions" at the Fed). They've twisted the lingo & you've bought into it. The business will still continue to operate, using the profits from the "investments" if need be. What they're really covering (and are loathe to cut) are profits, whatever form they end up taking in the twisted world of bank accounting.

The point is that they are not charging these fees to increase profits, but to keep up with costs and regulations. I suppose it is arguable since we can't get in their heads, but why would they go ahead with these things knowing the public backlash that is coming if they weren't somewhat forced into it? Again, all speculation- you have your opinion, I have mine. And I haven't bought into any of their lingo- if I had I wouldn't have said anything about BOA being undercapitalized.

 

[PharmDstudent]

If you can answer that question in a way that will keep the shareholders, board, "main street," and government happy, you could make beaucoup bucks consulting for the big dogs. I have no idea what else is up their sleeves, but I can't imagine it will be good for the little guy. We may see a show of corporate responsibility, but I doubt we'll see an about-face to lasting changes. I really hope I'm wrong, though.

A shoppers loyalty program would work well enough with the retailers voluntarily taking a small hit. If you shop here, here, or here so many times per month, then the fee is waived.

 

[xtsukiyox]

The credit card example didn't force them out of business, but they were profitable for the bank, otherwise they would have stopped making those credit card loans. My point is that they raised the interest rates on those young borrowers to the point where it made up for the risk of lending to this highly risky group of borrowers. It makes sense. Yeah there is an acceptable default rate. You lend to these kids knowing a large portion won't pay you back, that's why you charge such a high interest rate to recoup those losses. Competition between banks makes sure the profits don't run too high. Unless you have excessive government regulations that hurt smaller banks (increased entry barriers and fixed costs) and bailouts for big banks, then monopolies occur and competition is stifled. I had to say that last sentence too in case someone reads the part of profits not going too high and says "that's not true! it's the markets fault!" in a hysterical voice.

I actually agree with everything you said about the mortgage business. And eventually the house of cards will fall down, unless the big banks keep getting bailed out, which the Fed is basically doing by lending endless money at zero interest via the discount window.

My point boils down to this: if left to private lenders, they will find a way to make student loans profitable, at the expense of students.

Young students who have yet to enter the workforce are a particularly susceptible population, since they are not yet financially savvy. I don't believe there is an effective financial education solution that would allow students to make a truly informed decision as to what's an acceptable debt load (and to that point, no one has a crystal ball as to what you'll make out of college anyway). Loaning more than what someone can reasonably afford to pay back - and loaning to an 18-year-old kid who doesn't really know the difference - seems to be the definition of predatory lending to me.

I draw the comparison between student credit cards & student loans because it shows the private sectors' track record lending to students. There are already private student loans out there that have unscrupulous terms buried in fine print. Call me cynical, but I just don't think the private sector will change.

(Another issue is that universities are handing out junk degrees that don't prepare you for the workforce - but that's a separate discussion.)

By the way, thank you for referring to the "cash infusion" by the Fed as a bailout. Remarkably few people see it that way. Mission accomplished, I suppose.

 

[xtsukiyox]

A shoppers loyalty program would work well enough with the retailers voluntarily taking a small hit. If you shop here, here, or here so many times per month, then the fee is waived.

I like that idea. Would the retailers pay for it?

A previous incarnation of debit card fee waiver required X number of purchases per month (although it didn't matter where). Presumably, the resulting card terminal fees paid for the debit cards on the other end.

 

[PharmDstudent]

I like that idea. Would the retailers pay for it?

A previous incarnation of debit card fee waiver required X number of purchases per month (although it didn't matter where). Presumably, the resulting card terminal fees paid for the debit cards on the other end.

I think they would pay for it. Retailers are desperate to get people in their stores, online, on the phone, etc. to spend money.

 

[owlegrad]

I meant the capital stays in the private sector, so yes, the second thing you said

I think we more or less agree here.

Let me ask you, what do you think is the primary reason why college tuition has increased so much?

Availability of loans certainly played a part. I think the answer is simpler though, we as a society have been sold on the idea that everyone needs higher education, period. People don't go to college just because the loans are there - the loans are there because people want to go to school.

I also go to a state college, but I will tell you what would happen if government money got out- colleges would struggle to find students who can pay their huge fees leading to massive cost cutting and in turn lower tuitions.

I don't see that happening. State colleges cannot change tuition schedules on a whim, it has to go through the state legislature. Private colleges perhaps. If the government withdrew from the loan market wouldn't private companies just make up the difference though? I don't see how this is practical at all. If private companies didn't make up the difference, the result would be fewer students (and schools), not lower tuition (IMO).

