> Larry Summers warned against “moral hazard lectures” and demanded SVB depositors be made whole immediately in 2023, months after calling student loan relief inflationary and unfair. Moral hazard for borrowers, bailouts for banks. Not lost on the public.
I can't believe I'm about to say something that could be construed as a defense of Larry Summers, but here goes: bank depositors are not engaging in risky behavior, they are putting cash in a bank. SVB did not get bailed out, it failed.
And as some of who supports the student loan forgiveness, yes, it is slightly inflationary but I think the benefits out weigh the inflationary effects.
Combine this with the "need" for nuclear (a perfectly cromulent but excessively expensive power source which has cheaper zero-carbon options), in the first paragraph, these comments that are not about the main topic severely undermine my ability to trust the rest of the essay.
The lesson to myself is to be narrow when I write, so as not to bring in a bunch of other positions that also need to be defended.
Ok, but forgiving student loans doesn't do that. It signals to borrowers that they don't have to repay high loans if their career can't support it. It tells borrowers that they can make risky loans without a chance of default. It tells universities that they can keep charging exorbitant tuitions because kids can still get loans to pay them.
The solution is to allow judges the discretion to default them in bankruptcy after X number of years after graduation. Lenders need to accept the risk. With no risk, they can loan as much as they want and have guaranteed repayment. This drives tuition higher and higher.
Great example of narrow rationality. Huge amount of Americas current problems can be traced back to a poorly educated population. Universal access to third level education, combined with a school system designed to educate - in direct opposition to current goal of producing labour units for corporate; would massively improve pretty much ever aspect of American life.
The market lens is myopic, the market cannot be expected to produce social goods in proportion to necessity - that's not any part of its function.
I agree that the student loan system is insane. Students need grants to cover cost of living while they focus on learning, education itself of course should be free.
The German model is pretty good. Tuition prices are reasonable. If you're studying something statistically considered a good investment - you get free tuition. If not, you pay for it.
The American model is terrible. The tuition prices are insane because no one pays for it now, and there's endless appetite to lend because your borrower is a systemically non-financially literate CHILD who is signing away their future wages with no right to default EVER.
No one would ever lend to the majority of these at these insane tuition prices. We'd quickly end up with reasonable tuitions like in Germany. And then most of the problem goes away.
Suddenly schools and degrees that WEREN'T good investments become good investments again.
I agree with you about student loan forgiveness, but disagree with your assessment of universities as a system. The humanities (which are highly profitable for the university) are suffering an existential crisis because their funding keeps getting cut, while STEM programs (which have low or even negative ROI after lab/equipment/resource costs) keep getting expanded. There's obviously more nuance to that, but at a high level, universities are prioritizing majors which have higher job placement at the expense of their own bottom line.
If universities should take on that risk, should they also receive some share of the student's future earnings? Do you want all schools to work like the US military colleges, where is admitted you get free tuition but also are agreed to work for the school's parent organization for a period?
It’s interesting that not being able to discharge the loan in bankruptcy is because “you can’t take back the knowledge.” While true, you can still make the credential mostly useless. Everyone needs to do certain verification in a new job (e.g. I-9). If a job was posted that requires some degree, and a new hire used the degree they discharged in bankruptcy to get that job, the debt can come roaring back into existence when it’s caught during onboarding. Like anything, there are edge cases (e.g. starting a new company). But even there you might be able to have gates at financing stages that would trip the debt resurrection.
That doesn't work, because the Universities benefitting from the high-risk student loans are not the ones making bank from their grants and endowments. This is an imagined enemy fallacy. What you're really doing is demanding that Harvard somehow make whole the defrauded students of the University of Phoenix.
Now, sure, there's a genuine argument that those diploma factory schools aren't providing valuable service and are just parasites subsisting on public loan guarantees while their students bear the risk. But that's not a financial argument, it's a regulatory one.
No one thinks that people shouldn't be allowed to float a Stanford degree on loans, and "dismantling the entire system" just guarantees that we return to the era where only the rich could afford Ivy degrees.
if college education produces a public good (a more competent workforce), then it should be funded through public funds-- government should pay for education.
If it does in fact lead to better outcomes, then the higher tax will cover the cost.
running it through the private system builds in too many perverse incentives.
If you had a choice between nothing being done and forgiving student loans which would you pick?
Second. Let's say universities did take on the burden of loans, of course that would be via a bank right?
If that's the case. How would they enforce risk? Based on certain majors? Who would give a loan with no collateral to young people with no credit on the hopes the major they picked had a viable job market years from that point?
You take on the risk every time you pay the local school district's real estate taxes. Well to be fair that's even riskier. After all you have no idea if the kindergartner will go on to get a college degree and start paying taxes. It's actually riskier than student loan bail outs.
