http://www.zerohedge.com/news/2012-09-28/next-subprime-crisis-here-over-120-billion-federal-student-loans-default
( loans in default because jobs are mia..... )
Submitted by Tyler Durden on 09/28/2012 20:52 -0400
and.....
http://news.yahoo.com/us-postal-default-second-5b-payment-075128930.html
( loans in default because jobs are mia..... )
The Next Subprime Crisis Is Here: Over $120 Billion In Federal Student Loans In Default
Whereas earlier today we presented one of the most exhaustive presentations on the state of the student debt bubble, one question that has always evaded greater scrutiny has been the very critical default rate for student borrowers: a number which few if any lenders and colleges openly disclose for fears the general public would comprehend not only the true extent of the student loan bubble, but that it has now burst. This is a question that we specifically posed a month ago when we asked "As HELOC delinquency rates hit a record, are student loans next?" Ironically in that same earlier post we showed a chart of default rates for federal loan borrowers that while rising was still not too troubling: as it turns out the reason why its was low is it was made using fudged data that drastically misrepresented the seriousness of the situation, dramatically undercutting the amount of bad debt in the system.
Luckily, this is a question that has now been answered, courtesy of the Department of Education, which today for the first time everreleased official three-year, or much more thorough than the heretofore standard two-year benchmark, federal student loan cohort default rates. The number, for all colleges, stood at a stunning 13.4% for the 2009 cohort. The number is stunning because it is nearly 50% greater than the old benchmark, which tracked a two year default cohort, and which was a "mere" 8.8% for the 2009 year. Broken down by type of education, and using the new improved, and much more realistic benchmark, for-profit institutions had the highest average three-year default rates at 22.7 percent, with public institutions following at 11 percent and private non-profit institutions at 7.5 percent. In other words, more than one in five federal student loans used to fund private for-profit education, is now in default and will likely never be repaid!
And while it is impossible using historical data to extrapolate with precision what the current consolidated federal student loan default rate is, we do know that there is now $914 billion in federal student loans (which also was mysteriously revised over 50% higher by the Fed just a month ago). Using simple inference, all else equal (and all else has certainly deteriorated), there is now at least $122 billion in federal student loan defaults. And surging every day.
Ladies and gentlemen: meet the new subprime.
Another that quietly reported today on the change in the Department of Education's default tracking methodology was Bloomberg in "Student-Loan Default Rates Soar as Federal Scrutiny Grows." Needless to say, it was not impressed, because the new data indicated that there had been a concerted push by all sides to misrepresent the severity of the student debt problem, by over 50%. The "why" is quite simple:
The Education Department has revamped the way it reports student-loan defaults, which the government said had reached the highest level in 14 years.Previously, the agency reported the rate only for the first two years payments are required. Congress demanded a more comprehensive measure because of concern that colleges counsel students to defer payments to make default rates appear low.“Default rates are the tip of the iceberg of borrower distress,” said Pauline Abernathy, vice president of The Institute for College Access & Success, a nonprofit based in Oakland, California.On the stump, President Obama has touted an executive order that eases the process for applying for a loan program that lets students make lower payments tied to their income -- easing their burden and making it less likely they will default.Under the new three-year measure, colleges with default rates of 30 percent or more for three consecutive years risk losing eligibility for federal financial aid. Schools can also be barred from the program if the rate balloons to 40 percent in a single year. The sanctions don’t take effect until results are released in 2014.There it is again: a mega-government which gives amply with one hand, and yet with the other skews the incentives in the system to represent reality as far better than it truly is. One way to underwhelm reality and to soothe the blow of the true extent of the popped student loan bubble was using a shorter data cohort.Some for-profit colleges encourage students to defer
payments in their early years, in an effort to keep down default rates that could jeopardize their federal funding, according to a report by the Senate Committee on Health, Education, Labor and Pensions released in July.The report accused for-profits of using the tactic to manipulate their default rates. It singled out the role of SLM Corp. (SLM), the largest U.S. student-loan company commonly known as Sallie Mae. A subsidiary, General Revenue Corp. counsels for- profit colleges on keeping down default rates. University of Phoenix, owned by Apollo Group Inc. (APOL), is a customer, according to the Congressional reportWhether or not the reason for the government to demand more accurate data was to scapegoat the private sector yet again, what it did instead if expose just how deep the student loan hole already is. Because now that we know the revised default data, we can put it together with the recently revised as of a month ago revised total student loan notional number. Recall from the Fed:
The revisions to the data are fairly substantial: as of our August report, 2011Q2 student loan balances were reported at $550 billion. We now estimate that student loans outstanding in that quarter (2011Q2) amounted to $845 billion, $290 billion or 53.7%higher than we reported earlier. These previously excluded loans were also missing from the total debt outstanding; as a result, our estimate of total debt outstanding in 2011Q2 is also revised upward by $290 billion (2.5%).
