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.

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:

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

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:
____________________________________________

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

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 Bernanke Reappointment: Failure Is Clearly An Option

President Obama:   Mr. Bernanke, you failed to raise alarms of a housing bubble; your agency failed to perform three of its four major duties; those failures have resulted in massive amounts of hardships for your countrymen, but I have great confidence in your abilities and want you to stay on for another four years as head of the Federal Reserve Board.

If coaching a college football team is on one end of the job expectations spectrum, surely the elected or appointed job positions in Washington, D.C. are on the other.  As much as we decry the acute attention and pressure placed on the former by well heeled alumni, we could certainly use a few more likewise ardent supporters in Congress and the White House who show up every week expecting their team to win or, at least, to make a good effort.  Exactly what game has the President been watching the last few years?

In its own words the Federal Reserve Board's duties are summarized as

• conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
• supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
• maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
• providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system

If President Obama has meaningful cause to retain Ben Bernanke as the Chairman of the Federal Reserve Board, then, he needs to reveal it to the Senate before they do their Constitutional duty in this appointment process.  Thus far, the President's only justification for renewing his appointment has consisted of his personal confidence in Mr. Bernanke 's ability and noting that he performed well in the heat of the banking credit crisis.  Apparently, the President hasn't had much experience conducting job performance reviews.

For all of the 'in touch' rhetoric which comes out of the Democratic Party, its titular leader seems indifferent to the vast number of Americans who have been truly economically devastated by the irresponsible, and what should be criminalized, behavior of the financial professionals in this country.  It was the responsibility of the Federal Reserve Board to keep tabs on economic indicators and assess their impact on our nation's welfare. One of those indicators, most certainly, would have been home sales.  The abnormal rise in home sales not justified by any rise in population or per-capita prosperity should surely have given pause to any economist, let alone those who are charged with monitoring the banking and economic sectors.

Any early examination of an inordinate rise in home sales in 2003 could have revealed its causation and the very risky and ill practices composing it.  Likely there were many other indicators amid all of the financial and economic statistics which are compiled by and reported to the Fed regularly.  It is unfathomable that there was no one of good conscience at the Fed shouting loud and long about abnormal and suspicious growth in the housing sector and questioning the underlying soundness of it.  The Fed should have been lobbying Congress hard for legislation which would plug the hole in the type of mortgage lending which is the root of our economic debacle.

It is true that Mr. Bernanke did not come onto the Board until late 2005 ¹ and become Chairman in early 2006, facts which might cause many to lay the full brunt of their wrath upon Alan Greenspan, his predecessor.  Yet, Mr. Bernanke, at least in theory, should have been well qualified for the position, able to immediately take the helm of an agency charged with tremendously important regulatory duties.  He should have been very knowledgeable of all aspects of the nation's economic system and of all the factors which could have even contributed minor tremors to the country's financial stability, let alone those that could bring the whole banking system to a stand still, cause unprecedented home foreclosures, and give us the country's most severe recession.

I ridicule the 'right' for its ridicule of the 'intelligentsia', but in this instance, we need to accept that Mr. Bernanke, and perhaps his predecessor, lack the spirit and assertiveness required to police the nation's banking system.  It could well be that the functions of monetary policy and that of regulating and monitoring financial institutions, and too, observing economic indicators for warning signs, should be placed in separate hands.  Let the big headed economists dicker over the minutia of monetary theories to determine where to set the Fed's interest rates, but put a football coach in to run the Fed's regulatory team.  There, we need a more 'get the job done' mentality.

-RLee

Notes:
1] An update: I've since learned that Ben Bernanke was on the Federal Reserve Board from 2002 until 2005, then did a short stint as Chairman of President Bush's Council of Economic Advisors, before becoming Chairman of the FRB on February 1, 2006.  This only furthers the argument against his reappointment.

Right Decision, Bad Result? The Supremes Let Loose Corporate Campaign Spending

Yes, the Supreme Court's 5-4 decision (Citizens United v. Federal Election Commission) to overturn restrictions on spending by corporations in election campaigns bites, but lets examine closely why we fear this decision.  However, first a few words about the rancor of how the decision came about.  It, indeed, was a reversal of an earlier Court's ruling, and, yes, the Court can be justly accused of 'activism' for intentionally broadening the scope of the case before it, and that's bad why?

Activism and breaking with judicial precedence are generally only viewed as sins when the viewer thinks the outcome is wrong.  As to precedence, if a jurist believes a law governing the case before it conflicts with the essence of the Constitution, it strikes me as disingenuous to issue a decision which conflicts with your belief in order to be consistent with prior Courts' interpretation.

The label of 'activism' must be applied with degrees.  First, merely reversing a prior Court's ruling is not activism.  And while, the action of the Court to broaden the scope of the issue before it is open to criticism, it is not outside the purview of the Court to look at the totality of a law at issue.   Should the court be limited to merely determining whether the law at issue was intended to apply to the subject of the case?

If plaintiff's counsel failed to raise the issue of the law's Constitutionality, contesting only its applicability to his client, should the Court withhold its opinion on the law's validity?   If so, it could find itself ruling against the plaintiff, holding that they were covered under the law, albeit a law that it, by majority, believes violates the Constitution.   Merely broadening a plaintiff's complaint isn't a cause for alarm when there is a direct and legitimate Constitutional issue involved.

