Monday, September 5, 2022

Bed, Bath & Beyond CFO leaps to his death: Better to fail with honor than succeed by fraud

 

Rather fail with honor than succeed with fraud.

Sophocles

Gustavo Arnal, the Chief Financial Officer of Bed, Bath and Beyond, leaped to his death from the 18th story of a Manhattan office tower on Friday. He was 52 years old.

Arnal joined Beth, Bath & Beyond in 2020 and was well compensated. His 2021 income was $2.9 million.  Last month he sold company stock worth $1 million.

The shares of Bed, Bath & Beyond, where Arnal worked,  are labeled as a meme stock whose price has bounced around like a ping pong ball in recent months. As the stock gyrated up and down, some people got rich, and others lost a lot of money.

Arnal's death brings up images of the 1929 stock market crash when a few people jumped out of windows as their wealth evaporated over the course of a few hours.

No one can say with certainty why someone commits suicide, but it is always a response to despair.  My guess--and I think it is a good one--is that Gustavo Bernal was an honorable man who could not cope with a financial mess he did not create.

Perhaps he exemplifies Sophocles's observation that it is better to fail with honor than to succeed by fraud.








Sunday, September 4, 2022

Department of Agriculture Wants Farmers to Grow Two Crops a Year: I'm From the Government, and I'm Here to Help

 The world's grain supplies are threatened by the war in Ukraine, one of the world's largest wheat producers. In fact, Ukraine and Russia together produce a quarter of the world's wheat.

The U.S. Department of Agriculture, always ready to lend its expertise, wants farmers to start growing two crops yearly instead of one to help meet the global demand for grain.

Those dumb farmers. It's a good thing that the federal government is telling them what to do, or we'd probably all starve to death.

But here's the thing. American farmers are already doing everything they can to maximize the productivity of their land. In Louisana, some farmers are harvesting crawfish in their rice fields. Alfalfa farmers get anywhere from four to six cuttings a year--depending on rainfall and weather conditions.

My father farmed winter wheat in the Washita valley of southwestern Oklahoma. He planted in the fall and harvested in the early summer. And, like wheat farmers all over the United States, he often planted a second crop after plowing the wheat stubble.

Here's my point. Centralized control of agriculture can be dangerous. Stalin tried to control grain production in Ukraine in the 1920s by driving small farmers off their land and forcing them onto collective farms.

The result of Stalin's policies? Almost four million Ukrainians starved to death, and collective farms produced less grain than independent farmers.  

You can read about this sad episode, commonly called the Holodomor, in Anne Applebaum's book, Red Famine: Stalin's War on Ukraine. Mr. Jones, a 2019 movie starring James Norton, also tells the story of the Holodomor.

I don't think American farmers will suffer from federal agricultural policies like the Ukrainian kulaks did. Nevertheless, we should be skeptical of news stories that tout the wisdom of national farm policies as if the farmers in flyover country don't know what in the hell they're doing. 

In fact, farmers are among the few people in America who do know what they're doing. We would all be better off if we had more farmers in Congress and fewer lawyers.


I'm from the government, and I'm here to help.




Saturday, September 3, 2022

You got some 'splaining to do: Alleghany College cuts its minor in Chinese and lays off a tenured Asian professor

 Allegheny College, an old and respected school in western Pennsylvania, closed its Chinese program (an academic minor) and laid off the program's only tenured professor, who is Asian.

Apparently, Allegheny didn't explain its decision very well, and now the college is coming under fire. Xiaoling Shi, the laid-off professor, is concerned the college's decision "was motivated by racial animus," possibly because she has been outspoken about anti-Asian hate.  She filed a complaint against Allegheny with the U.S. Equal Employment Opportunity Commission.

I am skeptical of any suggestion that Allegheny's leadership harbors racial prejudice. America's colleges and universities are the wokest places on the planet. Higher education in the U.S. is obsessed with Diversity, Equity, and Inclusion, and most have DEI officers at the highest administrative levels.

Indeed, Allegheny's website includes this solemn affirmation:

Allegheny students and employees are committed to creating an inclusive, respectful and safe residential learning community that will actively confront and challenge racism, sexism, heterosexism, religious bigotry, and other forms of harassment and discrimination. 

In my opinion, Allegheny's pledge is sincere. Nevertheless, the college must defend against Professor Shi's EEOC complaint, which will cost it money. And Shi's actions may well discourage Allegheny from streamlining its programs.

According to an Inside Higher Ed article, Allegheny College only had 12 students in the Chinese program. Still, Professor Shi pointed out that her program had more students than 21 other minors, including five minors in ethnic studies.

The Inside Higher Ed piece reported that Allegheny would like to eliminate 29 faculty positions to reduce costs and invest in programs that are likely to attract more students.

But Shi's EEOC complaint may prompt the college to rethink its academic plans and stick with the status quo. If so, that would be unfortunate because Allegheny College and hundreds of other American colleges need to get their costs down and focus on academic programs that will help their graduates get jobs that will allow them to pay off their student loans.

