FT, I have two questions and one observation to make about the securitisation and privatisation of student debt in UK.

Sir, Thomas Hale writes that after “the biggest privatisation of student loans…the first of a series of anticipated transactions that stand to create a market for graduate debt in the UK, the parliament’s spending watchdog concluded the government received too little in return for what it gave up”. “Spending watchdog criticises student loans privatisation” November 22.

The Department for Education, DfE, answered it was “confident that we achieved value for money for taxpayers… as Student loans are designed so that borrowers only repay when they can afford to [which] only means many students will never fully pay back their loans”

I have two questions and one observation to make

First question: Before a student has his debt packaged into a security to be sold off to investors, should he not have the right to make a preemptive offer for it? Not that it makes a real difference but, emotionally it might not be the same for some to owe their government than to owe Goldman Sachs  their student debt.

Second question: If taxpayer should receive value for money for all these student loans, should not those who are supposed to help students to repay their debts, the professors, the universities also have some skin in the game? I mean at this moment it would seem they get all the benefits from the students taking on debt, at no cost or risk for them.

I recently tweeted: Have you ever seen a university stating a normal investment disclosure like: “Warning, if you pay us for your studies by taking on debt, you might not earn enough to repay it.” 

Hale writes: “Securitisation, a process where assets are packaged together and sold on as bonds to investors, ranging from pension funds to alternative asset managers”

It is with respect to that I would like to make an observation, namely that of reminding that securitization is basically like making sausages, the worse the ingredients, the higher the profits. So pension funds, please beware!

@PerKurowski

How would I privatize a public service? Always making sure that who owns and manages it, are neighbors I can hold accountable.

Sir, I refer to Martin Wolf’s discussion on the subject of privatized or not public services. “Nationalisation is the wrong answer to a real question” December 12.

I was a very active participant, wearing many different hats, in many of the privatizations that took place in my Venezuela, during its privatization influenza.

Like Wolf I much favour the private over the public sector managing these services but, looking back, the number one requirement I would make when privatizing, would be to require the private owners of any such privatized public services, to live within the community, and have their affiliation to the public service transparently identified all the time. Like being able to call over the fence: “Hey Bill, what happened last night when the lights went out”, “Hey Bill, can’t you find a way to stop it from being so expensive?”

I felt in the air the immediate difference between a private electrical services company held by a family living in Caracas, who wanted to make profits but also to be seen as good public servants, and that same company when it passed into the hands of absentee owners.

It was day and night! The new investors loaded up the old conservative run company with debt, took most of their skin out of the game paying themselves huge dividends and other services, and left the poor users having to serve that debt.

Of course, then came Hugo Chávez and put it all in the hands of the government, and so it went from a bit bad to plain horrible.

PS. But also, any privatization should be done in terms of who offers the lowest rates, not, as it too often has been, about who offers the government the most money upfront.

@PerKurowski

Beware of revolving-doors public-projects’ managers who are neither public servant nor respond to private ownership.

Sir, let me see if I understood what Martin Wolf has written in “The public sector needs to be better at accounting for its assets” April 14.

Number one Wolf holds that you should not focus on solely on one dimension, like on net public debt, but that you need to consider the overall performance of government, including the management of assets. I could not agree more. That is why for soon two decades I have insistently argued that bank regulators should not focus solely on avoiding bank failures, but need look much more at the role banks should play in the allocation of credit to the whole economy.

Then Wolf argues the importance of not to reduce public debt by passing along projects, like infrastructure, or sell off assets, like student loan books, to parties who by definition have a much more expensive funding. Again I could not agree more. In my country Venezuela, I even saw privatizations of public services designed to provide the government with huge windfall incomes, leaving the citizens saddled with the need to during decades pay exorbitant tariffs for such services.

And Wolf mentions a recommendation of the Growth Commission of the London School of Economics related to the need for “independent and professional identification and evaluation of public sector infrastructure programs.” As long as you make sure the selection of the evaluators is objective and independent, who could argue with that?

But then Wolf brings up a recommendation expressed by Dag Detter and Stefan Fölster in their book “The Public Wealth of Nations” that though the “ownership of assets does not need to be private… existing public wealth needs to be professionally managed"

And here I intuitively disagree.

Either good public servant, as good public servants, manage public project professionally, or they should be managed by good private professionals responding to the incentives and the responsibilities that comes with ownership. The professional manager who is neither a public servant, nor an owner, nor responds to owners, is precisely the sort of unaccountable breed we best stay away from. Those are the ones usually trafficking the so-called revolving door between government and the private sector.

PS. For good government transparency, I would add the need to separate ordinary government functions from its assumed redistribution functions, so as to have a clear idea of how much the redistribution costs, and thereby keep the redistribution profiteers at bay.

@PerKurowski ©

Who’s really shortchanging who in India?

Sir, David Pilling in “India’s ‘bumble bee’ defies gravity”, February 16, writes: “By selling the licences on the cheap, the telecom ministry is accused of shortchanging the exchequer to the tune of $39bn.” 

Indeed, but, one could just as well argue that if selling the licenses for $39bn more, the exchequer would then be shortchanging the mobile telephone users, to the tune of $39bn plus expected returns more in fees, and over a very long time. 

In other words the $39bn are equal to taxes collected in advance,to be paid by users that are not even aware of it, meaning something which is not an example of transparency. 

In other words the $39bn will have to be repaid at the rate of return required by the telecom investor, rather than at the usually lower interest paid by the government on its public debt, meaning something which is not an example of economic rationality.

We share John Kay´s miseries

Sir what John Kay describes in “Public projects obscured by private finances” February 16, is very much what happened in many developing countries when we were subjected to the privatization crusade of our utilities and infrastructure.

Instead of the good project engineers, we were told we would get to run the operations efficiently, we were assaulted by financial engineers searching for how to squeeze out the most of what de-facto were most often safe monopolies, and that should ordinary have been financed at very low rates by orphans and widows. And, the cleverer these wizards structured the projects, the more they could pay upfront for the rights of executing them, and so the happier were our authorities too.

And now we are stuck with it, having to find consolation reading John Kay and seeing that at least our miseries are shared. The saddest part though is that it has so unnecessarily given the private sector a bad name. Looking at how doomed-to-fail these projects often were structured makes one suspect that it could almost have been done so on purpose.