In the finger pointing to assign blame for the housing and financial collapse of 2007 and 2008 Republicans - being in the difficult position of having been in control of government for the decade leading up to the collapse - have tried to deflect blame for the crisis onto Freddie Mac and Fannie Mae, the two gigantic Corporations that enjoy a bizarre quasi governmental status. Republicans point specifically at changes made back in the Clinton administration to try to encourage more loans to low income folks.
As I have contemplated the Republican arguments about Fannie Mae and Freddie Mac's culpability, I realized I was pretty fuzzy about the exact nature of Fannie Mae and Freddie Mac, so I went out to gather some basic information. On the assumption others may also be fuzzy about what sort of beast Fannie and Freddie are, here is a quick overview.
Fanny Mae was created in 1938 (Chapter 13, Feb 3, 1938) as an supplement to the FHA and FDIC which were created in 1934 (PL 84-345 - Chapter 847, 6/28/34). The 1934 Federal Housing Act was in response to the fact thousands of banks had gone out of business early in the Depression resulting in lots of people losing lots of money they had in the banks. So people were loath to put their money in banks, and the banks were loath to lend what money they had. So Congress created FHA as Federal loan guarantee program and the FDIC to insure peoples bank accounts. The goal was to give people confidence so they would put their money back in the banks (FDIC) and then give the banks confidence through FHA so they would loan money to people to buy houses.
The plan worked, but slowly, so Fannie Mae was created in 1938 to create a secondary mortgage market to buy mortgages from banks and thereby free up the funds so banks could use the proceeds to make more loans. It was created as a government entity with no private investors involved.
In 1954 the law was amended to bring private investors into Fannie Mae. (Aug 2, 1954, Chapter 649, Title II).
In 1968 Fannie Mae was converted to a publicly traded company by Lyndon Johnson to get the debt off the Government books - I presume to disguise the true cost of the Viet-nam war. At this point the parts of Fannie Mae that handled VA loans and Farm Home Loans were spun off into Ginney Mae. (PL 90-448, Section 801, Aug 1, 1968)
Since after 1968 Fannie Mae was now a huge publicly traded, profit oriented monopoly, in 1970 Freddie Mac was created to provide competition for Fannie Mae. Freddie Mac went public in 1989.
With regard to the more recent history, there is an excellent and detailed article at Wikipedia (just do a web search for history of Fannie Mae). Re the question of Fannie Mae and Freddie Mac's culpability in causing the housing and financial collapse, it seems pretty modest. The problem was less the desire to expand the pool of borrowers and more that Fannie and Freddy had serious problems from CEO's infected with the make as much money as possible so ignoring financial realities (like many financial CEO's at the time). (The economist in 2013 did a review of the many causes of the financial collapse - Fannie and Freddy don't make the cut in the laundry list of the primary causes. http://www.economist.com/news/schoolsbrief/21584534-effects-financial-crisis-are-still-being-felt-five-years-article )
It was a growth of totally private businesses moving into the secondary mortgage market that touched of the really crazy loans and "bundles" of loans that caused the collapse.
To me the big mistake was bringing in private investors in 1954. Those of you who read my blog regularly know I view public/private partnerships as virtually always dead certain to end up costing taxpayers a lot of money - government and the profit motive do not fit well together. Government is not inherently a problem and for many things absolutely necessary, but Government being controlled by folks with a profit motive is always a problem
Sunday, February 19, 2012
Thursday, February 16, 2012
Local Government should create an alternative home finance system
For decades the housing market has been at the mercy of big banks. Currently much of the country is languishing in the mess created by big banks. Many people can't afford the house they own, but can't sell it because the far away financial institutions that created the problems in the housing market still control the mortgage markets. The only people that can afford to buy a house are speculators with cash, because few people can qualify for a mortgage. Big chunks of our cities are slipping into a future of transitory populations and cheap rental housing.
The conventional mortgage market is not going to help solve this problem. Buried deep in the heart of the complex mortgage markets the Wall Street smart guys created are a bunch of entities that own mortgages that are paying 6 to 8% interest. They have no interest in refinancing a mortgage that pays 6 to 8% and replacing it with a mortgage that pays 4 to 5%. So they make qualifying for a mortgage impossible.
