Posts tagged ‘Economy’

11/04/2012

Undecided Voters: Economic Issues

The better choice on each issue is in the left column, indicated by a (D) for Democrat, (R) for Republican, or (N) for neither.

(D) DEFICITS AND DEBT: Which party has shown an ability to end deficit spending and produce surpluses? Reagan made drastic tax cuts for the rich in 1981 and 1986, and tripled the debt. Bill Clinton’s budget in 1993 was passed by Democrats, without a single Republican vote, and it led to surpluses. Little Bush cut tax rates again, started an optional war in Iraq, and failed to request taxes for it. He just handed a great recession to Obama. While right-wing Republicans control the House, and promise to spend more on the military, they stubbornly refuse to tax for it. There’s no reason to believe they are capable of managing the debt.

(D) TAXES IN GENERAL: Which party is more likely to implement fair tax policies that may correct the deficit and debt. Romney said he would not raise taxes. (1-8-12). He stated a desire to lower them even further. (1-16-12). He said we only need taxes for the military, nothing else. (1-7-12) With these extreme positions, he would never get close to correcting deficits and debt.

(D) TAXES: CAPITAL GAINS, DIVIDENDS AND INTEREST: Which party has the better position on taxes as to capital gains, corporate dividends, and interest income? Romney repeatedly said during the Republican debates he wanted to completely eliminate taxes on capital gains, dividends, and interest (9-7-11) (9-12-11) (9-22-11) (12-10-11) (1-16-12) He later said he would limit his plan to incomes of less than $200,000. (1-23-12) In either event, it’s unfair to people who pay taxes on earned income. His policies would either raise taxes on the Middle Class, or make the deficit and debt worse. He never explained how he would make up for the lost revenues.

(D) TAXES: PAYROLL: Which party is more likely to promote tax cuts for regular workers? Romney was dismissive of Obama’s ongoing payroll tax cuts, as he called them a band-aid (12-10-11)

(D) TAXES: CORPORATE: Romney advocated lowering the highest corporate tax rate from 35% to 25%. (11-9-11). This new loss of revenue would have to be made up by the Middle Class.

(D) TAXES: RETIREES & THOSE WITH SMALL INCOMES: Although everyone pays sales taxes, gas taxes, real estate taxes (as a part of rent), as well as other excise taxes, Romney said everyone (poor, elderly, etc.) should pay income taxes. (9-7-11).

(D) TAX RETURNS AND HIDDEN WEALTH: Why didn’t Romney disclose more personal income tax returns? Romney promised to release “multiple years.” (1-19-12). In the end, however, he only showed us two years. We don’t know if he is hiding something, or telling the truth. Gingrich said Romney lives in a world of Swiss and Cayman Island bank accounts (1-26-12)

(D) BUDGET, NATIONAL DEBT, MILITARY SPENDING: Romney said we need to stop spending like we have for the past 40 years. (1-8-12). He was critical about leaving debt to the next generation. (11-9-11). He claimed he would cut spending, but he didn’t explain how (11-9-11), except by saying he would ban earmarks. (2-22-12). Romney promises not to cut wasteful military spending, of any kind. (10-11-11). He wants 350 million for the F-22, more aircraft carriers, more Navy cruisers, more Air Force bombers, and more troops. (11-22-11). He would increase Navy shipbuilding each year from 9 to 15, and would add 100,000 troops. (12-15-11) (1-23-12) (2-22-12). He makes the case for the other side, saying Obama is shrinking the military (1-7-12) Romney thinks our Navy is smaller than it was in 1917, and our air force is smaller than it was in 1947. (1-16-12) (1-23-12).

(D) JOBS: Which party would be better for promoting jobs? Obama inherited a recession where unemployment reached over 10% in 2009. It is now down to 7.9% and the trend has been in the right direction the past three years. Romney incorrectly argued no jobs were created from the job stimulus bill (10-11-11) He said Obama’s polices worsened the job situation, which is obviously a false claim (1-7-12). Romney argues the government doesn’t create jobs (12-15-11), the private sector does (12-10-11), but then inconsistently blames Obama for not creating jobs.

(D) LABOR: Which party is more likely to protect the rights of working people? The National Labor Relations Board (NLRB) insures fairness between organized labor and management. Romney said he would curtail the NLRB (12-10-11), and would promote anti-union “right to work” laws throughout the U.S. (1-8-12) He repeatedly showed hostility towards the NLRB, by saying it was filled with “labor stooges” (1-8-12) (1-19-12).

(D) MINIMUM WAGE: Do you think Romney would ever promote an increase in the minimum wage? In one word: no.

(D) MANUFACTURING: Which party appears to be more interested in saving American manufacturing? The Republicans clearly opposed loans help GM and Chrysler get through the Great Recession. Over fierce opposition, Obama helped them. Had they gone through bankruptcy, the nation would now be reeling from the economic ripple effects. Obama took a gamble and succeeded.  Romney said funds should not have been used to bail out GM and Chrysler (10-11-11) Romney again said the auto bailout was wrong; they should have gone bankrupt. (11-9-11).

