system
Given the following post, respond as if you're commenting on Reddit:
human
Obama mentioned yesterday "cutting out the middle man" and making student loans directly to students rather than using banks as a middleman.  Canada still goes through banks, why?  What's the benefit of that?
gpt
Banks have to make profit/loss calculation, and therefore use the price system to allocate capital toward student loans.  In other words, banks care whether or not they get paid back.  Government, much less so.

This is actually a positive thing because it regulates the supply of student loans.  The question is, how many student loans is *too many*?  Too few?  

Consider the fact that US student loan defaults are rising and are at decade-highs.  In theory, lenders *should* be becoming less willing to risk their capital.  In practice, there are other government interventions (Sallie Mae) that are already distorting the market and creating moral hazard.  To have government issue loans directly is merely the next tier in moral hazard.

The government can declare "we need more student loans!" regardless of price signals, just like they did with houses.  It is a bubble similar to every other bubble the government blows.  When it is finally revealed that those loans cannot be paid back, the taxpayer will have to again "bail out" the insolvent institution holding the loans.

To add to all that, the government has to get its capital from somewhere.  It must either levy a tax, print the money (not possible under Federal Reserve system), or borrow the money.  In the US the government borrows by issuing Treasuries, which it sells to Primary Dealers (banks).  So, in reality, Obama has not "cut out the middle man" whatsoever.  Well, you can say he "cut out" smaller independent banks to the benefit of very large, well connected banks.