Education in the United States
We have a thread devoted to academic freedom at universities, and we have a thread devoted to whether higher education should be subsidized. This thread is a landing spot for discussion of other issues related to education -- issues like school integration, pedagogy, the influence of politics on education (and vice versa), charter schools, public v. private schools, achievement gaps, and gerrymandering of school districts.
I'll start the discussion with two articles. The first deals with a major changes in the public school system in NYC.
NYC's public schools are highly segregated for such a diverse city. Last Friday, Bill DeBlasio announced the following:
Middle schools will see the most significant policy revisions. The city will eliminate all admissions screening for the schools for at least one year, the mayor said. About 200 middle schools — 40 percent of the total — use metrics like grades, attendance and test scores to determine which students should be admitted. Now those schools will use a random lottery to admit students.
In doing this, Mr. de Blasio is essentially piloting an experiment that, if deemed successful, could permanently end the city’s academically selective middle schools, which tend to be much whiter than the district overall.
DeBlasio also announced that:
New York will also eliminate a policy that allowed some high schools to give students who live nearby first dibs at spots — even though all seats are supposed to be available to all students, regardless of where they reside.
The system of citywide choice was implemented by former Mayor Michael R. Bloomberg in 2004 as part of an attempt to democratize high school admissions. But Mr. Bloomberg exempted some schools, and even entire districts, from the policy, and Mr. de Blasio did not end those carve outs.
The most conspicuous example is Manhattan’s District 2, one of the whitest and wealthiest of the city’s 32 local school districts. Students who live in that district, which includes the Upper East Side and the West Village, get priority for seats in some of the district’s high schools, which are among the highest-performing schools in the city.
No other district in the city has as many high schools — six — set aside for local, high-performing students.
Many of those high schools fill nearly all of their seats with students from District 2 neighborhoods before even considering qualified students from elsewhere. As a result, some schools, like Eleanor Roosevelt High School on the Upper East Side, are among the whitest high schools in all of New York City.
Here is the New York Times article that describes the changes:
https://www.nytimes.com/2020/12/18/nyreg...
Obvious questions for discussion include:
- How large a priority should cities place on ensuring that city schools are representative of the city as a whole?
- Are measures like the ones that DeBlasio is implementing likely to be effective in making schools more representative?
- Will these measures have unintended (or intended) consequences that extend far beyond changing the representativeness of city schools?
I don't really see it that way, and I think that implicit government guarantees of bank solvency was only a minor factor in the financial crisis.
There have been financial meltdowns that were caused by participants knowingly taking on excessive risk. But I don't think this was really one of those situations.
Mortgage originators didn't think they were taking on excessive risk because they were originating mortgages that they knew they could sell into securitizations. The lenders weren't inte
Oh it wasn't about only guarantees on mortgages specifically.
It's about counterparty risk in the daily inter-bank settlement, and counterparty risk more generically.
Where there is no explicit/implicit state guarantee sophisticated dynamic models exist to ask for collateral from trading partners and whatnot. When hedge funds collapse (and they do) it's not systemic because counterparties to trade don't collapse in domino. When crypto collapses, same thing.
The financial meltdown wasn't because of mortgages default rates. It was because markets froze as LB being allowed to fail changed the rules of the game, as all participants thought that was impossible (otherwise they wouldn't have had naked counterparty exposure with opaque institutions upon which they didn't apply due diligence, collateral rules and so on).
"TBTF" institutional paper traded like tbills with micro spreads over that before. And it all traded the same. It was allowed as collateral on par with tbills or actual cash. And all of that was because of creditors feeling guaranteed by the state.
The mortgage aspect per se, with the failures of rating agencies, the repackaging and so on was problematic, but that alone would have been a mid-sized crisis.
When what you mentioned happened (necessity to liquidate at "firesale" prices and so on), markets froze because you had no way to assess what was what. If any counterparty can fail tomorrow with no state intervention, all the previously banal operations overnight to settle liquidty between institutions become risk management nightmares.
Even if you recoup your money in case of counterparty failure, it isn't necessarily there immediatly, you face liquidity risks at unprecedented scale.
The risk buildup at "systemic risk" threshold i previously mentioned repeatedly wasn't only "mortgage default risk" (although that was excessive for AIG and DB). It was in all counterparty risk including intraday not linked to MBS paper.
