Dream instinct desire revolt

The Good Obama

Obama's speech to Congress last week got high political grades and lower economic ones. Even Ronald Reagan's Treasury secretary is worried about zombie banks, created by an aversion to even temporary nationalizaton that would consist of "a piecemeal pumping of more public money into insolvent banks in the vague hope that things will improve down the road," which "could truly be historic folly." My capitalist pals make some good points about the weaknesses of his plan. And everyone seems worried about whether the current Treasury secretary Tim Geithner is right for the job.

It turns out that all those mortgage notes that were transferred in the securitization processes - well often they weren't actually transferred. Gretchen Morgenson has a good piece on how even the basic paperwork mechanisms broke down as the notes were wrapped like unfinished sausage and sold and resold:

On Feb. 11, a circuit court judge in Miami-Dade County in Florida set aside a judgment against Ana L. Fernandez, a borrower whose home had been foreclosed and repurchased on Jan. 21 by Chevy Chase Bank, the institution claiming to hold the note. But the bank had been unable to produce evidence that the original lender had assigned the note, which was in the amount of $225,000, to Chevy Chase.

With the sale set aside, Ms. Fernandez remains in the home. “We believe this loan was never assigned,” said Ray Garcia, the lawyer in Miami who represented the borrower. Now, he said, it is up to whoever can produce the underlying note to litigate the case. The statute of limitations on such a matter runs for five years, he said.

The NYT has been covering white-collars laid-off in their 50s and tossed aside.

Meanwhile, Obama's good political moments are best when taken out of context of the mandatory triumphal tone.

• The answers to our problems don't lie beyond our reach. They exist in our laboratories and our universities, in our fields and our factories, in the imaginations of our entrepreneurs and the pride of the hardest-working people on Earth.

There's a nice inclusion of all walks of society, I thought. And then Obama said:

• The fact is, our economy did not fall into decline overnight. Nor did all of our problems begin when the housing market collapsed or the stock market sank.
  
  We have known for decades that our survival depends on finding new sources of energy, yet we import more oil today than ever before.
  
  The cost of health care eats up more and more of our savings each year, yet we keep delaying reform.
  
  Our children will compete for jobs in a global economy that too many of our schools do not prepare them for.
  
  And though all of these challenges went unsolved, we still managed to spend more money and pile up more debt, both as individuals and through our government, than ever before.
  
  In other words, we have lived through an era where too often short-term gains were prized over long-term prosperity, where we failed to look beyond the next payment, the next quarter, or the next election.
  
  A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future.

This was as direct attack on the Reagan- Clinton-Bush era as anyone could expect and on its most important feature - its rampant antiegalitarianism.

And then there was his explicit invocation of the destructive positioning of Wall Street and business leadership.

• Now, I understand that, on any given day, Wall Street may be more comforted by an approach that gives bank bailouts with no strings attached and that holds nobody accountable for their reckless decisions, but such an approach won't solve the problem.
  And our goal is to quicken the day when we restart lending to the American people and American business and end this crisis once and for all. And I intend to hold these banks fully accountable for the assistance they receive, and this time they will have to clearly demonstrate how taxpayer dollars result in more lending for the American taxpayer.
  (APPLAUSE)
  
  This time -- this time, CEOs won't be able to use taxpayer money to pad their paychecks, or buy fancy drapes, or disappear on a private jet. Those days are over.

If those days are over, what are the new days? Money needs to arrive in employement offices and retraining centers and schools and colleges and businesses this week.

Gates Foundation Puts New Focus on College Completion

By BEN GOSE

Wednesday, November 12, 2008

Seattle

The Bill & Melinda Gates Foundation plans to spend several hundred million dollars over the next five years to double the number of low-income young people who complete a college degree or a certificate program by age 26, foundation officials told an exclusive group of education leaders who gathered here on Tuesday to provide feedback on the ambitious plan.

If successful, the new postsecondary program would result in an additional 250,000 people per year with some type of higher-education credential. And it broadens the foundation's already-generous spending on education, which previously has focused on secondary schools and college scholarships. Over all, the foundation plans to spend $3-billion on education during the next five years.

The foundation announced its new campaign at a conference attended by about 100 people, including current and former governors, prominent business executives and school superintendents, and Education Secretary Margaret Spellings.

The new effort will initially focus on community colleges because of their relatively low tuitions and open admissions policies. Foundation officials said they would consider expanding innovative approaches to improve college-completion rates, such as using technology to allow a student to move quickly through remedial work, and forgiving a portion of debt each year for students who stay in college and are making progress toward a degree.

