Friday, September 19, 2008

Should Nonprofit Lenders Also Get a Government Bailout?

On Friday, September 19, 2008, the Chronicle of Higher Education reported that nonprofit student loan lenders are asking Congress for a bail-out based on terms similar to what Congress did for Fannie Mae and Freddie Mac.  Here is an excerpt from the article:

At a hearing of the House Financial Services Committee on the auction-rate securities market on Thursday, the president of Pennsylvania's nonprofit lender {, James Preston, president of the Pennsylvania Higher Education Assistance Agency,] urged lawmakers to give the U.S. secretary of the treasury the authority to purchase securities backed by student loans.

. . .

The plea from Mr. Preston came a day after the U.S. Senate approved a one-year extension of the original rescue plan for student-loan companies, sending it to the president for a signature. . . .

But nonprofit lenders, for the most part, have not benefited from the program, because they have been unable to obtain the "bridge funding" they need to originate loans in the first place. Simply put, they don't have the cash to make the loans that they could then sell to the department to generate the money to make more loans.

For the entire article, see "Nonprofit Lender Asks Congress for More Help to Stay Afloat" in the September 19, 2008, issue of the Chronicle of higher Education.

DAB

http://lawprofessors.typepad.com/nonprofit/2008/09/should-nonprofi.html

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Comments

Big business should not be allowed to become too large to fail. A business with that much influence is too big for a free market. It has access to wholesale market manipulation. And it has the privilege of depending on a government safety net if it fails.

The recent economic crisis demonstrates that such businesses will now be rescued at taxpayer’s expense when they suddenly collapse. The CEO of AIG has even demonstrated on national TV that big business leaders expect tax funded rescues. And that diminishes a primary incentive for them to be efficient and prudent. It may even encourage their board members to strategically create a crisis requiring a government bailout rather than suffer losses over time on their own. These business leaders have developed an attitude of entitlement that should inspire corporate welfare reform.

If businesses that are too big to fail are allowed to exist, then they should pay for their own government entitlement programs. This has been the arrangement for the lower classes. That is why social security tax rates in the United States become less for those who become wealthier. Wage earners should not be expected to pay for business welfare too. The influence these businesses have over markets should help them pay for their government programs. And to discourage corporate welfare fraud, those in charge of businesses that either purposely or by neglect cause the government to pay for their rescue should be punished for a kind of embezzlement.

Bryant Arms

Posted by: Bryant Arms | Sep 20, 2008 1:03:15 PM

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