I've placed a post here which I wrote for the Boston Globe website discussion section. I titled the discussion "Have New Englanders Considered an Independent New England?"
It has been prompted by my many years of observing national politics, exasperating experiences with local and state governments in Georgia, and more recently the massive failures of economic stewardship by the federal government; the latter of which provides the primary argument for the topic. And, though this post was directed to the six states we think of as New England, it is has applicability to any region in the U.S.
POST:
I fear my topic here shall be a lightening rod for knee-jerk reactionaries, but it is a subject worthy of deliberation.
There are varied reasons for prompting such, but the most compelling is likely that which ends up moving people the most, and that is economic survival. First, let's not forget that men, as well as women, in New England broached this very subject less than 24 decades ago. So, I say to those who wish not to even entertain the idea, you are following the precedent set by many a Tory and Loyalist of the Colony of Massachusetts, who thought it folly and madness to think of leaving the British Empire, then the world's wealthiest nation and, arguably, its strongest military power.
We first must dismiss the modern notion of the secessionist movements in North America, to which we've been exposed. They've largely consisted of disaffected political groups whose most distinctive rationale for their movement has rested more on social and cultural grounds, and little, if any, on economics. That isn't to say that social and cultural differences are not important in setting political divisions, but they must be stark and pervasive to bring about major political upheaval for their own sake.
At the founding of this country, our knowledge of markets and our need to tend them as a people was still in its infancy, as were our expectations of our government as a provider of services. The joint action and collaboration of the thirteen British colonies in America in declaring their independence and fighting to attain it was a necessity, as the British government was not given to relinquishing profitable expansionist endeavors. The continued union, of the now sovereign states, after winning their independence was in large part seen as a necessity to provide a defense against foreign aggression. The political and economic power of the states at the beginning of their new country was likely more akin to the existing European Union of today.
Since that time, massive growth has occurred in the role government plays in our lives. In conjunction with that growth, control of its economic elements has moved well away from the state governments to a federal government, now overseeing 50 states. It's not unreasonable to believe that such a pervasive role by the federal government was never intended when the, then independent, states acceded to a union. This is not meant to applaud or disapprove of any particular government activity at the federal level, nor suggest a states' rights argument. It is intended to bring up the subject of size, though it is not the only subject to discuss here.
The U.S. government's fiscal business is enormous. And yet, the element of fiscal responsibility is not there. A discussion on size, and how it adversely impacts fiscal responsibility would take more space than I have here; and too, I am not wholly convinced that size alone is the principle culprit.
Yet I do know, the political structure we began with and have evolved into has destined us to our current economic ills. Given the significant percentage of our collective wealth put into the hands of the federal government, the massive expectations we have for that government and our dependency upon it to protect our markets from the ills of unfettered capitalism, we are imperiling ourselves by giving little attention to the methods by which we choose those who direct the government.
Our electoral processes and legislative structure are ill suited to safely handling such a massive government. It will take many generations for this nation to collectively assess and be willing to make the changes necessary to safely govern in our age. Though no political system is perfect, Europe has progressed far ahead of us in this area. Canada too, is yearning to make changes, and is only 1/9 the population of the U.S.
There are certainly other reasons which can be cited to justify an independent New England. And, such a nation would be no small instance, having what would be the tenth largest population in the EU, the tenth largest in the Western Hemisphere and more populous that 2/3 of the world's sovereign nations.
If only John and Samuel Adams were here; what would they think?
-RLee
Sunday, July 11, 2010
Friday, June 25, 2010
Obama's War, 2009 -
On January 20, 2009, a potentially pivotal point was reached by the American people as they legally handed over the command of their military forces to a newly elected President. Three days earlier Carlo Robinson and Ezra Dawson awoke to the routine of their day at the end of which each had taken their last breath; their bodies struggled but succumbed to the damage caused by bullets and shards of metal.
Carlo and Ezra were not gang members in Los Angeles or Chicago, they were not fallen prey to the inane turf battles and egotistical machinations of young men. More insanely, they were dressed in the colors of a much larger gang, naive pawns in the politics and egotistical machinations of old men.
Carlo Robinson, age 33, and Ezra Dawson, 31, arose to their last morning, ever, in Afghanistan, likely a place they'd never heard of only a few years before. Their families, friends and communities, no doubt, made the best of their losses, taking comfort in the nominal and automatic accolades given to those who perish in the colors of the American gang, no matter the reason.
Occurring when they did, their deaths should have stood as an important break line in America's foreign interventionist policy, ending a period of gross abuse of power by the nation's chief executive of the previous eight years. Had I been handed the reigns of our military might, I'd have only regretted that I'd not had it sooner so that I could have brought Staff Sargent Robinson and Specialist Dawson home alive.
It is frustrating writing here on the tragedy of America's indulgence in Afghanistan. For me it is so blatantly obvious, that it begs the question, 'What is to be gained by pointing it out?' If there are those who cannot synthesize the facts, which they can well see, to reveal reality, what more can be said to present it to them?
It is understandable that America felt compelled to perform a police action on foreign soil, but staying to police the neighborhood afterward or to supply the foreign government with an army, which they themselves haven't the support to assemble, makes America's role in Vietnam look like an intellectual masterpiece.
Since November of 2001, after the bases of al-Qaeda were destroyed and its members scattered, Afghanistan has been a war about America's internal politics. As there was no one to make a formal surrender, there was no 'V-Day' celebration to be had, thus the egos of America's testosterone laden population had not been fully satisfied and its politically insecure leaders find it safer to continue the combat until there is some point at which victory can be declared. Such is the predicament in which a politically insecure Barack Obama finds himself.
We are bereft of wise and courageous leadership, for which we are, each day, destined to fill another body bag and build another coffin and fold up another flag, all while waiting for that V-Day which will never come. In perhaps five years, during his final term as President, maybe Obama will decide enough is enough. We will leave Afghanistan and the Afghans will become whatever their collective will produces, our presence having made zero difference. Only the politicians and the war industrialists will have benefited.
Carlo and Ezra were not gang members in Los Angeles or Chicago, they were not fallen prey to the inane turf battles and egotistical machinations of young men. More insanely, they were dressed in the colors of a much larger gang, naive pawns in the politics and egotistical machinations of old men.
Carlo Robinson, age 33, and Ezra Dawson, 31, arose to their last morning, ever, in Afghanistan, likely a place they'd never heard of only a few years before. Their families, friends and communities, no doubt, made the best of their losses, taking comfort in the nominal and automatic accolades given to those who perish in the colors of the American gang, no matter the reason.
Occurring when they did, their deaths should have stood as an important break line in America's foreign interventionist policy, ending a period of gross abuse of power by the nation's chief executive of the previous eight years. Had I been handed the reigns of our military might, I'd have only regretted that I'd not had it sooner so that I could have brought Staff Sargent Robinson and Specialist Dawson home alive.
It is frustrating writing here on the tragedy of America's indulgence in Afghanistan. For me it is so blatantly obvious, that it begs the question, 'What is to be gained by pointing it out?' If there are those who cannot synthesize the facts, which they can well see, to reveal reality, what more can be said to present it to them?
It is understandable that America felt compelled to perform a police action on foreign soil, but staying to police the neighborhood afterward or to supply the foreign government with an army, which they themselves haven't the support to assemble, makes America's role in Vietnam look like an intellectual masterpiece.
Since November of 2001, after the bases of al-Qaeda were destroyed and its members scattered, Afghanistan has been a war about America's internal politics. As there was no one to make a formal surrender, there was no 'V-Day' celebration to be had, thus the egos of America's testosterone laden population had not been fully satisfied and its politically insecure leaders find it safer to continue the combat until there is some point at which victory can be declared. Such is the predicament in which a politically insecure Barack Obama finds himself.
We are bereft of wise and courageous leadership, for which we are, each day, destined to fill another body bag and build another coffin and fold up another flag, all while waiting for that V-Day which will never come. In perhaps five years, during his final term as President, maybe Obama will decide enough is enough. We will leave Afghanistan and the Afghans will become whatever their collective will produces, our presence having made zero difference. Only the politicians and the war industrialists will have benefited.
Tuesday, March 30, 2010
K Street! From 1st Street?: "You Can't Get There From Here"
The budget of the United States is, and has been for many decades, the largest in the world, currently distancing the second largest budget by over a trillion dollars. At any given time, there are 536 people who collectively authorize the distribution of those funds. Those people are assigned the duty, in theory, to act prudently and in the best interest of the country in the exercise of that power. Unfortunately, there are no tests of competency or veracity to be among this group, and the electoral process has been a very poor means for producing officials of those qualities.
We have a process for filling those seats that discourages the most intellectually gifted and well intended from seeking them, and when such candidates do venture forth they rarely succeed in swaying the electorate. Awaiting at the other end of these policy making roles in government are lucrative jobs in lobbying that same government on behalf of private interests; now a well worn path and not merely for members of Congress. It is an incentive that compromises those in office and acts to attract candidates for office who see it as an end goal.
At any given point, hundreds of former Congressional staffers are employed as professional lobbyists with 'for hire' agencies or industry group associations who maintain full time offices near the Capitol. A former staffer can often have more access than a former Congressperson, via relationships with other senior staffers across several Congressional offices and party lines. This career path, of '1st Street to K Street', is a structural defect in our governing process, seriously adverse to the public interest. The phrase, '1st to K' alludes to the Congressional office buildings, several of which lie on 1st Street, just east of Capitol Hill, and the federal lobbying industry which is largely housed in offices on K Street in Washington.
Just as personal ties give advantage in business dealings it can affect the construction of government policy and regulations. The influence can be enormous, affecting where billions of dollars are spent or are saved in tax assessments or outlays to meet regulatory requirements. These changes can adversely alter policies initiated for the public good or safety, and shift the cost/benefit equation to the detriment of the public. Of course fairness of tax and spending policy is often in the eye of the beholder, but the eyes which have the greatest influence on that policy, outside of congressional officials and staff, are moneyed interests often without corresponding influence representing opposing views.
It is a problem that arises out of the personal relationships which develop among colleagues, and by nature those relationships extend beyond the end of any formal association. Thus, even after their public roles end, a member of Congress, or the Executive branch, and their aides have the power of access to, and influence on, many of their former colleagues still in public service.
In most other venues the influence of personal ties would have little consequence, but the size and breadth of the federal budget, and the unique economic role and characteristics of government, make it a target of and easily susceptible to those with ill aims. The power of congressional 'ties' carried by former policy creators becomes a commodity for sale, and there are many willing to buy it. Yet, in this post public sector role these 'players' are not acting in a capacity as an elected or appointed official with certain responsibilities and accountability to a political constituency, directly or indirectly; their allegiance is to their private sector employer.
It's easily stopped, if we have the will. Conservatives, independents and liberals would agree that the power to affect government policy that is afforded those in official roles should not be extended to those same persons beyond the end of those roles to be used for private concerns.
An AMENDMENT to the Constitution of this or similar wording is recommended:
The key here is to end the financial incentives which have created this backdoor influence by the very sectors who the Congress, and the Executive, are paid to moderate for the public good. What we've been doing, instead, is tantamount to paying for a very expensive college education for these members and staffers (their government service) so they can then go make big bucks in a real career. And thus, it's not those attending the 'University of Congress' who are doing the business of Congress, it's the alumni who are now working on K Street.
-RLee
We have a process for filling those seats that discourages the most intellectually gifted and well intended from seeking them, and when such candidates do venture forth they rarely succeed in swaying the electorate. Awaiting at the other end of these policy making roles in government are lucrative jobs in lobbying that same government on behalf of private interests; now a well worn path and not merely for members of Congress. It is an incentive that compromises those in office and acts to attract candidates for office who see it as an end goal.
At any given point, hundreds of former Congressional staffers are employed as professional lobbyists with 'for hire' agencies or industry group associations who maintain full time offices near the Capitol. A former staffer can often have more access than a former Congressperson, via relationships with other senior staffers across several Congressional offices and party lines. This career path, of '1st Street to K Street', is a structural defect in our governing process, seriously adverse to the public interest. The phrase, '1st to K' alludes to the Congressional office buildings, several of which lie on 1st Street, just east of Capitol Hill, and the federal lobbying industry which is largely housed in offices on K Street in Washington.
Just as personal ties give advantage in business dealings it can affect the construction of government policy and regulations. The influence can be enormous, affecting where billions of dollars are spent or are saved in tax assessments or outlays to meet regulatory requirements. These changes can adversely alter policies initiated for the public good or safety, and shift the cost/benefit equation to the detriment of the public. Of course fairness of tax and spending policy is often in the eye of the beholder, but the eyes which have the greatest influence on that policy, outside of congressional officials and staff, are moneyed interests often without corresponding influence representing opposing views.
It is a problem that arises out of the personal relationships which develop among colleagues, and by nature those relationships extend beyond the end of any formal association. Thus, even after their public roles end, a member of Congress, or the Executive branch, and their aides have the power of access to, and influence on, many of their former colleagues still in public service.
In most other venues the influence of personal ties would have little consequence, but the size and breadth of the federal budget, and the unique economic role and characteristics of government, make it a target of and easily susceptible to those with ill aims. The power of congressional 'ties' carried by former policy creators becomes a commodity for sale, and there are many willing to buy it. Yet, in this post public sector role these 'players' are not acting in a capacity as an elected or appointed official with certain responsibilities and accountability to a political constituency, directly or indirectly; their allegiance is to their private sector employer.
It's easily stopped, if we have the will. Conservatives, independents and liberals would agree that the power to affect government policy that is afforded those in official roles should not be extended to those same persons beyond the end of those roles to be used for private concerns.
An AMENDMENT to the Constitution of this or similar wording is recommended:
No person having been a member, official or aide of Congress or the Executive branch shall be compensated, outside of the federal government, for any advisory activity, directly or indirectly given, intended to influence any executive or legislative policy of the federal government.This is intended to do one thing, keep people from gaining extraordinary power by working inside the legislative or executive branches of the federal government and then using that power, for profit, to continue to impact policy while no longer empowered for that purpose by the electorate directly or indirectly.
The key here is to end the financial incentives which have created this backdoor influence by the very sectors who the Congress, and the Executive, are paid to moderate for the public good. What we've been doing, instead, is tantamount to paying for a very expensive college education for these members and staffers (their government service) so they can then go make big bucks in a real career. And thus, it's not those attending the 'University of Congress' who are doing the business of Congress, it's the alumni who are now working on K Street.