(D) AGRICULTURE: Romney would end farm subsidies as he said to let the markets work. (1-23-12). What he is actually promoting is a localized depression in Midwestern small towns.

(D) TRANSPORTATION/MASS TRANSIT: In one debate, Romney advocated improving the infrastructure, by rebuilding bridges, roads, rail beds and air transport systems. We can’t criticize him for that, but we should not forget his party harbors the likes of Gov. Walker of Wisconsin and Gov. Scott of Florida, who blocked mass transit proposals. So on transit, it appears the Republican Party will not help America enter the 21st Century.

(D) ENERGY: Who has the better energy policy? Romney wants energy security and independence by using our own resources (10-18-11 (1-7-12) (1-19-12) That’s a nice idea, but energy resources are fungible and are sold on world markets, so no nation controls them. Romney put emphasis on developing coal, oil, gas, and nuclear (9-7-11)(1-16-12) He’d give more permits for natural gas and oil drills. (12-15-11). He does not discuss solar or wind, but why not? Since Obama includes all energy resources, his policy is better.

(N) ANTITRUST: Has either candidate advocated antitrust lawsuits to break up companies too big to fail? No. Antitrust was a Republican idea in 1890, and prosecutions are now needed to break up the concentrations of power in the hands of a few.

(D) FEDERAL RESERVE: Romney claims Federal Reserve chair Bernanke pumped too much money into the economy (9-7-11), and he would discharge him. (10-11-11). He said Congress should have Fed oversight, but no control over the currency. (9-12-11). Since Romney is opposed to priming the pump through Monetary Policy, how would he have stimulated it?

(D) BANK BAILOUTS: At one point, Romney said he didn’t want to save the Wall Street banks, as Bush did (2-22-12). It appears he would have just let the system collapse, but if that had happened, we’d be in a deep depression right now.

(D) WALL STREET: Romney correctly pointed out the derivatives market was not regulated (1-23-12), but he failed to promote a regulation of it. He instead criticized those occupying Wall Street, by saying they were engaged in dangerous class warfare (10-18-11).

(D) HOUSING: Romney supported the Troubled Asset Relief Program (TARP) (10-11-11) (10-18-11) He accused Fannie and Freddie of offering mortgages to people who can’t afford them (1-26-12). He opposed the Dodd-Frank law, claiming it makes it harder for banks to make loans (1-7-12)(1-8-12).  He said the government should not stop the banks from foreclosing (10-18-11). He claimed Obama was holding off the foreclosure process, and argued we must let the market work (11-9-11) His non-solution solution is to block-grant housing vouchers (2-22-12).

(D) VULTURE CAPITALIST: If Romney wins, he’ll be the first President with a vulture capitalist background. He claims to have successfully operated businesses (12-15-11), but he was really a Bain investor, who just made money for himself and his partners. Gingrich accused him of profiting by stripping American businesses of assets,  bankrupting companies, and laying off workers (1-7-12) Romney said they had to be downsized (1-7-12) Gingrich said Romney’s Bain looted companies and left people unemployed (1-8-12). Gingrich said he was engaged in vulture capitalism. (1-16-12). In an interesting contradiction, while discussing tax returns, Romney said his income came from a blind trust. He said the money I earn: “is not made by me.” (1-26-12).

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06/12/2012

Autos: Replace Gas Engines with Electric

There is no doubt autos with gasoline-combustion engines are by far the dominant mode of transportation in the U.S., but how long will that continue? For those who think gas-propelled cars will remain indefinitely, they should be reminded of the horse-and-buggy, which was once considered a permanent institution.

The question is not whether the gas-combustion engine will become a thing of the past, the only issue is: When will it be replaced, and by what alternative source of energy?

It may be surprising to many, but electric cars were manufactured by 54 different American firms between 1893 and 1928, and were once widely used. 300 electric taxis were operating in New York City in 1900. The next year, an electric ambulance took President McKinley to the hospital, following his assassination in 1901.

Although electric cars had the advantage of being quiet and clean, as they emitted no poisonous gases, their top speed was only about 20 MPH, and they could only go about 50 miles before their lead-acid batteries needed replacement. To complicate the problem, new batteries were expensive. As gas-propelled vehicles became easier to operate in 1910, the electric car faded from the scene, and they were eliminated completely in 1928.

Another predecessor to gas was the steam engine, known as the Stanley Steamer, which was first marketed in 1896. They remained through 1925, when again gas-combustion took over.

The gas-combustion engine got their boost in Germany in 1885, when Gottlieb Daimler and Karl Benz built vehicles. In the U.S., Henry Ford and Ransom Olds started in 1896. Olds took the first step towards an assembly line, as he increased production from 425 cars in 1901 to 2,500 in 1902. Using Ford’s conveyor belt in 1913, they were able to make one Model T every 93 minutes.

Following WWI, the gas-propelled auto became the major means of transportation in the U.S. Its use increased many times over in the subsequent decades of the 20th Century.

