In a democracy laws are often compromises that are less about finding the best solutions than they are about giving everyone something to make them happy. So we end up with laws that don't work for anyone except the special interests who know how to work them. One common compromise has been to make government programs "public private" partnerships. Generally that means private folks put up some money and take home any profits the entity produces, while public entities absorb the losses.
Public private partnerships are almost always a disaster for taxpayers.
Fannie Mae and Freddie Mac grew out of a pragmatic desire to allow more people to own homes. But some in Congress who were representing the interests of Financial institutions used their influence to give Financial institutions a cut of the action. The public private hybrid managed to have the worst characteristics of both and the best characteristics of neither.
Higher Education and Health Care are two other areas Congress has melded an amalgam of government functions with profit motivated private business. For the last three decades costs for both have risen much faster than inflation, as our systems are subject to few of the controls of the marketplace.
History seems to have demonstrated that if we think some problem needs to be addressed by a Government program, it should be government only program, Public/private partnerships are a bad idea for everyone but the investors who will be milking the taxpayers.
Sunday, January 22, 2012
Monday, January 16, 2012
Making Democracy more fair - Super Majorities defeat Democracy
A couple years ago big business interests hired sharp lobbying groups to put a measure on the California Ballot that would insulate them from paying fee's to cover the costs of damage caused by their business operations. The lobbying groups, with millions of dollars to work with, qualified a measure for the November 2010 California Ballot, Prop 26, that expanded the 2/3 majority vote requirement enacted by Prop 13 in 1978 to cover fee's imposed on business to prevent or clean up damage their business operations cause. They probably chose the November 2010 election carefully, as a off year election where turnout would be low, so their advertising dollars needed to sway fewer voters.
In the November 2010 election in California there were 23.5 million persons in California who were eligible to vote. 17.2 million were registered. Less than 10 million voted on Prop 26. 4.92 million voted for the proposition, 4.27 million voted against it. It was a approved by a margin of 52.5% to 47.5%.
The 2/3 vote requirement, since it was first enacted in 1978, it has proven to be an almost insurmountable barrier to legislative action on almost everything. Yet this 2010 law imposing a virtually impossible 2/3 majority requirement on legislative imposition of fee's was approved by only 52% of the voters voting, and about 20% of the residents of the state eligible to vote.
Prop 13, which created the 2/3 vote requirement in 1978 was also passed by a relatively small majority of the voting population. There were 15 million possible voters in California in June of 1978, a little less than 10 million were registered to vote, 4.3 million voters voted for Prop 13, 2.3 million voted against it. Only 43% of the eligible voters actually voted, somewhere around 28% actually voted in favor of Proposition 13.
I am not arguing that a low turnout affects what passes and what doesn't pass, if people chose not to vote we have to go with the choice of the people that did turnout. What I am arguing is that no vote should be able to impose higher approval requirements on future enactments than the percentage by which the enacting law was passed.
The Prop 13 2/3 vote requirement was particularly anti-democratic in its effect on local governments. The requirement was created in Statewide elections but applies to local governments. San Francisco and Kern Counties both voted against Prop 13, yet now they are required to get a 2/3 majority vote to impose local taxes or fees.
Lets talk partisan politics for a moment. The 2/3 tax requirement is generally favored by anti-tax Republicans, in particular big business, who are a minority of voters. They have recognized it is a way to leverage their votes so their votes count more than people who put a higher stock on good government. As long ago as the 1930's they managed to get a 2/3 vote requirement to impose taxes on Banks. It took decades to get that law changed to a simple majority vote.
We need to put a provision in the Constitution that no provision of law can impose a higher percentage vote requirement than the percentage of voters that approve the law.
In the November 2010 election in California there were 23.5 million persons in California who were eligible to vote. 17.2 million were registered. Less than 10 million voted on Prop 26. 4.92 million voted for the proposition, 4.27 million voted against it. It was a approved by a margin of 52.5% to 47.5%.