-RLee
Monday, March 8, 2010
"A Problem That Has Defied Solutions"
The following is actually a quickly spun letter to David Streitfeld of the New York Times, who was reporting on the Obama Administration's new direction of forcing banks to sell 'short' millions of homes. The title of my post is a quote from his report and the subject of the email to him. He is a regular reporter on the troubles in the housing market, whose articles I have quoted in other postings.
Mr. Streitfeld,
Just read your latest article, 'Program to Pay Homeowners To Sell at Loss'. A quick upfront note: I'm neither a conservative or liberal, so bear with me if it seems my take on something leans one way, because the next moment it will go the other. Thus, when I say that I find it amusing that the current White House is so willing to spend hundreds of billions of borrowed dollars and yet is so bereft of solutions for our troubling economic dilemma, I also could add the previous administration was far worse, in being very willing to spend the lives of other peoples' children towards its own personal ends.
You just wrote on the President's latest move to force the banks holding mortgages on distressed properties into short sales, giving the bank $1,000 and the soon to be ex-homeowner $1,500. Then the bank is suppose to write down a, let's say, $150,000 loan to what ever a real estate agent says they can get for the house, let's say they believe $100,000, less the cost of selling. We'll leave alone that the agent has an incentive to lower the amount to get a quick sale and commission.
It's difficult to see in what way this is a solution, if one is looking at a larger picture. But I haven't seen anyone in Washington look more than two feet in front of themselves. The bank then must write off its books (which they haven't likely done already) about $60,000; multiply that by thousands and the bank's financial predicament looks bleak, creating another problem. I suppose the administration will then just have the Fed loan money to the bank at 0%, whereupon they then loan it back to the government at treasury bond rates. Basically just gift money to the banks who brought about all of this misery.
Meanwhile, the low priced home sale adds to the downward trend in home values, adding more stress to the market, and creating more homeowners who are gravely underwater with their mortgages, about which you have also written.
At least a year ago, I emailed Senator Isakson (GA) a solution worth consideration. I happen to still reside in Georgia (much to my dismay), but I sent it to Sen. Isakson because he was proposing a tax credit for home purchases. It was a step I felt addressed the very core problem of our whole economic catastrophe more than anything else proposed.
I thought his proposal erred in the amount of the tax credit, too low (only $8,000), and I thought it should not be limited only to first time home buyers (which they have since corrected). And very importantly, the funds should be made available at closing instead of as a tax credit, and the program should not be abruptly discontinued, lest you jolt the housing market again. Yet it should have a definite end date, so people will not speculate on an extension.
My proposal was to provide vouchers, or some means by which a home buyer could immediately apply the funds, of $20,000 towards the purchase of a home, not restricted to first time home buyers, but likely restricted to owner occupied. The program would be gradually phased out, with the amount of the subsidy reduced every six months by $2,500. Thus, it would run for four years, with the final subsidy amount being $2,500 in the last six months.
This does many things, gets the market moving again, which is needed to restore some lost equity and get more homeowners out of the 'underwater' position. For many of those who are now struggling to make payments, it would improve their chances of being able to sell their homes, and at a higher price where the bank would take a short sale position; yes, it means some short sales, but not as many and for not as much. It also is a long term gradually diminishing stimuli, enough to give a solid kick to restart the market, but to let it settle slowly into the readjusted circumstances while maintaining normal market activity.
Restoration of home sales to normal levels will make it possible for homeowners who have been sidelined by the inability to sell their current home, to then make a move they've desired. Once the market has turned around, all home owners will feel some relief as their equity, even if only very slowly, will begin to increase once again; whereupon personal financial situations will calm and begin to contribute more to the economic recovery.
Most important to all of this, is that the residential construction industry is able to slowly recover. That was the leg that was kicked out from underneath the national economy. The sudden unemployment of many millions of workers in that industry sent a wave through the economy, virtually ignored by the media during 2008. And the $787 billion 'stimulus' bill did nothing to address restoring that leg.
If 3,000,000 parties took advantage of the program in the first six month period, that would be $60 billion, at that same rate of home sales, over the 4 year program, it would total to $270 billion, plus a small sum for administration. That infusion of money would be WELL spent. Every penny of it goes to the heart of the problem. Americans' homes are the anchors of their financial well being. And the housing sector has traditionally been the very sector which has led us out of economic recessions. Reemploying the millions of people involved in the home construction industry is VITAL to restoring this economy.
I believe the national median home price has come down to roughly $168,000 (Jan.'10). The national median household income is now, likely, just below $50,000, but has suffered greatly due to the wide spread unemployment, and should be at about $52,000. At 52k, that puts the home price to income ratio at 3.2, a far cry from the 4 to 5 it achieved in 2006. It would be better to see this rate closer to 2.7, a long term average, but first, we must get things moving. This will be putting financial equity in the people and not on the other end in the financial industry. It will start the wave of employment where the wave of unemployment began, in the residential construction industry. That will then trickle up through the consumer spending market to restore other sectors.
Other measures should be taken to insure that banks no longer can lend so irresponsibly, and with such short sighted profits in mind. And those banks who participated in a big way in the securitizing of poorly underwritten mortgages, and those banks who issued those same mortgages and then sold them off, need to be taxed in a big way to recoup some of the losses we've incurred in this recovery effort. The likes of the Goldman Sachs and Washington Mutuals (or whoever bought them) need to pay up in a BIG way.
A close look at the 2009 'stimulus' bill will show that at least 70% of the funds appropriated have truly been a waste (in terms of new employment or retention), as a solution to the recession. There was money for extending unemployment benefits, some targeted tax cuts for lower income earners, perhaps a little of the money towards job training, and a little bit here and there (very little) which managed to fund projects employing those who'd been hit hardest by the storm.
By and large the bulk of it went as a windfall to government contractors who would have been good just with sustained spending levels, and to education, whose had a five or six year run of windfall property tax revenues from the mortgage bubble, but instead of saving it they raised their outlays by 30%, or more, and now want a handout to sustain that increased level. Atlanta Public Schools' budget went up 31% from fy 2005 to fy 2009 while the enrollment went down 6%, yet they've been awarded $54 million.
They need to immediately reverse that bill, put a halt to funds not distributed, and look to where the economy was kicked in the gut. A $270 billion put in the right place, would do the job that $787 billion in the wrong place couldn't.
Sincerely,
Robert Lee
An added note: An immediate $20,000 subsidy applied to the existing average home price of $168,000, gives a net of $148,000 to finance, which represents an income to price ratio of 2.8. That is a very healthy place to start. That subsidy gradually fades but it gets the economy moving again, reemploying millions, and softening the blow of this monster equity adjustment. WE MUST HOLD THE FINANCIAL SECTOR ACCOUNTABLE FOR TRAGEDY. It was the equivalent of being attacked by another country, who we would have held to some accountability.
Of course, we must first disconnect the financial power players from those we entrust with the welfare of our families.
-RLee
Mr. Streitfeld,
Just read your latest article, 'Program to Pay Homeowners To Sell at Loss'. A quick upfront note: I'm neither a conservative or liberal, so bear with me if it seems my take on something leans one way, because the next moment it will go the other. Thus, when I say that I find it amusing that the current White House is so willing to spend hundreds of billions of borrowed dollars and yet is so bereft of solutions for our troubling economic dilemma, I also could add the previous administration was far worse, in being very willing to spend the lives of other peoples' children towards its own personal ends.
You just wrote on the President's latest move to force the banks holding mortgages on distressed properties into short sales, giving the bank $1,000 and the soon to be ex-homeowner $1,500. Then the bank is suppose to write down a, let's say, $150,000 loan to what ever a real estate agent says they can get for the house, let's say they believe $100,000, less the cost of selling. We'll leave alone that the agent has an incentive to lower the amount to get a quick sale and commission.
It's difficult to see in what way this is a solution, if one is looking at a larger picture. But I haven't seen anyone in Washington look more than two feet in front of themselves. The bank then must write off its books (which they haven't likely done already) about $60,000; multiply that by thousands and the bank's financial predicament looks bleak, creating another problem. I suppose the administration will then just have the Fed loan money to the bank at 0%, whereupon they then loan it back to the government at treasury bond rates. Basically just gift money to the banks who brought about all of this misery.
Meanwhile, the low priced home sale adds to the downward trend in home values, adding more stress to the market, and creating more homeowners who are gravely underwater with their mortgages, about which you have also written.
At least a year ago, I emailed Senator Isakson (GA) a solution worth consideration. I happen to still reside in Georgia (much to my dismay), but I sent it to Sen. Isakson because he was proposing a tax credit for home purchases. It was a step I felt addressed the very core problem of our whole economic catastrophe more than anything else proposed.
I thought his proposal erred in the amount of the tax credit, too low (only $8,000), and I thought it should not be limited only to first time home buyers (which they have since corrected). And very importantly, the funds should be made available at closing instead of as a tax credit, and the program should not be abruptly discontinued, lest you jolt the housing market again. Yet it should have a definite end date, so people will not speculate on an extension.
My proposal was to provide vouchers, or some means by which a home buyer could immediately apply the funds, of $20,000 towards the purchase of a home, not restricted to first time home buyers, but likely restricted to owner occupied. The program would be gradually phased out, with the amount of the subsidy reduced every six months by $2,500. Thus, it would run for four years, with the final subsidy amount being $2,500 in the last six months.
This does many things, gets the market moving again, which is needed to restore some lost equity and get more homeowners out of the 'underwater' position. For many of those who are now struggling to make payments, it would improve their chances of being able to sell their homes, and at a higher price where the bank would take a short sale position; yes, it means some short sales, but not as many and for not as much. It also is a long term gradually diminishing stimuli, enough to give a solid kick to restart the market, but to let it settle slowly into the readjusted circumstances while maintaining normal market activity.
Restoration of home sales to normal levels will make it possible for homeowners who have been sidelined by the inability to sell their current home, to then make a move they've desired. Once the market has turned around, all home owners will feel some relief as their equity, even if only very slowly, will begin to increase once again; whereupon personal financial situations will calm and begin to contribute more to the economic recovery.
Most important to all of this, is that the residential construction industry is able to slowly recover. That was the leg that was kicked out from underneath the national economy. The sudden unemployment of many millions of workers in that industry sent a wave through the economy, virtually ignored by the media during 2008. And the $787 billion 'stimulus' bill did nothing to address restoring that leg.
If 3,000,000 parties took advantage of the program in the first six month period, that would be $60 billion, at that same rate of home sales, over the 4 year program, it would total to $270 billion, plus a small sum for administration. That infusion of money would be WELL spent. Every penny of it goes to the heart of the problem. Americans' homes are the anchors of their financial well being. And the housing sector has traditionally been the very sector which has led us out of economic recessions. Reemploying the millions of people involved in the home construction industry is VITAL to restoring this economy.
I believe the national median home price has come down to roughly $168,000 (Jan.'10). The national median household income is now, likely, just below $50,000, but has suffered greatly due to the wide spread unemployment, and should be at about $52,000. At 52k, that puts the home price to income ratio at 3.2, a far cry from the 4 to 5 it achieved in 2006. It would be better to see this rate closer to 2.7, a long term average, but first, we must get things moving. This will be putting financial equity in the people and not on the other end in the financial industry. It will start the wave of employment where the wave of unemployment began, in the residential construction industry. That will then trickle up through the consumer spending market to restore other sectors.
Other measures should be taken to insure that banks no longer can lend so irresponsibly, and with such short sighted profits in mind. And those banks who participated in a big way in the securitizing of poorly underwritten mortgages, and those banks who issued those same mortgages and then sold them off, need to be taxed in a big way to recoup some of the losses we've incurred in this recovery effort. The likes of the Goldman Sachs and Washington Mutuals (or whoever bought them) need to pay up in a BIG way.
A close look at the 2009 'stimulus' bill will show that at least 70% of the funds appropriated have truly been a waste (in terms of new employment or retention), as a solution to the recession. There was money for extending unemployment benefits, some targeted tax cuts for lower income earners, perhaps a little of the money towards job training, and a little bit here and there (very little) which managed to fund projects employing those who'd been hit hardest by the storm.
By and large the bulk of it went as a windfall to government contractors who would have been good just with sustained spending levels, and to education, whose had a five or six year run of windfall property tax revenues from the mortgage bubble, but instead of saving it they raised their outlays by 30%, or more, and now want a handout to sustain that increased level. Atlanta Public Schools' budget went up 31% from fy 2005 to fy 2009 while the enrollment went down 6%, yet they've been awarded $54 million.
They need to immediately reverse that bill, put a halt to funds not distributed, and look to where the economy was kicked in the gut. A $270 billion put in the right place, would do the job that $787 billion in the wrong place couldn't.
Sincerely,
Robert Lee
An added note: An immediate $20,000 subsidy applied to the existing average home price of $168,000, gives a net of $148,000 to finance, which represents an income to price ratio of 2.8. That is a very healthy place to start. That subsidy gradually fades but it gets the economy moving again, reemploying millions, and softening the blow of this monster equity adjustment. WE MUST HOLD THE FINANCIAL SECTOR ACCOUNTABLE FOR TRAGEDY. It was the equivalent of being attacked by another country, who we would have held to some accountability.
Of course, we must first disconnect the financial power players from those we entrust with the welfare of our families.
-RLee
Sunday, March 7, 2010
It's The Housing Sector, Stupid!
Where can you find a good mechanic? I've taken my car from shop to shop, and spent lots of money but the car still runs poorly. They hear a noise and then confidently say it needs this or that, so I pay to get this or that. And they take the money with smiles and self assurance that the problem is solved, but it isn't. Finally, one day a kid in the neighborhood checks out the car, works on it a little, and amazingly, no more problem. He explained the problem, said it was easy to diagnose, and took care of it.
It baffles me that we have no good mechanic in Washington, just the same lame 'professionals' as in the story above. Their 'solutions' for an economy running poorly have included giving $45 billion in additional work to road contractors who are covered up to their necks with work. Giving $102 billion to local school boards who have enjoyed a windfall of up to 30% increased revenues over the last several years from the bubble in property values and taxes. Just those two items in the so called 'stimulus' bill translates into an additional 'invoice' of $1,336 to each and every American household.
And meanwhile as Congress is taking from the not so well to do and yet born, and giving to the well to do, the economy stays in the doldrums with 10% official unemployment; more likely 15+% real unemployment. A pretty lousy mechanic if ever I saw one.