In a speech on Tuesday, Melinda Gates, a co-chair of the foundation, pointed to data from the federal Bureau of Labor Statistics showing that more than half of all new jobs in the United States will require more than a high-school diploma. Only about 20 percent of low-income black and Hispanic students earn any sort of postsecondary credential.

“Completing high school ready for college is a key transition point in the path out of poverty,” Ms. Gates said. “A second transition is earning a postsecondary credential with value in the workplace. If young people fail to make the first transition, it’s unlikely they will make the second. If they fail to make the second, it’s likely they will be poor.”

Hilary Pennington, the Gates official who is leading the effort, said the foundation would announce a small initial round of grants next month, and that within a year, it would select eight to 10 states in which it will focus its work for the next three to five years. Grants will probably go to networks of institutions and organizations, rather than to individual colleges, she said.

Regret at Being Left Out

The foundation took some risk by presenting its general ideas to a high-profile audience before announcing even a single grant. Ms. Gates asked for “candid feedback” during sessions moderated by the journalist Juan Williams, and the foundation received plenty.

Some conference attendees wondered why the foundation—which has by its own admission achieved mixed results in its eight years of trying to improve high-school education—wasn’t spending more on elementary and middle-school education, rather than college completion.

“We made a choice,” said Bill Gates, a co-chair of the foundation and a co-founder of Microsoft. He said the foundation was motivated in part by new approaches that are helping students make it through certificate programs and community colleges.

University officials who attended, including Charles B. Reed, chancellor of the California State University system, urged the foundation to broaden its initial focus to include four-year institutions. And representatives of for-profit institutions grumbled that the foundation’s age cutoff—26—would exclude the many proprietary institutions that focus on adult learners.

The foundation has hired Thomas J. Kane, a professor of economics and education at Harvard University, to oversee an initial research effort. Vicki L. Phillips, the foundation’s director of education, said it would spend $500-million over the next five years on data and research related to college preparation and completion.

The Gates Foundation, which gives away $3.5-billion a year, far more than any other American foundation, is already an important force in education. It has spent $4-billion over the past seven years on efforts to improve high schools and on scholarships for low-income minority students (The Chronicle, August 8, 2006).

'Big and Bold' Endeavor

But the new postsecondary effort was touted by foundation officials as the modern equivalent of the GI Bill, which helped millions of returning soldiers attend college.

“We must be as big and bold as we were at the end of World War II,” Ms. Pennington said. “And we must do everything we can to make certain that postsecondary education is not just about access but success.”

Gates Foundation officials said they would work in partnership with other foundations, especially the Lumina Foundation for Education, which focuses on expanding access to postsecondary education, and they would look to expand successful programs that have already been created by colleges or industry.

They will also support efforts to use technology more effectively. In a speech on Tuesday afternoon, Ms. Pennington cited Rio Salado College, in Arizona, which has a rich online course catalog that is complemented by online tutoring and support services, and a graduation rate that, at 60 percent, is double the national average.

The conference focused on both college readiness and college completion, and the majority of the discussion focused on how to improve high schools so that students could succeed in college. Attendees included Joel I. Klein and Michelle Rhee, the school chancellors in New York and the District of Columbia, respectively, and politicians who have worked to improve education, like former North Carolina Gov. James B. Hunt Jr. Pennsylvania Gov. Edward G. Rendell participated by teleconference.

The foundation’s first efforts in education focused on creating smaller high schools, but Bill Gates said the foundation would now put more emphasis on improving teaching through new standards, curricula, and instructional tools.

“It’s clear that you can’t dramatically increase college readiness by changing only the size and structure of a school,” he said. “The schools that made dramatic gains in achievement did the changes in design and also emphasized changes inside the classroom.”

Through the postsecondary effort, the foundation is bringing its resources to bear on a problem that states and colleges have been grappling with for more than a decade, with little to show for it. Twenty years ago, the United States ranked first in the world in the percentage of adults between the ages of 25 and 34 who held a postsecondary credential. It has now fallen to 10th place, according to the Organisation for Economic Cooperation and Development.

The country’s financial crisis may aid the Gates Foundation as it tries to persuade states, school districts, and colleges to embrace structural changes and experimental approaches. The federal government and many states won’t have the money to lead a reform effort, noted Arthur Levine, president of the Woodrow Wilson National Fellowship Foundation, and a former president of Teachers College at Columbia University.

“That means the Gates Foundation could become the most powerful force in American education in the years to come,” he said.

http://chronicle.com/daily/2008/11/7251n.htm

How the Economic Hard Times Will Affect Colleges

From the issue dated November 14, 2008

By LAWRENCE WHITE

So what next? In rapid succession and over what seems like an impossibly short period of time, our nation's economy has absorbed a series of staggering body blows. In ordinary times, any one of them would have been the biggest business story of the year.

