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Home Publications Blogs Beat the Press Student Loan Bubble Nonsense: Peter Peterson and the Washington Post Mess Up on the Economy Yet Again

Student Loan Bubble Nonsense: Peter Peterson and the Washington Post Mess Up on the Economy Yet Again

Sunday, 11 March 2012 19:49

One of the main reasons that the housing bubble grew unchecked is that major media outlets like the Washington Post refused to present the views of those trying to call attention to the unprecedented run-up in house prices and the disaster that would inevitably follow its collapse. Instead the Washington Post was obsessed with reporting on the budget deficit, following the lead of billionaire investment banker Peter Peterson and his dependents, even though the deficits at the time were very modest by any reasonable measure.

The Washington Post refuses to allow its catastrophic failure in its non-coverage of the housing bubble to affect its reporting in the least. It continues to obsess on the budget deficit, relying almost exclusively for sources on "experts" who were unable to recognize the $8 trillion housing bubble.

It also continues to view the beneficiaries of Peter Peterson's largesse as valuable sources. Today it ran a piece from the Peter Peterson funded Fiscal Times warning about the "debt bomb" from student loan debt. (The Post did not identify Peter Peterson as the funding source for the Fiscal Times.) 

The piece manages to get just about everything wrong. To start with, it did not even get the rate of student debt accumulation right. It told readers:

"The amount of student borrowing skyrocketed from $100 billion in 2010 to $867 billion last year."

The data show that student debt was around $800 billion in 2010. It was already near $200 billion in 2000. The incredible rate of debt accumulation described in this sentence should have raised eyebrows among editors at the Fiscal Times and Washington Post, if they have any.

Perhaps more importantly, the basic premise of the piece is absurd on its face. The third paragraph has a quote from William Brewer, the head of the National Association of Bankruptcy Attorneys:

"'This could very well be the next debt bomb for the U.S. economy' — something akin to the housing mortgage loan crisis that triggered the U.S. financial crisis."

This is an absurd statement and any serious reporter should have been able to recognize that fact instantly. At the peak of the housing bubble in 2006, the residential housing market in the United States was worth more than $22 trillion. It has since lost close to $8 trillion in real wealth, which is the basis of the current downturn.

As the article explained, the student loan market is now valued at $867 billion, less than 1/25th the size of the housing market at its bubble peak. Furthermore, all of it will not default and the defaults that do occur will be spread over many years. And the government will cover most of the losses since it is guaranteed. How is this supposed to have the same impact as the collapse of the housing bubble?

None of this should be taken as minimizing the plight of recent college graduates who face a serious debt burden in an economy offering few jobs and even fewer good paying jobs. However, it makes no sense to compare this situation to the housing bubble; there is no relationship.

This is like comparing every atrocity to the holocaust. There are many horrible atrocities that have occurred in the last sixty five years but few, if any, can rightly be compared to the holocaust and it is foolish to do so. The advocates for students should make their case in a more honest manner and competent reporters should know better than to fall for this sort of hyperbolic nonsense. 

Comments (14)Add Comment
written by Martin S., March 11, 2012 10:16
So is there a problem with student debt? It's outpaced inflation for a very long time. Would this be a non-issue if the economy were back to normal?
written by JSeydl, March 11, 2012 10:47
This is a really funny post. Does the WAPO seriously not have any editors who are able to catch such a ridiculous error? So the amount of student loan debt increased 767% last year?

Maybe this is the WAPO's logic: If we assume that the amount of student loan debt outstanding continues to grow at the rate of 767% per year, then in 2012 there will be $7.5 trillion in student loan debt outstanding. Then in 2013, the amount of student loan debt outstanding will explode to $65 trillion. If the student loan debt bubble then pops in 2013, the WAPO would be correct, as it would trigger an epic financial crisis 3.5x worse than the 2008 meltdown.

That's really the only coherent message I can come up with to take away from this absurd article.
more class warfare: yet another assault upon the working class...
written by Dean Taylor, March 12, 2012 12:09
yet another attempt by the dutiful stenographers at WAPO to demonize the 99%--how irresponsible, lazy, un-American, etc., these students are, i.e., playing fast and loose with the economic well-being of this extraordinary light unto the world, this moral beacon, the City on the Hill: Empire!

And by so doing--i.e., by engaging in this "journalistic" (NB: scare quotes) sleight-of-hand--the MSM removes the focus of ignominy from where it rightly belongs: upon the money-obsessed piglets on Wall Street, the Fortune 500 CEOs and their major stockholders, and that bastion of integrity, the American banks...all underwritten by the State, its war juggernaut, and our metropolitan gendarmes--who terrorize both the citizenry as well as their own (q.v., Adrian Schoolcraft)!
blinded by self-interest
written by David B. Schuster, March 12, 2012 4:08
At the WAPO, there were most likely many individuals who benefitted from rising home prices. Therefore, they had an interest in not calling attention to the housing bubble and risking it to pop. Journalists were on the bubble's payroll, so to speak.

In regards to student debt, it is important to point out tuition costs have increased directly as a result of reduced spending by state governments. States attempt to balance their budgets by passing the costs along to college students. These are the proverbial children that deficit hawks refer to, who they do not want to burden with debt in the future.
..., Low-rated comment [Show]
written by AndrewDover, March 12, 2012 8:24
Some light is shed here.