That speculation aside, this current rise in tuition cannot and will not last. Eventually people will say, college just isn't worth it anymore. That's when the bubble bursts and you have a bigger mess on your hands. This whole situation is eerily similar to the housing crisis we just went through.

Agree.

I am saying that this system cannot and will not last and they need to start moving out of the market if we don't want to end up in an even bigger mess. I can almost guarantee you that by the time I have children (I am in my 20s), they will not have the opportunity to take government loans to pay for school as you are if current policy continues. If things continue I doubt the middle class notion of sending all kids to college will stick around too- trade schools and community colleges will become more popular.

I have no crystal ball, so I cannot say. I would love for the last line this to come true though.

THEY BUY RISK. I am sorry but that is something they produce/offer. Our ENTIRE financial system right now relies on such buying and selling of risk. Every major firm hedges, buys CDSs, etc. etc. Risk is a tradeable item.

Buying risk makes them a producer?

The preexisting conditions/denial of coverage, etc. is not something they can do on a whim. It is a matter of contractual law and the contact that the insuree and insurer BOTH sign. If you agree to it, you have to live up to it. If you don't like their conditions, don't sign. This brings me to the point why interstate insurance sales should be legalized- more competition means more choices for the consumer- if you don't like one firm's terms, go to another one. More choices.

Are you familiar with the number of lawsuits based on insurance companies' breach of contract? I don't know the number, but I bet it is high.

I think this is where we fundamentally disagree. No amount of free market forces makes insurance companies sustainable. It is in their best interest for healthy people to pay premiums and sick people to be excluded. There is no way to reconcile that system with one that works in the best interest of public health, period.

You keep coming back to if I think insurance companies have a role. Rather like your point that bad government policies can still be used as long as they are on the books, the same can be said for ins companies. I do not think they have a role in a rationally designed healthcare system, but it's not like I can ignore the realities of the current system. Actually, my college requires students to have health insurance, so I can't opt out even if I wanted to (though I don't want to opt out, I want to improve it).

From a financial standpoint, preexisting conditions drastically increase the risk pool of money. This means that the insurance company has to hold more money at any given time (and hence has less for investment purposes) to make sure it can meet obligations. That means that premiums would have to go up- tremendously. The problem is that if an insurance company that previously didn't cover a preexisting condition started to cover it, the increase in the risk pool means a big increase in premiums, which means a lot of the healthier insurees drop the plan, which means an even greater increase in premiums for the sick. At this point people would probably criticize the companies for offering insurance that is literally not affordable. Preexisting conditions increase the risk of payout a lot and hence, cost a lot.

I agree, this is part of what makes them unsustainable.

So you do see a function for insurance? That aside, the out of pocket costs need to be reduced- that's another area where reform is needed. That is again another area where the Obama bill didn't do enough. Want to reduce prices? Start with easing licensing laws. And here come the various boards of medicine/pharm/etc. about to attack me.

I agree with that, though easing licensing laws makes no sense to me. How else do you propose to protect the public?

 

[PharmEcon]

Availability of loans certainly played a part. I think the answer is simpler though, we as a society have been sold on the idea that everyone needs higher education, period. People don't go to college just because the loans are there - the loans are there because people want to go to school.

Had that notion stood and there had been a reduction in loans with almost no requirements, tuition still wouldn't have gone as high and the areas in which it had would have been in areas where private lenders see potential to get their money back- careers where job outlook and salary is at least decent- yes pharm would be included.

Compare this to the housing market once more and my argument might seem more plausible. There was a societal notion among certain groups that every American should be able to buy a house. That notion was quite strong among some, but do you really think that without the easy money from the Fed and the loan backing from Fannie and Freddie that the housing bubble would have gotten so big? The vast majority (and by that I mean probably 99.9%) of economists will tell you that without the GSEs (fannie/freddie) and loose money, the bubble would not have gotten nearly as big had it even been made in the first place.

I don't see that happening. State colleges cannot change tuition schedules on a whim, it has to go through the state legislature.

This would not be an overnight change- it would most certainly be a large Federal bill that eliminates such loans over time, allowing for adjustments, etc. over time as well. The problem with legislation in republics historically has been that it is much easier to pass laws like increased student lending and the healthcare bill than it is to repeal them because the market immediately adapts to policy. Unfortunately, if nothing is done, we will have a big mess on our hands.

If the government withdrew from the loan market wouldn't private companies just make up the difference though? I don't see how this is practical at all. If private companies didn't make up the difference, the result would be fewer students (and schools), not lower tuition (IMO).

Private companies will not make up the difference $ for $. They will not give 100k to a kid to major in a useless major where there are no jobs. They will be a lot more cautious in who they lend to. And that is not a bad thing- it ends up usually being in the best interest of the kid as well. And the reduced ability for kids to pay for school would mean schools would actively look to reduce prices- something that they don't care about much right now because of the free money flying everywhere.

