Republican governors on the stimulus

Three of our nation’s most interesting governors happen to be Republican, and were among the most prominent of that party to speak out over the weekend on the controversy du jour – to wit, whether the president’s stimulus bill is likely to help rescue our economy.

Gov. Arnold Schwarzenegger, laden with the curse of the old Proposition 13 legislation that gutted the California economy so many years ago, had just won a significant victory in the matter of his own state’s budget. Gutsy California legislators had managed a compromise that included some tax increases and some spending cuts, driving away the prospect of California’s imminent demise.

The good governor said that he believes President Obama “needs team players,” and that any money the other governors wanted to turn down, well, he’d be happy to accept it for his state.

Schwarzenegger, unlike some, is not rumored to be thinking about running for President in 2012 because, simply stated, he can’t, because he's not a natural-born citizen. Much to the regret of Sen. Orrin Hatch and perhaps even Mr. Schwarzenegger himself. The Republicans' most obvious ticket out of oblivion is out of reach.

Rumored to be very much in reach, on the other hand, is Gov. Bobby Jindal, wunderkind of Louisiana, who has made very strong statements against the stimulus. I’d call them “trophy statements,” for, as New Orleans Mayor Ray Nagin suggested, it seems likely that the governor is choosing his words very deliberately because he is an up-and-coming possibility for the Republican nomination in 2012 and wants to keep the base happy.

Jindal said he will not accept any funds designated to extend unemployment benefits; he explained that “I represent the taxpayers of Louisiana.” Of course, the Louisiana legislature can override his refusal, which he knows, so if and when the funds ultimately come to the aid of his unemployed citizens he won’t have too much to account for.

Gov. Charlie Crist of Florida, on the other hand, actually met with President Obama when the president arrived to promote his stimulus plan. Not only did Crist make it clear that he expected the plan to help Florida, he made it clear why: Tens of thousands of jobs and funds for local and state transportation projects.

Crist had an outlook somewhat different from Jindal’s: “I represent the people of Florida,” he said, making it clear that this includes the poor.

On cable TV a stockmarket guru named Rick Santelli delivered a rant (why do so many of these money guys shout?) in which he proclaimed that the president’s plan for the mortgage crisis would only help people who had bought more house than they could afford.

“It’s not fair!” he shouted, that taxpayers should be asked to help a neighbor who had “an extra bathroom.” (I’m not kidding; you can google it.)

Well, this is a road we’ve been down before.

America has the commitment to fairness in its DNA. We care. The exception may prove the rule, as shown by Jack Kennedy's remark, in a context long forgotten by me, that “life’s not fair.”

But “fair” has nothing to do with how we handle a national crisis, because the other essential quality in our national DNA is “fix it!”

If your neighbor’s house is aflame and you are called upon to help, as I’ve said before, it’s obviously in your interest to bring your water hose to try to put out the fire. And now I add this: Do you really want to stand there calculating the cost of your water bill before you turn on your hose?

The repeated claims by opponents of the administration that it’s all about helping people who should “never have bought houses they couldn’t afford” are unsustainable.
People who are losing or about to lose their homes include hard-working folks who have lost their jobs; just a couple of months out of work can mean getting behind on the mortgage payment. There are people hit with huge medical bills that cause them to fall behind.

Many of the people who are losing their homes are veterans of the Iraq and Afghanistan wars, who came home to find there were no jobs available, or who came home disabled and unable to work. What about them?

And there are people who believed, when they bought a home when times were good, that they’d be able to refinance in a few years because the home’s value would increase, not to worry, no problem, and they believed the lender who sold them that bill of goods.

After all, you want to believe your lender, who is the only expert available. And who was there to tell you that everything was going to come crashing down?

There is another strand of American DNA: Charity. Taking care of one’s neighbor. We always stand together in a crisis.

We are proud of the way we stood together after 9/11. In every community in America people come together to help families who have experienced tragedy, to assist a dying child, to salute a fallen hero.

Let’s not be talked down by the cynics; let’s keep on doing the American thing.

Unleash the dogs!

Back in the sixties, a political friend of mine – Irish-American Chicago politics background – told me that whenever you hear a politician worry in public about something happening, you can be certain that he is working his very heart out behind the scenes to make it happen.

Which brings me to Dick Cheney.