Trillions of dollars of the market value of publicly traded stock have evaporated in the past 12 months, a big proportion of it in September and October. Credit has dried up. Banks are unable or unwilling to engage in short-term lending and are hoarding cash. Credit standards have tightened, and in certain parts of the country it is almost impossible to secure intermediate or long-term loans.

The national unemployment rate was 4.8 percent a year ago. In September it was 6.1 percent. Economists expect jobs to drop by an average of 74,000 a month for the next year and project that the unemployment rate will reach close to 7 percent by June 2009. In some states — hard hit by mortgage foreclosures and corporate retrenchment — the unemployment rate could rise close to or even above 10 percent by the end of the academic year.

That's where we are today. What impact will continued financial turbulence have on higher education in the weeks and months ahead? Colleges will probably have to deal with:

Affordability issues. All of the investment and savings vehicles that parents and independent students traditionally use to pay college expenses — appreciated home values, prudently invested savings, private and government loans, lines of credit — have evaporated, making it considerably more difficult for millions of Americans to finance the cost of higher education. At colleges already struggling to fill seats, the enrollment pinch may become acute as spring-semester tuition bills are mailed to enrolled students in the next few weeks.

Affordability problems will be compounded by the convergence of three other factors related to the deteriorating economy. First, the federal Pell Grant budget will fall billions of dollars short of the needs of eligible students and their families. This year Congress appropriated $14-billion for Pell Grants. But as early as July, the projected number of Pell Grant-eligible students had already risen by 800,000 over the previous year. Today higher-education officials estimate that Congress will need to appropriate an additional $6-billion to meet the needs of eligible students during the current academic year.

Second, institutions are hard pressed to make up the gap in federal aid because their own institutional aid budgets are shrinking as endowments are eroded by the plummeting stock market and more students clamor for assistance.

Finally, just as parents are scrambling to find money for college, institutions are raising tuition to make up for cuts in state aid, fund-raising shortfalls, and reductions in endowment income. Some state higher-education systems are considering taking the almost unprecedented step of imposing midyear or midsemester increases in tuition and fees.

Problems accessing debt and credit markets. Colleges are steady borrowers. They use proceeds from bond issuances to finance capital construction and long-term leases. They even out cyclical revenue flows by tapping lines of credit. In many ways, colleges are better positioned than other enterprises to cope with paralysis in lending markets. Their ability to offer tax-exempt interest payments makes their bonds attractive to lenders, and their predictable cash flows give them access to credit lines other enterprises can't tap.

Yet the cost of borrowing has already spiked. The Wall Street Journal reported in October that seized-up credit markets have forced many colleges and universities to cancel or slow projects for the construction of new buildings. Other institutions fear that voters may not approve bond referenda for campus construction. For institutions that can still tap into lending markets, the cost of borrowing can be expected to go up even further as bond yields jump.

Liquidity fears. Like all good-sized organizations, colleges park uncommitted money in "near cash" accounts — money-market accounts, mutual funds, and Treasury notes. The dollar value of assets held in those accounts dwarfs every other investment medium. Historically those funds have been as safe and liquid as cash, and colleges move money on a daily or even hourly basis among such funds and from those funds into their operating accounts.

But many forms of near-cash accounts do not enjoy the same kind of deposit-insurance protection available to holders of commercial bank accounts. In September and October, nervous investors withdrew unprecedented amounts from near-cash accounts, creating problems of liquidity and redemption for even the largest of those funds. According to The New York Times, in the week after Lehman Brothers filed for bankruptcy, in September, investors withdrew more than $169-billion from the nation's money-market funds. September saw a freeze on redemptions from accounts at Commonfund, which holds endowment and other assets for about 1,800 colleges. Putnam Investments also briefly froze withdrawals from its Prime Money Market Fund, a popular parking place for college operating money. Since then mutual and hedge funds have experienced sporadic illiquidity. The failure of even a small number of near-cash funds could cause snowballing liquidity problems for colleges, making it difficult for some institutions to pay bills and meet payroll for weeks or even months at a time.

Fragility in the insurance sector. Colleges are heavy purchasers of insurance products. They use commercial policies to protect against slip-and-fall claims and motor-vehicle-accident claims, as well as for construction subrogation, medical malpractice, directors' and officers' liability, and environmental exposures, among many other risks. Following the near-failure of the American International Group — a major underwriter of college insurance policies — concerns surfaced over potential problems at the nation's largest insurance companies. In early October, insurance companies lost almost a third of their market capitalization in one five-day period, on fears that capital erosion would affect their liquidity and ultimately their solvency. For colleges, problems in the insurance market have already translated into higher premiums and difficulty in purchasing policies.