So you believe universities have taken advantage of students by crafting, encouraging and financing education programs with an understanding that those programs would not result in jobs which would be sufficient to repay the debt needed to complete them, but you think the 18 year olds who were taken advantage of should be forced to suffer for their failure to make perfect decisions at 18.
> And as some of who supports the student loan forgiveness, yes, it is slightly inflationary but I think the benefits out weigh the inflationary effects.
Being slightly inflationary is a strawman concern. Student loan forgiveness has a major problem in that it’s a large reward the goes only to a specific slice of society who match some arbitrary criteria and who have useful degrees. It also fails to address the root cause of the problem, letting current generations accumulate debt in the same way.
It’s an idea that appeals to a subset of the voter base for whom a college graduate with loan debt represents the prototypical struggling young person, but ignores all of the young people who are even worse off and don’t have college degrees either.
Spending a huge amount of money to forgive student loans would be politically catastrophic in ways that a lot of people who live in highly educated middle class bubbles don’t realize. There are a lot of people struggling out there, but college graduates are not at the top of the list of people who need the most help.
Exactly. I don’t know who decided we should spend our limited redistribution dollars on young middle class individuals with above average human capital instead of say on working class people?
> bank depositors are not engaging in risky behavior
Supposedly intelligent investors leaving money in accounts above FDIC limits ($250k per holder per bank, so $500k for joint account) were engaging in risky laziness.
So what do you do when your payroll is more than $200k? The depositors were not treating SVB as investment, they were bank accounts for doing transactions.
Yeah, bailing out bank depositors is nowhere near the same as forgiving a loan. The bank failed as it should and depositors were made whole as they should. I'm not sure how this has any bearing on forgiving student loans.
Yeah that quote fundamentally misunderstands what it meant to make depositors whole. That's not bailing out the bank, it's bailing out the depositors, which is exactly what the FDIC is for. In the case of SVB most of the depositors were businesses, but in any case depositing money in a bank is intended to not be a risky activity at all, and FDIC is part of how the government acts to ensure that is so.
One round of loan forgiveness is fine, but it builds an expectation of it in the future. All of the loans, growing larger and larger, just encourage universities to grow fatter and raise costs to students.
If students could not borrow enough to attend, they would be forced to lower costs (not necessarily the very top universities, but all the rest).
The student loan system is fucked up, so what should happen is an acknowledgement that it's fucked up, forgiving the fucked up loans, and also changing the system to be less fucked up so it won't have to happen again.
The solution to that is rebuilding the state and federal funding for higher education with added regulations on where and how that money can be spent (perhaps even putting tuition caps in play).
The reason universities are so expensive is there is no limit on how much they can charge for tuition and no requirements on how much they pay their professors. It allows them to dump a huge portion of their funds into the marketing and athletic departments.
I know of a few religious universities who's mission is mainly to educate (so their well educated members can pay back more money to the church). While they do subsidize the educational costs, it isn't by as much as you'd think and it does result in some very cheap education.
There's no reason the government couldn't do exactly the same thing. It did right up until reagan.
Just can't help humming in my head reg yoo la toe ree cap chur
Any system that can juice itself by increasing both funding and cost will scale both until the natural incentive gradients (are you smart? do you actually want to do stuff or do you just want a desk job?) vanish into the noise. When everyone went to college, nobody learned anything.
University is one of those things you always want to be capability rather than means gated, but those of means will always want their kids to get in regardless of how they were raised. After all, they worked hard. Why should their kids? They will ally with every convenient rationalization in order to moralize for the politics, taking advantage of arguments about "disadvantaged backgrounds" etc to treat everything as a means problem, but the goal is to dilute the capability aspect, and that robs talent.
If you have exceptional talent, you need to know the truth. Systems naturally try to optimize the dumb-rich to smart ratio so that there's a lot of subsidy available for anyone who actually needs to be there, but consequent GPA inflation demands that we make the education somewhat meaningless, so you're really on your own to set goals, and any good ones are way higher. Check the boxes, take the free lunch, and then treat the overall coddling like a charade that must be ignored. Then again, isn't self direction always that way?
I think the point wound be to eliminate all borrowing for tuition. It would be drastic and universities would complain the whole time but band-aid has to be ripped off at some point. I don't think a solution other than welding shut the money font will have a meaningful effect.
* Eliminate the entire federal student loan program. Just gone. No more loans.
* Make it so that private loans for tuition and related expenses can be trivially discharged. Like just fill out a form and it's auto-approved. You can just decide to not pay your student loans with no repercussions whatsoever. There's probably a better way to accomplish this legally but make it so that they're toxic to private lenders.