To calm those who now presume me to be a toad of the 'right', I'll give a real example of overreaching by the Court.  In Bush v. Gore, the Court truly went outside its purview, accepting a case which had no valid Constitutional issues and which otherwise was clearly a matter reserved to the states and Congress.  That instance went beyond the usual cry of activism by legislating from the bench, to a clear violation of the Constitution by the Court itself.

Had there been a higher and unbiased Court, it would have unanimously reversed those results.  The Bush v. Gore decision stands as an indictment of our electoral processes, which have produced the Presidents and Senators who have filled the seats of our highest Court.   The majority's convoluted rationale should be examined and lamented by legal scholars for a very long time.

Now, back to the Citizens United decision and its reception.  After a bit of crowing about how it happened, the brainstorming about how to veer around it will ensue.  But, first, the 'liberals' and 'progressives' and consumer rights advocates should broaden their view and look at the bigger picture:  Why are you (we) so afraid?

Politicians will fawn all over the electorate as their next beauty pageant approaches with the all too common exhortation of, "the American people are too intelligent to be fooled by [insert adversary's position]."   Yep, yep, yep, they can't be fooled by the messages of charlatans and special interests.  Oh, bunk; give it up.  Admit it, the average American is exceedingly gullible. You wouldn't put any important decision in your life in the hands of a stranger of average intellect.  And yet, you will insist to your dieing breath that our nation needs all the democracy we can get.

Like it or not, the decision by the Court was the right decision in view of our Constitution, to protect a fundamental right incorporated into it.  The government should not be keeping tabs on who is saying what and how often, at least that is what we keep telling the Chinese.  If we fear the ability of big business to use, or merely threaten to use, its fiscal power to advocate for or against candidates, we then, certainly, must understand the influence which political advertisements have on the outcomes of our elections.

So, wake up.  Perhaps it is finally time to recognize the ill manner of the process we use to select those to whom we hand over a trillion dollar budget and the right to make, and enforce upon us, laws which control our lives, and who are as well, in theory, charged with keeping us and the country out of harm's way.

I can see the reasoning of the Supreme Court's majority in this decision, striking down a provision of the McCain-Feingold bill, and yet had I been in Congress at the time that legislation was passed, I would have supported its passage.  But, while I see it as a violation of the First Amendment, I view it as a lessor evil to mitigate the ongoing ills of our political and electoral processes, which are unlikely to be remedied by other, and more suitable, methods.

As we have allowed democracy to run amok in the republic, the fate of the country has been placed much more in the hands of the common citizen than was ever intended by Franklin, Hamilton, Jefferson and Madison.  Therefore, we are now biennially faced with the difficult task of educating many who do not wish to be educated, but who have the same level of input into selecting the whole of our leadership as others.   And, indeed, this populace is not only 'allowed' this privilege, but are badgered into exercising it. 

Today we elect almost every government official; no doubt, the product of so many years of political corruption, but has the 'fix' been any better than the former complaint.  The vast majority of voters have no serious knowledge of any but a few of the candidates listed on their ballot.   They go to the polls to vote in the mayoral, gubernatorial, presidential or congressional races, essentially the celebrity races.  Do they know anything meaningful of the attorney general candidates, or that guy running for the judgeship?  And, how much do they really know about the gubernatorial candidates?  One guy looks pretty good; another drives a truck; she's for this, he's for that.

If you found yourself in need of an operation to save your life, would you hire a surgeon for your operation the same way we hire officials to spend our money and control our lives?  Put it out there for a vote, letting anyone who wants to operate on you get listed on the ballot and next election the community will choose for you a surgeon.  Yes, Mack 'The Knife' can, with enough advertising, get enough votes to be your surgeon. 

The Constitution originally placed the election of the Senate in the hands of the several state legislatures. It placed the election of the President and Vice-President in the hands of a body of electors, who were to be, as well, chosen by the state legislatures.  The House of Representatives was the only federal body whose members were to be elected by the people directly.

The Senate was intended to be a body of higher wisdom and insulated from the vacillating whims of the electorate through longer terms and election by a smaller body, presumably of more enlightened people.   Indeed, James Madison had wanted even longer terms for Senators, as he had seen a direct correlation between longer senate terms and more prudent governing among the state governments during the several years after independence had been won.

While it may be dangerous to place the selection of decision makers in the hands of too few people, it is equally or more dangerous to place that selection in the hands of too many, especially where most are ill informed.  This latter circumstance puts political control into the hands of those who have the most resources to put towards influencing that electorate.

Today, our ability to detect undue influence, payoffs and other graft, is far greater than ever before.  Thus the dangers of a limited democracy are less threatening now than those of the far flung democracy we now experience, where voters are bombarded with shrill and superficial messages, often, if not mostly, containing intentionally misleading statements and allegations or outright lies.   I haven't any references at hand, but I'm willing to venture that there is a striking correlation between campaign expenditures and election outcomes in these 'celebrity' races, i.e. he/she who buys the most media exposure wins the election.    

