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.
Barak Obama Will Cut Taxes More than John McCain for 95.7% of Bangor Residents
John McCain and Barak Obama have both proposed tax plans that will cut income taxes for most Americans. The Tax Policy Institute has a very comprehensive analysis of the candidate’s plans, as well as some very informative projections available on its website. In this analysis I focus on the implications of each candidate’s plans for the working families of Bangor, ME.
Data from the U.S. Census Bureau’s American Community Survey of 2007 gives us a fairly detailed picture of the breakdown of household incomes in the Bangor, ME metropolitan statistical area (MSA). We see that, like much of the country, the vast majority of Bangor residents earn incomes of less than $200,000 per year. Nearly 50% of households in the Bangor MSA have annual incomes between $25,000 and $75,000, while 2.2% earn more than $200,000 per year.
(Click on chart for larger view)
For the data table behind the chart, click here.
There has been a lot of talk about tax relief for working Americans; just how much relief depends on your definition of “working Americans.”