“Who will rid me of this meddlesome priest?” The question asked by England’s Henry II about Thomas a Becket almost a millennium ago comes to mind unbidden but irresistibly.

In case you missed it, Cheney gave an interview to Politico in which he said, essentially, that if the Obama administration didn’t conduct matters of security exactly the same way as Bush had, we would be struck again on our homeland by terrorists. He offered chemical, biological and/or nuclear attacks as possibilities.

What on earth could be the purpose in trying to scare us to death again? It’s a rhetorical tactic left over from the campaign of 2004, but why? Dick Cheney and his ideas were disavowed by his own party way before the recent election made it clear that it’s time to move on.

Who knows? Maybe he just wants to be loved.

For the good of the country, it’s time for Cheney to follow the example of his old boss and go quietly into that good night. Head back to the ranch in Wyoming, or Texas. Wherever.

With friends like him, the American people don’t need enemies.
* * *
In other developments, I am so furious with Tom Daschle that I can hardly see straight. How dared he be so cavalier as to think the errors of his judgment would be overlooked? And what on earth are accountants for, anyway?

His failure to act honorably helped deliver a humiliating blow to the Obama administration.

He knew last June that the unpaid tax matter could be a problem, and yes, there might be perfectly acceptable explanations for his situation. But he KNEW it was there when he was vetted by the Obama people and he didn’t tell them until last month.

Tom Daschle has been around long enough to know that unpaid taxes can be a problem for any potential cabinet member – heaven knows, we’ve seen enough go down in flames in the past. What was he thinking?

Add to that the extraordinary amount of income – almost $5 million -- he had received as a consultant since he left the Senate. “Consulting” is a more discreet form of lobbying than Jack Abramoff and friends practiced. It’s legal, but it raises questions and, to make matters worse, he received some of those consulting fees from companies in the medical community.

The dogs of war were let loose: Not just the usual puppies, like John Cornyn (R-TX) and John Ensign (R-NV), but then the pitbull Grover Norquist, the anti-tax guy, emerged from whatever kennel he has been hiding in since he and Abramoff fell out of favor a couple of years back.

(Norquist was a big player in the White House during the Republican years; most famously, he has said he wants to reduce taxes in order to shrink government to a size small enough to flush down the bathtub drain. D’you think he’d get rid of the White House, too?)

So here they were, yapping and snarling again – just like the good old days. As if they never had a scandal in the world . . .

Not only did Daschle embarrass the administration and Obama personally, but in the matter of choosing a Secretary of Health and Human Services he consumed precious time and perhaps even damaged the chances of success for health care reform.

Thanks, Tom.
* * *
Finally, while we’re talking about such things, remember the old adage mentioned here before: the definition of insanity is doing the same thing over and over again expecting a different result.

Along those lines, President Obama’s repeated efforts to work with the Republicans in Congress — traveling up to the Capitol to meet with the Republican caucus, meeting with individual Republican leaders, inviting them for cocktails at the White House, or to watch the Super Bowl game; yielding on one point after another in the stimulus package only to have them reject it again and again — all came to naught.

Toward the end of last week, though, he proved he hasn’t lost his mind. Describing the Republican opposition, he said, “Then you get the argument, well, this is not a stimulus bill, this is a spending bill. What do you think a stimulus is? That’s the whole point. No, seriously. That’s the point!”

So here we are, after years of Republican tax cuts that helped get us into this mess, with the Republican leadership in both houses now insisting that only tax cuts will get us out of it. They have claimed they want bipartisanship in Washington, and yet to date only three Republicans — none in the House, all in the Senate — are willing to support the legislation that even most of them acknowledge will provide jobs and tax relief to the American people and small businesses.

Another bit of psychology comes to mind: How many psychiatrists does it take to change a light bulb? Only one, but the light bulb has to really want to change.

Priorities

President-elect Barack Obama spoke to the American people last week about the urgency of passing an economic recovery plan. He explained in some detail what can be done and should be done and what will likely be the outcome if it’s not done.

Not surprisingly, there were objections by one or another member of Congress to this or that particular of his plan – too much, too little, too late, too soon -- because that’s how politics works. Still, I have a hard time understanding why, when Barack Obama won the election so handily, when the populace clearly wants dramatic measures taken in order to right the ship of state, we have members of Congress fussing about this tax cut or that bailout instead of getting down to business.

