How the Credit Crisis Will Make it Easier for Rich Kids to Get Into Their College of Choice
You may have heard that a male student interested in the humanities has a better chance of being accepted to a prestigious liberal arts college than a comparably qualified female candidate. How about the tale of the gifted athlete with sub-par grades who gets a full-ride to “State” on a football scholarship; everyone tells that story. Have you heard the one about the rich kid from the Upper West Side who gets in because his family is wealthy? This isn’t the kid whose family’s name is plastered all over the football stadium, dining hall, and library; he’s just your everyday, average, wealthy student who doesn’t need financial aid. The sad reality is that all but a select few of this country’s institutions of higher education take a student’s ability to pay into consideration when making an admissions decision.The economic realities of college admissions run deeper and darker than most people know.
Credit Default Swaps – A Primer
A credit default swap is a type of credit derivative. Credit derivatives “derive” their value from an underlying credit instrument; generally the bonds of sovereign nations or the bonds of a corporate entity. In recent years, credit derivatives have been created that are based obligations rather than entities; one common reference obligation are asset backed securities based on home equity loans.
A credit default swap is a contract that allows one to take or reduce credit exposure. The contract is between the two parties and does not directly involve the underlying reference entity. A credit default swap is essentially an insurance policy where one entity pays a premium to a second entity to take on the risk of a loss.
Let’s look at a fictitious example.
Iraq FY08 – $149.2 Billion ($12.43B/month)
Afghanistan FY08 – $32.8 Billion ($2.73B/month)
Total FY08 – $180 Billion
Total since 9/11: $859 Billion
(Click on chart for larger view)
For Full Report: Congressional Research Service, “The Cost of Iraq, Afghanistan, and Global War on Terror Operations since 9/11.”