Tag: New York Times

News Fluff/Flash

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Apparently the nation is very interested that Obama Predicts a Florida Victory in tonight’s BCS National Championship game – just like we were dying to know whether Obama likes the BCS system. I don’t mean to pick on these stories, but they serve as good examples of some of the thoughts I am having as I read Breaking the News. What our President-elect thinks of collegiate sports is suddenly very important despite the fact that we have no proof the Obama is any more an expert on the subject than I am. Obama is not claiming to be an expert, he’s simply offering an opinion when the question is asked because that’s what any fan would do. This really is not a problem as far as what Obama is doing, but it is indicative of a problem that is widespread through the media – all too often what gets published is fluff even when there are important issues that we should be informed about. In fact, even when the important issues are covered the result is often fluff.

Because everyone knows who Obama is it may intrigue many to know his opinions on college sports just as a matter of curiosity – nothing wrong with that. The problem is when virtually everything gets the same level of treatment, whether it’s his guess on the outcome of tonight’s game or his plan for stimulating the economy and cutting the waste out of the federal government. To a large degree, our press today had tried to reduce important offices, such as the presidency, to something that is much easier to understand and report on – celebrity.

That seems to be indicative of the major problem that is spreading through media (old and new) – there is a tendancy to publish what is easy to cover in order to make sure that something is published. I have am not immune to that urge myself. It is very difficult to maintain any influence in the conversation, or keep the attention of any regular readers, if you cannot have some level of consistency in publishing. (Note that consistency and frequency are not the same thing, although they can influence each other.) Those who write primarily for themselves may take the time to really cover an important subject with some depth. (Those tend to be my favorite kind of articles.) Those who write in any noticable degree for an audience will feel the pull to get anything out, and thus will feel the urge to look for something manageable or dependable – often fluff.

Tags media, New York Times, Obama, thoughts

culture

One Thing Is Sure

I have enjoyed a number of discussions about politics and our current economic crisis over this Thanksgiving break. During those discussions my father-in-law made the observation that those who advocate for allowing this crisis to run its course without government intervention need to consider the implications of that course and ask themselves if they are prepared for the extremes of lawlessness and social breakdown that could accompany a deep depression.

Call me a fatalist, but I am among those who does not believe that our current approach of large and poorly applied bailouts is going to save us from such a depression. It might delay it slightly but I see us falling into the same (or worse) deep depression with these bailouts as I would expect without them. The proper solution to this crisis is to identify and return to solid financial ground. We have to abandon the practices of excessive risk and inattention to the rules of sound business that we have been ignoring for so long. Paul Krigman has a few thoughts in this direction that we should consider.

Whether we we pursue our present bailout course or not, whether we experience a deep depression wihtint he next two years or not (I just invented that timeframe up off the top of my head), there is one thing that is absolutely sure – we all should ask ourselves if we are ready for the social breakdown and lawlessness that can always potentially occur. Whether we ever face such a situation or not it is always smart to be prepared for it.

Tags economics, government, New York Times, prepare

National

Support But Don’t Trust

I am a strong supporter of our government. I obey the laws (even little ones like speed limits and seat belt laws) and pay my taxes without complaint and without seeking any tricks to minimize those taxes. Supporting the government, however, does not mean that I trust the government when they ask for expanded powers. I oppose the efforts of courts, congress, or the President to increase their powers in any area of society. In the financial sector that lack of trust has proven to be a sound policy recently. As September turned to October I wrote six different times opposing the bailout. All over the news and in many blogs people were saying that we should hold our noses and accept that plan because it was necessary. Now I am finding it ironic that some those same people who support the government managing more of our lives are unhappy as they see the mismanagement of the "necessary" bailout funds.

It seems that Congress is the special group in the world that can convince us to let them have more of our money based on how poorly they use it. Perot Charts reports that Theresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York testified testified in support of a plan that would "modify" 401K’s. Components of the plan include the following:

- All workers would receive a $600 annual inflation-adjusted subsidy from the U.S, government but would be required to invest 5 percent of their pay into a guaranteed retirement account which would be invested in government bonds that would accrue 3 percent per year.
- The current system of providing tax breaks on 401(k) contributions and earnings would be eliminated.

This is extremely frightening considering that the 5% that you would be required to "invest" (at only 3% return) on a $25,000 salary is $1250 For that you would receive a $600 subsidy. This might appear helpful to those who make very little money, but the benefits of their savings are insignificant compared to their needs at retirement and come at a very high price for everyone who just lost their tax savings that encourage them to save in a 401K, not to mention the disincentive that this would be to business who have provided tax free matching for 401K accounts which do much better than 3% returns 90% of the time. Overall savings in the country would decline under this plan.