By the way, what does it cost to attend Allegheny College? More than $60,000 a year (including room and board).



Friday, September 2, 2022

A Degree From a Tiny College Is Like A Thousand Dollar Car: Ain't Worth Nothing

 The Bottle Rockets, whose music has been compared to Woodie Guthrie's, sing a poignant tune about a thousand-dollar car:

A thousand dollar car, it ain't worth nothin' 

A thousand-dollar car, it ain't worth shit

Might as well take your thousand dollars
And set fire to it.
A thousand-dollar car ain't worth a dime
You lose your thousand dollars every time.
 
Oh, why did I ever buy a thousand-dollar car?

If you are thinking about getting a liberal arts or humanities degree from a college with less than a thousand students, you should listen to the Bottle Rockets' Thousand-Dollar Car song.  Simply substitute "tiny college" for "thousand-dollar car." A degree from a school with less than a thousand students "ain't worth nothing. . . ain't worth shit."

Colleges with less than 1,000 students are in a precarious financial position, with many on the brink of closure. Nevertheless, the number of these schools is growing.

According to a recent Chronicle of Higher Education article, there were 395  "micro colleges" in 2010. In 2020, there were 435.

That's not because more tiny colleges are being founded; many small colleges are shrinking due to declining enrollments.

Indeed, many of these little colleges would have folded during the COVID pandemic if the federal government hadn't shoveled money into them. The feds sent $77 billion of helicopter money to colleges and universities through the Higher Education Emergency Relief Fund, and the micro colleges got a piece of that pie.

Federal money has propped up small private colleges for years, much like a terminal patient on life support. But isn't it time these schools shut down?

For example, Harvey Mudd College in California only had 854 students in 2020, and its annual cost of attendance is $84,000. Why would you want to study there?

Wesley College in Delaware has 917 students and saw a 50 percent drop in enrollment between 2010 and 2020.  The total cost of attendance for a four-year degree is $178,000 (including room and board).  That's a shocking price tag for a degree from a little-known school with a tiny student body.

I don't mean to disparage the small private colleges. Many have an honorable record of serving students in their communities, and many were founded by religious groups for a noble purpose. Many did a fine job teaching the liberal arts and the humanities--some for a hundred years or more.

Nevertheless, the era of the small private college is over. You would be nuts to take out student loans to attend a college with less than 1,000 students.


A liberal arts degree from an obscure, tiny college ain't worth nothing.


Thursday, September 1, 2022

Like Manna From Heaven, Biden Administration Cancels Half a Trillion Dollars in Student Debt

Like manna raining down from heaven, President Biden will cancel a mountain of college debt. Student debtors making less than $125,000 will get ten grand in relief. People who got Pell grants while in college will get $20,000 shaved off their college-loan balances.

What will this cost the taxpayers? Who knows? Who the fuck cares?

The White House budget office says Biden's plan will cost $24 billion annually for the next ten years. Hey, that's nothing. The feds can find $24 billion under the seat cushions in the Congressional cafeteria. 

Indeed, Paul Krugman, a Nobel Prize-winning economist, assures us that Biden's giveaway is peanuts--no more than a "rounding error" in the government's $25 trillion budget. He also said that people criticizing Biden's loan-forgiveness plan are "comically out of touch." 

Maybe the coastal elites are giggling at people who are alarmed about President Biden's largesse, but people in Flyover Country aren't laughing.

On the contrary, the Baton Rouge Advocate, which is a liberal newspaper, criticized Biden's giveaway as bad policy and bad politics:

Bad policy because Biden undermines the notion that debt is an obligation. His move will create the expectation that there will be more debt forgiveness just around the bend, the next time the country faces a crisis.

In addition, the Advocate argued, "Schools will feel free to charge more and young people choosing a course of study will pay less attention to whether their degree will produce a job that enables them to pay back their loan."

The Advocate also says Biden's reckless generosity is bad politics. In the editors' view, "
Biden is spitting in the face of voters who didn’t go to college, parents who worked extra jobs to keep their children debt free, and those who paid off their loans."

In my opinion, the Advocate's editorial represents the view of nearly everybody in Flyover Country who did not benefit from President Biden's latest giveaway. 

Indeed it is disingenuous for the media to suggest that the President's student-loan cancellation initiative will have little impact on taxpayers or that the cost is comparable to a rounding error in the federal budget.

The University of Pennsylvania's Wharton School, a reputable institution, estimates the cost of Biden's student-loan largesse at half a trillion dollars. When other details are considered--loan forbearance and behavioral changes--the total cost is over $1 trillion.

For those who live in Flyover Country, a trillion dollars seems like more than a rounding error. Then again, perhaps the people in the Heartland are just "comically out of touch."

Paul Krugman: Somebody's "comically out of touch."



Wednesday, August 24, 2022

Biden Administration Extends Pause on Student-Loan Payments Until End of This Year: Has The Government Created A Moral Hazard?

 Moral hazard is a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost. 

 The Economic Times

Christmas came early this year for student-loan debtors. First, the Biden administration is extending the pause on student-loan payments until the end of 2022, which means that college borrowers are getting a two-and-half-year holiday from making monthly loan payments. 