Buying risk makes them a producer?

They produce a service that eases people's minds by allowing them to unburden risk. An accountant provides a service that eases people's minds by doing their taxes for them. Very similar.

Are you familiar with the number of lawsuits based on insurance companies' breach of contract? I don't know the number, but I bet it is high.

And that is an insuree's right to sue if the insurance company didn't stick to their end of the bargain. It's a two-way street. Our world is based on contacts and that is a good thing compared to the alternatives.

I think this is where we fundamentally disagree. No amount of free market forces makes insurance companies sustainable. It is in their best interest for healthy people to pay premiums and sick people to be excluded. There is no way to reconcile that system with one that works in the best interest of public health, period.

That is in their best interest, but so what? It is in the best interest for the luxury purse maker to have everyone regardless of how much money they have to buy luxury purses. Does that mean that is what happens or that it is a bad thing for society? Absolutely not.

You keep coming back to if I think insurance companies have a role. Rather like your point that bad government policies can still be used as long as they are on the books, the same can be said for ins companies. I do not think they have a role in a rationally designed healthcare system, but it's not like I can ignore the realities of the current system. Actually, my college requires students to have health insurance, so I can't opt out even if I wanted to (though I don't want to opt out, I want to improve it).

Insurance companies most certainly have a role. You have described it yourself when you say you have insurance because you don't want to pay out of pocket. They might be two bad alternatives, but they are alternatives and you made a choice. Life isn't always about good alternatives.

That being said, insurance companies right now have A LOT of pricing power in the market BECAUSE of government. The Obama bill only plays into their hands. Most people don't realize this because they keep buying the political rhetoric while those same politicians turn around, give handouts to every special interest group in sight and get a couple million in their campaign coffers in return. The government sold out the people long ago- until we realize that, this nonsense will continue.

I agree, this is part of what makes them unsustainable.

Their models are set so they can meet obligations. They are not unsustainable if run the right way. There are insurance companies today that have been around in the US since the 1800s.

I agree with that, though easing licensing laws makes no sense to me. How else do you propose to protect the public?

It is no secret amongst those who study these matters that licensing laws are sold until the pretense of protecting the public (for the greater good- much like most special interest bills are sold to the public including healthcare, previous housing bills, student loan bills, etc.) but are pushed and paid for (in terms of political donations) by special interest groups such as boards of medicine, etc. There is a strong argument against licensing all together (for one who will visit a doctor that does not have a degree?) but even without abolishing licensing, laws can be eased so that for example in healthcare nurses and PAs can do more things (that they do already have skills for), reducing the doctors' duties, thereby reducing the demand for doctors which reduces salaries and in the end reduces the consumer cost. Of course for the obvious reason the various boards of medicine are always vehemently opposed to such suggestions. It is all about the $$$.

The politicians like to have us think that we live in this republic that fights for freedom and the good of the people, but the reality is that the government sold out long ago. Historically, it almost always does the bigger it gets. The old phrase, follow the $$$ is so true though. Seriously, follow the money and you see what is really happening in this country and elsewhere around the world.

 

[owlegrad]

I like you.

Compare this to the housing market once more and my argument might seem more plausible. There was a societal notion among certain groups that every American should be able to buy a house. That notion was quite strong among some, but do you really think that without the easy money from the Fed and the loan backing from Fannie and Freddie that the housing bubble would have gotten so big? The vast majority (and by that I mean probably 99.9%) of economists will tell you that without the GSEs (fannie/freddie) and loose money, the bubble would not have gotten nearly as big had it even been made in the first place.

I never disagreed that easy money plays a role, I simply do not think it is a causative role. At worst it enables. I don't blame the government for people making poor educational choices though, that doesn't really make sense to me.

This would not be an overnight change- it would most certainly be a large Federal bill that eliminates such loans over time, allowing for adjustments, etc. over time as well. The problem with legislation in republics historically has been that it is much easier to pass laws like increased student lending and the healthcare bill than it is to repeal them because the market immediately adapts to policy. Unfortunately, if nothing is done, we will have a big mess on our hands.

Agree.

Private companies will not make up the difference $ for $. They will not give 100k to a kid to major in a useless major where there are no jobs. They will be a lot more cautious in who they lend to. And that is not a bad thing- it ends up usually being in the best interest of the kid as well. And the reduced ability for kids to pay for school would mean schools would actively look to reduce prices- something that they don't care about much right now because of the free money flying everywhere.

I think I have argued a similar position at one time or another. The potential problems with letting the free market decide who gets loans is pretty scary to me though.

