Monday, April 16, 2007

Sallie Mae Eaten by Private Equity

I can't see any rationale for Sallie Mae being acquired by a private equity firm. This is a sad example of a business deal that is perfectly legal, raises no eyebrows, and seems completely straightforward to many people. But to me it smells like a corrupt society. Not like Sallie ever did smell like a bouquet of roses.. Sallie Mae is the largest provider of student loans in this country, and it was a publically traded, for profit company with some vauge assumption of government backing. In recent years, Sallie has become more and more expansionist, agressively acquiring non-profit state run student load programs. Now, like most finance corporations that have expanded too fast in boom times and now are facing economic slowdown and recession, Sallie is finding itself over-leveraged. Being vulnerable, it finds itself the takeover target of a private equity group.

I can't think of much justification for for-profit educational loans. We should have non-profit, government sponsored student loan programs. A better educated society brings benefits to the whole nation. By far the most benefit comes from improving the education of the least advantaged populations. I would think this is obvious.

To me this brings up the whole debate between efficiency of government versus private enterprise. The prevailing center-right ideology states that private enterprise is always more efficient, and therefore creates a better stucture for society. I strongly disagree with this one sided view. For an example of non-regulated private enterprise gone berserk, look at our ludicrously bad health care system. IMO, niether business nor goverment is inherently more efficient. But some enterprises are suited for private and some for public ownership. Health care and education top the list of areas that should almost always be government run, sponsored, and regulated. Transportaion would come in third place in fields that benefit from goverment control and support.

A large public sector does of course require an efficient bureaucracy to function. Just as an efficient corporate sector requires good corporate governance to function. We must always expect and demand efficiancy from government and corporations. When we have such debacles as Enron, or the Bush aministration, we must hold the criminally incompetant perpetrators accountable.

Some things just don't lend themselves to fat profits, but are required for a society to function. Could a private enterprise have built the New York subway system? No way. The interstate highways? No way. Public transportation can be a long term asset to society. We should treasure these things.

The case for public education and health care is even more clear. If we require education to be profitable, it will not be long before only the rich will get educated. It is that simple. If health care must be profiable, only the rich will be healthy. We are already seeing this in the United States: we have an enormous gulf between rich and poor. We are a class-divided nation, unhappy, unprosperous and unstable.