Congress is good at giving away money to those who spend their professional lives sucking up to government. They aren't the shovel ready as much as they are the beneficiaries of the grant writing ready. Keeping government expenditures to normal levels would be a gift to those industries, a normalized level of business no other economic sector is enjoying right now. Doubling down on that activity is about as foolish as things get in Washington, but never underestimate the stupidity of a government chosen from the people, by the people and for the few.
When the WPA was organized by the Roosevelt administration in the 1930's as one of several means to address the effects of the depression, the 'mechanics' were careful about their aims and their targets. They reasoned that they needed to be careful about distributing the benefits of the program as broadly and equitably as possible. Its aim was to provide economic sustenance to the many whose employment opportunities were choked off by the ill economy. With the economy so ill, activity in many areas simply ceased, thus those who'd made a living in them had no private sector opportunities.
The WPA provided direct employment, and it wanted to assure it aided as many households as possible, thus one of its provisions was that only one person per household could be employed by the agency. This type of thinking is far from the sort of mindset we have in Congress today. The notion by the Democrats that they are following in the foot steps of FDR is as much hogwash as were the claims by Republicans that they were following in the footsteps of JFK in cutting the top tier tax rates.
It's good that my car isn't dependent upon those mechanics in Washington; it's too bad so much else is.
-RLee
It baffles me that we have no good mechanic in Washington, just the same lame 'professionals' as in the story above. Their 'solutions' for an economy running poorly have included giving $45 billion in additional work to road contractors who are covered up to their necks with work. Giving $102 billion to local school boards who have enjoyed a windfall of up to 30% increased revenues over the last several years from the bubble in property values and taxes. Just those two items in the so called 'stimulus' bill translates into an additional 'invoice' of $1,336 to each and every American household.
And meanwhile as Congress is taking from the not so well to do and yet born, and giving to the well to do, the economy stays in the doldrums with 10% official unemployment; more likely 15+% real unemployment. A pretty lousy mechanic if ever I saw one.
Congress is good at giving away money to those who spend their professional lives sucking up to government. They aren't the shovel ready as much as they are the beneficiaries of the grant writing ready. Keeping government expenditures to normal levels would be a gift to those industries, a normalized level of business no other economic sector is enjoying right now. Doubling down on that activity is about as foolish as things get in Washington, but never underestimate the stupidity of a government chosen from the people, by the people and for the few.
When the WPA was organized by the Roosevelt administration in the 1930's as one of several means to address the effects of the depression, the 'mechanics' were careful about their aims and their targets. They reasoned that they needed to be careful about distributing the benefits of the program as broadly and equitably as possible. Its aim was to provide economic sustenance to the many whose employment opportunities were choked off by the ill economy. With the economy so ill, activity in many areas simply ceased, thus those who'd made a living in them had no private sector opportunities.
The WPA provided direct employment, and it wanted to assure it aided as many households as possible, thus one of its provisions was that only one person per household could be employed by the agency. This type of thinking is far from the sort of mindset we have in Congress today. The notion by the Democrats that they are following in the foot steps of FDR is as much hogwash as were the claims by Republicans that they were following in the footsteps of JFK in cutting the top tier tax rates.
It's good that my car isn't dependent upon those mechanics in Washington; it's too bad so much else is.
-RLee
Tuesday, February 23, 2010
The Health Care Fight: Don't Throw in the Gauze Just Yet
How could half be totally wrong and the other half be totally correct? Likely, they are not. Congress is made up of those two halves, but they don't represent the whole of us. The others are an equal number in the middle, who are either too confused or apathetic to take issue. And, intelligence is a constituent with virtually no representation in Congress. So, here we sit, with what might be the 'will', but not the 'way' to fix the abomination we call our health care system.
From my perspective the attention is 30 years late; thirty additional years of a cancerous tumor I diagnosed in 1980. It's taken many decades of runaway price increases; trillions of wasted dollars going to an industry blessed with the storybook goose that lays the golden egg. And over in this corner we have the Democrats (Dems) with notions of regulating insurers and a public insurance option as the cure, and in the other corner we have the Republicans (Pubs) prescribing a regimen of shifting the purchase of health insurance to the consumer and putting further limits on medical liability claims.
Little do the liberals and progressives realize that the 'Teabaggers', those staunch and loud opponents of health care reform, have provided the country a service. While their fears are misguided, they have halted implementing an insufficient fix, though any fix might be better than the status quo. But a poor fix, could delay by many years, or decades, rooting out the actual problem. On the flip side, the Pubs' plans are a mixed bag, also better left stifled. With any luck, both the delay from this stalemate and the intense pressure to do something will drive more thought by those who have the power to make changes.
Right now, I would say that the medicine ball is in the Pubs' court. The New York Times asked five conservative 'thinkers' to speak out with their best ideas for slowing the growth of health care expenditures and expanding the number of insured Americans. I'll try to sum up their pitches, and then will grade each on problem solving.
Half of the Times inquiry, how to expand the number of insured Americans, was virtually untouched by the writers, but perhaps space didn't allow for addressing both subjects. On the positive side, it seems that a good portion of the Republican establishment is now admitting there is a problem beyond simply blaming trial attorneys. In fact, I was surprised to see one of the responses go so far as to suggest results based compensation, a pretty revolutionary idea for health care here in America, and another propose a change in the structure of health care pricing away from itemized treatment to packaged case management for health care events, also a sea change in our system.
I am surprised, because those notions go beyond simply urging the control of prices by positioning consumers to make cost/benefit value judgments in their choice of health care services. They are suggesting that an entity other than the patient make a judgment on the quality and efficiency of care; that is the stuff of warning signs at 'Teabagger' rallies showing why we should fear government run health care. Perhaps, some of these conservative 'thinkers' don't reflect the intellect of their base.
I've given grades, in order: F, F, B-, C, B-
Gingrich is so lacking in depth as to be almost pathetic. He is a front for the insurance industry, still pushing his tort 'reform' agenda to allot more profits for insurers and health care providers who want to, with damage caps, budget in their maximum liability for negligence. His home state of Georgia implemented such legislation in 2005, and I've not yet been apprised that health care in Georgia has become more affordable or available in the interim; but logically more risky for the patients.
James Pinkerton appears to have had little exposure to the price of health care today. His call for improving research is admirable, but not a subject of any controversy or pertinent to the problem at hand. Kudos for thinking broadly, in recognizing the economic impact of 'medical industries', but his notion that spending more money to get healthier and therefore be more productive is hardly worth comment. Yet, with America losing so many of its economic sectors to international competitors, medical research and innovation is an industry worthy of investment; but don't confuse it with the practice of health care.
McClellan goes for the efficiency method of reducing costs, suggesting that providers should be compensated based on how much their care reduces long term costs. It is closely aligned with results based systems, a positive sign, as long as the health of the patient is one of those results. He suggests that providers show "the way they prevent and manage illnesses reduces complications and cost Medicare less." As a former Medicare administrator, he believes Medicare is capable of creating a means to measure such results and appropriately apply them, given the resources. I'm going to take a leap here, by likening his proposal to that of the British health care system, though perhaps he intends it only for current Medicare recipients.
Though, given a grade of C, Kolb did a good job of identifying much of the problem, but failed to go beyond the marketing of insurance in his analysis. He chastises liberals for unrealistic idealism and conservatives for hypocrisy, and correctly recognizes our market-inadequate health care system he calls "a pre-World War II dinosaur awaiting extinction." He is the only one who specified a means to help cover those currently uninsured, though it lacked any punch. He should take his market oriented thinking to the next level, the point of health care consumption, beyond insurance consumption.
Bill Frist, certainly, doesn't lack passion for the subject. He astutely recognizes a need to utilize the power of value judgments in markets, but doesn't really followup on that idea. His central solution, which is to price health care by packaging related treatments instead of the current piece meal method, has the right goal but isn't alone likely to stem the rise of or reduce prices in health care. Yet, in his argument, I see he places an emphasis on value; that along with his perception of market functions indicates he believes we need to achieve a point at which consumers are using value judgments to make cost/benefit comparisons, and from there both quality and efficiency will ensue, the only means to moderate prices.
While their responses give me some hope that wisdom will prevail, I recognize that Congress is not a think tank. We don't elect our best and brightest to run a large part of our lives, yet we insist on it in the operating room. Odd, isn't it?
-RLee
From my perspective the attention is 30 years late; thirty additional years of a cancerous tumor I diagnosed in 1980. It's taken many decades of runaway price increases; trillions of wasted dollars going to an industry blessed with the storybook goose that lays the golden egg. And over in this corner we have the Democrats (Dems) with notions of regulating insurers and a public insurance option as the cure, and in the other corner we have the Republicans (Pubs) prescribing a regimen of shifting the purchase of health insurance to the consumer and putting further limits on medical liability claims.
Little do the liberals and progressives realize that the 'Teabaggers', those staunch and loud opponents of health care reform, have provided the country a service. While their fears are misguided, they have halted implementing an insufficient fix, though any fix might be better than the status quo. But a poor fix, could delay by many years, or decades, rooting out the actual problem. On the flip side, the Pubs' plans are a mixed bag, also better left stifled. With any luck, both the delay from this stalemate and the intense pressure to do something will drive more thought by those who have the power to make changes.
Right now, I would say that the medicine ball is in the Pubs' court. The New York Times asked five conservative 'thinkers' to speak out with their best ideas for slowing the growth of health care expenditures and expanding the number of insured Americans. I'll try to sum up their pitches, and then will grade each on problem solving.
Newt Gingrich, the former Speaker of the House of Representatives and founder of a for-profit consultation group, dubbed the Center for Health Transformation, which appears to be a front for undisclosed lobbying services, responded that 'frivolous' malpractice lawsuits against health care providers (the gift of a political 'red herring' for conservatives that just keeps on giving) is what ails us and that by us limiting the accountability of health care providers we can bring about affordable health care.
James Pinkerton, former domestic policy aide for Reagan and Bush I, and fellow at the New America Foundation, a policy think tank, summed up his thoughts with, "A 'more health' plan is a win for individual health, a win for economic growth and, yes, a win for the cause of long-term health savings." Looking past his beauty pageant response, I've tried to cull out his proposal and inferred that he wants to spend more on medical research and in so doing it will, both, give Americans what they really want, which he says is more or better health care, and will be the economic engine of our new economy.
Mark McClellan, former Medicare administrator under Bush I, and director of the Engelberg Center for Health Care Reform at the Brookings Institution, references a few commonly raised solutions, but uses most of his ink on the notion of performance based compensation, though he couches it with a more Republican friendly 'cost savings' measure of performance. He acknowledges that Dems are out front on the 'performance' concept and challenges Republicans to get on board by seeing that Medicare is capable of measuring patient outcomes.
Charles Kolb, former domestic policy adviser to Bush I, and president of the non-partisan Committee for Economic Development, promotes weaning Americans off of their employer provided health insurance to create a far more competitive market in health insurance, and placing some type of risk adjustment compensation mechanism in the mix to incentivize coverage among all health risk categories. He adds that ending the current tax exemption of payments for employer sponsored insurance would help to publicly provide insurance for those currently uninsured.
Bill Frist, former Senator from Tennessee, and a surgeon, also endorses some frequently mentioned measures, but offers that they will never provide the fundamental change the system needs. He adamantly promotes packaged based compensation, by insurers, instead of fee for service, which he cites promotes volume over both quality and efficiency. Packaging would entail all the services, personnel and pharmaceuticals needed to treat a particular health care 'event'. He, also, harshly criticizes leading Democrats for lacking any faith in market economies or "in the power of hundreds of millions of people to make smart choices about their health."
Half of the Times inquiry, how to expand the number of insured Americans, was virtually untouched by the writers, but perhaps space didn't allow for addressing both subjects. On the positive side, it seems that a good portion of the Republican establishment is now admitting there is a problem beyond simply blaming trial attorneys. In fact, I was surprised to see one of the responses go so far as to suggest results based compensation, a pretty revolutionary idea for health care here in America, and another propose a change in the structure of health care pricing away from itemized treatment to packaged case management for health care events, also a sea change in our system.
I am surprised, because those notions go beyond simply urging the control of prices by positioning consumers to make cost/benefit value judgments in their choice of health care services. They are suggesting that an entity other than the patient make a judgment on the quality and efficiency of care; that is the stuff of warning signs at 'Teabagger' rallies showing why we should fear government run health care. Perhaps, some of these conservative 'thinkers' don't reflect the intellect of their base.
I've given grades, in order: F, F, B-, C, B-
Gingrich is so lacking in depth as to be almost pathetic. He is a front for the insurance industry, still pushing his tort 'reform' agenda to allot more profits for insurers and health care providers who want to, with damage caps, budget in their maximum liability for negligence. His home state of Georgia implemented such legislation in 2005, and I've not yet been apprised that health care in Georgia has become more affordable or available in the interim; but logically more risky for the patients.
James Pinkerton appears to have had little exposure to the price of health care today. His call for improving research is admirable, but not a subject of any controversy or pertinent to the problem at hand. Kudos for thinking broadly, in recognizing the economic impact of 'medical industries', but his notion that spending more money to get healthier and therefore be more productive is hardly worth comment. Yet, with America losing so many of its economic sectors to international competitors, medical research and innovation is an industry worthy of investment; but don't confuse it with the practice of health care.
McClellan goes for the efficiency method of reducing costs, suggesting that providers should be compensated based on how much their care reduces long term costs. It is closely aligned with results based systems, a positive sign, as long as the health of the patient is one of those results. He suggests that providers show "the way they prevent and manage illnesses reduces complications and cost Medicare less." As a former Medicare administrator, he believes Medicare is capable of creating a means to measure such results and appropriately apply them, given the resources. I'm going to take a leap here, by likening his proposal to that of the British health care system, though perhaps he intends it only for current Medicare recipients.
Though, given a grade of C, Kolb did a good job of identifying much of the problem, but failed to go beyond the marketing of insurance in his analysis. He chastises liberals for unrealistic idealism and conservatives for hypocrisy, and correctly recognizes our market-inadequate health care system he calls "a pre-World War II dinosaur awaiting extinction." He is the only one who specified a means to help cover those currently uninsured, though it lacked any punch. He should take his market oriented thinking to the next level, the point of health care consumption, beyond insurance consumption.
Bill Frist, certainly, doesn't lack passion for the subject. He astutely recognizes a need to utilize the power of value judgments in markets, but doesn't really followup on that idea. His central solution, which is to price health care by packaging related treatments instead of the current piece meal method, has the right goal but isn't alone likely to stem the rise of or reduce prices in health care. Yet, in his argument, I see he places an emphasis on value; that along with his perception of market functions indicates he believes we need to achieve a point at which consumers are using value judgments to make cost/benefit comparisons, and from there both quality and efficiency will ensue, the only means to moderate prices.
