BACKBENCHER
Rod Kapunan
9/24-25/2011
The great educational plan swindle
The same tragedy happened with the country’s educational plans. When one ambitious wise guy in the Senate opted for the deregulation of tuition, he delivered the coup d’ grace to an already questionable usury business of paying in installments the educational plans with an assurance that by the time the children enter college, the company would take charge in paying for their tuition fees. The result unavoidably compelled private schools to increase their tuition.
The fixed cost to pay those educational plans as against the rapid increase in tuition then became the loophole to swindle the plan holders, apart from the fact that the peso was fast depreciating. Parents could not understand why the government allowed private colleges and universities to steeply increase their tuition considering that they are already enjoying tax exemption in their income and from payment in real property taxes.
For that, they were trapped in their vicious game caused by the declining number of enrollees. They have to lobby for subsidy, unmindful that public school children do not even have the luxury of seeing the roof of their school buildings repaired.
Many educational plan holders ended up holding on to nothing. It was double jeopardy, for aside from losing their money, they failed to send their children to college for want of savings to cope with the runaway hike in tuition. To this day, not one of those hustlers who deprived thousands of students of the opportunity to go to college has ever been sent to jail or least prosecuted by the government.
CDOs as debt instruments
The present monetary policy gave way to the boom in the trading of debt instruments; that like water could solidify, melt or vaporize to thin air at any given moment. The financial oligarchy then issued what the world now knows as “collateralized debt obligations”. As Matthew Bishop described the novel practice, “Issuers gain instant access to money for which they would otherwise have to wait…, and they can shed some of the risk that their expected revenue will not materialize. By selling securitized loans (CDOs), banks are able to finance their customers without tying up large amounts of capital.” “Investors can hold on to them as sort of assets, less risky than unsecured bonds, giving them risk-reducing benefits of diversification.”
However, without those unwary investors realizing it, the system of making a fast buck through the layering of debt instruments was fast metamorphosing to a much serious economic problem. The casino economy was turning into a straw economy, for practically the gullible investors were holding on to nothing, although their hustler financial advisers were figuratively telling them their CDOs kept on growing.
Alongside with the CDOs was the business of hedging commonly referred to as “hedge funds”. It is a new form of business that came out in the 1990s, which is to keep constant the value of money or to assure oneself of an anticipated income by paying a small sum to the hedger to make sure he gets the exact or higher amount he expects. The business was originally done by commodity traders because of the fluctuation in the prices of goods traded on a global scale. Despite gloomy symptomatic signs, the financial hustlers persisted because people could only see the surface of them as reeking with money.
Lately, the practice has spread out to those engaged in the trading of derivatives despite the fact that strictly speaking, they stand as phantom forms of insurance created by money traders. Derivatives trading has been blamed for the unusual bloating of assets, thus prompting financial mogul Warren Buffett to call it “the financial weapon of mass destruction.” In the world of financial instruments, contracts are the ones traded and people were made to believe they command a much higher market value. Because the trading of these debt instruments were often referred to as “securitization”, investors were made to believe that the value of those “contracts” were linked to a bundle of assets created by inscrutable banks and financial houses.
One instance of this derivative business that ballooned beyond one’s wildest imagination was the sub-prime business in the US. After its burst and to this day, the fallout of mortgage foreclosures and bankruptcy continue, beginning with the tumbling of behemoth banks and insurance and now pulling the US economy to the brink. As one observed, the US economy today is practically living on borrowed time.
Nonetheless, the US has to continue the cycle of fooling itself because its economy is now racked in debt instruments. To keep the economy from falling apart, it has to rely on huge foreign borrowings to artificially maintain the value of its currency. The golden days of high yield from debt instruments is gone because the economy has dried up and in fact been exposed as a hollow bundle of joy.
Inflation to raise revenue
As a policy, the monetarists have encouraged inflation, which resulted in an increase in the prices of goods due to over supply of money in circulation. Unfortunately, in the US as it is in the Philippines, inflation was welcomed by some deranged economists saying that an increase in the price of goods would automatically mean higher revenue for the government because of the percentage nature of taxation. That way, the government is able to increase its income without having to impose additional taxes.
Some suspect that inflation was premeditatedly carried out to offset the steep decline in revenue after the sale of government-owned and controlled corporations known as “privatization”. Its architects were so dumb to assert that privatization would result in an increase in government revenues without realizing that earnings will always remain higher than taxes, unless they confirm themselves to be insane to say that regressive taxation is good for the economy. This explains why people kept on complaining but somehow could not pin the blame on the government, for most likely, none of them realize that inflationary policy has now become the modus operandi to shortchange them.
Poor and underdeveloped countries identified as lackey states of the US have to increase the volume of money in circulation which is principally attributed to the unrealistic overvaluation of the US dollar. To hide that, the US has to pressure other countries suffering from a huge trade deficit to revalue their currency to offset the trade imbalance. The problem is the US refuses to admit that the rot is the result of their intricate addiction to the casino economy. The artificial high value of the dollar that produces nothing has wiped out many of their factories.
(rodkap@yahoo.com.ph)