The feeling I had after listening to Obama’s speech about his plan was that if ever there was a time for Americans to write their congressmen it is now. I sent off a letter to Barton, Cornyn and Hutchison as follows:

I urge you to pass President-Elect Barack Obama's American Recovery and Reinvestment Plan immediately. Do not allow the bill to be weakened by delaying tactics on either side of the aisle. We need a big and bold plan of strategic, substantial and sustained public investment to create jobs now, generate clean energy, modernize our infrastructure and expand access to health care and education. Our economy is hemorrhaging and urgent action is needed. Thank you.

And, you know what? It’s not just about our economy. It’s about world peace and about our national security.

The world outside our borders is blowing up, and we need to get this matter of our economy under control so that soon-to-be President Obama can re-direct his attention to places like Israel and Gaza, Pakistan, India, Iraq and Iran, because he is our best hope, if there is hope, and we need him now.

* * *

Over the course of the last several years, some 8,000 rockets have been fired into Israel from Gaza, destroying homes, injuring and killing innocent people and driving families to bomb-shelter living. The world has taken little notice. A “cease fire” between Israel and Hamas, the Islamic militants who took over Gaza by force in a bloody coup against the Palestinian Authority a while back, ended just before Christmas. Hamas fired some 80 rockets into Israel that day and continued the bombardment daily thereafter -- and Israeli parents and children returned to the bomb-shelters.

When Israel finally said “Enough!” and fought back, Hamas deliberately drew deadly fire on its fellow citizens, with predictable results. Now there was outrage in the international community.

There’s a problem here, I think. And someone needs to deal with it. The United States is the one force that has any hope of mediating a solution in this dreadfully complex situation, but we can’t do it while we’re fighting our own economic demons.

***

We are in a situation the likes of which none of us has ever experienced. We don’t have a model for resolving the mixture of economic and international crises in which we find ourselves in this year 2009, so the best option is to trust those whom, after all, we have elected.

And tell those members of Congress to get on board.

What kind of man would break his word?

Just imagine yourself back a few years, back when a job wasn’t that hard to find and you could usually have a choice of job offers. Imagine that you chose to work for a local company that offered good benefits — health coverage, sick pay, paid holidaysand vacation time, plus a retirement plan.

Way back in the day, of course, most employers offered these things. But let’s say you chose a job that appealed to you because of the benefits.

So you started work, settled in, got married, bought a house, started raising kids, became a contributing member of your community.

In that way-back day, a job usually lasted until retirement age if you wanted it to, and so you worked hard, saved a little money, and when the time came you retired, ready to do a little traveling, visit the grandkids, all that good stuff.

But what if you then discovered that your old company now has financial troubles and needs a loan to make it through the next few months, but the bank won’t do it unless you give back a big chunk of your hard-earned benefits?

The way I see it, those benefits were promised as part of your compensation; you accepted that job based in part on those promises and your wages and benefits were earned over many years of hard work. To demand years later that you give any of them back makes a mockery of those promises.

There is a small group of Republican senators in Washington who would seem to have no respect for promises or the contracts that contain them. Despite pleas from their own President, despite widely acknowledged dire consequences if the American auto manufacturers fail for want of a $15 billion loan agreed to by the House of Representatives and the President of the United States, those senators have blocked passage of the enabling legislation in the Senate.

Why would they put their own party — and President — in position to be blamed for an economic catastrophe that would make previous bailouts look like small potatoes?

Here’s the deal they offer: If the auto companies will break their promises to their workers, who happen to be members of the United Auto Workers union, these honorable men will agree to allow the companies to borrow money to get through the next three or four months.

Generous to a fault, you say?

Notwithstanding that the union has, over the past four difficult years, made significant wage and benefit concessions to help the auto manufacturers stay profitable, the senators want more this time around.

They already got the unions to accept workers’ wages being reduced to that paid workers in foreign-owned non-union plants (located, interestingly, in the states represented by said senators); the unions already agreed to accept reductions in pension benefits. But the senators now want those reductions put in place this coming year (drill here! drill now!).