Once the money officially dries up and less than 1% of families could pay out of pocket for current tuition rates then we watch as jobs stop requiring degrees, apprenticeships become popular, and schools belt-tighten to focus on student ROI. Watch magically as GE requirements evaporate and we find out they weren't ever necessary in the first place. Watch as high schools get pressured to teach actually useful things instead of being grade school the sequel.
Over the last 30 years the primary role of economists seems mainly to be providing justification for the enormous concentration of wealth that has occurred.
Is there a lower risk, lower interest option with the same capabilities (ability to use the money to pay others)?
Genuine question, I have no idea, but I didn't choose my bank based on interest rate. I can't pay bills or transfer money if it's cash under the mattress.
As someone who supports education loan forgiveness, I say we do as our elders have and just take from them without a whiff of concern for their grandstanding about morality.
What obligation to the generation that's been aware of physical evidence of climate change for decades and ignored it?
The old dying and the youth rewriting social and political custom and truism is a physical constant of the universe.
> bank depositors are not engaging in risky behavior,
Because the taxpayers (and all users of USD) repeatedly bail them out. I could define anything as not being risky if I knew taxpayers would bail it out.
More importantly, if there is no risk, what purpose does a bank serve? They’re a pretty bloated middleman if their sole purpose is to update a database to reflect incoming and outgoing cash flow. The government should be able to offer that service for free.
Banking is a basic utility. Penalizing customers of a business for the business going under is bonkers. We learned this lesson during the Great Depression.
Bank shareholders or creditors are engaging in risky behavior and should face the full consequences of bank failures. No bailouts for them.
There has been a lot of discussion about how the basic setup of banks (borrow short, lend long, collect the spread) is probably not a great idea, and we should just separate these two activities (see Money Stuff). People who want to lend long should do that with their own money, and people who just want to save should be able to do that.
But, at least in the US, regulators keep blocking the 1st step: narrow banking. Let banks offer savings accounts that just stick the money in the Fed, zero risk.
Depositors are lending their money to the bank at low interest. They may seek risk in terms of increased yield on their savings account, but FDIC insured banks will have trouble meeting their requirements while offering high yields on their accounts.
Banks provide security for deposits as well as liquidity (velocity of money), and slight inflationary pressure.
Wiping out depositors doesn't prevent much moral hazard since the depositors are unsophisticated, so they are unable to differentiate risk among banks.
> Because the taxpayers (and all users of USD) repeatedly bail them out.
The taxpayer didn't pay for those bailouts. They were funded by the DIF, which was replenished by premiums that banks pay.
> They’re a pretty bloated middleman if their sole purpose is to update a database to reflect incoming and outgoing cash flow.
Did you just look into what banks do at all before making this claim? If that were the case, companies like Apple, Bilt, and Robinhood wouldn't be relying on real banks and could easily start their own.
The FDIC insures $200k of deposits because banks are not supposed to be risky. Thats taxpayers bailing out everybody in order to keep banks as "not risky"
In particular the article incorrectly states that the bank was bailed out. It was not. The bank failed. Depositors who were running their non-profit in the Bay Area did not lost all their charitable contributions.
The bank failed because it had placed deposits into US Treasury bonds that were temporarily worth less for sale on the open market than they would be at maturity. When Peter Thiel started a bank run by telling all his investments to pull their funds, that exposed the SCB mismanagement.
When the depositors were bailed out, taxpayers didn't lost anything, it was a wash. We could have paid at bond maturity or now, but it made little difference to us.
From first principles public pension funds are broken.
The "Safe Withdrawal Rate" assumed by many private individuals planning for their own retirement assumes a withdrawal rate in the 3 - 4% range based on the "trinity study" - https://en.wikipedia.org/wiki/Trinity_study
Meanwhile, American public pensions are structurally engineered around a 7%+ SWR - this was recently confirmed again by the median goal by the National Association of State Retirement Administrators.
The perpetual "under funded" nature, and all the return hunting etc in pension fund management can be explained by that disconnect.
But this then belies a very uncomfortable acknowledgement which is that we cannot afford the government workforce currently in place requiring us to either:
Individuals saving for retirement must deal with the risk that they live to an old age and their savings must last for decades. Pension plans have a higher safe withdrawal rate, because people on the average have average lifespans. When a plan member dies early, their remaining contributions can be used (partially or in full) to fund other members' pensions.
But mortality credits (pooling) don't solve the math of the discount rate - they add 100 - 150 basis points of reduction so retarget to 5.5% vs 4% if generous
So they are still structurally designed where they HAVE to allocate towards risk to meet their targets which is at core of issue
Only taxpayer funded defined benefit pension plans get to use 7%+. Because they have the power to use future taxpayers’ money to pay for underfunding/underperformance/corruption from the past. And obviously, politicians that would choose to increase taxes today for something that could but punted to the future would lose elections.
