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:

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

"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

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