This is what student debt looked like a month ago when we firstreported the data:
One can see why everyone in the Federal administration has been so reticent about disclosing the true state of the Federally-funded student loan bubble. Because if one simply assumes the risingdefault rate has kept constant across all recent cohorts since the updated 2009 number, it would mean broadly speaking, that of the $914 billion in Federal Student Loans at least 13.4% will end up in default. Over $120 billion.
Of course all else is never equal: Federally funded student loans are now increasing at a rate of over $60 billion per quarter. This means that in just about 18 months, the total size of the Federal student loan market will hit $1.3 trillion. Why is that number important? Because that is how big the subprime market was at its peak in late 2007, when everything went to hell and the last credit bubble popped. From Responsible Lending:
As can be seen on the table above, 20% of all subprime mortgages was then expected to default (the ultimate number ended up being far higher). Note that as mentioned above, already over 22% of for-profit student loans are in default.
In other words, the Federal student loan bubble has not only popped, but has all the carbon copy makings of the next subprime crisis. Only when it pops it won't be New Century and Countrywide Financial on the hook: it will be all of America's taxpayers. Remember: these are Federal loans.
And the biggest problem: unlike housing where there is always at least some recovery of collateral, as the house remains, with student debt there is no recoverable asset as the asset is a human being. Granted said human effectively becomes a debt slave courtesy of the non-discharge nature of the student loan, which can not be wiped out even with a personal bankruptcy, but assuming the taxpayer can recover any money using discounted garnished wage flows of what are effectively perpetual(ly discouraged) debt slaves of the system, is simply idiotic.
We give Bernanke at most 2 years before everyone is aware of the true extent of not only the student debt bubble, but that it has already popped, at which point student loans will be the next "asset" to be monetized by the Federal Reserve.
and.....
WASHINGTON (AP) — The U.S. Postal Service, on the brink of default on a second multibillion-dollar payment it can't afford to pay, is sounding a new cautionary note that having squeezed out all the cost savings within its power, the mail agency's viability now lies almost entirely with Congress.
In an interview, Postmaster General Patrick Donahoe said the mail agency will be forced to miss the $5.6 billion payment due to the Treasury on Sunday, its second default in as many months. Congress has left Washington until after the November elections, without approving a postal fix.
For more than a year, the Postal Service has been seeking legislation that would allow it to eliminate Saturday mail delivery and reduce its $5 billion annual payment for future retiree health benefits. Since the House failed to act, the post office says it's been seeking to reassure anxious customers that service will not be disrupted, even with cash levels running perilously low.
"Absolutely, we would be profitable right now," Donahoe told The Associated Press, when asked whether congressional delays were to blame for much of the postal losses, expected to reach a record $15 billion this year.
He said the two missed payments totaling $11.1 billion for future retiree health benefits — payments ordered by Congress in 2006 that no other government agency or business is required to make — along with similar expenses make up the bulk of the annual loss. The remainder is nearly $3 billion in losses, he said, which would have been offset by savings if the service had been allowed to move to five-day mail delivery.
Donahoe said the post office will hit a low point in cash next month but avert immediate bankruptcy due to a series of retirement incentives, employee reductions and boosts in productivity among remaining staff that saved nearly $2 billion over the past year.
But the post office has few tools left to build its revenue, he said, without either having to pay upfront money it lacks or get approval from postal unions or Congress.
"We've done a lot to reduce cost out of our system," Donahoe said. "The problem now is this: There's nowhere to go."
Postal unions also say Congress is mostly to blame for losses, but disagree that a reduction to five-day delivery is an answer.
"What is needed is for Congress to undo the harm it has done with the prefunding mandate and for the Postal Service to develop a balanced plan moving forward," said Fredric Rolando, president of the National Association of Letter Carriers. He said cutting Saturday delivery would in particular hurt rural residents and the elderly who depend more heavily on the mail for prescription drugs and other goods.