The Pension Protection Act of 2006 mandates that non taxpayer funded defined benefit pension plans use discount rates from high grade corporate bond yield curves, which are much lower.
Yup, this is the real problem. What he's talking about isn't the real problem. The real problem is we have gone to a "model" of fund less, pretend we can make it up by increasing risk. And rather than face a big problem it gets swept under the rug until it can't be any more.
We also have the problem that paying pensions becomes somebody else's problem. Thus in contract negotiations pushing benefits into pensions rather than current wages becomes attractive. You can agree to more without breaking the current budget.
The old rules worked better because limiting what pension funds could be in also limited the shenanigans that were possible.
What does it mean for something to be broken from first principles? I would expect some that just cannot work on a fundamental level, like faster-than-light travel or a lightbulb that powers it’s own via solar panel.
3% vs 7% doesn’t seem broken on principle, just, a tuning parameter is off.
> But this then belies a very uncomfortable acknowledgement which is that we cannot afford the government workforce currently in place
It's not just the government. It's all of the other stuff seniors buy. It used to be that you just kind of stuck around and retired in the area where you had worked. You had paid off that house, so you retired in it. Maybe you went to the Shriners' hall and played bingo with a core group of friends until you couldn't anymore. Then you moved into a retirement home and they found activities for you to do there until Father Time came to collect his due. Maybe you spoiled yourself with a Buick or Lincoln sometime between getting your gold watch from the plant manager and croaking.
Now, that's not enough. We need entire retirement communities hundreds of miles away in warmer climes where they can play golf several months out of the year. We need cruises and travel packages. We need cosmetic procedures to look younger. We need more advanced surgeries that extend life, though not participation in the workforce. And of course, now that Lincoln is a Mercedes.
And that's great, because we've told everyone that they deserve it after a long, hard career. There's only one problem: we never addressed where that retirement income was actually coming from. They're coming from that 7% SWR, which must be funded somehow. Otherwise the retirees might have to stay in-town, be cold during the winter, and provide childcare for the grandkids because preschool now costs as much as a year of college tuition. And that makes them cranky and they start calling investment advisors and politicians demanding answers.
Ah, a classic paperclip maximizer. Pension plans got the goal of multiplying the money so pensioners have more of it. Nobody bothered to mention that they should also make sure there's a world the pensioners can live in, so now that gets slowly sacrificed in the pursuit of the only explicitly stated goal
If multiplying money is the goal why does the article say they're doing a worse job of that than just buying index funds? If that claim is true, then clearly there are other issues at play than just that.
Pension funds have a different time horizon / cash flow needs than individual investors (namely, they need to meet their liabilities every month) and so are going to have a more conservative asset mix (read: lower expected returns w/ lower volatility) than your average S&P500 index funds.
For example, CaLPERS has ~45% of their assets under management in debt / real estate.
Longbets: “Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.” - https://longbets.org/362/ (won by Warren Buffett)
Should New York’s $270B pension fund abandon Wall Street? - https://www.semafor.com/article/08/07/2025/new-york-comptrol... - August 7th, 2025 ("Drew Warshaw is running for New York state comptroller, a job most voters would struggle to define but one that includes oversight of the state’s pension fund. If he unseats 18-year incumbent Thomas DiNapoli, Warshaw’s plan is to move much of its nearly $300 billion of investments into ultra-cheap, passive index funds. The New York State and Local Retirement System has more than $90 billion invested in private equity, private credit, real estate, and other complex assets. All promise high returns — catnip for pension managers facing future payouts to retirees — but charge high fees, too. The question facing New York and hundreds of other state and local pension funds, charitable endowments, universities, and government funds around the world: Are these high-priced managers worth the fees they’re charging?")
The management fees are, broadly speaking, a grift/rake of capital flows and economically inefficient, based on the evidence and the data. The issue at play is that the capital market ecosystem has become a bureaucracy that demands to continue to grow, versus cannibalizing itself in the name of economically efficient capital allocation.
Tangentially, the markets are moving to more trading (24/7/5) versus less because when trades are made, money is made in a Parable of the Broken Window sort of way by the capital market industry.
CalPers, the largest public employee retirement system in the US was not getting the kind of returns that they needed. They were restricted from purchasing stocks in certain industries, such as oil, weapons, etc.. However, they recently switched to investing in private equity funds and now they are getting much better returns, without all the pesky moral issues involved with it.
> However, they recently switched to investing in private equity funds and now they are getting much better returns, without all the pesky moral issues involved with it.
Washing what, exactly? If you are suggesting that pension funds are investing via PE funds in assets that the pension funds themselves are prohibited from investing in, that's not how it works. The mandate between a pension fund and the PE fund will be quite clear on what assets the PE fund may or may not invest in on behalf of the pension fund, and will mirror the restrictions that apply to the pension fund.