Local agencies in the hardest hit areas need to make the conventional mortgage market irrelevant by creating an alternative refinancing mechanism. The Cal-Vet home loan program provides a model. For over half a century the Cal-Vet home loan program has been selling bonds, using the money from the bonds to make home loans to veterans, then using the interest payments on the mortgages to pay the costs of the program and pay off the bondholders.
In that 60 years or so that the Cal-Vet program has been quietly chugging along putting people in homes it has never cost taxpayers a dime, to my knowledge, nor has it ever caused a financial bubble or burst in the housing market.
The conventional mortgage market is not going to help solve this problem. Buried deep in the heart of the complex mortgage markets the Wall Street smart guys created are a bunch of entities that own mortgages that are paying 6 to 8% interest. They have no interest in refinancing a mortgage that pays 6 to 8% and replacing it with a mortgage that pays 4 to 5%. So they make qualifying for a mortgage impossible.
Local agencies in the hardest hit areas need to make the conventional mortgage market irrelevant by creating an alternative refinancing mechanism. The Cal-Vet home loan program provides a model. For over half a century the Cal-Vet home loan program has been selling bonds, using the money from the bonds to make home loans to veterans, then using the interest payments on the mortgages to pay the costs of the program and pay off the bondholders.
In that 60 years or so that the Cal-Vet program has been quietly chugging along putting people in homes it has never cost taxpayers a dime, to my knowledge, nor has it ever caused a financial bubble or burst in the housing market.
The private mortgage market, on the other hand, left US taxpayers with a $700 to $800 billion dollar bill following the Savings and Loan meltdown in the 1980's, not to mention imposing a lot of financial pain on millions of homeowners. Then 20 years later we find ourselves in the current housing collapse where the ultimate bill to homeowners and taxpayers will be in the many trillions of dollars, and millions of people have been financially devastated.
Every city should have the power to take whatever steps are necessary to set up a city refinance agency that can sell bonds then use the bond funds to make loans to people who want to own their own home. Set up strict underwriting criteria, insulate the administration of the program from political meddling, insulate the salary structure from efforts to bump up administrative salaries to match the private sector. Making home loans doesn't require innovation, or out of the box thinking, or any of those other corporate buzz words. It should be a color by the numbers, follow the instructions process. You don't need to pay anyone hundreds of thousands of dollars a year, you just need to hire people who take pride in their work, want to make a decent living, and are rewarded by doing a public service.
A city that set up such a program could become a magnet for young, ambitious, bright people who want the opportunity to own a home and build a life. Local business that invested in housing bonds would be building their future at the same time they are guaranteeing a tax-free return on investment funds. It could revitalize the city.
A city that set up such a program could become a magnet for young, ambitious, bright people who want the opportunity to own a home and build a life. Local business that invested in housing bonds would be building their future at the same time they are guaranteeing a tax-free return on investment funds. It could revitalize the city.
Tuesday, February 14, 2012
Things Republicans could do to make me take them seriously - labor relations
Republicans need to develop a view of labor relations that learns from the past, rather than seeking to return to the past.
Unions are just another special interest group out for whats best for them. But unions are a less than ideal solution to a very real problem - before unions market forces often led companies to treat their employees as little better than slaves. Unions evolved out of working folks banding together to protect themselves from abusive management practices.
Because governments approach has always been reactive, our current labor relations laws are based on an adversarial relationship between management and labor. This seems to me to be nuts. It is sort of like building a football team by making the linemen and the ball handling players fight it out to see who gets steak and who gets gruel.
Republican don't seem to acknowledge the function Unions serve, so they propose solutions that history has already demonstrated allows market forces to push companies toward paying their employees as little as possible for as much work as possible, and then the ensuing race to the bottom destroys the consumer base that companies need in order to sell their products. Republican solutions are to abolish or hobble unions, but offer no ideas for protecting workers from abuse by newly empowered management.
What if instead of trying to abolish or hobble private sector unions we made them irrelevant? What if government used Corporate tax policy to counteract the market tendency to reward the companies that pay their employees the least. A company with a pretty flat pay scale, that shared the wealth up and down the payroll, could qualify for a lower corporate tax rate than a company that pays its management enormous salaries and its workers minimum wage.