While their responses give me some hope that wisdom will prevail, I recognize that Congress is not a think tank. We don't elect our best and brightest to run a large part of our lives, yet we insist on it in the operating room. Odd, isn't it?
-RLee
Friday, February 12, 2010
Bipartisanship is Driving Us Into the Poor House
Enough already with this constant media complaint of Congress' lack of bipartisanship. Have you seen the results of bipartisan legislation? Have you really?! The briefly heralded bipartisan 'job' bill that came out of the Senate Finance Committee represented all that is wrong with our maladjusted means of spending our collective wealth. It contained spending and tax cuts to net out to another $85 billion of debt. There is more spending for state and local government road projects and lots of goodies for businesses, though, on the good side it supposedly plugs a few tax loop holes.
As for 'jobs', the Congressional Budget Office analyzed that even the best of the tax cut proposals, a break on employer paid social security, would produce only 8 to 18 jobs for every $1 million of new federal debt. I think even that is optimistic, as most of the tax avoidance would come from routine rehiring for existing positions. Employers will simply give preference to hiring candidates who've been unemployed for 2 months (the minimum to qualify for the tax break) or more. It might redistribute employment a bit, but isn't going to produce a wave, or even ripple, of increased hiring. Tax cuts for business entities don't produce jobs, increasing demand for products and services produces jobs.
The spending side of the proposed bill wasn't any better, possibly worse, at creating jobs in the appropriate sectors, though it certainly insures plenty of work for those who've had it. The bill was initially overlooked for its details by the media, and instead triumphed as a huge success in achieving bipartisanship. Fortunately, one side blinked before it went too far, and now a new proposal, only slightly less objectionable is going forward for debate.
There are 535 people who vote on a budget of trillions of dollars. Those people are driven by a need to pass a test to get into their next term of office, and 435 of them face that test every two years, and the other 100 must raise on average $5,600,000 (The Campaign Finance Institute, 11/06/2008) every six years as an additional qualification for a new term. Roughly one half of them is working to get the approval of one economic group and the other half is working to get the approval of another economic group. Who, legislatively, is looking out for the economic health of the United States? No one, really.
We can't even presume that if every member of the present Congress were to develop amnesia simultaneously, thus forgetting who they had to please in order to get reelected, it would have any appreciable impact upon legislative results. That's because the political dye has already been cast by a bi-polar electoral system, whereby every viable nominee in the general election has resolute political views in tight alignment with a 25% minority of the electorate at one end, or the other, of the political spectrum.
Some of the problem is just simple human psychology and a failure to have structured our government to account for it. What can be done? For one thing, we need to revert to the original Constitutional concept of insulating the Senate from popular whims and common intellect. James Madison is surely smirking, with an 'I told you so' grin from his celestial view of our experiences with and use of the document which he largely authored. Sure, we had many problems with legislative appointments of Senators, primarily graft, but we were so unimaginative as to how to deal with it that we kicked a leg out from underneath ourselves. Doh!
Another affliction with which we have burdened ourselves is a politically bi-polar legislative body. The public financing of political party nominating processes, known commonly now as 'primaries', has entrenched the two parties into the psyche of the electoral body much like deep tire tracks in a snow and ice covered road, tainting alternative candidates with the lack of any popular endorsement. Oddly, enough, primaries were the supposed cure to another problem in the process of choosing members of Congress, that of the major political parties selecting candidates in a clandestine manner, producing special interest minded legislators.
Is there a means whereby we can have the electorate equally consider candidates for the House of Representatives, without the influence of party affiliation, and yet allow political alliances to coalesce behind a single candidate? Let's think on it. You know, that thing that James Madison once did.
-RLee
As for 'jobs', the Congressional Budget Office analyzed that even the best of the tax cut proposals, a break on employer paid social security, would produce only 8 to 18 jobs for every $1 million of new federal debt. I think even that is optimistic, as most of the tax avoidance would come from routine rehiring for existing positions. Employers will simply give preference to hiring candidates who've been unemployed for 2 months (the minimum to qualify for the tax break) or more. It might redistribute employment a bit, but isn't going to produce a wave, or even ripple, of increased hiring. Tax cuts for business entities don't produce jobs, increasing demand for products and services produces jobs.
The spending side of the proposed bill wasn't any better, possibly worse, at creating jobs in the appropriate sectors, though it certainly insures plenty of work for those who've had it. The bill was initially overlooked for its details by the media, and instead triumphed as a huge success in achieving bipartisanship. Fortunately, one side blinked before it went too far, and now a new proposal, only slightly less objectionable is going forward for debate.
There are 535 people who vote on a budget of trillions of dollars. Those people are driven by a need to pass a test to get into their next term of office, and 435 of them face that test every two years, and the other 100 must raise on average $5,600,000 (The Campaign Finance Institute, 11/06/2008) every six years as an additional qualification for a new term. Roughly one half of them is working to get the approval of one economic group and the other half is working to get the approval of another economic group. Who, legislatively, is looking out for the economic health of the United States? No one, really.
We can't even presume that if every member of the present Congress were to develop amnesia simultaneously, thus forgetting who they had to please in order to get reelected, it would have any appreciable impact upon legislative results. That's because the political dye has already been cast by a bi-polar electoral system, whereby every viable nominee in the general election has resolute political views in tight alignment with a 25% minority of the electorate at one end, or the other, of the political spectrum.
Some of the problem is just simple human psychology and a failure to have structured our government to account for it. What can be done? For one thing, we need to revert to the original Constitutional concept of insulating the Senate from popular whims and common intellect. James Madison is surely smirking, with an 'I told you so' grin from his celestial view of our experiences with and use of the document which he largely authored. Sure, we had many problems with legislative appointments of Senators, primarily graft, but we were so unimaginative as to how to deal with it that we kicked a leg out from underneath ourselves. Doh!
Another affliction with which we have burdened ourselves is a politically bi-polar legislative body. The public financing of political party nominating processes, known commonly now as 'primaries', has entrenched the two parties into the psyche of the electoral body much like deep tire tracks in a snow and ice covered road, tainting alternative candidates with the lack of any popular endorsement. Oddly, enough, primaries were the supposed cure to another problem in the process of choosing members of Congress, that of the major political parties selecting candidates in a clandestine manner, producing special interest minded legislators.
Is there a means whereby we can have the electorate equally consider candidates for the House of Representatives, without the influence of party affiliation, and yet allow political alliances to coalesce behind a single candidate? Let's think on it. You know, that thing that James Madison once did.
-RLee
Wednesday, February 10, 2010
Hercule Poirot: It was the Underwriter, In the Study, With the Fraud Instrument
If the housing market crash was made into a murder mystery, perhaps, the American public would 'Clue' into the facts of the crime. A Belgian detective would guide us through the canards, false leads and 'tell tale' clues intricately woven into the unfolding mystery, to reveal the surprising culprit to a gasping audience. And, unlike the revelation on the Orient Express and contrary to the assertions of American punditry, here the murderer is . . but one.
Though I needed no impetus for this story, a recent New York Times report can be blamed for instigating me. The report was not really news, as stories about 'underwater' homeowners walking away from their homes have sporadically appeared since the start of the housing market crash in 2007.
This subject tends to pop up and fade quickly amidst the larger attention the banks have been getting over their self inflicted liquidity crisis. Each story mentions the mechanics, economics, ethics and prevalence of walking away, and most of these are laced with implications of personal wrong doing, guilty consciences, and the portrayal of banks as victims in this scenario.
It's natural, for most of us, to react to debt default with a wince, though that's only true when it applies to an individual. We've become so accustomed to corporate or business bankruptcies, as just routine, that they don't evoke any emotions at all, unless it involves us personally. Though a company must deal with some practical issues of renewing credit lines, it's just business, not personal, whereas, individuals have to fear both the stigma to their credit worthiness and to their social reputation, even if its only imagined.
The stories on this subject reflect that double standard as they reveal the personal angst of homeowners contemplating defaulting, yet cast few aspersions on the culpability of banking institutions, many of whom have been rescued by the federal government with their jobs spared in the process. The banks are betting on the guilt, shame and prospective effects on credit and employment, which a mortgage default could have on an individual, to keep such acts to a small trickle. Thus, the banks aren't bending over backwards to aid their mortgage clients.
The report, "No Help in Sight, More Homeowners Walk Away", by David Streitfeld, adds some new information and thinking to the routine story. It gives some numbers on those who walk away as part of an investment decision as opposed to those who do it because they are struggling to keep up with the monthly loan payments. And, it is the first story of this type, I've read, that turns the corner on assigning guilt and responsibility. But, before getting to that corner, the usual questions of personal ethics are raised.
Mr. Streitfeld interviewed a homeowner who was in the 'underwater' predicament and reported this, "Others, like Mr. Koellmann in Miami Beach, made only one mistake: they bought as the boom was cresting." Mr. Streitfeld likely took liberty to call Mr. Koellmann's purchase a 'mistake' because Mr. Koellmann himself referenced it as such, saying, "I took a loan on an asset that I didn’t see was overvalued. As much as I would like my bank to pay for that mistake, why should it?”
Streitfeld's contention, "they bought as the boom was cresting," implies that Mr. Koellmann, and others, knew that real estate was over priced, relative to today's pricing, at the time they bought; or that they should have known it was going to drop in value, to where the price is today. But, Mr. Koellmann's statement indicates he wasn't aware that the property was over priced (at the time of purchase). Thus, the question then is, 'Should Mr. Koellmann have known the price was high relative to what it would be three years later?' For me, the answer is, "Of course not!"
Consumers are very good at comparison shopping, at least those who find it necessary due to finances or those who simply don't like 'over' paying for anything, which encompasses most everyone. If I were to interview Mr. Koellmann, I'd likely discover that he'd spent a long time looking for a property to purchase, made a lot of comparisons, in other words he performed due diligence. At the time Mr. Koellmann purchased his condominium, he paid the price which was the value of the property, unless there was some other fraud related specifically to his condominium.
The housing market is the most competitive market we know. While we are often worried about monopolies and oligopolies in many of our markets, we have at the other end . . . the housing market, where there is almost a 1:1 ratio of buyers and sellers. That astounding number of suppliers for a product means that no one seller or type of seller, such as builders and renovators, can affect a price rise above that set by the market, i.e. supply and demand. Only fraudulent acts on a massive scale could impact either supply or demand to the detriment of the larger market.
Fraud on the supply side has not occurred on any sustained or large scale basis. It has occurred sporadically and its appearance brought about the widespread use of building codes. County and municipal code enforcers, private building inspectors and value judgments by consumers have acted as regulators on the supply side of the housing market equation.
Like most products, supply follows demand. Therefore, demand is the driving factor in the expansion of the housing market and its variation determines real estate values. Note, also, demand must be measured in dollars, thus, Mr. Koellmann's contribution to demand is more than a single unit, it is the amount of money he is able and willing to, or ultimately does, spend on residential real estate. This is important in order to understand that increasing demand, which drives prices up is not simply the result of a market expansion in the number of buyers, but the total amount of money chasing the available supply.
Wikipedia: In economics, demand is the desire to own anything and the ability to pay for it and willingness to pay. (emphasis added)That definition, if quantified would be the total amount of money tendered for a product or service. If in a microcosm of the housing market there exists 10 houses, demand in that microcosm is the sum of the money which 10 buyers are able and willing to tender for their purchase. If buyers are able and willing to tender more to own the houses, then the value of the houses increase by that amount. There isn't anything else which determines value, only a supply of a commodity and a demand for that commodity as measured in dollars.
In the U.S., demand in the housing market is most often created by an arrangement between one who desires to purchase real estate and a lender who agrees to front an amount of money for the purchase, based, in theory, upon an assessment that the borrower has the ability to pay. Unlike on the supply side, where a rather vigilant exercise of government regulation is performed by building-code inspectors, there is no exercise by government in validating the demand side.
Demand facilitated through mortgage financing became prevalent in the United States after the Great Depression and grew to fully dominate the market. The home construction industry and the mortgage banking industry grew simultaneously in conjunction with each other. Throughout this history, increases in demand resulted from three factors, 1) population growth, 2) increases in median household wealth, adjusted for inflation, and 3) the reduction of risk to lenders by actions of the federal government.
In the twentieth century, the federal government took steps to broaden the consumer market for owner occupied homes by facilitating a reduction in risk for lenders. Seeing an economically viable market, not being serviced by lenders (most being too small to assume much risk), entities and policies were put in place to offer loan guarantees (thus distributing risks) and a source of funds for lending (through brokering the loans as investments). The two largest of these entities are the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
Fannie and Freddie are huge actors in the mortgage market. Their combined holdings or guarantees represent close to half of the mortgage holdings in the U.S. At first glance, that makes them a serious suspect in this caper. The two have had their critics, but if anyone provided a check on the viability of home loans, it is them. Though they were under political pressure to aid in the effort to broaden home ownership among Americans, they also were a private entity with shareholders, and were the only secondary market guarantor or buyer who had a systematic process of standards and practices to qualify the loans they would back or purchase.
In Congressional testimony, of 2007, the then President and CEO of Fannie Mae said this:
Unfortunately, Fannie Mae-quality, safe loans in the subprime market did not become the standard, and the lending market moved away from us. Borrowers were offered a range of loans that layered teaser rates, interest-only, negative amortization and payment options and low-documentation requirements on top of floating-rate loans.
In early 2005 we began sounding our concerns about this 'layered-risk' lending. For example, Tom Lund, the head of our single-family mortgage business, publicly stated, "One of the things we don't feel good about right now as we look into this marketplace is more homebuyers being put into programs that have more risk. Those products are for more sophisticated buyers. Does it make sense for borrowers to take on risk they may not be aware of? Are we setting them up for failure?"
Mudd, Daniel (April 17, 2007). Excerpt from "Opening Statement as Submitted to the U.S. House Committee on Financial Services"Loans not qualifying for purchase by Fannie or Freddie, and not intended to be held by the lender, were destined for private market securitization. Those loans were not subject to any standards of underwriting outside of the banks who originated them. Underwriting is the process (and responsibility) of assessing a potential borrower's ability to repay a proposed loan and, in the case of mortgage loans, assessing the value of the collateral.