I don't think student debt has the same potential for a negative feedback loop like mortgage debt. (Lower prices cause foreclosures which cause lower prices) Besides a large portion of that debt is owed to the Federal government. If increased losses cause the Federal to tighten future loans, then that just makes education scarcer and more valuable. You can't foreclose on knowledge or training.

You could be scared about the short term nature of U.S. debt as the WSJ says: http://online.wsj.com/article/...48580.html
Borrowing short term to meet long term obligations has always been a risky approach, although chart 2 shows that the interest burden has not climbed.
written by David, March 12, 2012 8:29
@kharris: what?? Make sense, dude. I expect an economics reporter from one of the top papers in the country to have some expertise in their beat. Why my plumber or hair dresser would be experts on bubbles, rather than plumbing or styling, is just a plain weird or stupid thing to say. Kharris essentially defends incompetence on the part of reporters from supposedly a top-ranked media and opinion former, by essentially saying Dean is expecting too much of them. Then he compares Dean with Rush, who libelled a young woman whereas Dean points out the truth about WaPo reporting, with well-deserved sarcasm. Huh? Is there any sense in this post by kharris? No. Anger? Yes. Faulty logic? Yes. Meaningless rhetoric? Yes. Whose credibility do I question after kharris's rant? Kharris's.

BTW, lovely bit, Dean, about the "raised eyebrows ... if they have any."
eyebrows.... or editors?
written by FRauncher, March 12, 2012 4:03
I thought that was "editors...if they have any"
too kind
written by JD, March 12, 2012 7:31
You actually are too kind to the Post article. In the paragraph after the one where they point out that "The amount of student borrowing skyrocketed from $100 billion in 2010 to $867 billion last year.", they say students borrowed ~ $100 billion last year. If only the author had read his own article...

Of course, it's highly ironic for the Post to be concerned about student debt. Their sister company, Kaplan U., along with other for-profit universities encourage students to borrow large sums for questionable degrees.
Not just recent grads
written by LSTB, March 12, 2012 9:05
None of this should be taken as minimizing the plight of recent college graduates who face a serious debt burden in an economy offering few jobs and even fewer good paying jobs.

Plenty of older graduates (and dropouts) who've been forced to default on their loans and parents who've co-signed loans (like the Minnesota man in the article) have a big stake in student debt reform. It's not just underemployed and underpaid Millennials.

Interestingly the Post article declined to publish the NY Fed's researchers' conclusion that once you exclude loans in deferment or forbearance, the percent of borrowers with "past due" student loans shoots up to 27 percent.
Just as scary...
written by Adam, March 13, 2012 11:25
The numbers have been updated, but there is no note from the editor indicating as much.

Courtesy of Google's cache, on March 9, the Fiscal Times article said: "The amount of student borrowing skyrocketed from $100 billion in 2010 to more than $1 trillion last year."

It currently says: "The amount of student borrowing skyrocketed from $830 billion in 2010 to $867 billion last year." (Were they horribly wrong in both directions?)

The article was originally published on March 1, so it went at least 8 days with made-up numbers.
WaPo's "correction" shows it was deliberate propaganda to start with
written by JRR, March 14, 2012 12:27
Dean, the correction they have made to the sentence in the article on the web shows that the "100 billion" error was not a mistake but a deliberate attempt to propagandize over the issue: Rather than put in the correct figure (830 billion), the sentence now reads:

"The amount of student loan debt has skyrocketed in recent years to a total of $867 billion last year."

Note that instead of simply inserting the correct amount, they simply omitted including any data at all, and just stated “student loan debt has skyrocketed in recent years”. Actually including the data would show that the debt had not “skyrockeketd” at all (showing that the very premise of the story was incorrect), but rather had increased moderately.

The fact that they chose to change the meaning of the sentence in order to maintain the false premise of the story rather than simply issue the correction of the "mistaken data" shows that they are deliberately engaging in propaganda.

It reminds me of their claim that Mexico's economy grew by 800% since NAFTA! which they refused to correct!
The original Fiscal Times article was even more distorted
written by JRR, March 14, 2012 1:02
In the original (cached) March 1st Fiscal Times story, the sentence read:

The amount of student borrowing skyrocketed from $100 billion in 2010 to more than $1 trillion last year – or more than all the outstanding U.S. credit card debt.

The corrected sentence in Fiscal Times reads:
The amount of student borrowing skyrocketed from $830 billion in 2010 to $867 billion last year – or more than the $704 billion in outstanding U.S. credit card debt, according to the Federal Reserve Bank of New York.

A rise from 830 to 867 billion is not exactly skyrocketing! So WaPo changed it to say “student loan debt has skyrocketed in recent years to a total of $867 billion last year." Clearly a deliberate attempt to misinform, rather than change the tone of the article to fit the actual data.
But the topic is important
written by Carol, March 15, 2012 3:35
WaPo may have trouble with numbers, but the future for young students is sure worth discussing. Unless they join the military, which young people do en mass here, few jobs have fixed pensions. Few jobs have a career ladder. And there are few jobs.
Add in student debt and it is a huge economic story.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.