Macroeconomic woes. This recession, according to analysts, will be deeper and more prolonged than those that preceded it in the 1980s and 1990s and the early part of this decade. In a disturbing article on the front page of The Wall Street Journal on October 27, economists concurred that job loss, unemployment, and home foreclosures are already deeper and more widespread than at comparable points in the cycles of previous recessions, raising the prospect that this one will be longer and more painful than any recession since the Great Depression of the 1930s.

Colleges will feel the impact in many ways. High unemployment rates will mean that greater numbers of students will have to postpone college. State budgets will suffer, and appropriations to support public institutions will be reduced — and have, in fact, already been reduced in as many as half the states. Some institutions have instituted hiring freezes and layoffs, and we can expect the number of belt-tightening institutions to grow rapidly.

We can foresee that employees will be asked to endure benefit reductions and to pay more for the benefits they already receive. As is always true in periods of financial stringency, labor malaise will affect workplaces. The number of employee grievances and employment-related lawsuits will grow, and collective bargaining will become more contentious. Any executive-compensation arrangement that could be characterized as excessive will be questioned.

Economic bad times will make it more difficult for institutions to conduct fund-raising campaigns. Defaults on pledges and planned gifts will increase. Corporations and foundations will reduce their philanthropic giving, and federal support for research and development will dwindle. Institutions will feel pressure to dip into endowments or increase their spending rates to protect the operating budget against draconian cuts — but at the cost of reducing endowments that are already being hammered by dropping asset values.

So — to return to the question with which we started — what is likely to come next?

First, we will continue to see growing pressure on the Treasury Department, the Federal Reserve Board, and Congress to re-engineer the $700-billion rescue plan enacted in early October. Its principal focus has been to restore liquidity to the financial-service sector. We can see growing indications that other sectors — insurance, automobile manufacturing, and state and local governments — will agitate for rescue plans of their own, financed either through rededicated pieces of the $700-billion or through follow-on rescue plans.

Second, we will see discussion — heatedly partisan, in all likelihood — of a second stimulus bill from Congress. Last February 13 — a date that seems like a lifetime ago in terms of the national economy — President Bush signed into law a stimulus package of more than $150-billion, consisting largely of direct rebates to taxpayers. Congressional leaders are now talking about a differently designed stimulus package — perhaps in the range of $150-billion to $300-billion — with features that might benefit higher education directly. The new plan might include payments to hard-hit states that could be used to support midcycle, supplemental appropriations for public institutions, and additional funds for Pell Grants and other federal student-aid programs.

And third, we will reach something of a moment of truth in early 2009, when colleges get their first glimpse at spring-semester enrollments. At that point we will be able to gauge whether — as many economists have predicted, and as many higher-education officials fear — this recession will cause pain not only immediately and deeply, but for a sustained period.

Lawrence White, formerly chief counsel to the Pennsylvania Department of Education and general counsel at Georgetown University, is an educational consultant in Philadelphia. This article is adapted from remarks at the University of Vermont's 18th Annual Legal Issues in Higher Education Conference, in October.

Section: Commentary
Volume 55, Issue 12, Page A120
http://chronicle.com/weekly/v55/i12/12a12001.htm

Smarter Than Their Parents

The LA Times has a story covering the UC Regents meeting yesterday, where they voted 13-6 for a 7% increase in undergraduate fees next year, raising the average annual tuition for a UC undergrad to about $7350. The frame successfully created by the Office of the President (UCOP) was that it would be worse for you if you lived in Texas or Virigina, where fees are higher, so look on the bright side. This doesn't change the fact that the state is steadily replacing public with private funding, and that the university's social and personal impacts will change as a result. We'll talk a little about this in lecture today.

Another ominous note is that the Regents approved a proposal led by the law schools at Berkeley and UCLA to remove the cap on tuition increases there, meaning that they will soon rise from their current level of around $25k to $35k or more. The damage to public-interest law is obvious, since now even graduates of public universities can't afford to take the five-figure jobs that those non-profit entities can afford to pay.

The damage to the concept of public higher education is subtler but just as deep: as students and parents pay more for eduation out of their own pockets, they are naturally less interested in paying more for education in taxes. A few of the protesting students mentioned that the "high-tuition, high-financial aid" model wasn't working for them, but most people haven't figured out that only public funding can support higher ed that combines high-qualty with high-volume. That includes the middle-class folks who in many cases are middle-class only because they took a few steps up the social ladder because of very cheap but very good college instruction. To repeat a lecture question: will the California middle-classes give away the conditions of their own existence?