According to a report in The New York Times,

In a statement Thursday night, the union said it was "prepared to agree that any restructuring plan should ensure that the wages and benefits of workers at the domestic automakers should be competitive with those paid by the foreign transplants. But we also recognized that this would take time to work out and implement" using programs like buyouts and early retirement offers to bring in new workers at lower rates.

Of course the whole gambit is dishonest.

First of all, while the senators have every right to try to impose conditions on the auto manufacturers who need the loan, they have absolutely no business, so far as I can see, inserting themselves into a company-union relationship. Labor negotiations should involve management and labor, period.

Second, let’s face it: In the end, it’s all about breaking up the union. As even the famously understated pundit David Gergen said recently, there has always been “a tension” between unions and the Republican party, but this is going way too far.

Why, I wanted to know, do Republicans hate unions? I thought it was as simple as wanting cheaper labor. The anti-UAW folks are fond of insisting that auto workers are paid over $70 an hour. That would be, well, a lie.

Here’s how they figure it: Take all the wages paid and add the cost to the company of all the benefits, and then add the cost of all the pensions and benefits being paid to retirees and divide by the number of active workers. Presto.

So it can’t be about making current labor cheaper, though a case could certainly be made that they want to get rid of workers’ pensions and benefits.

U.S. Senators are paid a decent salary — over $188,000 plus benefits that include state of the art health care — and are entitled to full retirement at age 62 after five years of service. Nice.

Of course, they are much more important than factory workers.

No, I really do think it’s all about getting rid of those pesky unions.

Now, you could argue that union power has been on the wane for several years, but I’d point out that American wages have been on the wane for the same period; make of that what you like.

A very knowledgeable political historian friend insists it’s more complex, as follows: Unions are a significant force in the Democratic party, notably providing fundraising and manpower during elections, and thus help the Democrats win; ergo, if unions can be eliminated the Republicans have a better chance.

I wonder.

Whatever may be motivating those who would get rid of unions, we now know this: Promises don’t mean a thing to them.

The Big Three Million

The hot topic over the last week or two has been the proposal to offer some kind of bailout to the “Big Three” American auto manufacturers — Ford, General Motors and Chrysler — all of whom, most immediately General Motors, are struggling to survive the current economic crisis.

Now, I don’t know about you, but the American automobile, whatever its breed, has been near and dear to my heart since I ran with the ‘rodders back in high school — back in the day when I could tell you the make and model of everything coming down the pike.

There were certain rules that I still take as sacrosanct, too: You might drive a Ford family car, but your old pickup was always a Chevy and the van conversion had to be a Dodge.

Suffice to say those days are past; I began to lose track somewhere between the MG-TD and the Lamborghini, and finally gave up trying when the Japanese started building pickup trucks.

Thirty years ago it made good sense to want an American vehicle; no matter the buzz that Mercedes might be better engineered or that a Volkswagen or Renault got better mileage, it just seemed practical to avoid the possibility of being stranded for days in some remote village without ready access to foreign parts.

Then the economy got all global and now foreign cars are made right here in America, but old habits die hard and I confess to a visceral loyalty to the American originals. So it matters to me, for that reason if no other, what happens to our automobile industry.

The possibilities being debated among members of Congress and opined upon by an array of media pundits range from government loans to bankruptcy, with a few hard-hearted suggestions that nothing at all be done because “they brought it upon themselves.”

Maybe so. But who deserves punishment? Certainly not the almost three million Americans whose jobs will likely be lost if just General Motors is allowed to die!

It’s said that one in every five American jobs would be affected: after all, it’s not just the assembly-line workers in Detroit, but also the companies that make the components, the truck drivers who transport the new cars all around the country, and the salespeople and mechanics in the dealerships; consider, too, the graphic designers and video producers who create the new car advertisements, the Madison avenue types who sell them and the media that publish them . . . you get the picture. And it’s not pretty.

So it may be tempting to say “It’s their problem,” but it’s much bigger than that.

If your neighbor lights his roof on fire by burning leaves on a windy day, you could say it’s his problem, too. But that doesn’t mean you refuse to call the fire department just because it would cost taxpayer money to run that red truck over and put out the fire.

You call the fire department because, among other really good reasons, that fire just might spread to your house and then it is definitely your problem.

Interestingly, folks who favor bankruptcy as a solution almost always seem to get around to the appeal of “tearing up union contracts,” which makes me wonder whether they are more interested in helping to rescue the industry or in getting rid of unions. These same folks also complain about the pensions retired workers are receiving.

