4A - Thursday, January 19, 2012

The Michigan Daily - michigandaily.com

4A - Thursday, January19, 2012 The Michigan Daily - michigandailycom

- C fidcigaan 4aily
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ASHLEY GRIESSHAMMER
JOSEPH LICHTERMAN and ANDREW WEINER JOSH HEALY
EDITOR IN CHIEF EDITORIAL PAGE EDITORS MANAGING EDITOR
Unsigned editorials reflect the official position of the Daily's editorial board.
All other signed articles and illustrations represent solely the views of their authors.
Imran Syed is the public editor. He can be reached at publiceditor@michigandaily.com.
Put on a happy.face
Snyder's address glossed over the state's realities
ften, politicians are accused of sugarcoating messages and
relying on buzzwords in public appearances. By skirting the
issues at hand, they attempt to trick the public into excite-
ment about their rhetoric and they ignore actual policy. The exhila-
rating exoskeleton of the speech becomes bigger than its substantive
center. Last night, Republican Gov. Rick Snyder attempted to do just
this during his second State of the State address. The governor's tone
underlined many positive changes in the state. The overall speech and
call for "Michigan 3.0," however, ignored many realities Michigan
residents face and glossed over problems created by the Republican-
controlled Legislature's dramatic budget cuts.

Necessary takeovers

When I was a kid, I loved
Star Trek. In one of
the movies, the crew
of the Starship
Enterprise goes
back in time to
the 1980s and
one of the crew-
members, Lt.
Chekov, injures
his head in a
nasty fall. As the
doctors of the MATTHEW
1980s prepare to ZABKA
drill a hole into
the unconscious
Chekov's skull in order to relieve
pressure building on his brain, the
Enterprise's Dr. McCoy busts into
the operating room and accuses the
doctor holding the drill of being
barbaric, shouting, "Drilling holes
in his head is not the answer!"
In the movie, Dr. McCoy has
some futuristic device to save
Chekov. But what if McCoy had no
such device and still shouted that
what the doctor was doing was,
"not the answer?" Certainly drill-
ing into somebody's head is never a
great solution, but should the doc-
tor have put down his drill and let
Chekov die instead?
Monday's protests reminded
me of this scene, as about 1,000
protesters who oppose Public Act
4 marched to Governor Snyder's
home and claimed P.A. 4 was not
the answer. Rather than focusing
on a law's imperfections, society
should form opinions about a law
based on competing alternatives.
Newspaper reports, including one
from The Michigan Daily, state that
P.A. 4 allows an emergency finan-
cial manager to "temporarily replace
elected city officials." This isn't quite
true. Michigan's emergency finan-
cial manager law, Public Act 72, was
adopted in 1990 - more than20years
before P.A. 4 became law. Under P.A.
72, Michigan's governor may appoint
an EFM to fix the finances of severely
indebted units of local government,
such as cities or public schools. The

appointed EFM had sole power over
the unit's finances. The goal was to
prevent these units from having to
declare bankruptcy.
Since units of local government's
outlays are often dominated by
union contracts - which an EFM
could not touch under P.A. 72 - the
original law's effectiveness was
often limited and was thus amended
by P.A. 4. The amendments grant
EFMs additional powers to dissolve
union contracts and amend pensions
within certain restrictions.
Detroit Public Schools are an
example of the success achieved
under P.A. 4 that was not possible
under P.A. 72. Years of mismanage-
ment and declining enrollment had
left DPS' finances in a mess, and
balancing its budget required cuts
to unionized employees' pay and
benefits. Under the old law, DPS' for-
mer EFM could not force these cuts,
and unions had no reason to accept
lower wages. But almost immediately
after P.A. 4 was passed, a new union
contract was signed. Unions specifi-
cally cited P.A. 4 as the reason they
agreed to necessary concessions, and
the system's new EFM, Roy Roberts,
announced in November that DPS
finally have a budget surplus.
Detroit appears poised to next
receive an EFM, and Snyder has
asked for a financial review of the
city, which is the first step in the
appointment process. Similar to its
school system, years of fiscal mis-
management and a declining popula-
tion have driven Detroit to financial
distress. The situation is so dire that
it now issues bonds to service its
debt. Were a private company in this
situation, bankruptcy would be near.
Wages and pensions already
account for more than half of city
outlays, and these expanding legacy
costs are expected to increase this
number to over 70 percent. Balanc-
ing Detroit's budget without cut-
ting union wages and benefits isn't
possible.
Should Detroit's elected and
union leaders fail to balance the