Public Sector unions offer a special problem. When public sector unions bargain they don't bargain with people who will ultimately foot the bill, they bargain with other public employees. The public employees bargaining on behalf of taxpayers often have conflicting loyalties - they may need the public sector unions support to maintain their political position. Recent history is replete with public sector contracts that granted far more in long term compensation than the public entity can afford.
So what if instead of trying to abolish public sector unions we made them irrelevant. We tie public sector compensation to the average private sector compensation. By law politicians would be limited in their ability to buy votes by either paying public employees to little or to much.
Unions are just another special interest group out for whats best for them. But unions are a less than ideal solution to a very real problem - before unions market forces often led companies to treat their employees as little better than slaves. Unions evolved out of working folks banding together to protect themselves from abusive management practices.
Because governments approach has always been reactive, our current labor relations laws are based on an adversarial relationship between management and labor. This seems to me to be nuts. It is sort of like building a football team by making the linemen and the ball handling players fight it out to see who gets steak and who gets gruel.
Republican don't seem to acknowledge the function Unions serve, so they propose solutions that history has already demonstrated allows market forces to push companies toward paying their employees as little as possible for as much work as possible, and then the ensuing race to the bottom destroys the consumer base that companies need in order to sell their products. Republican solutions are to abolish or hobble unions, but offer no ideas for protecting workers from abuse by newly empowered management.
What if instead of trying to abolish or hobble private sector unions we made them irrelevant? What if government used Corporate tax policy to counteract the market tendency to reward the companies that pay their employees the least. A company with a pretty flat pay scale, that shared the wealth up and down the payroll, could qualify for a lower corporate tax rate than a company that pays its management enormous salaries and its workers minimum wage.
Public Sector unions offer a special problem. When public sector unions bargain they don't bargain with people who will ultimately foot the bill, they bargain with other public employees. The public employees bargaining on behalf of taxpayers often have conflicting loyalties - they may need the public sector unions support to maintain their political position. Recent history is replete with public sector contracts that granted far more in long term compensation than the public entity can afford.
So what if instead of trying to abolish public sector unions we made them irrelevant. We tie public sector compensation to the average private sector compensation. By law politicians would be limited in their ability to buy votes by either paying public employees to little or to much.
Tuesday, February 7, 2012
This just in - data shows Republicans and Democrats are different!
OK, not really a news flash, but the data is interesting. Here are some selected quotes from the Economist on line: http://www.economist.com/blogs/babbage/2012/01/physiology-and-politics
"..... According to one famous study, conservatives are not just more god-fearing than liberals (as Americans call left-leaning folk). They are more fearful in general, making them more receptive to threatening aspects of the environment. Hence, the argument goes, their penchant for tougher policing, harsher sentencing, stronger armed forces and other Republican shibboleths.
However, this observation does not by itself explain liberals' preoccupation with progressive policies which often aim to make people's lives more pleasant, as opposed to less unpleasant. Michael Dodd, of the University of Nebraska, wondered whether this is because they are drawn more strongly than conservatives are to the bright side of life. As he and his colleagues report in the Philosophical Transactions of the Royal Society, this does in fact appear to be the case...."
The article goes on to discuss the methodology which involved a series of studies of how mixed groups of people react to various types of stimuli.
"..... According to one famous study, conservatives are not just more god-fearing than liberals (as Americans call left-leaning folk). They are more fearful in general, making them more receptive to threatening aspects of the environment. Hence, the argument goes, their penchant for tougher policing, harsher sentencing, stronger armed forces and other Republican shibboleths.
However, this observation does not by itself explain liberals' preoccupation with progressive policies which often aim to make people's lives more pleasant, as opposed to less unpleasant. Michael Dodd, of the University of Nebraska, wondered whether this is because they are drawn more strongly than conservatives are to the bright side of life. As he and his colleagues report in the Philosophical Transactions of the Royal Society, this does in fact appear to be the case...."
The article goes on to discuss the methodology which involved a series of studies of how mixed groups of people react to various types of stimuli.
Friday, February 3, 2012
Government isn't a business.
It seems to me many Republicans have this delusion that Government can be run the same way you run a business.
