Submitted by Craigie (not verified) on May 21, 2008 - 7:31am.
Mr. Bernanke should be commended for his foresight and courage. It is only logical that a group of lawyer-legislators, no matter how intelligent, sitting in a room on Capitol Hill or elsewhere, cannot choose a lender yield which will be economically sound for 5 or 10 years at a time. It will either be too low, or as has usually been the case, too high. Even Nobel Prize winning economists would not be able to set something like that. It has to be market-based. The bottom line is at least three groups of people would like a change towards a market based approach, although they might not know it: (1) people who thought the recent "lender cuts" were too deep; (2) people who thought the cuts were just right; and (3) people who thought the cuts were not deep enough. Those who thought the cuts were too deep should be at the head of the line requesting to get Congress out of the process of legislating the lender yield. The answer to subsidy is not more subsidy but more enterprise, more of a market approach to paying lenders. There are a wide variety of market-based methods to set the lender yield -- auctions are just one of many. Even within the auction family of approaches, the auction method for Plus loans is just one of many, many auction methods that could be used. Some prefer auction sales over rights auctions. Many question the rationale for "two lender per state" approach. Don't throw the baby out with the bath water; repair the auction approach if it doesn't work. Try another auction approach or a different type of market-based approach to set the lender yield. The Heal auction worked in that both borrowers and taxpayers saved money. The flaws in the Heal auction would not occur in FFELP, because FFELP is a mandatory program where "advanced appropriations" are not a concern. Schools and borrowers would not need to wait until Oct. 1 to get there money each year.
A wide variety of market-based approaches are available
Mr. Bernanke should be commended for his foresight and courage. It is only logical that a group of lawyer-legislators, no matter how intelligent, sitting in a room on Capitol Hill or elsewhere, cannot choose a lender yield which will be economically sound for 5 or 10 years at a time. It will either be too low, or as has usually been the case, too high. Even Nobel Prize winning economists would not be able to set something like that. It has to be market-based. The bottom line is at least three groups of people would like a change towards a market based approach, although they might not know it: (1) people who thought the recent "lender cuts" were too deep; (2) people who thought the cuts were just right; and (3) people who thought the cuts were not deep enough. Those who thought the cuts were too deep should be at the head of the line requesting to get Congress out of the process of legislating the lender yield. The answer to subsidy is not more subsidy but more enterprise, more of a market approach to paying lenders. There are a wide variety of market-based methods to set the lender yield -- auctions are just one of many. Even within the auction family of approaches, the auction method for Plus loans is just one of many, many auction methods that could be used. Some prefer auction sales over rights auctions. Many question the rationale for "two lender per state" approach. Don't throw the baby out with the bath water; repair the auction approach if it doesn't work. Try another auction approach or a different type of market-based approach to set the lender yield. The Heal auction worked in that both borrowers and taxpayers saved money. The flaws in the Heal auction would not occur in FFELP, because FFELP is a mandatory program where "advanced appropriations" are not a concern. Schools and borrowers would not need to wait until Oct. 1 to get there money each year.