FINANCIAL COLLAPSE: STUDENT LOANS, HOSPITALS & CARS

Filed Wednesday, April 9. 2008

The lack of jobs for American citizens is reflected with this latest, multibillion-dollar financial collapse that reaffirms my economic observations. Many financial experts and economists have yet to connect the dots while analyzing financial indicators and determining why things are happening in the economy.
 
The economy is interrelated. That couldn’t have been better expressed in the recent Congressional hearings where Federal Reserve Chairman Bob Bernanke emphasized the grave consequences if Bear Stearns wasn’t bailed out. Though he didn’t explain all the details, he stated that the Fed had to step in and prop up Bear Stearns so there wasn’t a domino effect on other financial firms.
 
Having said that, why can’t the experts figure out that allowing too many cheap foreign workers upsets the equilibrium of that same economy? How much empirical evidence do they need?
 
The Myth of Cheap Labor
In a recent column under the American dream hierarchy, I noted:
With companies bringing in cheaper labor, they are upsetting the complex churning of the economy from several perspectives.
They are getting cheaper labor. While this is perceived as good for them, many of those cost savings haven’t been passed onto the consumers. Instead, they have been used to create mega bonuses for executives, fund failing initiatives and in some cases more value for the shareholders.
The drawback is that the cheap labor they bring in isn’t cheap and the costs have become a burden to the consumers. They have put a strain on schools, hospitals and other institutions that require more funding to handle the increased demands.
If we upset the balance of alpha, beta and gamma consumers, we damage the economy. The erosion of alpha consumers has been happening for at least the last eight years. To me, this clearly fuels the acceleration of credit indebtedness.
The strain on institutions like hospitals could not be better exemplified by the recent closure of the 410-bed St. Francis Hospital that had to close its doors due to too many patients not paying their bills. This is from a Chicago Tribune article on April 2:
Saddled with tens of millions of dollars in losses from uninsured patients who could not pay their medical bills, St. Francis would be abandoning its core mission of caring “for the people of its communities regardless of their ability to pay”.
The vortex of declining economic contributors keeps pulling down economic viability both locally and regionally. The hospital closure impacts the health care situation for the Blue Island area.
 
More important, scratch another 1,400 good jobs that contribute to the tax revenues of not only that city but also Cook County. Those jobs are not replaced by opening up a corner Starbucks.
 
A remarkable note is that no health care association would even consider picking up the hospital (even for free!). Out of 28 potential buyers, all said no. That speaks volumes that a concentration of people with no health care are a real drag on regional viability and a clear negative economic indicator that red flags any health care-related economic development.
 
So much for the false premise of cheap labor. Cheap labor costs everyone else millions of dollars, and in this particular instance, no health care association wants to pick up the pieces. It’s bad for their bottom line.
 
Those who say we must compete in a global economy are missing the point if they think eroding the standard of living to a third-world status is progress.
 
Closing a hospital with an economic viability that’s so bad it can’t even be given away to any of 28 potential buyers is a clear proof of concept that putting the burden of providing health care benefits onto the Alpha consumers for Beta and Gamma consumers just doesn’t work. More Alpha consumers need to be made. They have good jobs that include health care benefits.
 
After Student Loan Tsunami, Are Cars Next?
Reader Gene Nelson sent in a Bloomberg article by Steven Church and Jody Shenn. Here is an excerpt:
The Education Resources Institute (the U.S. lender that says it’s the largest non-profit, private guarantor of student loans) blamed its bankruptcy filing on bond-market turmoil.
The company filed … for bankruptcy protection in Boston while it reorganizes [and listed] debt of as much as $1 billion and assets of more than $1 billion in its Ch. 11 petition. The company helps students fill the funding gap left when government-backed loans aren’t enough to cover the costs of college.
Reading between the lines, Nelson observes:
The real reason why the student loan holders defaulted is that there are very few jobs for recent American college graduates as a consequence of employer preference for specialty work visa holders since they are cheaper and are essentially indentured.
Total admissions over all of the work visa programs shows that more than 1 million visas are granted annually. See the 1.757 million admissions in 2005 in the table “American citizens can’t apply for these jobs” in the author’s Jan. 2008 article.
Looks like those who counted on repaying student loans are left in a quandary. Are we relegating college graduate job seekers into a Beta consumer class before they even get into their careers? This reaffirms my earlier economic insights:
Why do we still have a skyrocketing rate for foreclosures, huge underemployment of highly skilled workers and billion-dollar deficits in local and state government budgets?
As more people get pushed out of good-paying jobs and those jobs get filled by cheap labor, the economy slides down another notch. Beta consumers can’t buy into the full American dream hierarchy.
Car loan defaults are also rising dramatically. This is another perspective on car loans crashing:
Auto payment defaults doubled [in 2007] and are expected to get worse. [It’s] a situation similar to the crisis in the home mortgage industry. A CBS 5 … investigation found actions made by consumers, dealerships and lenders are contributing to the auto loan crisis.
According to Power Information Network, 1.85 [million] of the 9.6 million customers in 2006 who leased or financed a new car were sub-prime borrowers or consumers with weak credit.
The economic experts who said the sub-prime crisis would be contained to only the sub-prime mortgages forgot about the 2 million car loans on which those same people got approval. The economy is interrelated.
 
Carlinism: Cheap labor is not cheap. Their benefits have to be picked up by others.

Last modified on 2008-07-08 21:31

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