What is it with these people? Pension envy?

If someone is to be punished it could be management, it could be labor, it could even be the public that demanded what Detroit was selling. For years – well, just about forever, the big three resisted safety changes that cost money, increasing gas mileage – which would cost money, building smaller cars, and so on, and yes, they did bring it on themselves.

But that just makes a case for spreading the punishment around, to borrow a phrase, rather than socking it to workers and the economy that workers support.

We can provide bridge loans to the auto industry but with serious conditions: we can require that they retool ASAP to build fuel-efficient cars and hybrids; we can demand that the unions concede some of their hard-won benefits and that managers and stockholders take serious cuts in pay.

I heard one of the opponents of a bailout cry, “But it will cost money! Where are we supposed to get the money?” Maybe from the same place that’s providing the money for the war in Iraq? Where did we get the money for the AIG bailout?

In fact, the main bailout proposal being talked about would get the money from the $700 billion already on hand for economic relief, and would amount to only 4% of those funds.

But it won’t be enough just to help the industry get past the present crisis; we can do more to help rebuild and stabilize this hub of American manufacturing, at the same time working to reduce our dependence on oil. Robert Goodman, a professor of environmental design writing for the New York Times, suggests that

As part of its loan package, the government should insist on the development of "transportmaker business plans" from the car companies, with specific timelines for developing more fuel-efficient cars. The companies should also provide detailed plans to transform some of their factories into research and manufacturing centers for the development of light-rail cars and high-speed trains and buses. (In some cases, these could run on existing tracks and on the median strips of Interstate highways; in others, entirely new lanes and tracks would be built.) . . .

During World War II, the auto companies converted their factories to build not only military trucks and jeeps, but also airplanes, weapons, tanks and other vehicles. Ford’s Willow Run plant built thousands of B-24 bombers, becoming the world’s biggest bomber plant.

The research and production capacity that the car companies built during the 20th century could be adapted for the needs of the 21st.

Sounds like a plan to me!

The past is prologue?

If some of our more partisan conservative commentators are to be believed, Bill Clinton and his administration are to blame for anything and everything that’s gone wrong in this country since 1992, including bin Laden, Katrina, the subprime mess, and of course the present worldwide economic crisis.

In the latter cases, the line of thought seems to be that the present crisis can be traced back to the Community Reinvestment Act, originally passed in 1977 and furthered during the Clinton administration. Here’s how it’s described on the Federal Reserve’s own web site:

The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. … The regulation was … most recently amended in August 2005.

The gist always seems to be that lending to minorities is what got us here, and that it is all the fault of the Clinton administration.

Just a couple of observations: First, you’ll note that the Community Reinvestment Act required banks to operate in a way “consistent with safe and sound operations.” And, second (and perhaps most significant), the Act was “most recently amended in August 2005.”

Daniel Gross, writing in the October 7, 2008 issue of Newsweek, summed it up best:

The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren't regulated banks. They were outfits such as Argent and American Home Mortgage, which were generally not regulated by the Federal Reserve or other entities that monitored compliance with CRA. These institutions worked hand in glove with Bear Stearns and Lehman Brothers, entities to which the CRA likewise didn't apply. … Nor did the CRA force the credit-rating agencies to slap high-grade ratings on subprime debt.

Though I believed from experience that there have been many, many foreclosures that weren’t necessarily related to subprime lending, the Gross article offered some detail, pointing out that, for example, a builder of high-end condominiums in Florida filed for bankruptcy just a couple of months ago:

Very few of the tens of thousands of now-surplus condominiums in Miami were conceived to be marketed to subprime borrowers, or minorities—unless you count rich Venezuelans and Colombians as minorities.

And it’s a myth that lending to poor folks or minorities is in itself risky. Gross cites a recent New York Times report that

... a long-running initiative to build homes and sell them to the working poor in subprime areas of New York's outer boroughs, has a repayment rate that lenders in Greenwich, Conn., would envy. In 27 years, there have been fewer than 10 defaults on the project's 3,900 homes. That's a rate of 0.25 percent.

