...Because she couldn't possibly be that dense
Senator Warren has introduced her first bill, the Randian-named Bank on Student Loans Fairness Act, which pegs the interest rate of Stafford Loans to the Federal Reserve's discount window, which is currently at 0.75 percent.
I'd like to introduce the concept I call "Fellow's Law" after blogger Nathan Fellows, where any bill with the word "fair" in the title must be met with mockery. Warren makes it simple when she backs it up with populist jibber-jabber:
According to Warren, the federal government makes an average of 36 cents for every dollar it lends to students. As a result, this year, the government will make some $34 billion from students making payments. “We shouldn’t be profiting from our students who are drowning in debt, while giving a great deal to the banks,” she said. “That’s just wrong.”
Warren is banking on the ignorance of young people with her message. She wants people to believe that banks come to the FED for long-term loans and walk out with a tiny interest rate because of corruption. In fact, that scenario involves a different, higher interest rate. The discount window that she's talking about is when banks need to balance their books and borrow money overnight only to repay it the next morning. It's barely even a loan, it's more like holding someone's place in line.
People who aren't ignorant on these matters have been roasting Warren for her purposely-misleading rhetoric. The best so far came from Megan McArdle:
It's probably true that some say banks need low interest rates to keep the economy growing. But no one except possibly a lunatic has told Elizabeth Warren that banks are getting 0.75% at the discount window as a thank you for all the hard work they're doing helping the economy. Discount window loans are cheap for three reasons: the borrowers have assets and income that are easy to seize, the loans are quite short term, and the banks are required to put up collateral...
Students, on the other hand, are borrowing for a decade, and the only thing they're putting up as a guarantee is their character. How good a collateral is their character? In 2011, 9.1% of borrowers had defaulted on their student loan within the first two years of the payment period.
The interest paid by the folks who don't default is the only thing keeping this program from hemorrhaging money.
Does Warren really think that someone could make it to Washington and attempt to change government policy on financial matters if they don't know what the FED's discount window is? Well... yeah. There's Rep. Maxine Waters.