A smaller electoral body would no doubt contain mostly those who have staunch leanings and predetermined positions, yet it allows for a better opportunity to have meaningful dialogue on a candidate's ideas and the issues he/she intend to address.  It greatly improves the likelihood of attracting men and women of higher intellect, those who would otherwise eschew vying for these positions in our current caustic election process.  Today, a Franklin, Jefferson, Madison or Hamilton would be rebuffed by the electorate, if they even dared attempt to venture a contribution.   Too often, I see the founding fathers' names used in support of a political argument today by those who in fact would have repudiated the same figures in their own time.

Defenders of our excessive democratization often grasp at straws when confronted on this subject, lacking sufficient cogent rebuttals.  The favorite one used to distract from the reality of today is to note an insufficiency in voting rights written into the original Constitution.  That argument is presumably intended to discredit the framers of the Constitution as a source of wisdom on this topic, a tact that is rather hypocritical.

While the mores of the times relegated men to a higher legal status than women, the Constitution itself did not.  While the circumstances of the time relegated most people of color to a lower legal status than others, the Constitution itself did not.  These are facts little recognized by those not given to letting thought and facts get in the way of their opinions.   And, yet, had those discriminating aspects been actually specified within the Constitution, their presence would still not pertain to the point at hand.

For the argument being made isn't one intended to favor one group at the expense of another.   Had the framers had in mind that the right to vote would be limited to males, and then only to male property owners, they still recognized that a consensus of an uninformed or ill informed population would render bad government, and they were indeed correct; just look around.

The 'left', or anyone who fears increased political influence by big business, is rightfully alarmed by this Court's decision, but do they have the guts to acknowledge the real reason for that fear?

-RLee

Much Ado About Voting: The 'Kennedy' Seat

The much ballyhooed victory for Scott Brown in the Massachusetts Senate race is significant for the obvious reason, it increases, by one vote (effectively two), the strength of the Republican caucus in the U.S. Senate. Yet, contrary to the widespread reporting from all sides, it is not 'the' pivotal political moment in the Senate, and neither is it an indicator of a shift in the political winds.

It has been a very potent tool of the political 'right' to portray the Democratic caucus membership of 60 senators as the end of democracy, thereby stirring up their base and giving centrist voters a practical reason to lean right next time they find themselves marking a ballot. The truth is, there were not 60 Democrats in the Senate, only 58, officially, and fewer still when attempting to legislate on 'hot' issues.  To claim the Dems had a filibuster proof majority was pompous (and ludicrous) on the part of Democrats and an egregious and phony scare tactic by Republicans.

If the Dems had managed unanimity in their own ranks (an extraordinarily difficult task), they would have to gain the support of the two unaffiliated (independent) senators.  Those two senators caucus with the 58 Democrats when electing leadership. One of the independents, Bernie Sanders of Vermont, is certainly more closely aligned with the 'left' on most issues, likely more so than many of the Democrats.  However, the other independent, Joe Lieberman of Connecticut, who once claimed to be and was elected under the banner of the Democratic Party, long ago showed his arch conservative stripes on social and military issues, bearing to the 'left' only on an occasional economic issue. 

Thus, losing a seat at this time to the Republicans has no more impact on the legislative process than at any other time.   Yes, the Democrats may have to compromise even more to woo another vote to the health care legislation; but is the setback any greater than each of the ones they have already incurred?  If they had held a solid 60 vote ideological majority they never would have had to make the highly publicized compromises (payoffs) in wooing Ben Nelson, Mary Landrieu, and Joe Lieberman, and likely many others before those.   It's almost worth seeing the Democrats lose the 'Kennedy' seat in order to get less bellyaching from the 'right' about the imaginary 60 vote boogeyman.

As far as it being an indicator of shifting political leanings in the electorate, it ain't.  The 2008 election was an aberration, not a sea change in political leanings.  It combined two critical elements favorable to the 'left' and it's a wonder that it didn't wipe the Republican party off the political map. The sitting Republican administration was a failure by anyone's assessment, varying only by degrees. The alternative party put up an African-American as its nominee, a first for any major political party. Thus, there was a surge of independent voters turning out to voice their discontent over the GOP's eight year reign, and African-Americans turned out in large numbers, as any minority group will when one of their own is at the top of the ballot.

What happened in Massachusetts isn't a turn so much as it is a return to normal.  But as that return combines with the normal shift away from the winning party nationally it appears more drastic than is actually the case.   A comparison to other recent elections in Massachusetts reveals that the 2.23 million votes on Tuesday was similar to the 2.08 million casts in the gubernatorial election of 2002, when another Republican, Mitt Romney, was elected Governor.  Thus, portraying the election of a Republican in Massachusetts as some seismic political shift is absurd.  It, of course, is a perception Republicans want to foster, for a sizable portion of the electorate likes to be on the loudest bandwagon. 

Comparing Tuesday's Senate race results to the 2008 presidential results provides nothing in the way of meaningful trend analysis.  That it was the seat held by a Kennedy for so many years certainly added to the drama; it made the event seem much more of a tidal change than was actually the case. It was entertaining political theater, but not much more than that.

-RLee