The villains in the subprime lending debacle were in it for the money. The loan fees for such loans are higher than those for conventional loans, and I’ve seen for myself cases where the buyer who would have qualified for a conventional or FHA loan was pushed into a subprime loan because the loan officer was greedy. And, of course, there were loans made that should never have passed underwriting because the loan officer was simply dishonest.

Even so, if you want to blame it all on Clinton, what do you do about the fact that, when the Act was amended in 2005, the Presidency and both houses of Congress were under the complete control of Mr. Bush and the Republicans?

Hm.

I leave the reader to think about it while I point the finger in another, more sinister, direction.

Back in 1996, in what may have been a prescient letter to the New York Times, I wrote:

I believe now that Newt Gingrich, with the perhaps unwitting support of the famous “freshmen” he so carefully recruited, programmed and brought to Washington, does have it in his mind to dismantle if not destroy our federal government. I think it’s time for someone to openly question whether his intentions are honorable.

His unrelenting “Newtspeak” attacks on existing government programs, his vilification of anyone opposing him, his brazen moves to destabilize Wall Street, his cultivation of discord and fostering of anarchy, and finally his dismissal of public disagreement with comments that amount to ‘progress is painful, but I know what’s good for America,’ suggest that Americans had better pay attention when he calls it ‘revolution.’ Those who call him brilliant would do well to recall Hitler, for one, among those revolutionaries of history who used similar tactics to take control of the existing government. It is increasingly apparent that Gingrich’s agenda includes a revised constitution that he intends to write and a ‘revolutionary’ government that he intends to control.

Judging by the ineffectiveness of our scattered protests, he seems to have convinced the American people that we cannot stop the inevitable.

Every politician in Washington claims to care most about “middle class Americans.” Well, the working people of America — the true middle class — had better stand up for themselves, or suffer the consequences.

During the recent turmoil in Washington while Congress tried to decide what to do, it was reported on good authority (Andrea Mitchell) that ol’ Newt had been working furiously behind the scenes in opposition to the “bailout” legislation – before he came out in support of it. There was also mention of the possibility that he is preparing a run for President in 2012.

Another something to think about.

But no guarantees, of course.

Saturday morning on NPR a focus group of undecided voters, gathered by the network to watch the Presidential debates, now were asked to give their reactions. Most of them said the debate had helped them get closer to deciding which candidate they prefer. But one rather grumpy-sounding fellow disagreed, complaining that he didn’t hear either of the candidates put forth a proposal for resolving the finance-industry crisis now being debated in Washington.

Well, mister, if all the king’s horses and all the king’s men haven’t been able to figure out how to put the economy together again, let alone whether to take any action at all, how can you demand that any one person, even a candidate for President of the United States, know what to do?

Frankly, I’d rather have a President who doesn’t claim to know it all, who is willing to hold off making a decision until all the information is in — and who understands the potential harm that might result from acting recklessly or in haste — than one who doesn’t think he needs more information, nor to listen to more opinions, who trusts his “gut” feeling.

We’ve been there, had that, and it didn’t work out too well, did it?

Late Sunday the Congressional leaders of both parties, after working through the weekend, announced that they had agreed on a plan to “unclog the arteries” of lending and investment institutions so that money for home and business loans would begin to flow again.

And why the rush? Here’s where it gets dicey.

The reader may recall that the subprime crisis wreaked a bit of havoc recently, with one effect being that the most egregious lending practices were ended and lenders started insisting that their borrowers be qualified and capable of paying off the loan.

Over the last few weeks now, as banks and investment companies began to fail and others go all wobbly, stock market values began to bounce up and down, and loans became harder to get.

Then, abruptly, just over a week ago President Bush and his Secretary of the Treasury came out and proclaimed a dire situation, asking Congress to immediately authorize them to take $700 billion of taxpayer-backed money and use it to buy unknown quantities of unmarketable mortgage-backed securities of undefined value held by banks and investment companies; no less was at stake than our homes, jobs and pensions, not to mention our ability to buy a new car.

In this case, it seemed, the smoking gun would be the mushroom cloud kicked up by imminent economic collapse across the country and indeed around the world.

Just like the WMD’s of yore, no one can prove or disprove any of this. Although there is plenty of agreement among respected economists that something must be done quickly to add fresh money to the system and remove moribund securities from their inventories, there are almost as many equally respected economists who disagree; some disagree about the need for speed, others about the whole idea.