city's budget, and were P.A. 4
repealed, any future Detroit EFM
could not implement these neces-
sary cuts. In this situation, the only
alternative is bankruptcy.
No city of Detroit's size has ever
declared bankruptcy, and it would
almost certainly be a messy pro-
cess, lasting months if not years.
In bankruptcy court, an appoint-
ed judge would replace Detroit's
elected leaders and force necessary
union concessions.
Emergency
managers have
no alternative.
These are the necessary alter-
natives society should debate: the
competing imperfect solutions of
emergency financial management
versus bankruptcy. Both solutions
remove elected leaders from their
positions, both solutions are messy
and neither solution is fair.
Unfortunately, no such discussion
is taking place. Instead we are bom-
barded with the problems of P.A. 4
with a complete disregard for what
would happen if no such law existed.
Rarely are solutions in public pol-
icy perfect, and it is easy to say an
imperfect solution is wrong if one
does not consider the alternatives.
Should Detroit's elected leaders fail
in their responsibility to balance the
budget, Detroit will be like Chekov
on that operating table and P.A. 4
like the doctor with the drill. Pro-
testers shouting that emergency fis-
cal management is wrong without
offering an alternative solution are
asking the doctor to put down his
drill and let Detroit die.
- Matthew Zabka can be reached
at mzbka@umich.edu. Follow him
on Twitter at @Matthewzabka.

There is no denying that many of the posi-
tive aspects of the State of the State address
are commendable. Michigan's unemploy-
ment rate shrunk from nearly 11.1 percent to
9.3 percent last year. While this figure still
has considerable roorth for improvement, the
progress creates an encouraging environment
for businesses. Snyder also highlighted other
successes including a push to end population
flight, Michigan's bond rating improving from
"neutral" to "positive" and the continuation of
former Democratic Gov. Jennifer Granholm's
effort to increase foreign business partnership
and investment.
All of the figures, however, weren't as hope-
ful. Snyder pointed out that college readi-
ness among Michigan students is 17 percent
- a1-percent improvement from last year. The
governor said this "unacceptable" figure must
increase to 100 percent.
Aninsistence that all Michigan students are
prepared for higher education seems counter-
intuitive to Snyder's actions. Last year, public
funding to the University was cut by15 percent
- part of an unfortunate trend amounting to
a 30-percent drop in funding over the past 10
years. The historic cut prompted 6.7-percent
tuition increases for in-state students and a
4.9-percent hike for out-of-state students at
the University. Fundingreductions also result-
ed in higher tuition at public universities state-
wide. These drastic tuition hikes make higher
education less accessible for a state still finan-
cially struggling.

Synder has played a significant role in
facilitating less-affordable education in
Michigan. Championing college readiness
holds little merit while working against col-
lege affordability.
The state Legislature was quick and effi-
cient last year, Snyder pointed out several
times in his speech. They passed 323 acts and
a "sensible" budget. Painting this picture of
a harmonious and economical Legislature
ignored that it's much easier to move quickly
when the governor, House and Senate are
controlled by the same party. For the first
time in years, Michigan has a budget sur-
plus, but at the expense of many public ser-
vices and programs that help lower-income
residents. Republican-led tax restructuring
gave tax credits to corporations and favored
out-of-state businesses. These measures were
hardly bipartisan.
It was bold of the governor to take credit for
Michigan's new anti-bullying law. This legisla-
tion nearly included an exemption for bullying
grounded in religious belief - legalized bully-
ing of LGBT students. Thankfully, this provi-
sion was removed before the bill passed.
Snyder does have reason to take a posi-
tive tone. Michigan's economic turnaround
is foreseeable. He can't forget, however, the
long-run benefit of investment in higher
education and that all of Michigan's citizens
- regardless of class, sexual orientation or
political affiliation - must be involved in cre-
ating Michigan 3.0.

