The following recent news items interest me because they relate back to previous posts on this blog.
The NYT reports, in an article titled "Many with New College Degree Find Job Market Humbling", that "Employment rates for new college graduates have fallen sharply in the last two years, as have starting salaries for those who can find work. What’s more, only half of the jobs landed by these new graduates even require a college degree."
This confirms that our economic policy makers have lost touch with reality. It wasn't long ago that Ben Bernanke put his weight behind the argument that the key to reducing our current unemployment crisis is more college education. I discussed this issue here, as well as here. Incidentally, the NYT also found data to support my other point about pushing youngsters into debt: in this article, they noted that for the first time ever, student debt outpaced credit card debt.
Further down the article on the dire job market for college grads, it says "Among the members of the class of 2010, just 56 percent had held at least one job by this spring, when the survey was conducted.". So, a rough estimate of the unemployment rate among new graduates is 44 percent! That's why in this post, I pointed out the fallacy of using the overall unemployment rate for college grads (5%) to talk about new college grads. This is almost a 10-fold error.
The NYT reporter didn't get the memo because the chart used to illustrate the story refers to the overall unemployment rate for college grads. This number includes people who graduated for college 20-30 years ago and are in mid-career.
The Dealbook section of the NYT reports that the Treasury is winding down bailouts, and "trying not to lose money". To believe that it is possible to "not lose money" is to believe in fairies. In this post, I consider why banks can never repay taxpayers in full. To recap:
As the irrepressible Dean Baker constantly reminds us, our nation suffered from a mammoth housing bubble, which wiped out $8 trillion of equity from "homeowners" when it burst. This $8 trillion is not monopoly money. One can't wish it away. If the government bailed out the banks (100% on the dollar), and then the government also "broke even", who suffered the loss?
Dealbook is written by business journalists who should know a thing or two about running businesses. When banks move in to rescue corporations on the verge of bankruptcy, they make loans at extremely high interest rates (say, 15%), and demand upfront payment of deal fees (I'm sure there are many other onerous terms.) On the day that the bailout was negotiated, the government already lost a huge amount of money by setting low interest rates, and not receiving upfront "deal fees".
While such interest and fees may appear unseemly, almost feeling like extortion at the weakest hour, they are compensation for the rescuer taking enormous risks. As I pointed out before, if one waits till the risks pass, and it turns out these companies (banks) survive, then in hindsight, it would seem like not receiving just compensation for taking risk is okay. But that is hindsight; the lender could lose everything if the bankrupt companies fail to recover. No one with any business sense would take such an arrangement without proper compensation.