No one knows exactly what the problems are, or how to fix them. Most in Congress feel obliged to take the President and Paulson seriously, without evidence to the contrary.
A few in Congress and in the press have dared to ask how the situation got so dire without anyone noticing, given that this came up so suddenly. As economist Paul Krugman suggested, you have to wonder where the grownups have been all this time.

But now the President and Paulson definitely had everyone’s attention; howls of protest arose from Democrats and Republicans in Congress, and from citizens all over the country at the mere idea that taxpayers should bail out the fat cats of Wall Street.

The candidates for President reacted in respectively characteristic ways. Obama stayed in communication with Paulson and Congressional leaders by phone and offered his conditions for support; John McCain did a bungee jump from his campaign into Washington but we still don’t know exactly what he thinks of it.

Yesterday’s announcement laid out the changes to the Paulson plan that would be acceptable to both Republicans and Democrats in the House and Senate, giving it a fair (though not certain) chance to pass.

The improved plan includes slowing the distribution of the funds by providing them incrementally; establishing a Congressional oversight board as well as a special inspector general to protect against fraud or abuse; protecting what will be considered an investment by taxpayers that must be paid back, and requiring that taxpayers benefit from any future growth in the assets that are purchased through this program; providing for renegotiation of mortgages wherever possible, to keep families in their homes; and banning golden parachutes and unearned bonuses for executives of the participating companies.

Since economists don’t all agree, and since the folks in Congress don’t all agree, and since everything the Administration is about to undertake (if the legislation passes both houses of Congress) is based on assumptions, estimates, best guesses, computer projections, and just plain opinion, I guess I’m equally entitled to offer my opinion. After all, with all the disagreement out there I’m sure someone higher up will share it.

My sense, from a local real estate broker’s experience and point of view, is that this is not so dire a situation as we are told. The real estate market is very slow, to be sure, but houses are still selling to qualified buyers.

Yes, it would be nice to have business pick up and yes, it’s harder to get loans if you are only marginally qualified, but isn’t that the way it’s supposed to be?

If I’m wrong and the legislation passes, after which miraculously everything gets (and stays) better, pass the Tabasco and I’ll eat my words.

With all of this, the point that advocates for the plan keep making is that this promise of a bailout is needed to reassure “the market,” to help the economy stabilize.

That begs the questions: What if the market, like some child who is terrified of the unknown, decides not to be reassured? Or what if we did nothing, but let nature take its course?

I’m going to slip into a somewhat partisan outlook, and wonder if the emergency is a product of the Administration’s desire to help out Wall Street. But of course that couldn’t be true, could it?

One thing I do know is that I don’t know the answers, and it looks like we won’t get to find out.


Originally published September 29, 2008

How did we get here and where do we go?

During my real estate career I’ve come across more than a few predatory lenders — lenders who do not, as a rule, serve the buyer’s best interests. Unlike reputable mortgage brokers and banks, they are willing to subordinate the buyer’s interests to their own, and that almost inevitably causes trouble.

A subset of the predatory lender is the inexperienced loan officer who, due to lack of experience, education, or oversight, hasn’t a clue that what he’s doing is not quite right.

I’ve had cases where the loan officer continued to assure everyone involved — the buyer, the agent for the buyer, and the agent for the seller — that “this is definitely going to close,” even up to the morning of closing, only to have it turn out that his underwriting department didn’t share his opinion.

I don’t know if you ever saw “Glengarry Glen Ross,” but its grim lesson is the state of denial that a desperate salesman may get himself into, even without malicious motives. And the one who pays will be the buyer.

And eventually, as we learned over the past couple of weeks, the American taxpayer.

“I can get you into a house with absolutely no money down!” cannot ever be true, yet how many hopeful buyers have succumbed to the lure? The fact is that every buyer will need to have at least $500 – 1,000 cash on hand to cover the costs of earnest money to be deposited, a home inspection, and an appraisal — all of these amounts are generally “pay-as-you-go.”

The risk of purchasing with "no money down" is that you’ll end up owing more on the house at closing than you could sell it for. Particularly if all your closing costs are rolled into the mortgage, it would be virtually impossible to turn around the day after closing and recover your investment; the costs of sale will come back to bite you.