This underwriting process is wholly within the lending institution originating a loan and is the pivotal step in the bank's approving or denying a loan. Of course, the process uses as its guide a standard minimum risk level set by the bank. Degrees of risks in lending are a well researched subject, with vast quantities of historical data available to ascertain risks levels for given factors. Thus, changing one's long established minimum standards is a step which is virtually certain to bring a proven result.
Lenders found they had a growing and private secondary loan market (i.e. not Fannie Mae or Freddie Mac) where they could pass off the risk of an issued loan without its investment quality being questioned. And that market was willing to pay them handsomely for their tainted products, allowing them to profit both on issuing the loan and then selling it. Mortgage underwriting standards and ethics among lenders diminished considerably in the years leading up to the housing crash. This Wikipedia excerpt explains the run up of investment money:
So why did lending standards decline? In a Peabody Award winning program, NPR correspondents argued that a "Giant Pool of Money" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. Further, this pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with financial innovation such as the mortgage-backed security (MBS) and collateralized debt obligation (CDO), which were assigned safe ratings by the credit rating agencies. In effect, Wall Street connected this pool of money to the mortgage market in the U.S., with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans, to small banks that funded the brokers, to the giant investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted. However, continued strong demand for MBS and CDO began to drive down lending standards, as long as mortgages could still be sold along the supply chain.
Note: The reference to 'mortgage brokers selling the loans' should be clarified. While brokers receive fees for their service, they act only as a marketer of products (loan packages) offered by one or more mortgage banks; underwriting responsibility is with the lender/mortgage bank.Though accurate in pointing out the culpability, the article's choice of words in phrasing the last sentence is far too lenient. While the author is merely summarizing the cause and effect which produced the injury, it sidesteps the responsibility of the chief actor here whose reaction to the incentive (cause) is THE very ACTION responsible for the housing surge and collapse. No other actor among all the many who have been accused had the singular ability to produce this event. Other players could have threatened, lied, cheated, or bribed, but none whether individually or in tandem with each other could have brought about this particular calamity on such a massive scale. It was all contingent upon that singular act of underwriting.
The backup systems meant to detect and aid in correcting a violation by this actor failed in their roles, these being banking regulators under the direction of the Federal Reserve, the Federal Reserve's officers and Board of Governors who are specifically given the task to be wary of signs of systemic risks to the U.S. economy, and the private security ratings agencies. Their failures are large, and they should be held accountable in as severe a manner as is available. And, yet, still the triggering violation of ethical responsibility lies with the mortgage underwriter.
There are always those who attempt to bribe someone to violate their legal, ethical, or moral responsibility for some gain. All professions have their role in our system of commerce, whether a bank clerk, store clerk, minister, soldier, public official, auto mechanic, doctor, financial adviser, journalist, or security guard. All perform critical functions within that system which are relied upon by all others within the system. It isn't accepted that one is alleviated of responsibility by virtue of receiving sufficient bribes to do so.
Relaxed underwriting standards generated more lending, translating into more demand for housing, which of course pushed prices upward in most markets, which triggered builders to create more supply, which also created more issues with housing affordability. And as prices went higher lenders became even more scurrilous, going still lower in their underwriting standards to find new borrowers, thus continuing the pretense of rising home values, and threatening the entire American economy.
The 'lowering of lending standards' is the simple language used to explain the vast increase in sub-prime loans and the subsequent housing boom and bust. The description is far too benign, which is one reason why those acts have failed to ring the right cord with the public and the media.
It must be understood that these acts were not inadvertent. Mortgage banks (lenders) intentionally and strategically lowered underwriting standards. It defies all common sense to believe that there could exist a case of such widespread and simultaneous gross incompetence in lending. Rather it must be that these were acts of conscience and deliberate efforts to deceive, by producing more mortgage product than could otherwise be produced using safe and prudent lending practices. Mortgage lenders produced loans which they knew were not viable for the borrower or safe investments for any lender. They committed professional and ethical fraud in their transactions with the borrowers and legal fraud when selling the loans to investment banks and others. It also must be believed that lenders were all too aware of the growing cumulative ill effect of their fraudulent acts on the very collateral which secured the loans they issued.
The ability to pay is the essence of demand, for without financial ability no demand exists. Banks provide that ability to pay a seller by fronting the money. Demand for housing rose precipitously only because of the artificial stimulus generated by the rampant fraud in mortgage banking. And, yet, media analysts, either embarrassed by their own incompetence in not correctly calling the crisis or acting at the behest of the banks, and political spinsters, with their own agenda, wrongly incriminated others to suit themselves.
Many professionals and homeowners who simply performed as any market would have them do, became scapegoats to shift attention away from the banking industry, or to falsely castigate a political opponent. Prejudice and bias were unsparingly used to create a web of faux villains from builders, appraisers, home renovators, and home buyers, who were cast as speculators or too stupid, too poor, or too greedy.
Among the worst aspersions were those cast upon home builders, who in fact reacted to the market properly by increasing supply as demand rose. If the President or the head of the Federal Reserve Board had informed the country in 2003 that the increased demand in the housing market to come over the next few years was only temporary (phony) and therefore builders should not build anymore homes, then sure, blame the builders. But, that didn't happen. In other words, there wasn't Over Building; at the time the home supply wasn't even keeping up with the growth in ($) demand; evidenced by the precipitous rise in prices.
The case could be made that more houses should have been built given the increased demand. The problem was that demand (willingness and ability to pay) was being fraudulently manipulated to appear greater than, in fact, existed. When actual demand increases, increases in production are desirable responses, being the most fundamental inhibitors of increasing prices. It is the suppliers/producers who then invest, and risk, their capital to produce additional supply for the market. The housing industry has, for as long as anyone can remember, been among the most stable and safe business sectors in America, but the unprecedented and unforeseen actions of the mortgage banks poisoned the entire market leaving builders holding a tremendous debt load and bringing financial ruin to many.
Lenders (mortgage bankers) who participated in these underwriting scams, individually and severally, are guilty of tortiously interfering with the business prospects of builders, and possibly other businesses, who sustained economic damages as a direct result of the collapse in the housing market. Builders should have, either individually or in class action, sought recompense from culpable mortgage lenders through the civil courts, using common law provisions.
The seeming complexity of the whole event allowed vast amounts of red herrings to appear, political spin to go unchecked, victims to go unacknowledged and villains to slither away undetected. Virtually everyone in the media who makes their living observing, reporting, analyzing, advising and otherwise offering commentary upon the financial markets, everyone in government who had any role being responsible for regulating those markets, and virtually every top management official in the nation's mortgage and investment banks, were all guilty to some degree in abetting the cover-up.
It continued with books such as, "Our Lot" by Alyssa Katz, about which the author states:
I think the message of my book, unfortunately, is that it's to some degree everybody's fault, including, I should say, liberal activists, with whom I'm extremely sympathetic, and think were right.The book is a good presentation of evidence, but fails in its examination. It does not distinguish cause and effect and thus ultimately fails to identify the pivotal acts which were the genesis of the economic calamity. It is intellectually lazy or perhaps timid, foregoing any analysis of the process or identifying the roles played by each actor and the purpose of those roles, i.e. the formal function which each role has in maintaining the health of the housing market.
Any astute analysis would have keyed in on the mechanics of the whole process, identified the critical failure and thus where the professional responsibility rested, as would any good mechanic in looking for the 'source' of an engine break down. By generalizing with its blurred focus it conveniently avoids confrontation. The book's only virtue is its historical overview of our national failure to prevent the occurrences of real estate booms and busts.
The media's massive use of generalizations to assign culpability, whether from ignorance or self-interest, are not only wrongs themselves for the injustice rendered to the victims, but indicate that the fundamentals are not understood, or at least not acknowledged. The latter indicates that the badly needed changes to our financial checks and balances will not occur and abuse will follow in another generation, whereupon another book shall appear waxing over our historical failures to prevent such events.
To knowingly offer incentives that encourage wrong doing is reprehensible (yes, the investment banks), but when the wrong doing itself is executed by professionals charged with a specific role for which they are accountable and the wrong doing is a direct violation of that role, who do we hold ethically and legally responsible?
It was the Underwriter.
-RLee
Wednesday, February 3, 2010
DADT: It's Just Wrong
I hadn't planned to write on the "Don't ask, don't tell" controversy. I didn't believe I could add anything to the arguments which have already been publicly exhorted again and again. But in reading a New York Times opinion piece, I was reminded of a 'rationale' frequently used to argue against the 1993 law, and while I share the goal of those seeking to repeal the law and policy, I find this particular argument distasteful.
Since Bush launched us into the 'War Against Ourselves' in the Middle East, there has been much made of the military losing valuable Arabic translators, and others who have skills high in demand, as the result of gay service members being forcibly discharged under DADT.
In 1993, having just elected the first President to ever speak before a gay political group during his campaign, there was modest hope for a growth spurt to occur in America's normally glacial pace of social progress. And yet, I very soon found myself having to stand, literally, in protest to a reactionary and villainous Congress, who quickly sought to subvert any moves by the commander-in-chief to end the persecution of gay service men and women.
Almost two decades later, the reason for ending a shameful burden placed upon gay men and women serving in the military is no less powerful today than it was then, or has always been. Removing that burden, not imposed on heterosexuals, is simply 'the right thing to do'.
To argue that the unjust discrimination should be ended as part of a 'quid pro quo' is almost as shameful as the policy itself. Yes, I see the strategic rationale of it as an argument, and understand that, as a practical matter, anyway the change can be achieved will have a substantial positive impact upon many thousands of lives, but it feels wrong.
A logical retort to such an argument is to propose that it be temporarily suspended only when the military's resources are stretched, and/or to selectively apply it, exempting those specialty services which are high in demand. For proponents of DADT, that seems a quite reasonable solution for the 'problem' which the argument presents, being that it retains the notion that under 'normal' circumstances military service by gay men and women is a debility.
It is not unusual, for even the most normalized among us, to imagine life if we were different in a variety of ways, such as being blind, paraplegic, in a racial minority, deaf, or a number of other mental, physical, or social ways. People can empathize with those who are different, particularly when the difference is a mental or physical disability, but also in circumstances where merely being different is a hardship.
Yet, one difference, though so widespread across all cultures, gene pools, continents, history, and even animal species, has been, not only deprived of empathy, but vilified, demonized, even rhetorically denied its natural origins. The resulting isolation, fear and deprivation of essential psychological needs have made it, possibly, the harshest of all differences with which to live.
Heterosexuals have found it difficult to grasp that beyond the two physical manifestations of sexual identity there exists a myriad of mental manifestations of sexual identity. Our scientific and medical professionals have been, reprehensibly, absent in educating Americans on this subject, permitting the viral psychosis of homosexual phobia to prosecute a quiet holocaust against good people for centuries.
"The love that dare not speak its name," from a poem by Lord Alfred Douglas in 1894, is a more appropriate title for the poorly named 1993 law. However, the phrase "Don't ask, don't tell" does zero in on the real problem, that ignorance is both a predominant characteristic and preferred policy of the American people, two facts of which they are ignorant.
-RLee
Since Bush launched us into the 'War Against Ourselves' in the Middle East, there has been much made of the military losing valuable Arabic translators, and others who have skills high in demand, as the result of gay service members being forcibly discharged under DADT.
In 1993, having just elected the first President to ever speak before a gay political group during his campaign, there was modest hope for a growth spurt to occur in America's normally glacial pace of social progress. And yet, I very soon found myself having to stand, literally, in protest to a reactionary and villainous Congress, who quickly sought to subvert any moves by the commander-in-chief to end the persecution of gay service men and women.
Almost two decades later, the reason for ending a shameful burden placed upon gay men and women serving in the military is no less powerful today than it was then, or has always been. Removing that burden, not imposed on heterosexuals, is simply 'the right thing to do'.
To argue that the unjust discrimination should be ended as part of a 'quid pro quo' is almost as shameful as the policy itself. Yes, I see the strategic rationale of it as an argument, and understand that, as a practical matter, anyway the change can be achieved will have a substantial positive impact upon many thousands of lives, but it feels wrong.
A logical retort to such an argument is to propose that it be temporarily suspended only when the military's resources are stretched, and/or to selectively apply it, exempting those specialty services which are high in demand. For proponents of DADT, that seems a quite reasonable solution for the 'problem' which the argument presents, being that it retains the notion that under 'normal' circumstances military service by gay men and women is a debility.
It is not unusual, for even the most normalized among us, to imagine life if we were different in a variety of ways, such as being blind, paraplegic, in a racial minority, deaf, or a number of other mental, physical, or social ways. People can empathize with those who are different, particularly when the difference is a mental or physical disability, but also in circumstances where merely being different is a hardship.
Yet, one difference, though so widespread across all cultures, gene pools, continents, history, and even animal species, has been, not only deprived of empathy, but vilified, demonized, even rhetorically denied its natural origins. The resulting isolation, fear and deprivation of essential psychological needs have made it, possibly, the harshest of all differences with which to live.
Heterosexuals have found it difficult to grasp that beyond the two physical manifestations of sexual identity there exists a myriad of mental manifestations of sexual identity. Our scientific and medical professionals have been, reprehensibly, absent in educating Americans on this subject, permitting the viral psychosis of homosexual phobia to prosecute a quiet holocaust against good people for centuries.
"The love that dare not speak its name," from a poem by Lord Alfred Douglas in 1894, is a more appropriate title for the poorly named 1993 law. However, the phrase "Don't ask, don't tell" does zero in on the real problem, that ignorance is both a predominant characteristic and preferred policy of the American people, two facts of which they are ignorant.
-RLee
Sunday, January 31, 2010
Confirmation Vote: A Non-Partisan Test of Common Sense
Prior to the Senate's vote on Ben Bernanke's reappointment to the Chairmanship of the Federal Reserve Board I wrote an opinion arguing against the confirmation. Alas, common sense fails again. Yet, the Senate vote did provide us with something of value, a look past knee jerk partisanship.
It is infuriating to read or hear Bernanke apologists claiming that no one else saw the real estate bubble, therefore, he should be absolved and reappointed; or they argue that his tenure as Fed Chairman was too far along in the bubble to allow him to make any adjustments, such as tightening the money market.
"Hogwash!" When home sales, across the nation, rise as quickly as they did in 2003 and later, only an idiot, sociopath, or one incompetent to hold such a position, would miss or ignore a key indicator of risk to our nation's economic health.
Mr. Bernanke is no idiot, and he is supposedly a scholar of economics history, particular the U.S. depression of the 1930's. He should be educated well enough to know that real estate bubbles, outside of a normal ebb and flow of markets, have in the past traumatized our economy, causing it many subsequent years of hardship. Therefore, would it not be prudent, indeed crucial, to keep tabs on measures of that activity?