The 2/3 vote requirement, since it was first enacted in 1978, it has proven to be an almost insurmountable barrier to legislative action on almost everything. Yet this 2010 law imposing a virtually impossible 2/3 majority requirement on legislative imposition of fee's was approved by only 52% of the voters voting, and about 20% of the residents of the state eligible to vote.
Prop 13, which created the 2/3 vote requirement in 1978 was also passed by a relatively small majority of the voting population. There were 15 million possible voters in California in June of 1978, a little less than 10 million were registered to vote, 4.3 million voters voted for Prop 13, 2.3 million voted against it. Only 43% of the eligible voters actually voted, somewhere around 28% actually voted in favor of Proposition 13.
I am not arguing that a low turnout affects what passes and what doesn't pass, if people chose not to vote we have to go with the choice of the people that did turnout. What I am arguing is that no vote should be able to impose higher approval requirements on future enactments than the percentage by which the enacting law was passed.
The Prop 13 2/3 vote requirement was particularly anti-democratic in its effect on local governments. The requirement was created in Statewide elections but applies to local governments. San Francisco and Kern Counties both voted against Prop 13, yet now they are required to get a 2/3 majority vote to impose local taxes or fees.
Lets talk partisan politics for a moment. The 2/3 tax requirement is generally favored by anti-tax Republicans, in particular big business, who are a minority of voters. They have recognized it is a way to leverage their votes so their votes count more than people who put a higher stock on good government. As long ago as the 1930's they managed to get a 2/3 vote requirement to impose taxes on Banks. It took decades to get that law changed to a simple majority vote.
We need to put a provision in the Constitution that no provision of law can impose a higher percentage vote requirement than the percentage of voters that approve the law.
Monday, January 9, 2012
The relationship of government employees to the private sector
There is a problem inherent in all government - the motivational factors that control private enterprise are not present in government enterprise.
In private enterprise the funds available for salaries are dependent on how well you do what you do. If you are successful at the enterprise generally you generate more income. If you make bad decisions or lose focus on what you need to do that fact will be brought to your attention by a loss of income as customers turn elsewhere.
But by its nature government decides how much money government needs and then assesses taxes or fees to produce the money and then decides how to spend the money.
We are all familiar with the most glaring examples of this tendency - dictatorships around the world where the government primarily serves to enrich those in control. But even democracies have the same problem. We are experiencing that fact right now with much of the developed world wrapped up in huge budgetary problems due to the tendency of governments seeking to remain in power to be reluctant to tax, but happy to hand out benefits to public employees who are potential voters.
Here is a statistic I find illustrative of the problem. According to census bureau figures the Metropolitan area with the highest household income in the country is - Washington D.C. What puts Washington above even Silicon Valley? Well for starters the average federal employee makes more than $126,000 a year in combined salary and benefits. Couple that with the fact the town is full of lawyers (1 in every 12 city residents is a lawyer) and that government work is very lucrative (young attorneys make an average of $186,000 a year in Washington compared to the national average of $123,000).
Here is what makes sense to me. We should be lobbying at the local, state and national level for a Charter or Constitutional amendment that links the salary and benefits of government jobs to the average salary and benefits in the private sector. Say 98% of the private sector average for equivalent work. We also cap government salary at some multiple of the average private sector salary, rather than allowing government managers to drive their pay up to extraordinary levels by comparing themselves to salaries in the private sector.
Despite what economist think, not all people are motivated by money. Many people, once they have achieved a basic level of economic comfort and security, are motivated by service, by the opportunity to do good things for others. Those are the people we want in government, and they sometimes get pushed aside by people motivated by money. Let those motivated by money pursue their ambitions in the private sector.
(Statistics taken from a Bloomberg News Article published in the San Francisco Chronicle business section, page D5, October 20, 2011)
In private enterprise the funds available for salaries are dependent on how well you do what you do. If you are successful at the enterprise generally you generate more income. If you make bad decisions or lose focus on what you need to do that fact will be brought to your attention by a loss of income as customers turn elsewhere.
But by its nature government decides how much money government needs and then assesses taxes or fees to produce the money and then decides how to spend the money.