Pension funds should have a rule -- invest in technologies, industries and companies that create a deflation (by technology, scale, efficiency, etc). This will create better outcomes for pensioners. If they invested in cheaper housing, healthcare, pensioners can live without the constant fear of running out of money. The absolute first thing to invest in is clean energy which can be super cheap to zero to actually making money by supplying power back to the grid. Once energy is solved, it solves an entire spectrum of problems.
Increasing the money(number), while making everything else costly (a lot more costlier in reality because of fictional inflation number) is not only hard to achieve, but even if achieved, doesn't mean much. ".S. Dollar itself has lost roughly 98% of its purchasing power over the long term" -- random Warren Buffett quote.
> For example, EU pension funds allocate just 0.02% of total assets to VC, compared with almost 2% for US pension funds. And this percentage is applied to a much larger asset base: over 140% of GDP in the United States compared with around 30% in the EU.
> In Europe, approximately €11.5 trillion is held in cash and deposits. This is one-third of households’ total financial assets. In the United States, the figure is around only one-tenth.
Isn't the main problem with pensions today the dramatic increase in life expectancy post-retirement? They were never intended to support decades of retirement: in the old days, you retired at 65 and there was a good chance you'd be dead by 70, at most 75. (When Social Security was established in the 1930s, life expectancy was only 61.) Nowadays, there's a good chance you'll live beyond 90, with expenses increasing disproportionately towards end-of-life. Combine that with a shrinking birthrate, and no feasible increase in ROI/worker contributions can sustain pension-funded retirements of 25+ years.
Using overall life expectancy here is misleading, as it includes the risk of childhood mortality. You have to look at life expectancy at a given age. According to the SSA's life tables[0], life expectancy for men at 65 in 1930 and 1940 was about 12 years. In 2020, it was about 17. A significant increase, but not nearly as extreme as you're saying.
In 1930, if a person starts paying into the pension at 30, at that point they have a life expectancy of 37 years, ie they will benefit from the pension for 2 years. Life expectancy at age 30 goes up to 48 in 2020, which gives them 13 years after retirement, 6.5 times higher. Assuming linearity, the average life expectancy after retirement during the time you are paying into your pension between 30 and 65 would be 7 years in 1930, and 17 in 2020.
No, the problem was that increased contributions [that would've ensured solvency with lower market returns and/or extended life expectancy] would've cost more sooner, and no one wants to pay more. So, we "extend and pretend" using generous return assumptions and when those assumptions are not borne out in reality, we simply shrug. Similar to $39T in US treasuries someone will need to pay back. Only the top 40% of Americans have enough income to have a federal tax liability, so who is going to pay this debt back? Different sides of the same coin. What is a debt after all besides a promise to pay.
At age 65 life expectancy hasn’t gone up as much, only around 6 years more today vs 1930. So it’s still a factor but not as dramatic as you make it seem.
What is the value in 1930 though? Only 6 years could in fact mean over 100% increase in life expectancy at age 65. There's a reason full Social Security now starts at 67 rather than 65, and you are incentivized to take Social Security at age 70 if possible.
> Pension capital is money that will not be needed for 20 to 40 years.
Is it though? Much of the article talks about public employee pensions, and many of those are ridiculously underwater. People tend to think of pensions as deposit accounts that grow a bit while you wait to retire, but in reality many of them pay out a portion of your pension deposits directly to retirees, because the money those retirees deposited has already been spent.
I'd like to see more public banks. Municipalities, and even states, are holding balances in commercial banks but there's nothing stopping them holding this in their own bank to direct capital for public benefit. California has a law allowing it, although despite a campaign in LA I don't know if it's been used. North Dakota has a state-wide public bank. It works!
Readit News
I can't believe I'm about to say something that could be construed as a defense of Larry Summers, but here goes: bank depositors are not engaging in risky behavior, they are putting cash in a bank. SVB did not get bailed out, it failed.
And as some of who supports the student loan forgiveness, yes, it is slightly inflationary but I think the benefits out weigh the inflationary effects.
Combine this with the "need" for nuclear (a perfectly cromulent but excessively expensive power source which has cheaper zero-carbon options), in the first paragraph, these comments that are not about the main topic severely undermine my ability to trust the rest of the essay.
The lesson to myself is to be narrow when I write, so as not to bring in a bunch of other positions that also need to be defended.
Universities don't care if their majors will result in a job and the student loans are a source of risk-free money.
They need to start taking on the risk of all student loan, not me, the tax payer.
The solution is to allow judges the discretion to default them in bankruptcy after X number of years after graduation. Lenders need to accept the risk. With no risk, they can loan as much as they want and have guaranteed repayment. This drives tuition higher and higher.
The market lens is myopic, the market cannot be expected to produce social goods in proportion to necessity - that's not any part of its function.