They produce a service that eases people's minds by allowing them to unburden risk. An accountant provides a service that eases people's minds by doing their taxes for them. Very similar.

OK this makes no sense to me. Accountants provide a valuable service and using them is essentially optional. I would not say either is true for insurances.

And that is an insuree's right to sue if the insurance company didn't stick to their end of the bargain. It's a two-way street. Our world is based on contacts and that is a good thing compared to the alternatives.

This is a little all over the place friend. I never argued for a world without contracts, I only pointed out the inherent conflict of interest in a system where a for profit company decides what level of care you receive and has every incentive to deny claims. I would love to hear an arguement that deminstrates that insurance companies work in the best interest of either their patient's or public health.

That is in their best interest, but so what? It is in the best interest for the luxury purse maker to have everyone regardless of how much money they have to buy luxury purses. Does that mean that is what happens or that it is a bad thing for society? Absolutely not.

WOOSH!

Insurance companies most certainly have a role. You have described it yourself when you say you have insurance because you don't want to pay out of pocket. They might be two bad alternatives, but they are alternatives and you made a choice. Life isn't always about good alternatives.

OK again I find this all over the place. Help me to understand the role of insurance companies and the value they provide to the healthcare system. I didn't say I didn't want to pay out of pocket, I said I couldn't (rare triple negative for the win). It is the reality of our current system. Talking about life not being perfect is irrelevant, no one is arguing that (strawman). There is a good alternative though (hypothetically, not actually). Just because insurance companies are how they are now does not mean we can't discuss better alternatives.

That being said, insurance companies right now have A LOT of pricing power in the market BECAUSE of government. The Obama bill only plays into their hands. Most people don't realize this because they keep buying the political rhetoric while those same politicians turn around, give handouts to every special interest group in sight and get a couple million in their campaign coffers in return. The government sold out the people long ago- until we realize that, this nonsense will continue.

I don't disagree with any of this, except that I don't think insurance companies have a place in a rational system.

Their models are set so they can meet obligations. They are not unsustainable if run the right way. There are insurance companies today that have been around in the US since the 1800s.

I meant as a healthcare system they are unsustainable, not that any particular company is not well run. Quite the reverse, many insurance companies are run with ruthless efficiency. I just don't think healthcare should be at the mercy of private companies who care more for profit than public health.

It is no secret amongst those who study these matters that licensing laws are sold until the pretense of protecting the public (for the greater good- much like most special interest bills are sold to the public including healthcare, previous housing bills, student loan bills, etc.) but are pushed and paid for (in terms of political donations) by special interest groups such as boards of medicine, etc. There is a strong argument against licensing all together (for one who will visit a doctor that does not have a degree?) but even without abolishing licensing, laws can be eased so that for example in healthcare nurses and PAs can do more things (that they do already have skills for), reducing the doctors' duties, thereby reducing the demand for doctors which reduces salaries and in the end reduces the consumer cost. Of course for the obvious reason the various boards of medicine are always vehemently opposed to such suggestions. It is all about the $$$.

Wow. Just wow. No, no there is not. So just anyone could setup shop? How would the public be able to distinguish between real doctors and quacks? At what point would the harm of a quack be illegal? Can I start to offer breast exams, cheap? If just anyone can pretend to be a doctor...my mind is spinning. Perhaps I am misunderstanding though.

If you are prepharmacy, do you not see the value of being a licensed professional? Value to both you and the public.

As for it being all about the $$$...duh?

The politicians like to have us think that we live in this republic that fights for freedom and the good of the people, but the reality is that the government sold out long ago. Historically, it almost always does the bigger it gets. The old phrase, follow the $$$ is so true though. Seriously, follow the money and you see what is really happening in this country and elsewhere around the world.

Way outside the scope of what we are discussing, but I don't entirely disagree.

 

[deleted390966]

With this interest rate, my loans DOUBLE every 10 years

I worry more about the skyrocketing costs of education these days..

 

[Ilikechemicals]

Without government incentives in the form of student loan subsidies, there is an argument to be made that there would be a severe shortage of providers for the future

There already is and its only getting worse. The 2 reasons for it: 1) Massive debt coming out of school. 2) Worsening reimbursement for practicing doctors.

Big government "helping" is the main culprit for both reasons.

 

[Hello2011]

With this interest rate, my loans DOUBLE every 10 years

I worry more about the skyrocketing costs of education these days..

With this current administration, government will DOUBLE in 10 years

 

[owlegrad]

With this current administration, government will DOUBLE in 10 years

So...how exactly is the current administration going to stay in office for another 10 years?

If this was a satirical post, my hat goes off to you. Well done sir, well done.

 

[PharmEcon]

I like you.