The Postal Service last month failed to pay $5.5 billion, its first default ever on a payment. While it will miss a second payment Sunday, it expects to make a $1.4 billion payment due to the Labor Department on Oct. 15 for workers' compensation. Cash levels are expected to hit a low after that labor payment before rising again due to increased volume from holiday and election mail, including ballots for early voting.
The mail agency said the two payment defaults will not affect day-to-day operations. Post offices will stay open, and suppliers and employees will get paid. Longer term, however, Donahoe has cautioned that a "crisis of confidence" over postal solvency could damage growth.
The post office also remains vulnerable to shifts in the economy that could suppress mail volume. Both FedEx Corp. and UPS recently have cut their earnings forecasts, citing in part slow global economic growth.
"The key thing is Congress must act during the lame-duck session and get this whole thing behind us," said Donahoe, referring to the few weeks lawmakers will be in session after the election before a new Congress takes office in January. "We can't have a Postal Service where customers are constantly worried about our ability to make payments."
"That's no way to run a business," he said.
Congress will have a full agenda of pressing fiscal issues when it returns in November, and some lawmakers have raised the possibility that postal legislation will get pushed over to the next Congress. Rep. Darrell Issa, R-Calif., who chairs the House Oversight and Government Reform Committee and is a sponsor of the House bill, has said he believes some kind of legislation can be passed in the lame-duck session, although it may not be as comprehensive as initially sought.
The Senate passed a postal bill in April that would have provided financial relief in part by reducing the annual health payments and providing an $11 billion cash infusion, basically a refund of overpayments the Postal Service made to a federal pension fund. The House, however, remains stalled over a separate bill that would allow for aggressive cuts, including an immediate end to Saturday delivery. Rural lawmakers in particular worry about the impact of post office closures in their communities.
The Postal Service originally planned to close low-revenue post offices in rural areas to save money, but after public opposition it now is moving forward with a new plan to keep 13,000 of them open with shorter operating hours. The Postal Service also will begin closing more than 200 mail processing centers next year, but the estimated annual savings of $2.1 billion won't be realized until the full cuts are completed in late 2014.
"Once again, we are watching the days slip away before the U.S. Postal Service faces the second default of its history. Republican leaders in the House of Representatives have now had 11 months to do the right thing and fix the serious, but solvable, financial challenges," said Sen. Tom Carper, D-Del., a co-sponsor of the Senate bill. "Every day Congress delays fixing this problem, the financial challenge grows more difficult and the potential solutions become more expensive."
The Postal Service, an independent agency of government, does not receive tax dollars for its day-to-day operations but is subject to congressional control.
Art Sackler, co-coordinator of the Coalition for a 21st Century Postal Service, a group representing the private-sector mailing industry, said many businesses are preparing their budgets for next year and have no idea whether to expect disrupted service or higher postage costs.
"Congress needs to act quickly on comprehensive postal reform," he said. "These defaults, mounting debts and declining revenues aren't just going to hurt the Postal Service; they're going to hurt the 8 million Americans whose jobs depend on the mail."
and.....
http://money.cnn.com/2012/09/28/news/economy/spending-cuts-fiscal-cliff/index.html?iid=HP_LN
White House to contractors: Hold off on layoff warnings
@CNNMoney September 28, 2012: 6:51 PM ET
White House budget office made an effort to stave off layoff notices from companies worried about 2013 automatic spending cuts.
NEW YORK (CNNMoney) -- The White House on Friday told government contractors worried about fiscal cliff spending cuts to hold off on warning employees about possible layoffs.
The government said it would cover legal costs if contractors are forced to slash their payrolls because of the looming $109 billion in automatic cuts next year and are alleged to have violated the WARN Act.
The federal WARN Act requires businesses with more than 100 employees to notify workers at least 60 days in advance of a mass layoff or plant closing. Some states require more notice.
"Any resulting employee compensation costs for WARN Act liability as determined by a court, as well as attorneys' fees and other litigation costs (irrespective of litigation outcome) would qualify as allowable costs and be covered by the contracting agency, if otherwise reasonable and allocable," the Office of Management and Budget said in its guidance.
Defense contractors in particular have warned for months that the upcoming sequester would cost jobs in their industry. And Lockheed Martin's CEO has said publicly he may be forced to issue notice this fall of possible layoffs in 2013.
If other contractors follow suit, there could be a rash of layoff notices spooking employees right before Election Day.
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