They, also, fail to note Mr. Bernanke was on the Federal Reserve Board from 2002 to 2005 during the birth and most of the life of the housing bubble. Or, that the only time he spent off the Federal Reserve's Board since 2002 was for roughly eight months when he was Chairman of the President's Council of Economic Advisers; no small post or responsibility.
I'm not an economist, I'm not being paid a six figure salary to simply watch a few numbers every day. But, had I been charged with such a matter, I think I could have given the country its money's worth. Not long out of college, in the early 80's, I pondered why home prices increased faster than the rate of inflation. The advice routinely given was to buy a house, "Houses always go up in price," was repeated often as if it were a law of nature.
During those years, the favored terminology was that homes 'appreciated' in value. To me, it seemed illogical that home prices would rise at a consistently faster rate than the price of other goods and services. How could that be sustained? It caused me to search for factors which could have created that circumstance. I identified three unique demographic events which explained that particular economic phenomenon. From that analysis, and by extension, I was able to predict many years in advance a crest and dip in housing demand, and thus prices. That prediction, for 1990, came true.
Had the government then been prudent in monitoring and analyzing demand for housing, it could have provided critical information to builders that may have resulted in averting the supply/demand gap, which resulted in widespread harm to the economy in 1991/92.
Thus, in 1982, a guy who was not a Harvard educated economist could use simple logic to figure out and predict how one of the nation's major markets would react almost a decade in advance. And yet, with current numbers in hand, Mr. Bernanke, a renown economist, being paid $150,000 to carry out the duties of the Federal Reserve Board, sat by in 2003, 2004 and 2005, apparently not alarmed by extraordinary data on home sales, and prices.
How crazy is real estate getting in parts of the country? . . .
Heavy mortgage borrowing since 2000 has enabled the housing market to dodge an iron law: House prices can't perpetually rise faster than incomes. For the past four years, they have. The ratio of house prices to median family income is a record 3.4, a figure that's 19% above the 1975-2000 average, according to data from the Office of Federal Housing Enterprise Oversight and the Census Bureau. . . .
A downturn in housing would squeeze recent buyers who overleveraged themselves to pay top prices -- and risk slowing the entire economy by cooling consumer spending as well as housing construction, lending, and the real estate business.
A Wall Street Journal staff article titled, 'The Historical Record on the Bubble', reveals this:
A Factiva search of the top 50 newspapers in the U.S. returns 268 stories referring to a housing or real-estate bubble in 2003. In 2004 that number increases to 369 and in 2005 it swells to 1,608.
The Bernanke reappointment just reaffirms my belief that most Congressmen have little understanding of economics and finance, among other deficiencies. It is mostly a 'dog and pony' show up there, done just as well by the panel at any state fair judging for the best pie.
We don't expect politicians to be expert in any field but one, common sense. It doesn't take a lot of knowledge of derivatives, credit markets, supply and demand, reserve requirements, CDO's, and the like, to know whether or not Mr. Bernanke was successful in his job of monitoring indicators of the nation's economy for signs of danger, when the results of the last few years have been more than enough to scream out a resounding "NO!"
If the sailor up in the crow's nest of the ship fails to do his job, which is to warn the captain when there is danger ahead, and the ship wrecks on a reef, crewmen are killed and vital materials are lost, the surviving crew isn't going to have any faith in a captain who, once under sail again, puts the same fellow back in the crow's nest.
The only positive attribute Mr. Bernanke's advocates offer, for his reappointment, is that he did a remarkable job in preventing a collapse in the country's major banking institutions, and presumably saving us all from a terrible fate. Well, it then might be that Mr. Bernanke's talents lie in rescue efforts after disasters have occurred, but certainly not in preventing them. Those are, indeed, different skills, and we need the latter at the head of the nation's top post for monetary and economic supervision.
Regardless, of which way your political sail blows, i.e. bias, do yourself a favor and check out the votes of the senators on Bernanke's confirmation. This New York Times report contains a convenient map. If you formerly only loathed the members of one party, or both, perhaps you'll gain some respect for a few of your nominal opponents, and question the cognitive ability of many with whom you normally align. It's the only 'silver lining' I can find in this pathetic reappointment.
-RLee
It is infuriating to read or hear Bernanke apologists claiming that no one else saw the real estate bubble, therefore, he should be absolved and reappointed; or they argue that his tenure as Fed Chairman was too far along in the bubble to allow him to make any adjustments, such as tightening the money market.
"Hogwash!" When home sales, across the nation, rise as quickly as they did in 2003 and later, only an idiot, sociopath, or one incompetent to hold such a position, would miss or ignore a key indicator of risk to our nation's economic health.
Mr. Bernanke is no idiot, and he is supposedly a scholar of economics history, particular the U.S. depression of the 1930's. He should be educated well enough to know that real estate bubbles, outside of a normal ebb and flow of markets, have in the past traumatized our economy, causing it many subsequent years of hardship. Therefore, would it not be prudent, indeed crucial, to keep tabs on measures of that activity?
They, also, fail to note Mr. Bernanke was on the Federal Reserve Board from 2002 to 2005 during the birth and most of the life of the housing bubble. Or, that the only time he spent off the Federal Reserve's Board since 2002 was for roughly eight months when he was Chairman of the President's Council of Economic Advisers; no small post or responsibility.
I'm not an economist, I'm not being paid a six figure salary to simply watch a few numbers every day. But, had I been charged with such a matter, I think I could have given the country its money's worth. Not long out of college, in the early 80's, I pondered why home prices increased faster than the rate of inflation. The advice routinely given was to buy a house, "Houses always go up in price," was repeated often as if it were a law of nature.
During those years, the favored terminology was that homes 'appreciated' in value. To me, it seemed illogical that home prices would rise at a consistently faster rate than the price of other goods and services. How could that be sustained? It caused me to search for factors which could have created that circumstance. I identified three unique demographic events which explained that particular economic phenomenon. From that analysis, and by extension, I was able to predict many years in advance a crest and dip in housing demand, and thus prices. That prediction, for 1990, came true.
Had the government then been prudent in monitoring and analyzing demand for housing, it could have provided critical information to builders that may have resulted in averting the supply/demand gap, which resulted in widespread harm to the economy in 1991/92.
Thus, in 1982, a guy who was not a Harvard educated economist could use simple logic to figure out and predict how one of the nation's major markets would react almost a decade in advance. And yet, with current numbers in hand, Mr. Bernanke, a renown economist, being paid $150,000 to carry out the duties of the Federal Reserve Board, sat by in 2003, 2004 and 2005, apparently not alarmed by extraordinary data on home sales, and prices.
Had the U.S. population surged, or at least the adult population, to explain the sharp rise in demand for single family homes? Had the median household income, adjusted for inflation, rose so quickly as to account for the surge? Did he care enough to give it thought? We're not talking about subtle differences here.
Could the alarm and the danger be clearer than these excerpts from a July 19, 2004, article in BusinessWeek:
Could the alarm and the danger be clearer than these excerpts from a July 19, 2004, article in BusinessWeek:
How crazy is real estate getting in parts of the country? . . .
Heavy mortgage borrowing since 2000 has enabled the housing market to dodge an iron law: House prices can't perpetually rise faster than incomes. For the past four years, they have. The ratio of house prices to median family income is a record 3.4, a figure that's 19% above the 1975-2000 average, according to data from the Office of Federal Housing Enterprise Oversight and the Census Bureau. . . .
A downturn in housing would squeeze recent buyers who overleveraged themselves to pay top prices -- and risk slowing the entire economy by cooling consumer spending as well as housing construction, lending, and the real estate business.
A Wall Street Journal staff article titled, 'The Historical Record on the Bubble', reveals this:
A Factiva search of the top 50 newspapers in the U.S. returns 268 stories referring to a housing or real-estate bubble in 2003. In 2004 that number increases to 369 and in 2005 it swells to 1,608.
The Bernanke reappointment just reaffirms my belief that most Congressmen have little understanding of economics and finance, among other deficiencies. It is mostly a 'dog and pony' show up there, done just as well by the panel at any state fair judging for the best pie.
We don't expect politicians to be expert in any field but one, common sense. It doesn't take a lot of knowledge of derivatives, credit markets, supply and demand, reserve requirements, CDO's, and the like, to know whether or not Mr. Bernanke was successful in his job of monitoring indicators of the nation's economy for signs of danger, when the results of the last few years have been more than enough to scream out a resounding "NO!"
If the sailor up in the crow's nest of the ship fails to do his job, which is to warn the captain when there is danger ahead, and the ship wrecks on a reef, crewmen are killed and vital materials are lost, the surviving crew isn't going to have any faith in a captain who, once under sail again, puts the same fellow back in the crow's nest.
The only positive attribute Mr. Bernanke's advocates offer, for his reappointment, is that he did a remarkable job in preventing a collapse in the country's major banking institutions, and presumably saving us all from a terrible fate. Well, it then might be that Mr. Bernanke's talents lie in rescue efforts after disasters have occurred, but certainly not in preventing them. Those are, indeed, different skills, and we need the latter at the head of the nation's top post for monetary and economic supervision.
Regardless, of which way your political sail blows, i.e. bias, do yourself a favor and check out the votes of the senators on Bernanke's confirmation. This New York Times report contains a convenient map. If you formerly only loathed the members of one party, or both, perhaps you'll gain some respect for a few of your nominal opponents, and question the cognitive ability of many with whom you normally align. It's the only 'silver lining' I can find in this pathetic reappointment.
-RLee
Thursday, January 28, 2010
The Great Recession: Have You Paid Attention?
I've had to restart this piece several times; worried that my personal involvement will taint either its readability and/or its veracity for the reader. The subject for me is not abstract or relegated to sympathy alone. For me, the impact of the nation's severest recession (for some a depression) came only as an after shock to the 'big event', the housing market collapse.
From a view, shared by relatively few, and by culling through the muck of information and media analysis I could early on spot the miscreants who were acutely responsible. While the media confused the issue of where the blame lay, their obfuscation was not so much intentional as it was a lack of perspective and good analysis, or the product of self indulgent partisan spin. That is a matter that sorely needs to be addressed, and will be, but it is not the subject here.
More than two years later, and a turn over in the federal administration, my antipathy for those most responsible is now being rivaled by an anger towards a government so clueless as to the origin of this economic debacle, dubbed 'The Great Recession.' The media pundits, 'left' and 'right', have failed to grasp the domino structure of the events or provide constructive critical analysis. It it were a board game requiring logical thinking, they all would have lost.
We are now in the third year of The Great Recession, its official birth recorded as December, 2007. As the recession grew in magnitude in 2008, the major news stories of those years were not about the damage that was done by the housing bubble and bust to the underpinnings of our economy. Instead, most of the year's economic reporting was a retread of 2007, focusing only on sympathetic stories of short lived homeowners who lost a recently purchased house to foreclosure. That the depth of the story stopped there, left unexplained why so many of those situations had come to be, leaving the why to speculation and political spin which only added to the misdirection to come later.
Not reported on, from late 2007 and on, were the catastrophic effects from the housing crash. Utterly ignored was the crumbling of a large sector of the economy, the millions of American workers (and thus consumers) who made a living in the residential construction industry and all of its peripheral dependents were now sidelined. Millions no longer had work, or their prospects for continued work were greatly diminished.
The building site developers, masons, framers, roofers, electricians, plumbers, HVAC people, security system installers, exterior siding and trim workers, insulation installers, drywall workers, window and door installers, flooring and cabinet installers, trimmers, painters, landscapers, suppliers of cabinets, doors, windows, flooring, masonry, building products, garage doors, appliances, bath fixtures, lighting fixtures, fire places, real estate professionals, movers, and many other professions whose incomes were derived totally or principally from steady work in the home building sector.
Beginning in the foreclosure hot spots, then spreading across the country, trips to Walmart, Target, Best Buy and a multitude of other retailers ceased for these millions of Americans. In 2007, lost sales triggered smaller retailers and service providers to reduce their staffs, adding to the growing unemployment. By the first of 2008, the big retailers and service providers added to this trend of staff reductions furthering the snowball effect. This led to reduced buying from wholesalers and other middlemen who provide the retail sector with products and supplies, and soon began impacting manufacturers and beyond.
The U.S. unemployment rate climbed from 4.3% in May 2007 to 6.1% by August 2008. Separating out the cyclical and transient unemployment which is nominally pegged at 3%, effective unemployment had climbed from 1.3% to 3.1%. In absolute numbers this translates to a net of over 3,500,000 Americans having lost work over a 15 month period ending in August, 2008.
By September 2, 2008, and before the highly dramatized liquidity crisis of the banks, the Dow Jones Industrial Average had dropped 2,873 points from October, 2007, a 20% drop. Yet these trends did not spark the media to highlight the catastrophe that had befell this large chunk of our economy, which made up a whopping 5% of the gross domestic product. This 'non-coverage' of the housing sector collapse and its impact upon the national economy is still plaguing us today, as it has totally obliterated any understanding of the economic problem.
The snowball continued into late 2008, but the media became preoccupied, if not thrilled, with the glitz and drama of the bank liquidity crisis in September and thus once again the true story went unreported. The much over hyped story of the liquidity crisis triggered a net 2300 point fall on the DJIA by late November. And then, of course, the rapid nature of that fall was more delightful drama for the news media, and resulted in a national paranoia that further reduced consumer spending.
While the stock market fallout of the highly spun liquidity crisis was real it could not have translated into further unemployment for some months afterward, and yet the unemployment rate had already climbed to 7.1% in December, on its way to 8.5% by the end of January. Thus, virtually all of the nation's unemployment has stemmed from the abrupt rise and then crash of housing demand, and the tremors it sent up the economic chain.
Unfortunately, the banks' liquidity 'crisis' of September 2008 is pegged as the beginning of our economic problems by virtually all of the pundits, those same men and women who sat by for almost four years without a word out of them, much less demands for Congressional investigations, about the ominous rise in housing demand; ominous because it wasn't justified by any sound fundamentals. And thus, it is little surprising that the public is so misinformed on the mechanics of the economic downfall. As bad as all of that was and is, it got worse.
It was the malpractice and malfeasance of the banks that produced the housing bubble and bust, which is the very ground zero of this recession/depression. Then, shockingly enough, as if they had been the victims instead of the culprits, the federal government was manipulated by fear mongering to shore up and thus save those very banks, who had shot themselves in the foot while in the process of robbing most of America.