We are all familiar with the most glaring examples of this tendency - dictatorships around the world where the government primarily serves to enrich those in control. But even democracies have the same problem. We are experiencing that fact right now with much of the developed world wrapped up in huge budgetary problems due to the tendency of governments seeking to remain in power to be reluctant to tax, but happy to hand out benefits to public employees who are potential voters.
Here is a statistic I find illustrative of the problem. According to census bureau figures the Metropolitan area with the highest household income in the country is - Washington D.C. What puts Washington above even Silicon Valley? Well for starters the average federal employee makes more than $126,000 a year in combined salary and benefits. Couple that with the fact the town is full of lawyers (1 in every 12 city residents is a lawyer) and that government work is very lucrative (young attorneys make an average of $186,000 a year in Washington compared to the national average of $123,000).
Here is what makes sense to me. We should be lobbying at the local, state and national level for a Charter or Constitutional amendment that links the salary and benefits of government jobs to the average salary and benefits in the private sector. Say 98% of the private sector average for equivalent work. We also cap government salary at some multiple of the average private sector salary, rather than allowing government managers to drive their pay up to extraordinary levels by comparing themselves to salaries in the private sector.
Despite what economist think, not all people are motivated by money. Many people, once they have achieved a basic level of economic comfort and security, are motivated by service, by the opportunity to do good things for others. Those are the people we want in government, and they sometimes get pushed aside by people motivated by money. Let those motivated by money pursue their ambitions in the private sector.
(Statistics taken from a Bloomberg News Article published in the San Francisco Chronicle business section, page D5, October 20, 2011)
Tuesday, January 3, 2012
Congress has always belonged to Wall Street
Think about your retirement account. As Congress developed the law that governs our retirement accounts over the years they could have authorized us each to set up a trust account where we could invest in anything and have our income from the investment tax free as it accumulates. In a trust account we could invest in a neighbors new business, or our own business, or we could buy a rental property, or buy gold coins or any other asset we think is a good long term investment. Trust law has existed for hundreds of years, it would have been easy and cheap to create tax free retirement accounts using trust law.
But that wasn't what Congress did. Instead they gave the financial services industry a monopoly on the tax free benefits of retirement accounts. If you want the ability to invest tax free for retirement you have to invest through a financial services company that will charge you fee's and limit what you can invest in.
It has been a bonanza for the financial services industry. Financial services used to be a small part of our economy, now it is the biggest profit center in the US economy. As a result our retirement accounts are at the mercy of the greed that created the 2007-08 economic meltdown, or the Financial services industry entanglement with European government bonds.
It is not to late. Congress could still create a trust based retirement provisions that don't require handing a portion of your investment income to a financial services industry. Possible but extremely unlikely - unfortunately.
But that wasn't what Congress did. Instead they gave the financial services industry a monopoly on the tax free benefits of retirement accounts. If you want the ability to invest tax free for retirement you have to invest through a financial services company that will charge you fee's and limit what you can invest in.
It has been a bonanza for the financial services industry. Financial services used to be a small part of our economy, now it is the biggest profit center in the US economy. As a result our retirement accounts are at the mercy of the greed that created the 2007-08 economic meltdown, or the Financial services industry entanglement with European government bonds.
It is not to late. Congress could still create a trust based retirement provisions that don't require handing a portion of your investment income to a financial services industry. Possible but extremely unlikely - unfortunately.
Monday, December 26, 2011
The America Institution of Crony Capitalism
The way a free market works that I learned long ago in Economics class is the people that put up the money hire managers for the business and the managers hire labor. The three legs of this stool have roughly equal bargaining power so are able to work out an agreement that allows them all to profit from the enterprise.
This idealistic theoretical notion has never worked very well in modern reality for labor absent strong unions and in modern life large business enterprises that dominate the economy also have disenfranchised ownership somewhat. In large business enterprises managers have developed disproportionate power. Ownership is diffuse and inattentive. Corporate management has become an exclusive club that looks after its own. Every Corporation is run by a Board of Directors composed mostly of top managers from other corporations. The Board of Directors govern how much top managers get paid, and often the road to becoming a member of the board of directors is through management. Since shareholder power is diffuse and difficult to organize the typical Board of Directors is pretty free to run the company as they see fit. And the evidence suggests for the last 20 years or so they seem to believe that showering money on their fellow club members is the best was to run the company.