Then there are lenders who make it possible for you to afford the monthly payments on the dream house you didn’t think you could afford by offering you an adjustable rate mortgage. They don’t make a big deal out of the fact that “adjustable” almost always means “upwards,” of course, but if you do ask about that they are likely to reassure you that “the way houses are appreciating, you’ll be able to refinance before your interest rate goes up.”

And here lately we’ve learned what happened to THAT option.

There have even been loan officers who falsified income information (without the buyer’s knowledge) in order to get the loan approved by higher-ups. But it gets worse:

In one case, the lender manipulated the transaction to the point where the poor buyer ended up with a mortgage on the property that well exceeded its value. The usual checks and balances didn’t exist because the buyer’s agent, the lender and the appraiser all worked for the same company; in addition, that company styled itself a “charitable” organization that collected a “non-taxable donation” of several thousand dollars from the seller and transferred a portion of it as a “gift” from seller to buyer. And added it to the mortgage, of course, while giving the seller a charitable donation receipt for funds he never paid.

As it turned out, just over a year later that buyer lost the home to foreclosure.

But before that happened there’s no doubt that, quick as a wink, that lender sold the note. A mortgage note has value, after all, as an income producer. And whoever bought it — a bank or investment company — almost certainly sold it to someone else. By the time the buyer defaulted, who knows where it had landed? But one thing for sure, it could no longer be sold. And that made one less pool of money available for the investor to use to buy more mortgages.

As more and more “subprime” mortgages went into foreclosure, the inventories of more and more investors became unmarketable, and the investors had less and less money to invest. The amount of money available for loans of any kind dwindled and the economy slowed to a crawl.

At the same time, more and more foreclosures began to force down the market values of homes around them as well as increasing the time it took to sell any home.

So now we end up with Wall Street investment companies being sold, going bankrupt or having to be bailed out, and with our nation in a precarious situation not unlike that which brought on the Great Depression. Last week, the Bush Administration proposed to buy up those bad mortgage notes in order that the investors can get a fresh start and maybe perk up the economy as a result.

The Administration, fearing considerable worsening of the situation, has urged Congress to take immediate action and vote this week to provide the $700 billion that it believes will be needed just to begin the bailout. It is proposed that Henry Paulson, the Secretary of the Treasury, be given absolute discretion in using the funds — what to buy, how much to pay, and so forth. And doesn’t want legislation held up by too much debate.

Gives me a queasy, been-there, feeling.

I believe that there are just a few tweaks needed in the proposed legislation.
As it stands, the investors would get rid of their losers, while the American taxpayer would acquire them. I say there should be something there for the taxpayers, who being asked to take on the risk.

Some decent additions to the legislation that have been proposed include forbidding the beneficiaries of bailout to give multimillion-dollar “golden parachutes” to the CEO’s that are responsible, a restriction that was imposed in the case of Fannie Mae and Freddie Mac.

There is legislation that was proposed back in the spring, that would empower bankruptcy judges to rewrite the terms of a mortgage with the goal of keeping the homeowner in the home. This should be included because it makes sense and because foreclosures have a negative effect on the community. And to the extent that the lender took advantage of a buyer, or should have known better than to lend to someone who was obviously not qualified, it’s justice.

I wrote to Elizabeth Warren, a nationally recognized authority in bankruptcy at Harvard Law, because I wanted to be sure I have this right. Here’s what she replied:

Congress should amend the ill-advised bankruptcy statute enacted just a few years ago to permit neutral bankruptcy judges to adjust mortgages, principal and interest to keep people in their homes and to keep payments flowing on mortgages.

If a homeowner can afford a long-term, fixed rate mortgage that will pay off 100% of the current market value of the home, then everyone is better off … and the family stays in the home. If the family can't afford that, then it is time to give up the house and move on.

Either way, we can reach a bottom on the housing market, force the investors to take their losses, and move forward.

This plan won't cost the taxpayers a single dollar. And it will force the lenders to come to the table to negotiate over the value of these mortgages instead of waiting for another government bailout.

It has also been proposed that a new stimulus tax credit be given the vast majority of Americans, the poor and the middle-class, to help them get over the hump that has resulted from all this.

And finally, for now, it is imperative that regulations be put in place over the lending industry to make sure this never happens again.

Put all this together, which can be done immediately, and it just makes sense.


Originally published September 22, 2008