That's not all. President Biden will give every borrower under an income cap of $125,000 (or $250,000 for married couples) $10,000 in student-debt relief.

Borrowers who received Pell Grants in college will get $20,000 in debt relief.

That's big news--especially for borrowers who got Pell Grants while in school. If we add the Pell Grant money these student-borrowers obtained while in college, plus the $20,000 loan write-off, many of these people will have gotten a free education.

And there's more. The Biden administration will launch a more generous income-based repayment (IBR) plan that will lower income-based payments for undergraduate loans from 10 percent of discretionary income to just five percent. The Department of Education also intends to raise the amount of income considered nondiscretionary, meaning that undergraduate borrowers will pay less than five percent of their income on their student loans.

Still, Santa's sack of gifts is not empty. Under DOE's proposed rule, the government will cover the unpaid monthly interest for people in IBRs, meaning student debtors on income-based repayment plans won't see their loan balances go up due to negative amortization.

Party poopers like Larry Summers say that all this federal generosity will fuel more inflation, but who cares? Certainly not the student-loan debtors. In fact, rising inflation will be a bonanza for them because they will be paying back student loans with deflated dollars.

Grumps also argue that the Biden student-loan forgiveness scheme acts as a moral hazard, and I think this is true. If students know they will make loan payments based on their income, not the amount they borrowed, they have every incentive to borrow extravagantly.  

And Biden's munificent changes in income-based repayment plans will likely act as a moral hazard for the colleges as well. University leaders have no incentive to keep their costs in line when they know that students will cheerfully absorb tuition hikes because their loan-repayment plans are so generous that it won't matter whether their tuition bills get larger.

In defense of Biden's sweeping student-loan reforms,  I think everyone agrees that many students took out loans to get a college education that wasn't worth much and was too expensive. 

Millions of students were scammed by for-profit colleges or private nonprofit universities that cranked out overpriced, worthless graduate degrees. Surely the victims of the higher education racket deserve some relief. 

Nevertheless, the federal government is headed for catastrophe if it rolls out student-loan repayment plans that are overly generous while doing nothing to rein in the higher-education racket.

Unfortunately, the feds are doing nothing to stop students from being scammed. Instead, federal money is propping up the colleges--both profit and nonprofit, which allows them to raise tuition prices yearly. 

At the same time, the hucksters who run the colleges offer students educational experiences that don't help them get jobs after they graduate. As a consolation, I suppose, the government is making it very easy for ripped-off students to manage their college debt.

The cold war Russian economy, it was said, ran on the principle that the government pretended to pay the workers and the workers pretended to work.

Something like that is going on in American higher education. The colleges are pretending to educate their students, and the students are pretending to pay for it.

This will end badly for everyone--students, colleges, and taxpayers.  

Merry Christmas!



Monday, August 22, 2022

Who Profits From the For-Profit College Industry? Let's Take a Look at Adtalem Global Education

Higher Education in the United States was once considered a civic activity intended to improve people's lives and benefit society. 


Then some people realized they could make money in the education racket, and the for-profit-college industry was born. 


Who makes money from for-profit colleges? Mostly hedge funds, equity funds, and institutional stockholders. 


Let's look at Adtalem Global Education (AGTE), a for-profit education company that owns Walden University, two Caribbean medical schools, and a Caribbean veterinary school. It's trading on the NASDAQ for about $39 a share--near its 52-week high.


Virtually all of Adtalem is owned by institutions, mostly hedge funds and financial companies. 


Which funds own the stock? You would recognize some of them: Blackrock, Berkshire Hathaway, Goldman Sachs, Morgan Stanley, JP Moran Chase, Soros Management, and the California Teachers Retirement System.


Some analysts are bullish on Adtalem and are predicting a higher share price. Certainly, the big financial players think Adtalem is a money maker.


Without a doubt, Adtalelm's educational institutions have been busy little bees. According to the Chronicle of Higher Education Almanac, Adalem's Walden University produced 867 doctoral degrees in 2020--more than Harvard, Yale, or Columbia. It logged 124 doctoral degrees in education and 357 doctorates in psychology and social sciences. That should make investors happy.


Adtalem gets most of its revenues from federal student aid money. Tuition costs are high. Tuition at Adtalem's American University of the Caribbean Medical School is about $25,000 a semester.


My guess is that most of the graduates of Adtalem's medical schools sign up for income-based repayment (IBR) plans that stretch out payments for 20 or 25 years.  


That keeps monthly loan payments down, but often IBR loans are negatively amortizing. In other words, student borrowers in IBRs see their loan balances go up with each passing month because their loan payments aren't large enough to cover accruing interest.


Indirectly, then, taxpayers are subsidizing the for-profit college industry, including Adtalem, because so many of their students will never pay off their student loans.

Is that a good deal for the American people? No, but it's a good deal for the hedge funds, and that's why the federal government will keep propping up the for-profit college industry.


The hedge funds love the for-profit college industry.