Financial publications like the Economist have been noting for years the extraordinary rise of wages for corporate management in the United States. This isn't because companies are rewarding managers who have performed spectacularly, raising their company above all of their competitors, after the fact. Its all top managers. Management that run companies into bankruptcy got multi-millions in annual compensation, then make millions more with their golden parachutes. Managers whose companies muddle along in the middle of the pack of competitors make millions of dollars.
Government has failed to structure financial incentives in a manner that keeps the relative power of owners, managers and workers in alignment.
Evidence for this theory?
Even in this recession big corporations are making piles of money. But neither owners nor workers are benefiting.
Owners get little - big Corporations pay peanuts in dividends to their shareholders (the owners), many tech corporations don't even pay dividends. The only way to make money on stocks is by clever buying and selling of stocks, there is little money to be made in the next decade or so by buying and holding stocks since decades of rising stock prices have pushed stock prices well above their historical averages. When you do own a stock you face the risk management is pursuing short term policies to pump up stock prices so they can pay themselves millions, even though they are destroying the long term viability of the corporation. How many corporate bankruptcies in the last couple years have been accompanied by news of corporate CEO's parachuting out with their multi-million dollar severance packages?
Workers are perhaps the biggest losers. Managers use the Company's financial clout to undermine the bargaining power of workers. Managers use the threat of job loss to drive down wages for workers, then lay them off anyway to ship production overseas.
The law has been twisted to coddle this form of crony capitalism that is hollowing out our middle class and enriching anybody who can glad hand their way into the club. Management has used the financial power of the corporations to control the political debate in this country and set the rules in their favor. Their influence sends the US military around the globe to protect the commercial interests of large business enterprises on borrowed money they want taxpayers to repay. When big enterprises make stupid mistakes they get bailed out by Government, or run into the bankruptcy court to dump losses on investors, suppliers and workers, but I have never heard of a bankruptcy court requiring top management to return some of their salary. Corporations pour money into candidates who protect the ability of wealthy folks to make as much money as possible from large business enterprises at the expense of security for old working people. They undermine efforts at reforming our ridiculously expensive and inefficient private health care system.
Crony Capitalism will always be with us. Business will always largely be run by those among us who are the most obsessed with money, status and their own self interest. They will never control their own tendency to choose what is best for them in the short term. Their cleverness, energy and ambition can be a benefit to all, but we need to channel it.
That is government's job - to set rules that insure a fair and prosperous future for all. Government best tool for controlling business excess is not through dictating how business behaves, Governments role is to structure the law in a manner that aligns financial incentives away from short term get rich quick thinking and maintains a balance of power between the stakeholders. For example:
1. To re-balance the power of owners and management government should create a graduated tax structure for corporate taxation. Companies with fairly flat compensation plans that spread wealth broadly across the whole range of employees pay lower taxes than companies that are used to enrich the top management. Use a mean, median and mode test that will insure the Board of Directors won't be able to indulge in handing out excessive compensation to management without bumping up the Corporate tax rate - with all the negative ramifications that will have on the stock price and corporate profitability. So in the end the market of owners will have the power to control managers.
2. To remove the extraordinary political power management has developed through the use of corporate funds, we have to make an end run around the nonsense notion that the Supreme Court has burdened us with that Corporations have the same rights as people under the Constitution. Corporations don't exist in nature, they are created by law. Congress could pass a law linking the limited liability that makes Corporations such a valuable tool for business to limitations on political activities. So if a corporation wants to engage in political activism the owners and/or managers are no longer exempt from personal liability for any damages they cause in their business activities.
