Pirates, Risk and Student Loans
A couple days back a facebook friend called me “a libertarian with a heart.” It’s sad to think that people believe libertarians are cold hearted individuals. Libertarians and freedom lovers of like mind are some of the kindest, warmest people I know. I can understand, however, why people would consider them cold. It has to do with the propaganda spread about how they would advocate such things as slavery and debtor’s prisons. This is just a perversion that takes certain aspects of contract principles to the extreme. Well, I’m going to state something right now that might be taken by some as being very unlibertarian. I don’t hold sacred the contract. I think that sometimes contracts can be quite unreasonable and even criminal in nature. I think there is every reason the individual should be protected from powerful establishment interests that abuse contract law.
One of the things to take into consideration when it comes to contracts is the element of risk. The borrower risks losing any collateral and, perhaps more importantly, his reputation. The lender risks losing his money, of course, and perhaps anything else he may have loaned to the borrower. This leads to both parties measuring the risk/reward ratio to help determine whether to ask for, or grant, loans or whether to look to other means to finance or for other investments to make.
Over the past couple of decades, however, there has been a movement in government to pass laws or create financial environments that mitigate the risks that lenders take. This has led to lenders tending to make loans that have little to no chance of being paid back. This has helped cause the financial crises we currently face by creating an orgy of bad investments, or gambols, by large financial firms which end up being paid for by the common folk of the world. This also creates bubbles that will all eventually pop.
Think of it this way. It’s like someone came up to you and offered to let you go to Las Vegas on their dime. Gambol all you want. Engage in any activity or debauchery you can think of. Any money you win, you can keep, but any money you lose you have nothing to worry about. It won’t be your money. They’ll pay for it. Better than that, everyone will pay for it. The idea is that everyone will pay such a small amount that no one will mind. How much would you spend? How much would you risk hoping that one of your gambols hits the Jackpot? Millions? Billions? Trillions? More money than even exists?
The lenders are now above the law. They are above risk. Borrowers, on the other hand, still risk losing their reputations, but there is still recourse when it comes to the financial end of things. There are still legal protections one can take when lenders come to collect. They can go through bankruptcies, even if such actions have become harder to qualify for and achieve over the last few years. This is not true, however, when it comes to student loans.
If you have a student loan, and you can’t pay, you have nearly zero recourse. You will end up paying the loan back, one way or another, or you will die before it is forgiven. When I hear people complaining about young people in the occupy movement asking for their student loans to be forgiven, I don’t know if they understand this. Most are likely just asking for the normal protections given to anyone else who borrows money to be put back in place.
I’m fairly certain that if a college education was worth what it was twenty or thirty years ago and these young folks could go out and find well paying jobs after they graduate then they wouldn’t mind paying back loans, but to have to pay for the rest of your life for a crappy, nearly worthless education simply isn’t right. Promises were made and trusts were broken. Lending institutions should have to shoulder some of the risks too. Those risks should be assessed and it shouldn’t be so easy to get that kind of credit. Perhaps the education would be worth more if the money for it wasn’t so easy to get.
A friend of mine, Tarrin Lupo, wrote a book a while back entitled “The Pirates of Savannah.” The protagonist in the book, a chap named Patrick Willis, begins the story locked in debtor’s prison. He was put there due to circumstances beyond his control, but the system didn’t care. It only cared that money was owed and so he was thrown in a hell hole until someone could pay, or he died, whichever came first.
When he is finally released, he is shipped off to America to begin a new life as an indentured servant. Patrick is able to come to America and pursue his ambitions because his debt was paid off by a ship’s captain who forces him to work on the ship to pay for his passage and then sells him into indentured servitude, a type of slavery. The book is historical fiction. The characters were created in Terrin’s mind, but the places and situations are based on historical facts. It is quite an interesting mix.
Is this where our culture is heading? Are we taking a step back in time of nearly 300 years? Are we going to have to find a new place, a new America, where people can go to have the opportunity to be free? Have the financial elite become so powerful that they can turn back the hands of time simply so they can wallow in luxury while the rest of us struggle to feed ourselves? That seems to be the direction we’re heading.
In life, shit happens. There’s an infinite number of situations that can arise that would render someone unable to take care of their commitments. On the other hand, there are many people who would try to weasel out of taking care of the commitments they should be able to handle. This is why having an objective, unbiased dispute resolution system is so important. Our current system has proven itself to be quite lacking in these respects. Each case should be handled separately and uniquely, not shuffled through a one size fits all court system which leaves out enumerable personal circumstances.
A dispute resolution system, or an arbitration system, should be subject to reputation awareness. The reputation of the current system is poor, just ask anyone who has been involved in some kind of dispute. This has much to do with the corruption of the system. Not only can individual judges be corrupted, which probably won’t be the case, but the politicians who dictate to the judges what they can and can’t do can easily be corrupted, usually with plausible deniability. They create the laws and regulations that tie the hands of the judges. They do so to help their biggest contributors, who are those that have the spare money to contribute, like big banks and corporate financial institutions. The average guy on the street who is getting student loans for himself or his kids doesn’t have that kind of spare change. These laws and regulations tend to help those with money and power and to screw those who are struggling to make a better life for themselves in a depressed economy that favors the corrupt. In many cases judges are forced to make a decision between two bad choices, much like we all must many times when we go to the voting polls.
In the book, Patrick gets lucky and is able to overcome his indebtedness to obtain his own opportunity. His master is quite understanding and permissive. He becomes a pirate. He gets revenge on those who done him wrong. In real life the carriers of student loans are not so lucky. Many will have to live with that burden the rest of their lives. That monkey on their backs will remove many opportunity they might otherwise have had. They cannot so easily take to the seas and target those who have used the system unfairly to their advantage. Even as they struggle to get by, even as the most their education can do is get them a minimum wage job, even as forces they cannot control topple the economy around their ears, powerful corporate forces teamed up with an intrusive surveillance state will squeeze what blood they can from the poor souls who fell for the scam and remove opportunity while doing so. It can all make a thinking man wonder who the pirates really are.
My best advice for the moment is to avoid student loans. Stop empowering the system by not using it. Find another way to fund your education, like working through school, or simply don’t go and find another way to get through life. Start a business. Many millionaires never went to college. If you have a loan and you can, pay it off as quickly as possible. If you took one out and are one of the many having problems finding work or a decent paying job, start asking for the simple protections that all borrowers should have against predatory lenders. Just because one uses the money to buy an education doesn’t mean that those protections should be removed. Just because one uses the money to go to school doesn’t mean they should be forced into some sort of servitude they didn’t foresee.
Risk should fall equally on lenders and borrowers. Do not ask for forgiveness for all student loans or ask for government to give you something for nothing. Simply ask for the opportunity to present your case in front of an arbitrator. Simply ask for the same type of bankruptcy protections that failed businesses receive. After all, are you a business trying to sell your skills in a free marketplace, or are you a slave trying to find a better master that will have you? A man can only be truly free when he is indebted to no one.
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