EDITORIAL BOARD MEMBERS:
Aida Ali, Laura Argintar, Kaan Avdan, Ashley Griesshammer, Nirbhay Jain, Jesse Klein,
Patrick Maillet, Erika Mayer, Harsha Nahata, Timothy Rabb, Adrienne Roberts,
Vanessa Rychlinski, Sarah Skaluba, Seth Soderborg, Caroline Syms, Andrew Weiner
Te risk ofstudent loans

PAUL RAYKOV

'Let's Go Blue'

Last Sunday, the University hockey team
went to Cleveland to face the Ohio State
Buckeyes in an outdoor venue at the Indians'
baseball stadium, Progressive Field. The park
had been transformed into a winter wonder-
land including an ice skating course billed as
the moving mile, a sledding ramp with inner
tubes and a hockey rink. The Wolverines won
the game convincingly 4-1 over the Buckeyes.
Another story remains to be told.
At 3:30 p.m. on Sunday afternoon, a small
contingent of the Michigan band came to
Houlihan's restaurant where the faithful were
gathered prior to the game organized by the
Cleveland chapter of the Michigan Universi-
ty's Alumni Association. The band knew they
were in the right place when they saw a sea
of maize and blue in the land of the Buckeyes.
They played "The Victors" of course, followed
by "Let's Go Blue," and the place erupted with
emotion and pride. You could have blinked and
thought you were in Ann Arbor.
Every time I hear "Let's Go Blue," I think of
the first time I heard that song. No matter what
venue I am at, the song is played. I was a fresh-
man at the University in the fall of 1972, living
on the fifth floor of Bursley Residence Hall. I
was in the floor lounge, typing my English 150
paper that was due the next morning.
When I was halfway through the paper,
Albert Ahronheim - who lived two doors
down from me - came in with a tuba. Albert
was the drum major for the band, and he could
do 40 yards of back flips as the band marched
down the field. I have never seen anyone do
that since. Albert wanted to play a tune for me
that he wrote on a brown paper sandwich bag.
Of course, I thought, how am I going to finish
writing my homework assignment with a guy
playing a tuba?
Albert played the first four notes and the
tune sounded like nothing. Then he realized
that the brown paper bag was upside down.
He borrowed a pencil from me and wrote an
upward arrow on that bag to indicate the prop-
er orientation. Albert played a very short tune
maybe 10 notes onhis tuba. He asked me what I
thought of it. I said it was short but catchy. The
band played "Let's Go Blue" at the Big House
that weekend.

When I heard the song at Houlihan's, I was
instantly transported back to being a freshman
in 1972, hearing it for the first time. In retro-
spect, I was a witness to University history
being made.
I went to the game at Progressive Field, and
I was given a ticket by another Michigan alum.
Game time wind chill temperature was only 9
degrees, and you had to clear snow from your
seat. The familiar baseball field had been trans-
formed. I had seats low and close to the rink
near Michigan's blue line. The band was placed
in a corner, and their battery powered field
microphone - if it was on - was turned down
very low. The stadium system favored the OSU
band which made the "Script Ohio" on the ice
between the second and third period.
I went over to the band because you could
sit anywhere. In all of my student days, I had
never been that close to the band. I saw the
band director give hand signals to cue up the
band. "Let's Go Blue" is cued by putting your
hands to your head and waving the fingers like
moose antlers. Can you imagine playing fro-
zen instruments with fingers exposed to single
digit wind chills?
One of the band members asked me what
program I was in. I thanked him for thinking
that I was a student. I told him that I was an
alum. When I answered such questions during
my University days, I would say LSA pre-med.
He asked me ifI was successful and I said yes.
I told him his University education is highly
respected and that he would be able to do great
things. I would give anything to relive my days
at the University, so I told him to enjoy it. You
might not notice how fortunate you are to go
to a school like the University with academic
pressures like tests, classes and papers. But
someday, you will miss it.
Both our hockey team and marching band
represented Michigan well on that frozen
Sunday. I thank the Michigan community for
bringing a little of Ann Arbor to Cleveland.
Hanging out with the band, I even learned
a new cheer: "I am proud to be, a Michigan
Wolverine."
Go Blue!
Paul Raykov is a1976 University alum.