Back to why the FDIC, basically at the time it became (ex post) clear to institutions that the government had changed the implicit/explicit rules of the game (by allowing LB to fail) , and it LB had been a normal bank they would actually have saved it.
Look at what the possibly smartest operators at the time did: LB collapses september 15 2008, Goldman Sachs becomes a bank holding company september 21 lol.
https://www.goldmansachs.com/our-firm/hi....
LOOK AT THIS
We believe that Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources,” stated Chairman and CEO Lloyd Blankfein. He noted that the move addressed market perceptions that placed a premium on the value of oversight by the Federal Reserve Board and the ability to source Federal Deposit Insurance Corporation (FDIC)-insured bank deposit to increase funding capacity
, while also providing access to a broader set of liquidity and financing alternatives.
This is what i meant! the market just had previously generalized that to TBTF institutions even if not explicitly covered by the FDIC. LB is left dying, you have to get FDIC coverage to play the game as before (be trusted as counterparty without due diligence by other agents so your paper trades like t bills and so on and on)
The risk buildup at "systemic risk" threshold i previously mentioned repeatedly wasn't only "mortgage default risk" (although that was excessive for AIG and DB). It was in all counterparty risk including intraday not linked to MBS paper.
Of course, but the housing market was the main trip wire for all of this other stuff.
yes but in a world without all that regulatory framework based on implict and explicit state guarantees (cornered on the FDIC) there is nothing systemic accumulated to explode. You only have the normal cycle.
And you can still have the provider of liquidity of last resort , Bagehot rule doesn't create excess risk in the system.
I have no idea how fdic had anything to do with what Luciom talking about ….
FDIC is just a protection of individual deposits up to 250k in bank accounts while the 2008 gfc was about defaulting on massive amounts of debts on over-leverage collateral .
That dubious link of fdic (created in 1933) is the same bad arguments of the CRA (created in 1977) for the gfc of 2008 ….
2008 is just all entities not doing their homework’s and accepting too much risks .
https://www.investopedia.com/articles/ec...
The company, along with many other financial firms, branched into mortgage-backed securities and collateral debt obligations. In 2003 and 2004, with the U.S. housing bubble well under way, Lehman acquired five mortgage lenders along with BNC Mortgage and Aurora Loan Services, which specialized in Alt-A loans. These loans were made to borrowers without full documentation.
In 2007, Lehman underwrote more mortgage-backed securities than any other firm, accumulating an $85 billion portfolio, or four times its shareholders' equity. In the fourth quarter of 2007, Lehman's stock rebounded, as global equity markets reached new highs and prices for fixed-income assets staged a temporary rebound. However, the firm did not take the opportunity to trim its massive mortgage portfolio, which in retrospect, would turn out to be its last chance.
5
Hurling Toward Failure
In 2007, Lehman's high degree of leverage was 31, while its large mortgage securities portfolio made it highly susceptible to the deteriorating market conditions. On March 17, 2008, due to concerns that Lehman would be the next Wall Street firm to fail following Bear Stearns' near-collapse, its shares plummeted nearly 48%.
7
What fdic have anything to do with that .
I tried to answer that extensively. if you care about my opinion, try to re-read my posts on that.
if you don't care about my opinion on the topic (which is absolutely something you can do), please don't ask me for an explainer as I gave it already
I did ….gfc 2008 happened in less then a decade with banks over leveraging to crazy level .
FDIC created in 1933 .
I see no correlation at all but it’s ok .
I think this is quite honestly the first time I've seen Rococo post over 2 paragraphs. Luciom, you should consider yourself lucky. He doesn't usually do that.
I don't believe that the modern regulatory system was overwhelmingly responsible. It was one of a number of contributing factors, but not the most significant imo.
I don't believe that FDIC deposit insurance was a factor at all.
Yeah, huge holders of MBS happened to often have commercial banking operations, but that didn't really matter. The investment banking sector is quite a bit larger than commercial banking and is capable of tanking the global economy and requiring bailouts all on it's own even if they had 0 FDIC insured accounts.
It was always kinda funny when you say videos of random occupy Wall St protests in Memphis or whatever angrily closing their Bank of America account and yelling at their local deposit manager..... like that was one of the few parts of BOA in 2007/2008 that was competently doing their job and also not getting paid very much.