Right back at ya. Always nice to have a discussion on serious topics without getting attacked for having certain viewpoints.

I never disagreed that easy money plays a role, I simply do not think it is a causative role. At worst it enables. I don't blame the government for people making poor educational choices though, that doesn't really make sense to me.

It enables exponentially. It boosts the market tremendously. As for poor educational choices, homeowners who put 0 money down and had no savings, no extra spending money over food/travel/etc. also made a poor choice when they decided to take that mortgage despite being subprime. Sure they made bad choices, but we all paid for it did we not? And who enabled them to do that? The government. Markets tend to have built-in feedback systems. This would likely cap bubbles- government fiat usually only blows them up so that when they burst they burst bigger. The price mechanism is EXTRAORDINARILY powerful and intricate- most people just don't realize it until they actually think about it.

I think I have argued a similar position at one time or another. The potential problems with letting the free market decide who gets loans is pretty scary to me though.

Works for autos, homes, small businesses, investors, banks, and on and on. I find it scary that government is willing to lend to a group of people without so much as making sure the people can realistically one day repay the money.

OK this makes no sense to me. Accountants provide a valuable service and using them is essentially optional. I would not say either is true for insurances.

Insurance is optional (prior to the Obama bill in healthcare at least) and insurance is valuable. It offers a tool to hedge your risk. Risk is a negative thing- for some more than others depending on how risk averse they are. People are actively willing to pay money to reduce their risks- they WANT this service- that is why insurance is such a big market.

Let me ask you a couple questions. Why do you buy a bicycle helmet? Is it not to reduce the risk of head injury should you fall off the bike? Why do you (assuming you do) want to keep some savings just for the sake of having savings? Is it not for the risk of hard times or something unexpected happening? We all hedge in our lives all the time. We try to reduce risks and offset risks in so many things that we do. Insurance is just another way to do that.

This is a little all over the place friend. I never argued for a world without contracts, I only pointed out the inherent conflict of interest in a system where a for profit company decides what level of care you receive and has every incentive to deny claims. I would love to hear an arguement that deminstrates that insurance companies work in the best interest of either their patient's or public health.

They don't decide what level of care you receive after the fact. It is all in the contract- the buyer needs to be aware of what's in it when they buy it. Of course they have an incentive to deny claims. They also have an incentive to follow their contract and not get sued.

As for whether insurance companies work in the interest of patients and public health- ironically they do, especially in a market based on voluntary action. It is just like how makers of alcohol still contribute to the society and economy or how makers of that luxury purse do. If the transactions are all voluntary, what's the problem? People buy or sell things, including insurance because they think they will be better off after the trade- their utility increases. This is why trade is so fantastic- we can trade the same items between us, yet our overall utility increases.

OK again I find this all over the place. Help me to understand the role of insurance companies and the value they provide to the healthcare system. I didn't say I didn't want to pay out of pocket, I said I couldn't (rare triple negative for the win).

And you buying insurance now means that you can get the care you need, doesn't it? There is the value the insurance is providing you. You might not like either alternative, but surely the one where you have bought insurance is better (by your valuation).

It is the reality of our current system. Talking about life not being perfect is irrelevant, no one is arguing that (strawman). There is a good alternative though (hypothetically, not actually). Just because insurance companies are how they are now does not mean we can't discuss better alternatives.

Of course we can. That is what I am saying- let's allow insurance companies to compete across state lines and reduce barriers to entry in the market. It will increase choices for consumers and reduce costs. What is the alternative you suggest?

I don't disagree with any of this, except that I don't think insurance companies have a place in a rational system.

The buying, selling, and hedging of risk dates back probably to the beginning of time in one form or another. I don't see how you or I can determine what is "rational" (not sure that is the right choice of words either) when so many people over so many years have looked to actively trade risk.

Let me bring in one more outside example. Farming. Farmers nowadays often trade on the futures markets in order to hedge risks that their crop might fall in value to an extent where they would lose money for the season when it comes time to sell. With futures contracts, they can lock in certain prices beforehand, thereby hedging the risk of losses. These are all in some form derived from the original trade of risk and insurance. It plays a VITAL part of our economy today- in virtually every sector.

For pharmacy specifically, you buy malpractice insurance in case you make a mistake and get sued. Do you think there is no point to that too?

I meant as a healthcare system they are unsustainable, not that any particular company is not well run. Quite the reverse, many insurance companies are run with ruthless efficiency. I just don't think healthcare should be at the mercy of private companies who care more for profit than public health.

I find this argument very ironic. In a market, everyone can be doing things for their self-interest, as businesses often do, yet the net outcome is usually very positive because everything happens on voluntary action. Historically, it has fueled tremendous growth. On the other hand, you seem to somewhat imply that while insurance company CEOs are self-interested, government officials are not. What makes you think the government isn't willing to sell you out for some campaign funds or a fat check once the politician leaves office? It wouldn't be the first time it's happened.