3. Restructure the personal income tax law to go back to something like the 1954 tax code. Lots of marginal tax rates, some so high as to be confiscatory as a disincentive to folks seeking to pad their pockets through corporate cronyism. Then allow companies to create a "stock trust" for their executives, where as compensation to entice good performance the Board of Directors can reward managers by depositing a special class of stock into trust for the managers that is lower priority than regular stock and the first wiped out in bankruptcy. The trust holds the stock until 5 years after the manager leaves or retires at which point it can be transferred directly to the retired manager as ordinary common stock. The goal is to align the managers self interest with the long term interests of the company.
4. Reform the Bankruptcy Code to make top managements perks as vulnerable as labor retirement obligations, and/or make bankruptcy automatic anytime top management does not to fully fund promised worker wage or retirement obligations.
This idealistic theoretical notion has never worked very well in modern reality for labor absent strong unions and in modern life large business enterprises that dominate the economy also have disenfranchised ownership somewhat. In large business enterprises managers have developed disproportionate power. Ownership is diffuse and inattentive. Corporate management has become an exclusive club that looks after its own. Every Corporation is run by a Board of Directors composed mostly of top managers from other corporations. The Board of Directors govern how much top managers get paid, and often the road to becoming a member of the board of directors is through management. Since shareholder power is diffuse and difficult to organize the typical Board of Directors is pretty free to run the company as they see fit. And the evidence suggests for the last 20 years or so they seem to believe that showering money on their fellow club members is the best was to run the company.
Financial publications like the Economist have been noting for years the extraordinary rise of wages for corporate management in the United States. This isn't because companies are rewarding managers who have performed spectacularly, raising their company above all of their competitors, after the fact. Its all top managers. Management that run companies into bankruptcy got multi-millions in annual compensation, then make millions more with their golden parachutes. Managers whose companies muddle along in the middle of the pack of competitors make millions of dollars.
Government has failed to structure financial incentives in a manner that keeps the relative power of owners, managers and workers in alignment.
Evidence for this theory?
Even in this recession big corporations are making piles of money. But neither owners nor workers are benefiting.
Owners get little - big Corporations pay peanuts in dividends to their shareholders (the owners), many tech corporations don't even pay dividends. The only way to make money on stocks is by clever buying and selling of stocks, there is little money to be made in the next decade or so by buying and holding stocks since decades of rising stock prices have pushed stock prices well above their historical averages. When you do own a stock you face the risk management is pursuing short term policies to pump up stock prices so they can pay themselves millions, even though they are destroying the long term viability of the corporation. How many corporate bankruptcies in the last couple years have been accompanied by news of corporate CEO's parachuting out with their multi-million dollar severance packages?
Workers are perhaps the biggest losers. Managers use the Company's financial clout to undermine the bargaining power of workers. Managers use the threat of job loss to drive down wages for workers, then lay them off anyway to ship production overseas.
The law has been twisted to coddle this form of crony capitalism that is hollowing out our middle class and enriching anybody who can glad hand their way into the club. Management has used the financial power of the corporations to control the political debate in this country and set the rules in their favor. Their influence sends the US military around the globe to protect the commercial interests of large business enterprises on borrowed money they want taxpayers to repay. When big enterprises make stupid mistakes they get bailed out by Government, or run into the bankruptcy court to dump losses on investors, suppliers and workers, but I have never heard of a bankruptcy court requiring top management to return some of their salary. Corporations pour money into candidates who protect the ability of wealthy folks to make as much money as possible from large business enterprises at the expense of security for old working people. They undermine efforts at reforming our ridiculously expensive and inefficient private health care system.
Crony Capitalism will always be with us. Business will always largely be run by those among us who are the most obsessed with money, status and their own self interest. They will never control their own tendency to choose what is best for them in the short term. Their cleverness, energy and ambition can be a benefit to all, but we need to channel it.