any of us have burdens
right out of college,
including getting a job,
moving out of our
parents' house
and, of course,
paying off our
student loans.
A seemingly
manageable task,
student loan
repayment in
2010 reached 8.8. JASON
percent - the PANG JAO
highest default
rate in history.
Federal loans, such as Pell Grants
and Leveraging Educational Assis-
tance Partnership grants, support
most students, but they can't alone
cover the pricey textbooks, costly
lectures or the expensive meals at
the Hill Dining Center.
According to Sallie Mae's national
study, "How America Pays for Col-
lege," the average American student
borrows nearly twice as much from
outside sources as he or she does
from the federal government. These
sources include private educational
loan originators, credit card compa-
nies and other private loan agencies.
This is an attention-worthy sub-
ject because a student loan crisis
similar to the subprime mortgage
crisis of 2008 is looming on the
horizon, and the federal and state
governments must take actions to
avoid it.
Student loans, much like home
loans, are securitized and pack-
aged into asset-backed securities.
These securities, called student loan
asset-backed securities, are then
sold to investors on Wall Street, who
become the end-collectors of your
interest and principle.
Imagine this: Your friend Bob
lends you $10 with $2 interest, then
sells that loan to his friend Mary,
who would receive $11 from you.
Bob, the middleman (or the loan
originator), collects his commission
of $1 through originating the loan to
you and securitizing and selling the

loan to Mary. Bob walks away with
his risk-free commission of $1. Mary
walks away with her investment and
your interest minus Bob's commis-
sion, totaling $11. And you walk away
with a loan deal to pay off school.
Everyone wins, right? Wrong.
There is a chance that you could
default on your student loan. In
the subprime mortgage crisis,
homeowners defaulted on their
mortgages, and the owners of mort-
gage-backed securities ceased to
receive their payments. The MBS
owners - including major invest-
ment banks and hedge funds -
failed too. Finally, mortgage lenders
became insolvent when the demand
for MBS dropped to nearly zero and
more homeowners were forced to
default on their loans. The entire
financial system spun out of control
at that moment.
Three years after the most tragic
recession our country has faced
since the Great Depression, the $1
trillion in outstanding student loans
in the U.S. face an unprecedented
default rate. This time, the stakes are
even greater.
Students who fail to make their
loan payments - interest or prin-
ciple - face many direct conse-
quences. The government has the
right to offset the defaulted loans
by cutting tax refunds, paychecks
and even federal benefits such as
Social Security, retirement or dis-
ability benefits. Public and private
loan originators can file suit to
collect the uncollected portions
of defaulted loans. Unlike home
mortgages, defaulted student loans
generate an indefinite period dur-
ing which originators have the
right to bring suits against insol-
vent individuals until the loans are
fully recovered. Affected individu-
als also suffer from indirect conse-
quences, including the lowering of
credit ratings and greater difficulty
obtaining loans for homes, cars and
businesses.
For our economy, a rise in the
student loan default rate would, in

the short run, reduce dispensable
income, depress the housing mar-
ket and cause private originators of
student loans to raise interest rates
to reflect the elevated risk. The last
act of adjusting rates on newly issued
loans would further diminish stu-
dents' abilities to pay back interest
and loans, elevating the student loan
default rate even higher.
If they default,
other markets
will suffer.
Higher tuition and higher rates
on student loans mean fewer people
can afford a good education. If our
governments choose to ignore this
issue, a stagnant education system
will rid our country of productivity
and innovation in the long run. With
more than $1 trillion outstanding
student loans in the U.S., the impact
of a fallen SLABS market would
affect every other credit market.
The future of the country is at
stake, and the political parties must
be united to oppose this ominous
threat to the well being of our econ-
omy. We need more federal grants
and subsidized loans for students to
tap into, a simpler loan application
process to encourage low-income
households to apply and more pro-
grams to help distressed households
that suffer from the consequences
of student loan default.
The U.S. may be coming out of
one recession, but the rest of the
world is still struggling. We should
not take pride in our meager prog-
ress. Instead, we must set our
objectives for the long run. Educa-
tion is not merely one of the most
important issues - it's the most
important issue of all.
- Jason Pang Jao can be
reached at pangjao@umich.edu.

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