Joseph Stiglitz is joining the chorus of warnings that a worsening student loan crisis may imperil one of the strongest traits that have helped build America. The so-called American dream that has attracted people from far and wide may well be crushed by an education system that is weighing down millions of students.
“A certain drama has become familiar in the United States,” wrote Stiglitz, a professor at Columbia University and a Nobel Memorial Prize winner in economics, in a New York Times opinion piece on Monday. “Bankers encourage people to borrow beyond their means, preying especially on those who are financially unsophisticated.”
The collapse of the housing market in 2007 was characterized by what amounts to either predatory lending or institutional incompetence. In either case, banks — forever driven by profit — convinced low- and middle-income homeowners to borrow against their houses, which resulted in the loss of millions of homes when the bubble burst. As Stiglitz put it: “The wizards of finance, who prided themselves on risk management, sold toxic mortgages that were designed to explode. They bundled the dubious loans into complex financial instruments and sold them to unsuspecting investors.”
Stiglitz, a former senior vice president and chief economist at the World Bank and a former member and chairman of the Council of Economic Advisers, is known for his sometimes vehement criticisms of free-market economics. The bursting of the housing bubble in 2007 and the 2008 financial crisis have proven to be fodder for his cannon, but with those events falling into history, he has turned some of his attention to the growing student-debt crisis.