That is government's job - to set rules that insure a fair and prosperous future for all. Government best tool for controlling business excess is not through dictating how business behaves, Governments role is to structure the law in a manner that aligns financial incentives away from short term get rich quick thinking and maintains a balance of power between the stakeholders. For example:
1. To re-balance the power of owners and management government should create a graduated tax structure for corporate taxation. Companies with fairly flat compensation plans that spread wealth broadly across the whole range of employees pay lower taxes than companies that are used to enrich the top management. Use a mean, median and mode test that will insure the Board of Directors won't be able to indulge in handing out excessive compensation to management without bumping up the Corporate tax rate - with all the negative ramifications that will have on the stock price and corporate profitability. So in the end the market of owners will have the power to control managers.
2. To remove the extraordinary political power management has developed through the use of corporate funds, we have to make an end run around the nonsense notion that the Supreme Court has burdened us with that Corporations have the same rights as people under the Constitution. Corporations don't exist in nature, they are created by law. Congress could pass a law linking the limited liability that makes Corporations such a valuable tool for business to limitations on political activities. So if a corporation wants to engage in political activism the owners and/or managers are no longer exempt from personal liability for any damages they cause in their business activities.
3. Restructure the personal income tax law to go back to something like the 1954 tax code. Lots of marginal tax rates, some so high as to be confiscatory as a disincentive to folks seeking to pad their pockets through corporate cronyism. Then allow companies to create a "stock trust" for their executives, where as compensation to entice good performance the Board of Directors can reward managers by depositing a special class of stock into trust for the managers that is lower priority than regular stock and the first wiped out in bankruptcy. The trust holds the stock until 5 years after the manager leaves or retires at which point it can be transferred directly to the retired manager as ordinary common stock. The goal is to align the managers self interest with the long term interests of the company.
4. Reform the Bankruptcy Code to make top managements perks as vulnerable as labor retirement obligations, and/or make bankruptcy automatic anytime top management does not to fully fund promised worker wage or retirement obligations.
Monday, December 19, 2011
Crossroads for Occupy Wall Street
All social movements began as an effort to get peoples attention, to mobilize people to address some problem that has not been on the agenda of the powers that be. Appealing to emotion and physical involvement are crucial in this stage. Emotion is our motivator, without it we tend to do nothing, so marches, rallies, and other events where people of like mind can gather and emotionally connect are crucial.
But emotion is a beast that sometimes can be hard to corral. Emotion is a real problem because when any of us has a emotional belief something is correct it is very difficult to change that belief through logic without something bad happening first to counteract the strong emotional link associated with the belief. The Tea Party movement turned emotion loose a couple years ago and has made no attempt to rein in the emotion. They rode emotion, reveled in it, celebrated inflammatory, accusatory speech, encouraged the view that those that were not with them were evil or diabolical. The short term final result is still in doubt but it appears to me the Tea Party emotional indulgence has, for the longer term, pulled the Republican party into a groupthink trap that is moving them down the road toward electoral irrelevance.
The Civil Rights movement is a great example of a movement the corralled and controlled emotion. It had leaders that recognized that though emotion gets the ball rolling, it is facts, logic and - perhaps most importantly - restraint - even in the face of provocation - that swings public opinion to the point where the movements goals become public opinion.
The anti-war movement of the Vietnam years never developed leaders with that level of intellectual sophistication. In my estimation the anti-war movement of the 60's and early 70's was an abject failure. Even though they had really valid points about the Viet-nam war, the movement never went beyond emotion. They vilified those that disagreed with them. They were so self-rightous they had no problem inconveniencing everybody else to indulge their desire to vent their anger. The riot their confrontations sparked in Chicago in 1968 crippled the Democratic Party - handing the Presidency to the man they loathed, Richard Nixon. In the end the war ended in 1975 more despite the anti-war movement than because of it. The war had gone on so long the average voters realized it was crippling the economy, accomplishing nothing, and killing thousands of our young people. I believe the anti-war movement, in the end, probably made the war last longer because for the decade the movement existed many voters focused more attention on the negative emotions they experienced from the movements self-indulgent tactics than on the facts that demonstrated the war was not a wise course of action.
I think Occupy Wall Street is at a crossroads. A broad agreement that extends even into parts of the Republican party supports most of their basic points, but they do not seem to have developed the leadership that can channel their energy in positive and respectful directions. The anarchy of the movements leadership is very much like the deliberate anarchy that the anti-war protests embraced so enthusiastically back in the 1960's.
