I’m not one to link and run, but sometimes there is really nothing to add. I think that everyone should read what Obi wan has to say about the bailout situation.
I’m sure there are many who would not see this as good news, but when I read about contracting credit in the lives of everyday people I was thrilled. Because I expect that many people would not share my positive outlook at this news, let me share why I think this is a good thing for our country.
Brad Rock is the chairman of the Smithtown bank and also chairman of the American Bankers Association. According to the article he views the situation with a similarly positive perspective as I do.
“With marginal lenders in trouble, we have more people than ever coming to us for loans,” said Brad Rock. “So all of a sudden, we can be much pickier in deciding what loans to make and how much to lend. . .
“Now people are going to actually have to have a job to get a loan and they are going to have to make installment payments that are already higher per dollar borrowed than they used to be,” he said, arguing that the debt-fueled prosperity of the bubble years was unsustainable.
The real cause of this crisis is not simply that bankers on Wall Street got greedy, it is that so many of us have become greedy as well. We insist on taking the largest loans we can get and living as far out over the edge of our incomes as possible.
The winners so far are the Brad Rocks of America, the bankers who have emerged unscathed, their capital intact and with enough retained earnings to support lending, on their terms. A residential mortgage from Bank of Smithtown requires 20 percent down and clear evidence of adequate income to repay the loan, as well as a good record of paying down debt. . .
“Now many of these lenders are gone,” Mr. Rock said, “and the small-business borrowers are coming to us, and we are doing good old-fashioned underwriting, and the result is that fewer people are getting loans.”
I see no evidence that the Bank of Smithtown has made substantial changes to their practices. What they are doing now, holding borrowers to higher standards, is the same thing they were doing before when it was easier for many people to get a loan elsewhere. They survived the boom times while playing it smart and now they are thriving in the bust because they stuck to sound practices when so many others were taking risks.
The article is focused on businesses thriving who played it safe, but the same is generally true of individuals. American Express may be lowering the credit limits of half their customers, but they are also raising the credit limits on the other half. Those who have exercised discipline in their spending habits when credit was easy to come by are the least likely to feel a credit crunch now.
I do not mean to suggest that there are not casualties to this credit crunch, but I am confident that the benefits of a nation where people are more aware of the need for wise financial decisions and less prone to living beyond their means outweigh the losses of good people who are having a hard time getting started (which, I suspect, account for the largest portion of those who are feeling the crunch through no fault of their own).
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.
With bailouts such as Bear Stearns and Fannie Mae/Freddie Mac there could not be a better time for the Peter G. Peterson Foundation to come along with the backing of $1 Billion (from Peter G. Peterson) and the insider expertise of David Walker (former Comptroller General of the United States) to help citizens and policy makers to take a serious and informed look at the financial crisis that is coming our way from decades of reckless spending and fair promises from our government. Actually there is one better time that they could have come along – before our Republican Congress decided to test the political power of acting like tax-cut and spend Democrats. We are at least 10 years further from a solid fiscal footing thanks to their reckless spending.
This is not a compete surprise, but when I saw the news that the government is going to bailout Fannie Mae and Freddie Mac I was disappointed at that one more proof that we don’t really live in a free market. I might not be so disappointed if our government leaders were to approach this as a way to ease the economy back (since it’s going backwards anyway) rather than fooling themselves (and many citizens) into thinking that somehow this takeover bailout could move the economy forwards.
Somewhere along the line every person in this country needs to accept the first rule of economics 101: the economy will contract sometimes – plan for it, prepare for it, and accept the truth when it happens. Only by accepting that truth will we have any hope of not making things worse by shutting our eyes and avoiding reality.
As we drove through heavy smoke that seemed to be blowing north from the fire in Draper last night, our girls started asking about firefighters and how we (as a society) support them. It got me thinking about firefighters as a service of government. Although they are every bit as legitimate and important a service as police, I rarely think about the Fire Department in relation to government.
Since my brain was chewing on the subject it apparently decided to throw me a what-if to consider. I wanted to share here to see what others thought.