Is it any wonder that my support of our government does not include my trust. We should all support our government no matter who is in power, but support means that we watch them instead of trusting them. It means that we hold our leaders accountable for what they do. For me, it means that every chance I get I will encourage them to give power back to the people and the states. I like that 10th amendment – too bad it gets worse treatment than the other 26.

Tags amendments, connections, Constitution, economics, government, media, money, New York Times

culture

Curbing Innovation

When talking about a $700 Billion intervention it only makes sense that taxpayers and members of Congress would want that money to go where it’s needed rather than to propping up salaries of $50 Million/year to executives of failing companies.

But Wall Street, its lobbyists and trade groups are waging a feverish lobbying campaign to try to fight compensation curbs. Pay restrictions, they say, would sap incentives to hard work and innovation, and hurt the financial sector and the American economy. (emphasis mine)

It seems to me that incentives to work hard and be innovative got us into this mess – I think we would want to sap those incentives for the time being.

Tags bailout, government, money, New York Times

National

We Must Do Better

There has been no shortage of opposition to the hastily proposed $700 Billion Gift Card (Chris Suellentrop provides a nice rundown) – unfortunately little of the real opposition comes from members of Congress. Our own Senator Bennett has flipped from being wary to being supportive because, as every elected official knows, foolish action is better than rational inaction where re-election is concerned.

We are lucky right now to have a divided government – at least there is an initial reaction of shock from the Democrats at the lack of thought that has gone into the initial proposal. Democrats want to add in a few more dubious provisions, but at least they also want to provide some oversight in the process as well. The Republican leadership does not want any delay:

"When there’s a fire in your kitchen threatening to burn down your home, you don’t want someone stopping the firefighters on the way and demanding they hand out smoke detectors first or lecturing you about the hazards of keeping paint in the basement," Senator Mitch McConnell of Kentucky, the Republican leader, said in a speech on the Senate floor. "You want them to put out the fire before it burns down your home and everything you’ve saved for your whole life."

That analogy fits the goals of the administrations and their MO but it misses the actual situation. The truth is that a few houses have already burned down and others are smoldering in the neighborhood. In response, this fire department is proposing to break the dam above the town to quickly douse the neighborhood without considering the extra flood damage that may result and the fact that their action could weaken or destroy properties that are not currently in danger. They are so busy trying to look heroic by taking drastic action that they have failed to consider any minimal rational restraint in their proposal.

For those who are not afflicted by D.C. Myopia, the holes in the plan are gaping (Jay Evensen and Jason Linkins) and there are many better options being presented in short order. Paul Krugman astutely asks:

The premise of the Paulson plan– though never stated bluntly — is that these assets are hugely underpriced, so that Uncle Sam can buy them at prices that help the financial industry a lot, without big losses for taxpayers. Are you prepared to bet $700 billion on that premise?

I’m not – I wouldn’t bet $10 on that.

Sebastian Mallaby is generous enough to illustrate two alternative proposals by academics that carry lower risks and higher potential returns for taxpayers.

Within hours of the Treasury announcement Friday, economists had proposed preferable alternatives. Their core insight is that it is better to boost the banking system by increasing its capital than by reducing its loans. Given a fatter capital cushion, banks would have time to dispose of the bad loans in an orderly fashion. Taxpayers would be spared the experience of wandering into a bad-loan bazaar and being ripped off by every merchant.

Raghuram Rajan and Luigi Zingales of the University of Chicago suggest ways to force the banks to raise capital without tapping the taxpayers. First, the government should tell banks to cancel all dividend payments. . . Second, the government should tell all healthy banks to issue new equity. Again, banks resist doing this because they don’t want to signal weakness. . . A government order could cut through these obstacles.

Meanwhile, Charles Calomiris of Columbia University and Douglas Elmendorf of the Brookings Institution have offered versions of another idea. The government should help not by buying banks’ bad loans but by buying equity stakes in the banks themselves. Whereas it’s horribly complicated to value bad loans, banks have share prices you can look up in seconds . . . The share prices of banks that recovered would rise, compensating taxpayers for losses on their stakes in the banks that eventually went under.

Mallaby also points out the difference between the Paulson Proposal and the Resolution Trust Corporation that it might be compared to:

The RTC collected and eventually sold off loans made by thrifts that had gone bust. The administration proposes to buy up bad loans before the lenders go bust. This difference raises several questions.

The first is whether the bailout is necessary. In 1989, there was no choice. The federal government insured the thrifts, so when they failed, the feds were left holding their loans; the RTC’s job was simply to get rid of them. But in buying bad loans before banks fail, the Bush administration would be signing up for a financial war of choice.

Despite the widespread opposition to this knee-jerk reaction in Washington (I’ve only linked to 5 examples) I fear that the bill that gets passed all too quickly will look almost exactly like the one Secetary Paulson proposed. I think government is the only institution that can consistently be efficient where they should be deliberative and inefficient in all other things.