I think Occupy Wall Street has done a marvelous job of piercing through the political slogans the politicians infatuated with wealthy people have used for years to prevent serious discussion of economic issues. But when OWS shut down the Port of Oakland all I could think was "what purpose did that serve beyond gratifying their sense of power because they could do it?" They deprived a lot of working folk of work, inconvenienced thousands of citizens of Oakland and the only thing the shut down accomplished that I can see was to gratify their sense of importance. The image that pops into my head is a grown up version of a kid flopping around in the Supermarket aisle throwing a tantrum because Mom won't buy the sugar cereal the kid wants.
They are in danger of terminal group think, they all hang around talking to each other all day and are becoming oblivious to the wider world. Occupy Wall Street, if it developed some real leadership who understand the public relations value of restraint could turn this country around. But if they degenerate into a self indulgent obstructionist movement, they could help the existing order survive for years longer than it otherwise would.
But emotion is a beast that sometimes can be hard to corral. Emotion is a real problem because when any of us has a emotional belief something is correct it is very difficult to change that belief through logic without something bad happening first to counteract the strong emotional link associated with the belief. The Tea Party movement turned emotion loose a couple years ago and has made no attempt to rein in the emotion. They rode emotion, reveled in it, celebrated inflammatory, accusatory speech, encouraged the view that those that were not with them were evil or diabolical. The short term final result is still in doubt but it appears to me the Tea Party emotional indulgence has, for the longer term, pulled the Republican party into a groupthink trap that is moving them down the road toward electoral irrelevance.
The Civil Rights movement is a great example of a movement the corralled and controlled emotion. It had leaders that recognized that though emotion gets the ball rolling, it is facts, logic and - perhaps most importantly - restraint - even in the face of provocation - that swings public opinion to the point where the movements goals become public opinion.
The anti-war movement of the Vietnam years never developed leaders with that level of intellectual sophistication. In my estimation the anti-war movement of the 60's and early 70's was an abject failure. Even though they had really valid points about the Viet-nam war, the movement never went beyond emotion. They vilified those that disagreed with them. They were so self-rightous they had no problem inconveniencing everybody else to indulge their desire to vent their anger. The riot their confrontations sparked in Chicago in 1968 crippled the Democratic Party - handing the Presidency to the man they loathed, Richard Nixon. In the end the war ended in 1975 more despite the anti-war movement than because of it. The war had gone on so long the average voters realized it was crippling the economy, accomplishing nothing, and killing thousands of our young people. I believe the anti-war movement, in the end, probably made the war last longer because for the decade the movement existed many voters focused more attention on the negative emotions they experienced from the movements self-indulgent tactics than on the facts that demonstrated the war was not a wise course of action.
I think Occupy Wall Street is at a crossroads. A broad agreement that extends even into parts of the Republican party supports most of their basic points, but they do not seem to have developed the leadership that can channel their energy in positive and respectful directions. The anarchy of the movements leadership is very much like the deliberate anarchy that the anti-war protests embraced so enthusiastically back in the 1960's.
I think Occupy Wall Street has done a marvelous job of piercing through the political slogans the politicians infatuated with wealthy people have used for years to prevent serious discussion of economic issues. But when OWS shut down the Port of Oakland all I could think was "what purpose did that serve beyond gratifying their sense of power because they could do it?" They deprived a lot of working folk of work, inconvenienced thousands of citizens of Oakland and the only thing the shut down accomplished that I can see was to gratify their sense of importance. The image that pops into my head is a grown up version of a kid flopping around in the Supermarket aisle throwing a tantrum because Mom won't buy the sugar cereal the kid wants.
They are in danger of terminal group think, they all hang around talking to each other all day and are becoming oblivious to the wider world. Occupy Wall Street, if it developed some real leadership who understand the public relations value of restraint could turn this country around. But if they degenerate into a self indulgent obstructionist movement, they could help the existing order survive for years longer than it otherwise would.