China learned the hard way that GSEs do not work. They have worked towards reducing the number of state owned enterprises in fields such as education, healthcare, etc. from their protectionist past. The US, unfortunately, has been going in the other direction.

Wow. Just wow. No, no there is not. So just anyone could setup shop? How would the public be able to distinguish between real doctors and quacks? At what point would the harm of a quack be illegal? Can I start to offer breast exams, cheap? If just anyone can pretend to be a doctor...my mind is spinning. Perhaps I am misunderstanding though.

There absolutely is. In academia. Don't let the mainstream sensationalist intuition misguide you- it has done enough damage. There have been times and there are places with much looser or no licensing laws for these professions and it works. Here is a relevant video of Milton Friedman fielding questions from doctors at the Mayo Clinic on the matter that I would recommend: http://www.youtube.com/watch?v=-6t-R3pWrRw

If you are prepharmacy, do you not see the value of being a licensed professional? Value to both you and the public.

I see the value to me because it limits the supply of pharmacists which means I'll probably make more $. To the public? eh... it's arguable.

Note that I am saying it is at least arguable and personally, I would like to see eased laws not necessarily abandoning them all together- particularly in medicine where nurses and PAs can do a lot of the things they legally aren't allowed to. It won't happen though. Again, too much $$$ in it for pharmacists, doctors, etc. and their respective boards (and in turn to the politicians they contribute to). All at the cost of the rest of the public.

 

[PharmDstudent]

Of course we can. That is what I am saying- let's allow insurance companies to compete across state lines and reduce barriers to entry in the market. It will increase choices for consumers and reduce costs. What is the alternative you suggest?

That would require legislation changes in some states that may adversely affect certain clients. Take Maine, for example.
"Group health insurance in Maine cannot be denied if you have a health problem, nor can you be charged more, provided you can qualify. Due to life changes dealing with children, marriage, death, or loss of job, you may be eligible for additional enrollment opportunities. New employers may withhold offering their group insurance for a short time. A new insurance company can check back six months into your medical records for a pre-existing condition and can impose a maximum of 12 months for an exclusion period for that condition. There are regulations which protect you from exclusion periods for pre-existing conditions if you have had continuous health coverage and when you are joining a new group plan." -http://www.medhealthinsurance.com/maine.htm
Sooooo... if they can not deny you, then they will charge you - anyway.

 

[PharmEcon]

That would require legislation changes in some states that may adversely affect certain clients. Take Maine, for example.
"Group health insurance in Maine cannot be denied if you have a health problem, nor can you be charged more, provided you can qualify. Due to life changes dealing with children, marriage, death, or loss of job, you may be eligible for additional enrollment opportunities. New employers may withhold offering their group insurance for a short time. A new insurance company can check back six months into your medical records for a pre-existing condition and can impose a maximum of 12 months for an exclusion period for that condition. There are regulations which protect you from exclusion periods for pre-existing conditions if you have had continuous health coverage and when you are joining a new group plan." -http://www.medhealthinsurance.com/maine.htm
Sooooo... if they can not deny you, then they will charge you - anyway.

As I said before, it would have to be something that is done gradually due to the nature of such legislation. I think in the end everyone would be better off though. Another thing I forgot to mention is that the tax-code should be modified so that insurance and jobs don't necessarily get coupled as often as they do nowadays. More individual insurance would also increase choices, competition, and reduce costs- at the very least the government shouldn't blatantly give advantages to employer-provided insurance.

 

[owlegrad]

It enables exponentially.

I basically agree with your main point and I hope you will forgive my nitpicking. I have a few quarks (perhaps more than a few) and the word exponential is one of them. Do you mean to say that government loans enables based on the function:

?

I doubt it.

Works for autos, homes, small businesses, investors, banks, and on and on. I find it scary that government is willing to lend to a group of people without so much as making sure the people can realistically one day repay the money.

My problem with letting the free market decide who can go to school is the risk that people from lower socioeconomic circles will not be able to go to college. I admit that there are many ways beside unlimited government loans to address this potential dis-equity (perhaps even better alternatives), my main point is at least government loans allow anyone with the desire to pursue higher education, I don't think that would be true of the free market.

Insurance is optional (prior to the Obama bill in healthcare at least) and insurance is valuable. It offers a tool to hedge your risk. Risk is a negative thing- for some more than others depending on how risk averse they are. People are actively willing to pay money to reduce their risks- they WANT this service- that is why insurance is such a big market.

Insurance is not optional if you want healthcare (and are not rich).