I agree that the student loan system is insane. Students need grants to cover cost of living while they focus on learning, education itself of course should be free.
The American model is terrible. The tuition prices are insane because no one pays for it now, and there's endless appetite to lend because your borrower is a systemically non-financially literate CHILD who is signing away their future wages with no right to default EVER.
No one would ever lend to the majority of these at these insane tuition prices. We'd quickly end up with reasonable tuitions like in Germany. And then most of the problem goes away.
Suddenly schools and degrees that WEREN'T good investments become good investments again.
Now, sure, there's a genuine argument that those diploma factory schools aren't providing valuable service and are just parasites subsisting on public loan guarantees while their students bear the risk. But that's not a financial argument, it's a regulatory one.
No one thinks that people shouldn't be allowed to float a Stanford degree on loans, and "dismantling the entire system" just guarantees that we return to the era where only the rich could afford Ivy degrees.
If it does in fact lead to better outcomes, then the higher tax will cover the cost.
running it through the private system builds in too many perverse incentives.
Second. Let's say universities did take on the burden of loans, of course that would be via a bank right?
If that's the case. How would they enforce risk? Based on certain majors? Who would give a loan with no collateral to young people with no credit on the hopes the major they picked had a viable job market years from that point?
Cool. Cool.
Being slightly inflationary is a strawman concern. Student loan forgiveness has a major problem in that it’s a large reward the goes only to a specific slice of society who match some arbitrary criteria and who have useful degrees. It also fails to address the root cause of the problem, letting current generations accumulate debt in the same way.
It’s an idea that appeals to a subset of the voter base for whom a college graduate with loan debt represents the prototypical struggling young person, but ignores all of the young people who are even worse off and don’t have college degrees either.
Spending a huge amount of money to forgive student loans would be politically catastrophic in ways that a lot of people who live in highly educated middle class bubbles don’t realize. There are a lot of people struggling out there, but college graduates are not at the top of the list of people who need the most help.
Supposedly intelligent investors leaving money in accounts above FDIC limits ($250k per holder per bank, so $500k for joint account) were engaging in risky laziness.
If students could not borrow enough to attend, they would be forced to lower costs (not necessarily the very top universities, but all the rest).
The incentives are not so naively simple
The reason universities are so expensive is there is no limit on how much they can charge for tuition and no requirements on how much they pay their professors. It allows them to dump a huge portion of their funds into the marketing and athletic departments.
I know of a few religious universities who's mission is mainly to educate (so their well educated members can pay back more money to the church). While they do subsidize the educational costs, it isn't by as much as you'd think and it does result in some very cheap education.
There's no reason the government couldn't do exactly the same thing. It did right up until reagan.
Any system that can juice itself by increasing both funding and cost will scale both until the natural incentive gradients (are you smart? do you actually want to do stuff or do you just want a desk job?) vanish into the noise. When everyone went to college, nobody learned anything.
University is one of those things you always want to be capability rather than means gated, but those of means will always want their kids to get in regardless of how they were raised. After all, they worked hard. Why should their kids? They will ally with every convenient rationalization in order to moralize for the politics, taking advantage of arguments about "disadvantaged backgrounds" etc to treat everything as a means problem, but the goal is to dilute the capability aspect, and that robs talent.
If you have exceptional talent, you need to know the truth. Systems naturally try to optimize the dumb-rich to smart ratio so that there's a lot of subsidy available for anyone who actually needs to be there, but consequent GPA inflation demands that we make the education somewhat meaningless, so you're really on your own to set goals, and any good ones are way higher. Check the boxes, take the free lunch, and then treat the overall coddling like a charade that must be ignored. Then again, isn't self direction always that way?
* Eliminate the entire federal student loan program. Just gone. No more loans.
* Make it so that private loans for tuition and related expenses can be trivially discharged. Like just fill out a form and it's auto-approved. You can just decide to not pay your student loans with no repercussions whatsoever. There's probably a better way to accomplish this legally but make it so that they're toxic to private lenders.
Once the money officially dries up and less than 1% of families could pay out of pocket for current tuition rates then we watch as jobs stop requiring degrees, apprenticeships become popular, and schools belt-tighten to focus on student ROI. Watch magically as GE requirements evaporate and we find out they weren't ever necessary in the first place. Watch as high schools get pressured to teach actually useful things instead of being grade school the sequel.
In a typical state school, where's most of the fat accumulating? What could be cut significantly without affecting the quality of education?
In the olden days student loans qualification depended on the students degree program and grades, and there wasn’t any repayment problem
That is risky behavior. You can't earn interest without taking a risk.
Genuine question, I have no idea, but I didn't choose my bank based on interest rate. I can't pay bills or transfer money if it's cash under the mattress.