Virtually every structure is insuread against fire – this means that insurance companies are highly interested in the work of firefighters. Would it make sense to privatize the fire department by having insurance companies be in charge of funding them? If so, what kinds of changes in service would you expect to see?
I’m not trying to suggest that our fire departments need to be privatized or that they should be. I just wanted to get some feedback on that random idea.
Back in May I asked a question about attitudes regarding compensation for elected officials at the city level. I promised to write my conclusions in a followup and now I find that I never did that. My conclusion was that the issue deserved study in Lehi as the city grows so fast, that it should be done with lots of public input, and that the original request seemed very generous, especially for the mayor. Today I read in the Daily Herald:
Lehi officials are looking for public input on a proposal to increase their own salaries as much as several hundred dollars a month.
In May, Mayor Howard Johnson asked the council to triple his salary to a total of $51,000 a year, and to give themselves a raise too. At that time Council members instructed staff to form a committee of former council members to give a recommendation on salaries.
On Tuesday, Lehi city attorney Ken Rushton said the committee had met and had recommended raising Council salaries from $750 to $1,000 a month, and the mayor’s salary from $1,000 a month to $1,500.
In addition, the committee felt Council members should receive another $200 a month as a travel expense stipend, and the mayor an additional $500 per month.
So far I think the council has done a good job of addressing this issue. They have avoided any attempt to push for the large increases that the mayor suggested and in fact there is at least one council member who even believes that they should be reimbursed for travel rather than having stipends. (I would go one step further and have reimbursements with a cap – per trip and/or per month or year.) They have also done a good job so far of making the process open and inviting public input.
Often lost in discussions about ethics legislation and lobbyist influence is the fact that there is a legitimate value that lobbyists can bring to the legislative process. I’m in favor of making solid rules of ethics for legislators and lobbyists without removing lobbyists altogether. With that perspective, I really enjoyed this Deseret News story about a lobbyist who carefully limits the money he spends on legislators.
While some lobbyists often take lawmakers to Utah Jazz games — all good seats are over $50 — or to expensive restaurants, {Paul} Rogers is one of a growing number of lobbyists who works in more modest means, even if they have the wherewithal to spend more on legislators.
“My firm, Tetris, has season Jazz tickets. We use those for ourselves and our families. I’m finding that many legislators don’t want those (more expensive gifts),” Rogers said.
One thing I have always believed is that buying a meal for a legislator as a way to sit down with them is generally a perfectly reasonable “gift” for a lobbyist to give a legislator. If our $50 cap on anonymous gift is encouraging lobbyists and legislators to limit their financial back-scratching to such meals then I am pleased with that rule.
I would not consider this to be sufficient evidence that we do not need any more ethics legislation, but I do see it as a good sign that it is possible to have reasonable restrictions to discourage excessive use of gifts for legislators.
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.
The Legislature approved funds and loose guidelines for merit pay for teachers earlier this year. I really like the first news I have heard about the issue since then:
Each district and charter school that wanted money had to come up with its own plan following broad guidelines lawmakers set earlier this year. . . .
Lawmakers have referred to the law that provided $20 million for performance pay as an experiment they hope will inform future efforts to create a long-term, statewide system. . . .
Some states have taken years to create pay-for-performance plans, but Utah districts and charters had only a few months after lawmakers passed a bill appropriating the $20 million earlier this year.
I think the Legislature was exactly right to avoid the temptation (and it probably was tempting) to try to create a central, defined system for merit pay. Instead they put out the money and let the districts provide dozens of differnt plans for how to use the money – within general guidelines. The result will be that within a couple of years we will have found a dozen approaches that are not very effective and a few approaches that look very promising.
Odds are that if the Legislature had spent money studying the issue for years to come up with The One True Approach™ they would have spent as much money as they end up losing on the plans that will end up failing from this experiement. The real difference is that they will have a higher chance of identifying good ways to implement merit pay.
Anyone who grumbles that $20 Million is not enough can be reminded that this is seed money that can show us the best aproaches and it can be increased in the future as appropriate to foster the most effective merit pay schemes.