In business the single goal is to make money. All other considerations give way to that goal. So the successful business people are the most ruthless about laying off employees, or paying employee's as little as they can get away with. They see no responsibility to their employees, or their customers, beyond what they must do to make the business successful. The survival of the business trumps all other considerations. To a large degree business rewards selfish behavior.
Mitt Romney and Herman Cain have both been successful in the business world and their campaign promises demonstrate they believe the same techniques that brought them business success will allow them to turn Government into a more successful enterprise. Their "business" Republican mantra is cutting taxes, cutting regulation and reducing the size of government.
The problem is government is not a business. It doesn't have a single easy to grasp goal like making money. In the United States survival of the government doesn't trump the welfare of the people. Government has responsibility for all their citizens, a simple fact Republicans often seem to have a difficult time grasping.
When "business" Republicans have been in control of the Republican party they have crippled the country. The two biggest economic collapses in the last 100 years both followed spells of "business" Republicans controlling the Government. Business Republicans controlled the party in the 1920's - it was the only time in the last 100 years we had two business men as President back to back - Calvin Coolidge and Herbert Hoover. They had Republican majorities in the House and Senate. When they took over the country the had balanced budgets and a healthy economy. They ran the country like a business and by the time the people ushered them out of office in 1933 unemployment was at 25%, millions of houses had been foreclosed upon and we were staggering along in the Great Depression.
The "business" Republicans lost influence for decades after that. The next three Republican Presidents were Ike, a career military man, Reagan an actor (and ironically the head of a labor union), and George H.W. Bush, who had lots of business experience but also lots of Government experience and never embraced the "business" Republican mantra. Then came the next real "business" Republican President, George W. Bush. We are probably all old enough to remember Mr. Bush promising to cut taxes, cut regulations and cut government.
George W. came into office in 2001 with a balanced budget, a pretty healthy economy, like minded Republican majorities in the House and Senate and ran the country like a CEO. By the time he left office world financial markets were frozen, we were bailing out Wall Street and unemployment and the deficit were skyrocketing.
We the voters need to tell Republicans the country is not a business and we can't afford to let them run it like one.
In business the single goal is to make money. All other considerations give way to that goal. So the successful business people are the most ruthless about laying off employees, or paying employee's as little as they can get away with. They see no responsibility to their employees, or their customers, beyond what they must do to make the business successful. The survival of the business trumps all other considerations. To a large degree business rewards selfish behavior.
Mitt Romney and Herman Cain have both been successful in the business world and their campaign promises demonstrate they believe the same techniques that brought them business success will allow them to turn Government into a more successful enterprise. Their "business" Republican mantra is cutting taxes, cutting regulation and reducing the size of government.
The problem is government is not a business. It doesn't have a single easy to grasp goal like making money. In the United States survival of the government doesn't trump the welfare of the people. Government has responsibility for all their citizens, a simple fact Republicans often seem to have a difficult time grasping.
When "business" Republicans have been in control of the Republican party they have crippled the country. The two biggest economic collapses in the last 100 years both followed spells of "business" Republicans controlling the Government. Business Republicans controlled the party in the 1920's - it was the only time in the last 100 years we had two business men as President back to back - Calvin Coolidge and Herbert Hoover. They had Republican majorities in the House and Senate. When they took over the country the had balanced budgets and a healthy economy. They ran the country like a business and by the time the people ushered them out of office in 1933 unemployment was at 25%, millions of houses had been foreclosed upon and we were staggering along in the Great Depression.
The "business" Republicans lost influence for decades after that. The next three Republican Presidents were Ike, a career military man, Reagan an actor (and ironically the head of a labor union), and George H.W. Bush, who had lots of business experience but also lots of Government experience and never embraced the "business" Republican mantra. Then came the next real "business" Republican President, George W. Bush. We are probably all old enough to remember Mr. Bush promising to cut taxes, cut regulations and cut government.
George W. came into office in 2001 with a balanced budget, a pretty healthy economy, like minded Republican majorities in the House and Senate and ran the country like a CEO. By the time he left office world financial markets were frozen, we were bailing out Wall Street and unemployment and the deficit were skyrocketing.
We the voters need to tell Republicans the country is not a business and we can't afford to let them run it like one.