Please take the time to contact your Congressional representatives to encourage them to slow down on this and avoid a few of the gaping potholes before them.

Tags bailout, change congress, Deseret News, economics, fiscal restraint, government, New York Times, Salt Lake Tribune

culture National

Something’s in the Air

Some of the people I work with like to dabble in trading stocks. They keep tabs on the stock market and they like to talk about their experiences. Through all the turmoil of the last few months their comments have indicated a challenging, but not incomprehensible market situation – until today. Suddenly this morning everyone was talking about the state of the markets and the failure (or rescue) of large financial institutions. The talk was not limited to those who follow the markets closely and the common refrain was "how much am I at risk and what should I do going forward?"

The turmoil of the last week has been so visible and surprising that people who have not been emotionally connected to the markets are feeling apprehensive about the market situation. It is an interesting and subtle shift to observe. (I don’t claim to be immune to this – I have felt concern for the markets since long before yesterday.) I stumbled across an article in the New York Times that seems to capture the feelings I heard expressed today.

. . . in this market, financial advisers agreed on Wednesday, consumers need to become their own chief investment officers, even when it comes to something as simple as finding a place to put their cash.

Taking primary responsibility for our own choices and situation rather than relying too heavily on the expertise or actions of someone else is always a prudent course of action.

Though I have been concerned about the economic position of our country, I remain optimistic that my family will be fine and also that our nation can weather this storm even if it is not always comfortable. I take comfort in the fact that the crisis is not (yet) universal throughout our financial system – it is primarily an issue with credit based financial institutions. The article tries to illustrate the difference between the types of assets at risk and those that are still safe by saying:

A money market deposit account . . . is an interest-bearing bank account that is insured . . . If you had been putting your money into a money market account because you wanted to avoid all risk, then you should consider the money market deposit accounts and other accounts insured by the F.D.I.C., like certificates of deposit and regular checking and savings accounts.

So long as enough liquid assets remain in the system (meaning those with assets do not freeze their money in panic) then the engine that is our economy may sputter and cough, but it should not seize up. Businesses may find it difficult to expand right now, but most of them should be able to maintain their status-quo while we weather this storm.

Tags economics, money, New York Times

culture National

American Debt is No Accident

Post author By David
Post date August 19, 2008
7 Comments on American Debt is No Accident

The fact that Americans have allowed themselves to be led down the rosy path of false economic hopes for a rosy tomorrow – where we can borrow now for anything we want with no thought for the fact that we are paying more by mortgaging our futures all the time – is not surprising. What caught my attention are the actual statistics of this fiscal malpractice and the stark proof that our financial institutions are trying to profit by keeping us individually on the brink of financial ruin.

Since the early 1980s, the value of home equity loans outstanding has ballooned to more than $1 trillion from $1 billion . . .

However, what has been a highly lucrative business for banks has become a disaster for many borrowers, who are falling behind on their payments at near record levels and could lose their homes.

The portion of people who have home equity lines more than 30 days past due stands 55 percent above its average since the American Bankers Association began tracking it around 1990; delinquencies on home equity loans are 45 percent higher. Hundreds of thousands are delinquent . . .

None of this would have been possible without a conscious effort by lenders, who have spent billions of dollars in advertising to change the language of home loans and with it Americans’ attitudes toward debt.

Aside from the precise numbers listed above, none of that information should surprise anyone with their eyes open to the economic situation of the country.

It might seem hard to believe, but not long ago people borrowed money to buy a home with the expectation that they would eventually pay off the debt. A mortgage had a finish line. . .

The newly mortgage-free even used to throw mortgage-burning parties to celebrate their financial freedom. . .

Now the idea of paying off the mortgage and owning a home outright is disappearing. . . banks now enable homeowners to keep borrowing. In fact, they encourage it. . .

As a result, the United States has become a nation of half-home owners. For the first time since World War II, the portion of home value that Americans own has fallen to less than 50 percent. In the 1980s, that figure was 70 percent. (emphasis added)

Let me translate that – we now own less of our own homes as a nation than we did 20 years ago. We have sold majority interest in the most valuable piece of property we have to our bankers for the sake of extra stuff which, while often nice to have, does not provide any of life’s necessities (shelter being a necessity while wave-runners, trampolines, nice furniture, and timeshares are not).