The failure of our media and economists to highlight the real injuries to our economy, immediately after the housing collapse in 2007, explains why Americans are clueless about how to fix it. Sadly, it is also why Washington has failed. We weren't focused on the structural damage which the 'big event' caused to our economy, and have since been throwing money out the window with no real understanding of what it will, and what it won't, do.
While the sub-prime mortgage scandal was heavily covered in the media, it was limited to primarily three effects. By far and away the story was about the 'moving' emotional hardships of people losing their homes, and the bubble effect on the nation's home prices, and then, once the banking crisis story broke, that it had produced the 'toxic' assets beleaguering the banks. What else was left to report? [he wrote sarcastically]
In the summer of 2007, the surge of home foreclosures swamped the housing market. The surge, like a hidden tsunami that surfaces only just before it lands ashore, drowned all but the luckiest souls along the beach and coast. The media took little notice of the collapse in the home construction industry, unless it was laced with derision towards builders, wrongly portraying them as one of the culprits in the housing bubble. If not identified explicitly, home builders were indicted implicitly with repeated references to 'over' building or 'speculation.'
I should note that I sympathize with those who lost their homes; they too are victims, having been used by the bankers to generate revenue at any costs to others. Derision is due those in the media and government who presented such a narrow and shallow view of the sub-prime scandal's fallout. The media only reported on those who'd lost what had been their house of a few years, and perhaps a little equity, if they had put any money down, yet there in the same neighborhood was a greater victim of the sub-prime scandal, the construction worker who now had no work, no income.
The real tragedy of the sub-prime scandal was that it set up the housing market for a devastating crash which brought the home construction industry to a halt, an industry that has been traditionally one of the major employment sectors of our economy. A sharp rise in home sales from 2002-2006 was generated by fraudulent lending in the mortgage banking industry. That increase in demand, though a national phenomenon, appeared every where simply as a localized spurt in home sales. Local builders built to meet demand, a normal, desirable and very important free market function.
'Over' building only exists when supply well exceeds demand. During this period, that wasn't the case, at all. The fact that home prices continued to rise right up until the collapse indicates that builders were barely meeting demand, and had they not built, prices would have risen more sharply. The over supply of homes that arose, once the fraudulent demand had eroded through mortgage defaults, was very wrongly described in the media as 'over' building. And from that very poor analysis, victims were labeled as perpetrators.
Another misconception, fostered by the media, has resulted from the very subjective use of the word 'speculation.' The term 'spec' house was once a common means to differentiate from the once predominate activity of building commissioned houses. Imagine today the inability, short of building your own house, to have the option of buying a newly constructed house.
In the U.S., population growth, the obsolescence of older homes and the mid-20th century entry by the government to provide a measured means for securing long term financing, all brought about an industry that produced homes more quickly and cost effectively than through the process of individually commissioned and custom homes. Virtually every new home built in the U.S. over the last half century has been a 'spec' house. Today, the 'spec' house is the norm and expected means of new housing in the U.S. and it is not a term alleging risky or imprudent business activity.
Of course, the attribution of speculation was meant as an accusation, implying a greediness worthy of contempt, and it worked well in the climate of the moment where pundits were given to blaming everyone so that their own shortcomings were not as readily apparent. As commented above, given a market where demand is not being manipulated fraudulently, home building is neither more or less economically risky than any other business.
It's impossible for this writer not to point out the hypocrisy of crying "speculation!" Virtually every business venture is speculation, and, most certainly, investing in a stock position, which pays no dividends, and has a precarious p/e ratio, is the epitome of risky speculation. Who among those casting stones at residential housing construction, an industry with a very sound and conservative business plan, can deny having invested in the stock market, the world's largest speculative bubble, where one speculates not on the fundamentals but on the actions of other speculators?
The defensiveness is partly personal, but also meant to remove the tinted shades that may have prevented some clear vision. It was clear to me in late 2007 and early 2008 that the A-bomb that had been dropped on the home/residential construction industry was going to ripple through the economy. How could it not? We'd just managed to un-employ hundreds of thousands of workers in each and every state in a short time frame.
And, in fact, that's exactly what happened; consumer spending took a big hit, even as early as December, 2007, economic indicators showed its effects. It soon trickled up the chain to the wholesalers, and then to the manufacturers, and then to their suppliers. And as each one of them was hit, they cut back their work forces, deepening the effects.
The economic structural damage which underlies this recession is the collapse of one of its major employment sectors, the home construction industry. When the President and the Democrats pushed through a so called 'stimulus' package, it was also clear to me that it was not going to either aid the hardest hit Americans or provide a solid fix for the economy. Yes, you heard them say it was going to be used for 'shovel' ready projects. Well, girls and boys, the President needs to take a course in construction. The projects for which the money was intended are primarily public projects, most often transportation projects.
Institutional type construction, which includes most government projects, is performed by a unique industry. Road builders do not employ framers, or roofers, or plumbers, etc. And, too, it is an industry that was amongst the last to feel any effects of the ill economy, as its primary client, government, was also the last to feel any effects, if any at all.
Thus an industry who was among the least impacted of all industries was given an enormous gift, a windfall of job contracts. And most likely the skew created in the demand/supply triggered a significant price increase for the road and bridge work that resulted. If you already have over a year's worth of work contracted, you're likely either not going to bid on the next contract let or you'll bid high. You're certainly not going to go out and purchase highly expensive equipment to create new work teams, because the windfall isn't going to last.
It is unlikely that there was any significant cross over of labor from one industry to the other. To have added any great numbers of unskilled labor would have meant finding additional skilled supervisors and managers and, as mentioned above, incurring capital outlays for new equipment. Most likely a company simply distributed their work over a longer schedule, and scheduled on weekends, as I observed several times, likely paying overtime to workers who were never unemployed, while the true victims of the recession go without work.
That analysis appears to have been spot on, reading today's assessment of the stimulus results (a year later); a sample of which is this excerpt from an AP story of January 11, 2010:
____________________________________________
I didn't watch the President's 'State of the Union' address; I only perused the text of the speech and glanced at some of the headlines of news stories. From the coverage, it seems it lacked anything that could be called news. I had no reason to believe the speech would reveal a new awareness by the President.
My pessimistic tone might indicate a pre-election leaning against Mr. Obama, quite the opposite is true. In fact, I had significant expectations for the new administration to be able to grasp the economic Rubic's cube and take appropriate measures, my only real concern was how quickly and how directly.
Borrowing on the 1992 campaign jab , "It's the economy, stupid," I want to shout out my window, "It's the home construction industry collapse, stu . . . , I mean, Mr. President."
-RLee
From a view, shared by relatively few, and by culling through the muck of information and media analysis I could early on spot the miscreants who were acutely responsible. While the media confused the issue of where the blame lay, their obfuscation was not so much intentional as it was a lack of perspective and good analysis, or the product of self indulgent partisan spin. That is a matter that sorely needs to be addressed, and will be, but it is not the subject here.
More than two years later, and a turn over in the federal administration, my antipathy for those most responsible is now being rivaled by an anger towards a government so clueless as to the origin of this economic debacle, dubbed 'The Great Recession.' The media pundits, 'left' and 'right', have failed to grasp the domino structure of the events or provide constructive critical analysis. It it were a board game requiring logical thinking, they all would have lost.
We are now in the third year of The Great Recession, its official birth recorded as December, 2007. As the recession grew in magnitude in 2008, the major news stories of those years were not about the damage that was done by the housing bubble and bust to the underpinnings of our economy. Instead, most of the year's economic reporting was a retread of 2007, focusing only on sympathetic stories of short lived homeowners who lost a recently purchased house to foreclosure. That the depth of the story stopped there, left unexplained why so many of those situations had come to be, leaving the why to speculation and political spin which only added to the misdirection to come later.
Not reported on, from late 2007 and on, were the catastrophic effects from the housing crash. Utterly ignored was the crumbling of a large sector of the economy, the millions of American workers (and thus consumers) who made a living in the residential construction industry and all of its peripheral dependents were now sidelined. Millions no longer had work, or their prospects for continued work were greatly diminished.
The building site developers, masons, framers, roofers, electricians, plumbers, HVAC people, security system installers, exterior siding and trim workers, insulation installers, drywall workers, window and door installers, flooring and cabinet installers, trimmers, painters, landscapers, suppliers of cabinets, doors, windows, flooring, masonry, building products, garage doors, appliances, bath fixtures, lighting fixtures, fire places, real estate professionals, movers, and many other professions whose incomes were derived totally or principally from steady work in the home building sector.
Beginning in the foreclosure hot spots, then spreading across the country, trips to Walmart, Target, Best Buy and a multitude of other retailers ceased for these millions of Americans. In 2007, lost sales triggered smaller retailers and service providers to reduce their staffs, adding to the growing unemployment. By the first of 2008, the big retailers and service providers added to this trend of staff reductions furthering the snowball effect. This led to reduced buying from wholesalers and other middlemen who provide the retail sector with products and supplies, and soon began impacting manufacturers and beyond.
The U.S. unemployment rate climbed from 4.3% in May 2007 to 6.1% by August 2008. Separating out the cyclical and transient unemployment which is nominally pegged at 3%, effective unemployment had climbed from 1.3% to 3.1%. In absolute numbers this translates to a net of over 3,500,000 Americans having lost work over a 15 month period ending in August, 2008.
By September 2, 2008, and before the highly dramatized liquidity crisis of the banks, the Dow Jones Industrial Average had dropped 2,873 points from October, 2007, a 20% drop. Yet these trends did not spark the media to highlight the catastrophe that had befell this large chunk of our economy, which made up a whopping 5% of the gross domestic product. This 'non-coverage' of the housing sector collapse and its impact upon the national economy is still plaguing us today, as it has totally obliterated any understanding of the economic problem.
The snowball continued into late 2008, but the media became preoccupied, if not thrilled, with the glitz and drama of the bank liquidity crisis in September and thus once again the true story went unreported. The much over hyped story of the liquidity crisis triggered a net 2300 point fall on the DJIA by late November. And then, of course, the rapid nature of that fall was more delightful drama for the news media, and resulted in a national paranoia that further reduced consumer spending.
While the stock market fallout of the highly spun liquidity crisis was real it could not have translated into further unemployment for some months afterward, and yet the unemployment rate had already climbed to 7.1% in December, on its way to 8.5% by the end of January. Thus, virtually all of the nation's unemployment has stemmed from the abrupt rise and then crash of housing demand, and the tremors it sent up the economic chain.
Unfortunately, the banks' liquidity 'crisis' of September 2008 is pegged as the beginning of our economic problems by virtually all of the pundits, those same men and women who sat by for almost four years without a word out of them, much less demands for Congressional investigations, about the ominous rise in housing demand; ominous because it wasn't justified by any sound fundamentals. And thus, it is little surprising that the public is so misinformed on the mechanics of the economic downfall. As bad as all of that was and is, it got worse.
It was the malpractice and malfeasance of the banks that produced the housing bubble and bust, which is the very ground zero of this recession/depression. Then, shockingly enough, as if they had been the victims instead of the culprits, the federal government was manipulated by fear mongering to shore up and thus save those very banks, who had shot themselves in the foot while in the process of robbing most of America.
The failure of our media and economists to highlight the real injuries to our economy, immediately after the housing collapse in 2007, explains why Americans are clueless about how to fix it. Sadly, it is also why Washington has failed. We weren't focused on the structural damage which the 'big event' caused to our economy, and have since been throwing money out the window with no real understanding of what it will, and what it won't, do.
While the sub-prime mortgage scandal was heavily covered in the media, it was limited to primarily three effects. By far and away the story was about the 'moving' emotional hardships of people losing their homes, and the bubble effect on the nation's home prices, and then, once the banking crisis story broke, that it had produced the 'toxic' assets beleaguering the banks. What else was left to report? [he wrote sarcastically]
In the summer of 2007, the surge of home foreclosures swamped the housing market. The surge, like a hidden tsunami that surfaces only just before it lands ashore, drowned all but the luckiest souls along the beach and coast. The media took little notice of the collapse in the home construction industry, unless it was laced with derision towards builders, wrongly portraying them as one of the culprits in the housing bubble. If not identified explicitly, home builders were indicted implicitly with repeated references to 'over' building or 'speculation.'
I should note that I sympathize with those who lost their homes; they too are victims, having been used by the bankers to generate revenue at any costs to others. Derision is due those in the media and government who presented such a narrow and shallow view of the sub-prime scandal's fallout. The media only reported on those who'd lost what had been their house of a few years, and perhaps a little equity, if they had put any money down, yet there in the same neighborhood was a greater victim of the sub-prime scandal, the construction worker who now had no work, no income.
The real tragedy of the sub-prime scandal was that it set up the housing market for a devastating crash which brought the home construction industry to a halt, an industry that has been traditionally one of the major employment sectors of our economy. A sharp rise in home sales from 2002-2006 was generated by fraudulent lending in the mortgage banking industry. That increase in demand, though a national phenomenon, appeared every where simply as a localized spurt in home sales. Local builders built to meet demand, a normal, desirable and very important free market function.
'Over' building only exists when supply well exceeds demand. During this period, that wasn't the case, at all. The fact that home prices continued to rise right up until the collapse indicates that builders were barely meeting demand, and had they not built, prices would have risen more sharply. The over supply of homes that arose, once the fraudulent demand had eroded through mortgage defaults, was very wrongly described in the media as 'over' building. And from that very poor analysis, victims were labeled as perpetrators.
Another misconception, fostered by the media, has resulted from the very subjective use of the word 'speculation.' The term 'spec' house was once a common means to differentiate from the once predominate activity of building commissioned houses. Imagine today the inability, short of building your own house, to have the option of buying a newly constructed house.
In the U.S., population growth, the obsolescence of older homes and the mid-20th century entry by the government to provide a measured means for securing long term financing, all brought about an industry that produced homes more quickly and cost effectively than through the process of individually commissioned and custom homes. Virtually every new home built in the U.S. over the last half century has been a 'spec' house. Today, the 'spec' house is the norm and expected means of new housing in the U.S. and it is not a term alleging risky or imprudent business activity.
Of course, the attribution of speculation was meant as an accusation, implying a greediness worthy of contempt, and it worked well in the climate of the moment where pundits were given to blaming everyone so that their own shortcomings were not as readily apparent. As commented above, given a market where demand is not being manipulated fraudulently, home building is neither more or less economically risky than any other business.