Thursday, December 15, 2011
Does Government do housing finance better than the private sector?
In my adult lifetime we have had two financial blow ups in the private housing finance market. The Savings and Loan debacle in the 1980's cost taxpayers somewhere around 700 billion dollars. The final tab for the more recent blow up is still in doubt but it could cost the taxpayers trillions, but for the sake of making a point I will conservatively estimate it will cost at least as much as the 1980's event. So in the last 40 years taxpayers have been dinged for at least 1.4 trillion dollars to bail out private housing financiers.
That of course doesn't consider the cost of the lost economic output, the dislocation in millions of lives from foreclosures, and the ongoing cost to people trapped in underwater mortgages.
On the other hand...
Ever since at least WW II, maybe before, California has had a stand alone home loan program for Veterans. As far as I know it never cost taxpayers a dime. Unlike most Federal programs California's program doesn't create screwball public private partnerships that guarantee loans made by private lenders. Instead California issues bonds, then uses the money from the bond sales to make loans directly to veterans to buy a home. The Veterans mortgage payments are used to repay the bondholders. The program has plugged along for at least 60 years putting a lot of people into homes without any cost to taxpayers.
Hmmm......seems to me the evidence would suggest that direct government financing of home loans is a pretty safe and sane way to help people buy homes.
I know some of my Republican friends are jumping up and down thinking "what about Fannie Mae and Freddie Mac - they are government programs that were a big part of the problem in the current housing collapse". Well, Fannie Mae and Freddie Mac aren't really government programs - they are both "public-private partnerships" - those designed by committee entities that usually end up exhibiting the worst characteristics of the constituent parts. Fannie Mae and Freddie Mac are not owned by the government, they are owned by stockholders, government just guarantee's them against any loss. So with Government guaranteeing they won't lose money, the stockholders and management of Fannie-Mae and Freddie Mace got greedy and went out and took crazy risks.
I think a government direct lending program that uses the power of governments to sell bonds and provide tax free returns could play a big part in bringing the housing market back to some degree of health. Perhaps the best solution would be a program that operated at the city level, where the city can take an equity interest for a reduced mortgage payment in cases where the people want to stay in the home but are underwater.
This is a constructive goal occupy Wall Street could take on. Making big banks irrelevant.
That of course doesn't consider the cost of the lost economic output, the dislocation in millions of lives from foreclosures, and the ongoing cost to people trapped in underwater mortgages.
On the other hand...
Ever since at least WW II, maybe before, California has had a stand alone home loan program for Veterans. As far as I know it never cost taxpayers a dime. Unlike most Federal programs California's program doesn't create screwball public private partnerships that guarantee loans made by private lenders. Instead California issues bonds, then uses the money from the bond sales to make loans directly to veterans to buy a home. The Veterans mortgage payments are used to repay the bondholders. The program has plugged along for at least 60 years putting a lot of people into homes without any cost to taxpayers.
Hmmm......seems to me the evidence would suggest that direct government financing of home loans is a pretty safe and sane way to help people buy homes.
I know some of my Republican friends are jumping up and down thinking "what about Fannie Mae and Freddie Mac - they are government programs that were a big part of the problem in the current housing collapse". Well, Fannie Mae and Freddie Mac aren't really government programs - they are both "public-private partnerships" - those designed by committee entities that usually end up exhibiting the worst characteristics of the constituent parts. Fannie Mae and Freddie Mac are not owned by the government, they are owned by stockholders, government just guarantee's them against any loss. So with Government guaranteeing they won't lose money, the stockholders and management of Fannie-Mae and Freddie Mace got greedy and went out and took crazy risks.
I think a government direct lending program that uses the power of governments to sell bonds and provide tax free returns could play a big part in bringing the housing market back to some degree of health. Perhaps the best solution would be a program that operated at the city level, where the city can take an equity interest for a reduced mortgage payment in cases where the people want to stay in the home but are underwater.
This is a constructive goal occupy Wall Street could take on. Making big banks irrelevant.
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