Let me ask you a couple questions. Why do you buy a bicycle helmet? Is it not to reduce the risk of head injury should you fall off the bike? Why do you (assuming you do) want to keep some savings just for the sake of having savings? Is it not for the risk of hard times or something unexpected happening? We all hedge in our lives all the time. We try to reduce risks and offset risks in so many things that we do. Insurance is just another way to do that.

Yes. I am not against insurance in general, I just do not believe that a healthcare system that requires private insurance companies is the best system.

They don't decide what level of care you receive after the fact. It is all in the contract- the buyer needs to be aware of what's in it when they buy it. Of course they have an incentive to deny claims. They also have an incentive to follow their contract and not get sued.

I think this is mostly a fair point, except that it is almost impossible to read an entire insurance contract and it is a tiny bit disingenuous to believe that anyone could possibly understand it in its entirety. There are so many provisions (loopholes) ect that I just do not think saying "know what you sign" is entirely fair.

As for whether insurance companies work in the interest of patients and public health- ironically they do, especially in a market based on voluntary action. It is just like how makers of alcohol still contribute to the society and economy or how makers of that luxury purse do. If the transactions are all voluntary, what's the problem? People buy or sell things, including insurance because they think they will be better off after the trade- their utility increases. This is why trade is so fantastic- we can trade the same items between us, yet our overall utility increases.

Is it voluntary? It is in the sense that you can forgo healthcare I guess. What is the term for when outside influences compel us to make choices we otherwise would not? Can't think of it right now. Darn.

And you buying insurance now means that you can get the care you need, doesn't it? There is the value the insurance is providing you. You might not like either alternative, but surely the one where you have bought insurance is better (by your valuation).

Correct; having insurance is better than not having insurance. A system where private insurance is not needed is better than either alternative.

Of course we can. That is what I am saying- let's allow insurance companies to compete across state lines and reduce barriers to entry in the market. It will increase choices for consumers and reduce costs. What is the alternative you suggest?

I don't want to get into it, but I will say a system that has administrative costs less than 1% and focuses on public health rather than profit is my ideal system. (OK I admit it, in this matter I am a socialist)

The buying, selling, and hedging of risk dates back probably to the beginning of time in one form or another. I don't see how you or I can determine what is "rational" (not sure that is the right choice of words either) when so many people over so many years have looked to actively trade risk.

Let me bring in one more outside example. Farming. Farmers nowadays often trade on the futures markets in order to hedge risks that their crop might fall in value to an extent where they would lose money for the season when it comes time to sell. With futures contracts, they can lock in certain prices beforehand, thereby hedging the risk of losses. These are all in some form derived from the original trade of risk and insurance. It plays a VITAL part of our economy today- in virtually every sector.

For pharmacy specifically, you buy malpractice insurance in case you make a mistake and get sued. Do you think there is no point to that too?

I think I may have argued to harshly against insurances - I am only against health insurances, other forms are fine.

I find this argument very ironic. In a market, everyone can be doing things for their self-interest, as businesses often do, yet the net outcome is usually very positive because everything happens on voluntary action. Historically, it has fueled tremendous growth. On the other hand, you seem to somewhat imply that while insurance company CEOs are self-interested, government officials are not. What makes you think the government isn't willing to sell you out for some campaign funds or a fat check once the politician leaves office? It wouldn't be the first time it's happened.

Well I think we can agree that all human institutions are inherently flawed. Big business, government, etc. All flawed and full of corruption. No argument, right? At least government is accountable to the public, businesses are responsible to shareholders. It is no leap of the imagination that government has a bigger interest in promoting public health than big business.

China learned the hard way that GSEs do not work. They have worked towards reducing the number of state owned enterprises in fields such as education, healthcare, etc. from their protectionist past. The US, unfortunately, has been going in the other direction.

I have to admit my ignorance here. I am aware that China has become more capitalistic and is growing - dare I say it? - exponentially. I love capitalism, I just do not think it works in every market. For me healthcare is one market where it works in some ways, but not in ensuring the equitable distribution of finite healthcare resources. It also encourages me two drugs rather than true innovations, but that is a separate issue.

Of course if you define those that can afford care as the most desiring of care, there is no issue.

There absolutely is. In academia. Don't let the mainstream sensationalist intuition misguide you- it has done enough damage. There have been times and there are places with much looser or no licensing laws for these professions and it works. Here is a relevant video of Milton Friedman fielding questions from doctors at the Mayo Clinic on the matter that I would recommend: http://www.youtube.com/watch?v=-6t-R3pWrRw

I will again have to admit my ignorance of this topic. I just do not think a system without rigid licensing requirements would be an effective one. (Effective in the sense of insuring public health)

I see the value to me because it limits the supply of pharmacists which means I'll probably make more $. To the public? eh... it's arguable.