It's impossible for this writer not to point out the hypocrisy of crying "speculation!" Virtually every business venture is speculation, and, most certainly, investing in a stock position, which pays no dividends, and has a precarious p/e ratio, is the epitome of risky speculation. Who among those casting stones at residential housing construction, an industry with a very sound and conservative business plan, can deny having invested in the stock market, the world's largest speculative bubble, where one speculates not on the fundamentals but on the actions of other speculators?
The defensiveness is partly personal, but also meant to remove the tinted shades that may have prevented some clear vision. It was clear to me in late 2007 and early 2008 that the A-bomb that had been dropped on the home/residential construction industry was going to ripple through the economy. How could it not? We'd just managed to un-employ hundreds of thousands of workers in each and every state in a short time frame.
And, in fact, that's exactly what happened; consumer spending took a big hit, even as early as December, 2007, economic indicators showed its effects. It soon trickled up the chain to the wholesalers, and then to the manufacturers, and then to their suppliers. And as each one of them was hit, they cut back their work forces, deepening the effects.
The economic structural damage which underlies this recession is the collapse of one of its major employment sectors, the home construction industry. When the President and the Democrats pushed through a so called 'stimulus' package, it was also clear to me that it was not going to either aid the hardest hit Americans or provide a solid fix for the economy. Yes, you heard them say it was going to be used for 'shovel' ready projects. Well, girls and boys, the President needs to take a course in construction. The projects for which the money was intended are primarily public projects, most often transportation projects.
Institutional type construction, which includes most government projects, is performed by a unique industry. Road builders do not employ framers, or roofers, or plumbers, etc. And, too, it is an industry that was amongst the last to feel any effects of the ill economy, as its primary client, government, was also the last to feel any effects, if any at all.
Thus an industry who was among the least impacted of all industries was given an enormous gift, a windfall of job contracts. And most likely the skew created in the demand/supply triggered a significant price increase for the road and bridge work that resulted. If you already have over a year's worth of work contracted, you're likely either not going to bid on the next contract let or you'll bid high. You're certainly not going to go out and purchase highly expensive equipment to create new work teams, because the windfall isn't going to last.
It is unlikely that there was any significant cross over of labor from one industry to the other. To have added any great numbers of unskilled labor would have meant finding additional skilled supervisors and managers and, as mentioned above, incurring capital outlays for new equipment. Most likely a company simply distributed their work over a longer schedule, and scheduled on weekends, as I observed several times, likely paying overtime to workers who were never unemployed, while the true victims of the recession go without work.
That analysis appears to have been spot on, reading today's assessment of the stimulus results (a year later); a sample of which is this excerpt from an AP story of January 11, 2010:
____________________________________________
Even within the construction industry, which stood to benefit most from transportation money, the AP's analysis found there was nearly no connection between stimulus money and the number of construction workers hired or fired since Congress passed the recovery program. The effect was so small, one economist compared it to trying to move the Empire State Building by pushing against it.
"As a policy tool for creating jobs, this doesn't seem to have much bite," said Emory University economist Thomas Smith, who supported the stimulus and reviewed AP's analysis. "In terms of creating jobs, it doesn't seem like it's created very many. It may well be employing lots of people but those two things are very different."
____________________________________________
I didn't watch the President's 'State of the Union' address; I only perused the text of the speech and glanced at some of the headlines of news stories. From the coverage, it seems it lacked anything that could be called news. I had no reason to believe the speech would reveal a new awareness by the President.
My pessimistic tone might indicate a pre-election leaning against Mr. Obama, quite the opposite is true. In fact, I had significant expectations for the new administration to be able to grasp the economic Rubic's cube and take appropriate measures, my only real concern was how quickly and how directly.
Borrowing on the 1992 campaign jab , "It's the economy, stupid," I want to shout out my window, "It's the home construction industry collapse, stu . . . , I mean, Mr. President."
-RLee
Monday, January 25, 2010
The Health Care Market: There Isn't One
The impetus here is a story out of New York City, which may not make the news in other parts of the country, yet it is relevant to every American. In fact, the genus of the report, that of health care insurers and the health care industry engaged in price negotiations is no longer really news, but topical given the attention to our over all health care system in Congress.
The details this time have a major health care insurer, UnitedHealthcare, insisting that it be notified within 24 hours of the hospital admitting a patient. The hospitals, Continuum Health Partners, are a group of five in New York, including Beth Israel Medical Center. The insurer sees a necessity of having its case managers involved quickly, and to enforce it upon the hospitals they want a violation to incur a stiff penalty, a 50% reduction in their reimbursements for that patient's care.
There is an enormous elephant in the room, can you find it? Seeing this elephant requires the clearing of one's head and removing all prior hardened opinions of who is to blame for a health care system too costly for much of America. It also requires you to go to a wide angle view and summon your basic understanding of economics, our market based economy and the notion of competition.
With that said, many may jump to think I am going to reinforce the Republican talking points about competition among health care insurers; not here, though I will say they have it part right. And, that I am speaking ill of the health care system at all, one might presume I will reinforce the Democratic talking points of gravitating towards a single payer system with the goal of providing health care to all citizens equitably; again, not here, though I admire and share their goal.
Since adulthood I have decried aspects of our health care system. I could see that health care costs were rising at rates far in excess of other consumer goods and services. Just as compound interest is heralded for its taking a small sum and enlarging it many times over with the passing years, it took no great foresight to see that if health care costs continued to rise at rates double that of inflation it would grow as a percentage of our total expenditures to a point that would be devastating to individuals and our national economy.
After college, I was for the first time dealing with the business side of my own health care. I worked for a small company that provided health insurance coverage to its employees, and my understanding of insurance was that it reimbursed you for covered expenses.
After a session with a doctor I paid the bill before leaving the office, and soon thereafter I submitted a claim to the insurer (my employer had forms for such). However, the collusion of healthcare providers and insurers was already well underway having created a system that almost mandated consumers pay only their deductible, and therefore not know or even sense the true revenue being taken in by healthcare providers.
Despite my having paid my bill in full, the doctor's office (any office I visited) would then submit a claim to my insurer, who would comply and pay the doctor without my authority, confirmation or even knowledge. No matter how hard and often I tried to have them cease that exercise, they continued to submit requests for payments to the insurer despite my having a zero balance on their books.
I then attempted to withhold my insurance information from any newly visited office, but they always insisted on having it, promising me that it would not be used, but that wasn't the case. There was a clear message being sent, that the providers were NOT going to be putting the actual bills in front of the consumers. Hiding these prices, while couched in being a consumer friendly service, clearly behaves as a strategy to allow prices to continue to escalate not hindered by consumer awareness.
Whether it was a conscientious act on the part of practitioners or, for some, just following the industry trend, the creation of a systemic administrative link between the two entities was further distancing the consumer from knowing, let alone caring about, the costs of their health care, essentially eliminating any degree of value judgment for the services provided.
I'd had enough economics to know the fundamentals of markets, and it wasn't any small secret that our nation was based on private capital, free enterprise, and the most fundamental element to it all was market competition. That competition was so important to the welfare of our nation, a Republican no less than Theodore Roosevelt, had championed placing restrictions on free enterprise in those instances where the existence of effective competition was threatened by a monopoly on supply.
Competition is a consumer making a choice using a cost/benefit analysis, however rudimentary, from goods or services offered by separate providers. Those collective choices steer providers toward offering goods and services at levels of quality and price which best meet the needs of consumers.
Thus, for competition to exist there are two elements necessary, sufficient options from separate providers and the presence of consumer value judgments. The anti-trust laws of Roosevelt's time were aimed at restoring to certain markets the former of those two. It was well past his time when developments in industry and later, U.S. government policies, began to undermine competition within the health care industry.
The rapid development of company financed health insurance was viewed and welcomed as a great social good, and it was, at the time and for many years afterward. At the dawn of this new system, prices were still the result of a true market based economy. As more money was made available for health care and the element of consumer value judgments were removed, the pressures that would normally limit price increases had virtually vanished.
Without the element of a consumer value judgment (on the cost) providers no longer felt the pressure of competition and costs containment was now a minor concern. In fact, as the consumer was relieved of costs, a provider's only concern was the consumer's perception of benefits, a combination which encouraged unnecessary expenditures.
Now enter the health care supply industry. Like the health care providers, those who supplied them now had consumers whom were not cost conscience. No longer did the town's four doctors have to compete, like shoe store owners and bakeries. Their patients did not ask about the price of procedures and operations, because they no longer had to make that value judgment; unlike before when they would have inquired about charges and weighed their alternatives.
There was now plenty of money to spend by providers on supplies and equipment. Make a mental inventory of all the items you see in your physician's office and at a hospital on your next visit. The industry which provides those items has enjoyed a free ride out of the media spot light. They didn't create the malformed health care economy from which they've reaped great profits, but we must recognize their portion of the cost picture; if we can do that then perhaps we'll better understand what has limited our ability to provide reasonably priced and good health care to our citizens.
Had we implemented measures, 30 years ago, to address the competition that was missing from our health care, with all the gusto of a Teddy Roosevelt, our costs would be, at least, 50% less than what we incur today, with equal or better quality and be affordable for virtually every citizen. That estimate hasn't been derived through any formula; there aren't any numbers one can plug in for the psychological pressure of keeping your costs down in order to keep your business. It's a gut feeling, stemming from my belief in the promise of competition, just as so many put their faith in compound interest.
-RLee
The details this time have a major health care insurer, UnitedHealthcare, insisting that it be notified within 24 hours of the hospital admitting a patient. The hospitals, Continuum Health Partners, are a group of five in New York, including Beth Israel Medical Center. The insurer sees a necessity of having its case managers involved quickly, and to enforce it upon the hospitals they want a violation to incur a stiff penalty, a 50% reduction in their reimbursements for that patient's care.
There is an enormous elephant in the room, can you find it? Seeing this elephant requires the clearing of one's head and removing all prior hardened opinions of who is to blame for a health care system too costly for much of America. It also requires you to go to a wide angle view and summon your basic understanding of economics, our market based economy and the notion of competition.
With that said, many may jump to think I am going to reinforce the Republican talking points about competition among health care insurers; not here, though I will say they have it part right. And, that I am speaking ill of the health care system at all, one might presume I will reinforce the Democratic talking points of gravitating towards a single payer system with the goal of providing health care to all citizens equitably; again, not here, though I admire and share their goal.
Since adulthood I have decried aspects of our health care system. I could see that health care costs were rising at rates far in excess of other consumer goods and services. Just as compound interest is heralded for its taking a small sum and enlarging it many times over with the passing years, it took no great foresight to see that if health care costs continued to rise at rates double that of inflation it would grow as a percentage of our total expenditures to a point that would be devastating to individuals and our national economy.
After college, I was for the first time dealing with the business side of my own health care. I worked for a small company that provided health insurance coverage to its employees, and my understanding of insurance was that it reimbursed you for covered expenses.
After a session with a doctor I paid the bill before leaving the office, and soon thereafter I submitted a claim to the insurer (my employer had forms for such). However, the collusion of healthcare providers and insurers was already well underway having created a system that almost mandated consumers pay only their deductible, and therefore not know or even sense the true revenue being taken in by healthcare providers.
Despite my having paid my bill in full, the doctor's office (any office I visited) would then submit a claim to my insurer, who would comply and pay the doctor without my authority, confirmation or even knowledge. No matter how hard and often I tried to have them cease that exercise, they continued to submit requests for payments to the insurer despite my having a zero balance on their books.
I then attempted to withhold my insurance information from any newly visited office, but they always insisted on having it, promising me that it would not be used, but that wasn't the case. There was a clear message being sent, that the providers were NOT going to be putting the actual bills in front of the consumers. Hiding these prices, while couched in being a consumer friendly service, clearly behaves as a strategy to allow prices to continue to escalate not hindered by consumer awareness.
Whether it was a conscientious act on the part of practitioners or, for some, just following the industry trend, the creation of a systemic administrative link between the two entities was further distancing the consumer from knowing, let alone caring about, the costs of their health care, essentially eliminating any degree of value judgment for the services provided.
I'd had enough economics to know the fundamentals of markets, and it wasn't any small secret that our nation was based on private capital, free enterprise, and the most fundamental element to it all was market competition. That competition was so important to the welfare of our nation, a Republican no less than Theodore Roosevelt, had championed placing restrictions on free enterprise in those instances where the existence of effective competition was threatened by a monopoly on supply.
Competition is a consumer making a choice using a cost/benefit analysis, however rudimentary, from goods or services offered by separate providers. Those collective choices steer providers toward offering goods and services at levels of quality and price which best meet the needs of consumers.
Thus, for competition to exist there are two elements necessary, sufficient options from separate providers and the presence of consumer value judgments. The anti-trust laws of Roosevelt's time were aimed at restoring to certain markets the former of those two. It was well past his time when developments in industry and later, U.S. government policies, began to undermine competition within the health care industry.
The rapid development of company financed health insurance was viewed and welcomed as a great social good, and it was, at the time and for many years afterward. At the dawn of this new system, prices were still the result of a true market based economy. As more money was made available for health care and the element of consumer value judgments were removed, the pressures that would normally limit price increases had virtually vanished.
Without the element of a consumer value judgment (on the cost) providers no longer felt the pressure of competition and costs containment was now a minor concern. In fact, as the consumer was relieved of costs, a provider's only concern was the consumer's perception of benefits, a combination which encouraged unnecessary expenditures.
Now enter the health care supply industry. Like the health care providers, those who supplied them now had consumers whom were not cost conscience. No longer did the town's four doctors have to compete, like shoe store owners and bakeries. Their patients did not ask about the price of procedures and operations, because they no longer had to make that value judgment; unlike before when they would have inquired about charges and weighed their alternatives.
There was now plenty of money to spend by providers on supplies and equipment. Make a mental inventory of all the items you see in your physician's office and at a hospital on your next visit. The industry which provides those items has enjoyed a free ride out of the media spot light. They didn't create the malformed health care economy from which they've reaped great profits, but we must recognize their portion of the cost picture; if we can do that then perhaps we'll better understand what has limited our ability to provide reasonably priced and good health care to our citizens.
Had we implemented measures, 30 years ago, to address the competition that was missing from our health care, with all the gusto of a Teddy Roosevelt, our costs would be, at least, 50% less than what we incur today, with equal or better quality and be affordable for virtually every citizen. That estimate hasn't been derived through any formula; there aren't any numbers one can plug in for the psychological pressure of keeping your costs down in order to keep your business. It's a gut feeling, stemming from my belief in the promise of competition, just as so many put their faith in compound interest.
-RLee
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