Both loan forgiveness and nuclear have huge benefits
What obligation to the generation that's been aware of physical evidence of climate change for decades and ignored it?
The old dying and the youth rewriting social and political custom and truism is a physical constant of the universe.
Physics is ageist; sorry/not sorry grandparents.
Because the taxpayers (and all users of USD) repeatedly bail them out. I could define anything as not being risky if I knew taxpayers would bail it out.
More importantly, if there is no risk, what purpose does a bank serve? They’re a pretty bloated middleman if their sole purpose is to update a database to reflect incoming and outgoing cash flow. The government should be able to offer that service for free.
Bank shareholders or creditors are engaging in risky behavior and should face the full consequences of bank failures. No bailouts for them.
But, at least in the US, regulators keep blocking the 1st step: narrow banking. Let banks offer savings accounts that just stick the money in the Fed, zero risk.
Banks provide security for deposits as well as liquidity (velocity of money), and slight inflationary pressure.
Wiping out depositors doesn't prevent much moral hazard since the depositors are unsophisticated, so they are unable to differentiate risk among banks.
The taxpayer didn't pay for those bailouts. They were funded by the DIF, which was replenished by premiums that banks pay.
> They’re a pretty bloated middleman if their sole purpose is to update a database to reflect incoming and outgoing cash flow.
Did you just look into what banks do at all before making this claim? If that were the case, companies like Apple, Bilt, and Robinhood wouldn't be relying on real banks and could easily start their own.
I feel like I must be misunderstanding something here because it sounds like you're saying depositing funds in a bank is considered risky behaviour?
And banks do a lot more than what you described, which I have to assume you know already.
In particular the article incorrectly states that the bank was bailed out. It was not. The bank failed. Depositors who were running their non-profit in the Bay Area did not lost all their charitable contributions.
The bank failed because it had placed deposits into US Treasury bonds that were temporarily worth less for sale on the open market than they would be at maturity. When Peter Thiel started a bank run by telling all his investments to pull their funds, that exposed the SCB mismanagement.
When the depositors were bailed out, taxpayers didn't lost anything, it was a wash. We could have paid at bond maturity or now, but it made little difference to us.
The "Safe Withdrawal Rate" assumed by many private individuals planning for their own retirement assumes a withdrawal rate in the 3 - 4% range based on the "trinity study" - https://en.wikipedia.org/wiki/Trinity_study
Meanwhile, American public pensions are structurally engineered around a 7%+ SWR - this was recently confirmed again by the median goal by the National Association of State Retirement Administrators.
The perpetual "under funded" nature, and all the return hunting etc in pension fund management can be explained by that disconnect.
But this then belies a very uncomfortable acknowledgement which is that we cannot afford the government workforce currently in place requiring us to either:
(a) Raise taxes to increase contributions.
Or
(b) Somehow make due with less government :)
But mortality credits (pooling) don't solve the math of the discount rate - they add 100 - 150 basis points of reduction so retarget to 5.5% vs 4% if generous
So they are still structurally designed where they HAVE to allocate towards risk to meet their targets which is at core of issue
But that does not justify the numbers we actually see being used.
The Pension Protection Act of 2006 mandates that non taxpayer funded defined benefit pension plans use discount rates from high grade corporate bond yield curves, which are much lower.
https://www.irs.gov/retirement-plans/pension-plan-funding-se...
We also have the problem that paying pensions becomes somebody else's problem. Thus in contract negotiations pushing benefits into pensions rather than current wages becomes attractive. You can agree to more without breaking the current budget.
The old rules worked better because limiting what pension funds could be in also limited the shenanigans that were possible.
So the "we'll find 'efficiencies' somehow" argument that every opposition party trots out when they're campaigning?
3% vs 7% doesn’t seem broken on principle, just, a tuning parameter is off.
It's not just the government. It's all of the other stuff seniors buy. It used to be that you just kind of stuck around and retired in the area where you had worked. You had paid off that house, so you retired in it. Maybe you went to the Shriners' hall and played bingo with a core group of friends until you couldn't anymore. Then you moved into a retirement home and they found activities for you to do there until Father Time came to collect his due. Maybe you spoiled yourself with a Buick or Lincoln sometime between getting your gold watch from the plant manager and croaking.
Now, that's not enough. We need entire retirement communities hundreds of miles away in warmer climes where they can play golf several months out of the year. We need cruises and travel packages. We need cosmetic procedures to look younger. We need more advanced surgeries that extend life, though not participation in the workforce. And of course, now that Lincoln is a Mercedes.
And that's great, because we've told everyone that they deserve it after a long, hard career. There's only one problem: we never addressed where that retirement income was actually coming from. They're coming from that 7% SWR, which must be funded somehow. Otherwise the retirees might have to stay in-town, be cold during the winter, and provide childcare for the grandkids because preschool now costs as much as a year of college tuition. And that makes them cranky and they start calling investment advisors and politicians demanding answers.