Note that I am saying it is at least arguable and personally, I would like to see eased laws not necessarily abandoning them all together- particularly in medicine where nurses and PAs can do a lot of the things they legally aren't allowed to. It won't happen though. Again, too much $$$ in it for pharmacists, doctors, etc. and their respective boards (and in turn to the politicians they contribute to). All at the cost of the rest of the public.

I agree that mid-levelers should be allowed to do more, and in fact is that not the direction we are heading? It might be slower because of licensing and scope of practice laws, but I don't think we should throw out the baby with the bathwater as they say. I have attended a few BOP meetings and I would have to say I think they serve their purpose. Without strong licensing laws who would decide when a practitioner needs to be removed from the profession? The market? The courts?

Sadly I have a test tomorrow, so I have to sign out for two days.

 

[ld9]

I hope ron paul doesn't win. He has primitive economic ideas like gold backing our currency. He wants to get rid of student loans. The guy is an economic anarchist and his policies would be bad for the country. I'd rather have an anti-science guy guy like huckabee than him.

 

[ld9]

Not sure how national healthcare is relevant to this discussion, but since you brought it up, how do you see ~40 million new customers for insurance companies at government cost without any major cost-cutting measures or systematic reform as a positive thing? Short-sighted if anything and as is often the case nowadays, it was nothing more than a special interest victory.

Those costs will keep rising if paul is president because he has no problem with companies polluting our air and water. He also wants to get rid of medicare and if you watched the debates he is perfectly content with letting uninsured patients die.

 

[PharmDstudent]

He has primitive economic ideas like gold backing our currency.

What's wrong with that?

 

[ld9]

What's wrong with that?

It doesn't work. Stuff like that sounds good in theory but it would stunt growth. Gold really only has value because we say it has value. It would be subject to the same boom and busts with everything else. Its not even that great of a metal. Copper is actually a better conductor than gold.

 

[PharmDstudent]

It doesn't work. Stuff like that sounds good in theory but it would stunt growth. Gold really only has value because we say it has value. It would be subject to the same boom and busts with everything else. Its not even that great of a metal. Copper is actually a better conductor than gold.

It's a better option than just printing money whenever we need it. If our currency isn't backed by anything, then inflation can get away from us.
Gold, copper, silver, platinum, whatever. Anything real would be better than the seemingly endless printing of money.

 

[PharmEcon]

I hope ron paul doesn't win. He has primitive economic ideas like gold backing our currency. He wants to get rid of student loans. The guy is an economic anarchist and his policies would be bad for the country. I'd rather have an anti-science guy guy like huckabee than him.

He actually wants to allow competing currencies.
He wants to get rid of FEDERAL student loans.

Why do you hold such a strong position when you haven't even taken the time to learn what those who you criticize actually stand for?

Those costs will keep rising if paul is president because he has no problem with companies polluting our air and water. He also wants to get rid of medicare and if you watched the debates he is perfectly content with letting uninsured patients die.

You again misunderstand his positions. Also, I am not sure why you are bringing Paul up in response to my posts considering I haven't said anything about him. That aside, I'll respond for the sake of clearing up misunderstanding.

Paul believes in property rights. He believes that pollution will be taken care of by property right laws and contractual law. If someone pollutes your land or water, surely you will sue them and surely it is illegal if you didn't allow it. Maybe he is right, maybe he is not, but I don't see how the cost of healthcare will rise so much because of it.

He wants to get rid of medicare- I am not sure why that is an inherently evil position considering the financial state of the program and projections.

As for letting uninsured patients die- he believes the market will take care of those that are truly needed. Just as it used to. It really is ironic how people are unwilling to put a price on life. I am sorry if it is a hard reality to accept, but life is value, just like money is and just like time is. There might come a point where the life just isn't worth it- in fact there are most certainly points where saving one life might well hurt the lives or even destroy the lives of many others. That is just how things are- nothing is perfect and covering it up doesn't actually solve anything.

For example, if there were somehow a procedure that could save some person, but would cost taxpayers $1 million , do you think it is worth it? $10 million? $100 million? $1 billion? World GDP? Clearly there is a point where it just doesn't make sense.

All that aside, how many doctors or medical professionals do you know that have so little compassion that they will let someone bleed to death on their ER floor? There is a faith aspect in people and historically, during times of reduced government support, the market HAS stepped up and stepped up big. Arguably more efficiently and effectively than even government laws currently do. Just take a look at philanthropy numbers from some of the freest markets in the world- Japan during the Meiji restoration, Britain for a few decades in the 1800s, etc.