If the majority of our citizenry acts that way with their own money, it should not be surprising that our government does the same with public funds. (In the last 40 years, the only time our deficit spending has even tapered off was from 1998 to 2000.) Our public financial blinders have brought us to the attention of Nouriel Roubini:

After analyzing the markets that collapsed in the ’90s, Roubini set out to determine which country’s economy would be the next to succumb to the same pressures. His surprising answer: the United States’. “The United States,” Roubini remembers thinking, “looked like the biggest emerging market of all.” Of course, the United States wasn’t an emerging market; it was (and still is) the largest economy in the world. But Roubini was unnerved by what he saw in the U.S. economy, in particular its 2004 current-account deficit of $600 billion. He began writing extensively about the dangers of that deficit and then branched out, researching the various effects of the credit boom — including the biggest housing bubble in the nation’s history — that began after the Federal Reserve cut rates to close to zero in 2003. Roubini became convinced that the housing bubble was going to pop.

By late 2004 he had started to write about a “nightmare hard landing scenario for the United States.”

Anyone who is uncomfortable with the fallout of private homeowners beginning to default on their mortgages is going to be aghast at the results of the government declaring bankruptcy – and unless we change our thinking we’re going to have to declare bankruptcy – already we are faced with a debt that we are going to hate paying off. If we kept paying our current taxes and the government did nothing but pay debt at 0% interest it would take four years to pay it off and if we kept paying our mandatory spending programs it would take 10 years.

It’s about time our nation put both our public and our private financial houses in order.

Tags economics, fiscal restraint, government, national debt, New York Times

National technology

Ambitious Pronouncement

I’ve already stated that I believe the goal of using only energy from clean, renewable sources is attainable but I think the Green Prophet might be getting ahead of himself.

{Al Gore} said the goal of producing all of the nation’s electricity from “renewable energy and truly clean, carbon-free sources” within 10 years is not some farfetched vision, although he said it would require fundamental changes in political thinking and personal expectations.

“This goal is achievable, affordable and transformative.”

I would love to be proven wrong on this, but I’m skeptical of the 10 year time-frame. The only real question in my mind is, will Barack Obama endorse this idea before I publish this post?

I guess my personal expectations are among those that he predicted would require fundamental changes.

Tags Al Gore, economics, energy, environment, New York Times

National

Raising Fiscal Awareness

Considering the importance of importance of fiscal policy it seems to evade any serious media coverage in favor of more exciting topics. Ross Perot has launched perotcharts.com to make the information accessible to people. Former Comptroller General, David Walker, has been lecturing around the country about the cliff we are speeding towards and now Peter G. Peterson is pledging to spend $1 Billion in a media campaign to raise public awareness of the issue. (Remember how much a Billion is?)

Ready and waiting as people start to recognize the trainwreck ahead, Downsize D.C. has a campaign which helps people let their congressional leaders know that they are aware of this issue. I think many members of congress are aware of this, but they don’t want to address it because there are no easy answers or short soundbites.

Tags economics, fiscal restraint, government, money, New York Times

culture National

Promote Job Creation

Bob Herbert and I often differ in our views but I really like what he said about economic stimulus as is being discussed in D.C.

There is no question that some kind of stimulus package geared to the needs of ordinary Americans is in order. But that won’t begin to solve the fundamental problem.

Good jobs at good wages — lots of them, growing like spring flowers in an endlessly fertile field — is the absolutely essential basis for a thriving American economy and a broad-based rise in standards of living.

Forget all the CNBC chatter about Fed policy and bargain stocks. For ordinary Americans, jobs are the be-all and end-all. And an America awash in new jobs will require a political environment that respects and rewards work and aggressively pursues creative policies designed to radically expand employment.

I’d start with a broad program to rebuild the American infrastructure. This would have the dual benefit of putting large numbers of people to work and answering a crying need. The infrastructure is in sorry shape. New Orleans comes to mind, and the tragic bridge collapse in Minneapolis. (emphasis added)

What is a political environment that respects and rewards work? The answer is – one where we don’t perpetually give money to people who don’t work (I’m talking welfare here, not pensions or social security as those are supposed to be earned benefits). What we currently have is a policy that discourages people from taking work that is “beneath them.” If I am receiving unemployment I lose the benefits if I take work that pays me less than I’m worth and thus it is in my interest to turn down temporary or lower paying work so long as I can receive those benefits.

Even unemployment could be considered an earned benefit. People on government welfare can stay there as long as they are willing to live at that level of poverty – their health care is free to them even if it’s somewhat limited, and they never have to worry about going hungry even if Food Stamps don’t provide any luxuries. For those who lack the skills to get a job that pays noticeably more than welfare hands them, there is no incentive to go work when staying home gives them the same economic standard of living.

Herbert is right, economic stimulus should come in the form of work programs not unlike the WPA which would provide income and training for those in need of new or improved skills. As the economy grew the program could be terminated (again) but until then people would have work and the nation would be improved in whatever ways were deemed necessary at the time. This would be much better than a one time tax rebate or extension of unemployment benefits. It would be more valuable than manipulating bankruptcy laws to save a few people from foreclosure. On-the-job training would even be more effective than paying people to seek new or improved skills in an academic setting.

Tags economics, New York Times