Wednesday, February 1, 2012
Some facts about elections in the US
Factoid - Corporations that spend the most money on lobbying make more money than Corporations that don't lobby. The study- a research service created a stock index based on the amount corporations spend on lobbying. Since 1998 companies that spend the most on lobbying, as a percentage of their total revenues, outperformed other companies. The "lobby" index outperformed the S&P 500 by 11% a year since 2002. In one specific example that the researchers looked at in 2004 the lobbying produced a $224 payoff for every dollar spent in lobbying. Source: Article in Economist, Oct.1.2011, p.82
Factoid - Voters subliminally exposed to a flag are more likely to vote Republican. A study found in the US that subliminal exposure to a flag made people more likely to vote Republican. The study involved 3 sets of questions about political preference, each person filled out a form asking a series of questions on 3 different occasions over the course of a couple months before and after the 2008 election. The first two asked for preferences before the election. Some of the forms had a small American flag decorating it, others were undecorated. There was a statisically significant greater preference for McCain and Republicans over Obama and the Democrats in the answers on the form with the flag on it. The questionaire after the election revealed that people who saw the flag on a questionaire were slightly over 10% less likely to have voted for Obama. The result was then confirmed by another study in the spring of 2010, which again found exposure to an image of the flag changed responses to favor Republicans. An earlier study in Israel had also found showing the national flag impacted voters perceptions of a particular political issue. Source - Economist, Aug 6, 2011. p70.
Factoid - Voters subliminally exposed to a flag are more likely to vote Republican. A study found in the US that subliminal exposure to a flag made people more likely to vote Republican. The study involved 3 sets of questions about political preference, each person filled out a form asking a series of questions on 3 different occasions over the course of a couple months before and after the 2008 election. The first two asked for preferences before the election. Some of the forms had a small American flag decorating it, others were undecorated. There was a statisically significant greater preference for McCain and Republicans over Obama and the Democrats in the answers on the form with the flag on it. The questionaire after the election revealed that people who saw the flag on a questionaire were slightly over 10% less likely to have voted for Obama. The result was then confirmed by another study in the spring of 2010, which again found exposure to an image of the flag changed responses to favor Republicans. An earlier study in Israel had also found showing the national flag impacted voters perceptions of a particular political issue. Source - Economist, Aug 6, 2011. p70.
Tuesday, January 31, 2012
What if - we voted for Federal programs on our tax return?
All my life Washington has been spending enormous amounts of time and money fighting over which programs get funded by the Government. Hundreds of programs live on in the Federal budget because Washington is to busy to pay attention to it, or, more likely, happy to take money from special interests who support a low profile program that is so low profile protecting the program won't come back to bite them in the butt.
An example - I just learned there are lots of little tiny airports around the country that get hundreds of millions of dollars in Federal subsidies - based on a program from decades ago to mitigate the impact of airline deregulation. That program was supposed to expire after 10 years, but special interests and local politicians seeking to bring home some bacon to get reelected have kept it going for decades.
.
What if on our Federal income tax filing we got to check on which programs we support or don't support.
Some core programs would have to be exempt, like defense.
But taxpayers could choose to allocate a percentage of their taxes among programs that give away government funds to individuals or businesses. School lunch programs, subsidies for farmers, or oil companies or airports.
Whatever percentage of taxpayers support the program determines the amount of money they get. Below a certain threshhold, say 10% of voters, the program is eliminated.
So programs could plan you wouldn't have every program listed every year, maybe every 8 years. And to keep the tax form short there would be ways you could vote for whole catagories of programs.
An example - I just learned there are lots of little tiny airports around the country that get hundreds of millions of dollars in Federal subsidies - based on a program from decades ago to mitigate the impact of airline deregulation. That program was supposed to expire after 10 years, but special interests and local politicians seeking to bring home some bacon to get reelected have kept it going for decades.
.
What if on our Federal income tax filing we got to check on which programs we support or don't support.
Some core programs would have to be exempt, like defense.
But taxpayers could choose to allocate a percentage of their taxes among programs that give away government funds to individuals or businesses. School lunch programs, subsidies for farmers, or oil companies or airports.
Whatever percentage of taxpayers support the program determines the amount of money they get. Below a certain threshhold, say 10% of voters, the program is eliminated.
So programs could plan you wouldn't have every program listed every year, maybe every 8 years. And to keep the tax form short there would be ways you could vote for whole catagories of programs.
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