For example, CaLPERS has ~45% of their assets under management in debt / real estate.
Should New York’s $270B pension fund abandon Wall Street? - https://www.semafor.com/article/08/07/2025/new-york-comptrol... - August 7th, 2025 ("Drew Warshaw is running for New York state comptroller, a job most voters would struggle to define but one that includes oversight of the state’s pension fund. If he unseats 18-year incumbent Thomas DiNapoli, Warshaw’s plan is to move much of its nearly $300 billion of investments into ultra-cheap, passive index funds. The New York State and Local Retirement System has more than $90 billion invested in private equity, private credit, real estate, and other complex assets. All promise high returns — catnip for pension managers facing future payouts to retirees — but charge high fees, too. The question facing New York and hundreds of other state and local pension funds, charitable endowments, universities, and government funds around the world: Are these high-priced managers worth the fees they’re charging?")
What Does Nevada’s $35 Billion Fund Manager Do All Day? Nothing - https://www.wsj.com/articles/what-does-nevadas-35-billion-fu... | https://archive.today/ywTFd - October 19th, 2016
The management fees are, broadly speaking, a grift/rake of capital flows and economically inefficient, based on the evidence and the data. The issue at play is that the capital market ecosystem has become a bureaucracy that demands to continue to grow, versus cannibalizing itself in the name of economically efficient capital allocation.
Tangentially, the markets are moving to more trading (24/7/5) versus less because when trades are made, money is made in a Parable of the Broken Window sort of way by the capital market industry.
TFA says otherwise, in detail and with a lot of supporting data. If you're going to contradict it you ought to cite a source.
And here's a link to the CalPers celebrating their new ROI: https://news.calpers.ca.gov/celebrating-10th-anniversary-cal...
Investors Warn of 'Rot in Private Equity' as Funds Strike Circular Deals - https://news.ycombinator.com/item?id=46380751 - December 2025
Once Wall Street’s High Flyer, Private Equity Loses Its Luster - https://news.ycombinator.com/item?id=46364566 - December 2025
Private Equity’s Latest Financial Alchemy Is Worrying Investors - https://news.ycombinator.com/item?id=44891882 - August 2025
People Are Worried About Private Market Liquidity - https://www.bloomberg.com/opinion/newsletters/2025-06-10/peo... | https://archive.today/wJ3Uf - June 10th, 2025
Private Equity Fundraising Plunges Amid Struggle to Return Cash - https://www.bloomberg.com/news/articles/2025-05-27/private-e... | https://archive.today/hxvzb - May 27th, 2025
Private Equity Firms Hunt for Alternate Ways to Return Investor Cash - https://www.bloomberg.com/news/newsletters/2025-05-14/privat... | https://archive.today/6UzBk - May 14th, 2025
Unlocking a potential US$3.8 trillion opportunity for private equity firms - https://www.deloitte.com/us/en/insights/industry/financial-s... - December 16th, 2024
That's not recent at all. They've, for a long time, had large allocations to PE funds.
We won't know the return until the investment is over and capital is returned.
This kind of deceit is one of the main services PE funds provide
Increasing the money(number), while making everything else costly (a lot more costlier in reality because of fictional inflation number) is not only hard to achieve, but even if achieved, doesn't mean much. ".S. Dollar itself has lost roughly 98% of its purchasing power over the long term" -- random Warren Buffett quote.
Usually it's not implemented as a rule though, but rather by creating tax cuts for certain kind of investments.
E. G. In France you get tax cuts if you invest in green energy, housing in poor neighborhood, and a trillion other subcategories.
> For example, EU pension funds allocate just 0.02% of total assets to VC, compared with almost 2% for US pension funds. And this percentage is applied to a much larger asset base: over 140% of GDP in the United States compared with around 30% in the EU.
> In Europe, approximately €11.5 trillion is held in cash and deposits. This is one-third of households’ total financial assets. In the United States, the figure is around only one-tenth.
https://www.ecb.europa.eu/press/key/date/2024/html/ecb.sp241...
[0] https://www.ssa.gov/oact/NOTES/pdf_studies/study120.pdf
Years spent in retirement have roughly doubled, while the pyramid has shrunken from 16:1 workers to retirees in 1950 to 3:1 today.
Means testing and retirement age increases also cause a voter or worker revolt.
Going to be real hard to keep this on the rails.
Is it though? Much of the article talks about public employee pensions, and many of those are ridiculously underwater. People tend to think of pensions as deposit accounts that grow a bit while you wait to retire, but in reality many of them pay out a portion of your pension deposits directly to retirees, because the money those retirees deposited has already been spent.