To make the auto dominant, the government invested billions in federal, state, and local highway systems, beginning in 1921. As tax dollars were spent, millions of miles of roads were added during the 20 years through 1941. Suburban communities exploded, particularly after WWII, as many were invented in places not previously serviced by rail or water.

Now, the era of the gas-engine has had a long 90-year run, during which many improvements were made to the car, but many problems also surfaced. Gas engines have given us air pollution, congested highways, urban sprawl, a foreign oil addiction, automobile accidents, as well as a host of other problems.

When considering their cost, we must keep in mind not only the price of the car, but the taxes spent by the government to build and maintain roads, military spending to keep the sea lanes open for oil shipments, and environmental harm to the air we breath.

Political leaders should be pushing scientists and engineers to bring back the electric car, since they are quieter, cleaner, and need not rely on foreign oil. The government invested heavily in roads to help gas-powered car get off the ground. Now, we need the same to help electric cars become our primary form of transit.

06/02/2012

Health Care in U.S.: Hostile to Consumers

Would you buy a car, and drive it off the lot, not knowing its cost, just hoping for the best when the bill arrived in the mail? I didn’t think so. But that is exactly what the U.S. medical community seriously expects you to do when consuming health care.

American medicine operates within a totally dysfunctional economic system. Patient accounts do everything possible to avoid price quotes. If consumers are patient enough to wait on line to speak to an actual human being, many of whom are impatient, condescending, or just downright rude, they will at best hear only vague meaningless “estimates.”

If a written letter is issued, and it actually states an “estimated” price for a procedure, the following paragraph will qualify the cost, and make it totally meaningless, through additional language that states: “this does not include any potential facility fees, anesthesia fees, lab or pathology fees, or supply charges.”

Don’t they realize “estimates” followed immediately by language that allows billing for of a whole host of additional expenses, renders them absolutely worthless? How is the consumer to know even a ballpark cost? What is the reasonable consumer to think?

But let’s not accuse the relatively well-off medical community for creating this terrible American system we have. Let’s keep the blame where it belongs, on the consumer, for they are the ones who deserve ridicule. How dare they even seek price quotes in the first place? Just who are these peons with the audacity to request information on costs? Don’t they realize they’re addressing the medical community? Don’t they know those in medicine simply don’t dirty their precious hands with costs, that is, until it is time to collect, and the wretched consumers are fully expected to pay every nickel, under a one-way highway billing system.

Personally, I was priced out of the private health insurance market long ago. No, I am ok. I can walk, talk, and get around just fine, but my parents had diabetes and heart disease, so on the assumption I would also succumb, my premiums started galloping upward with each payment, until the private carriers finally got what they wanted, and pushed me away without insurance. So, now I pay cash for health care, and must shop around.

Although the online price for a cataract procedure was an average of $3,300 and up, when I tried to nail something down this week, I was unable to do so. The Dean Clinic gave me an “estimate” of $5,686 with all the qualifying language mentioned earlier in this article, which amounted to no price quote at all. Anderson and Shapiro started at $2,999, “with no hidden costs,” but then after I was switched to the next operator, I was told I needed a physical and EKG, since I was over 55, even though I was symptom free. The “estimated” cost online for the unnecessary EKG was around $2,000. So, I was left with truly no idea what the cost of a relatively simply out-patient 10-minute cataract procedure would be, except that it would be starting somewhere above $5,000.

I don’t mean to single out just two clinics, as almost all of them have created problems over the years. When I set up an eye exam at the University of Wisconsin Eye Clinic earlier this year, I was quoted $246, but when the bill arrived, it was $358, which was $112 more than the quote. I just laughed, because I knew they would not honor their own quote. Since their ophthalmologist “estimated” cataract surgery at around $6,500, I definitely didn’t return there, due to their history of billing more than their quotes.

There is no reason the government could not simply order health care providers to post their prices for each procedure, somewhat like those visible at gas pumps. Yes, each patient is unique. We all know that. But while treatment may differ slightly from one to the other, there is no reason we could not mandate a public disclosure of all-inclusive singular prices, so consumers could be informed, and could begin shopping in a competitive market. For the uninsured, the current pricing system is totally dysfunctional.

05/31/2012

Auto Loans: Romney Tries to Hitch Ride

It was funny earlier this month when Gov. Romney tried to take credit for the auto industry bailout that saved Chrysler and GM from a certain Chapter 7 bankruptcy, by providing federal loans in a depressed economy where no money whatsoever was available from private sector banks. I mean it was not just odd that Romney would say what he did, in that sense of the word funny, but truly funny to the point where we couldn’t stop laughing, as we listened to Romney say he supported the auto industry bailout, all along.

Romney must really think we are stupid. As painful as it was, I had watched all 20 Republican debates, just to listen to what the right-wingers were saying. All of their candidates, including Romney, repeatedly stated an opposition to the loans that saved Chrysler and GM. They had no concern for the countless number of jobs that would have been lost, not only at those companies, but at the component part factories that also would have closed.

In the debates, Romney said he would have let Chrysler and GM go bankrupt. (6-13-11) Funds should not have been used to bail out GM and Chrysler, he argued. (10-11-11). The auto bailout was wrong, he insisted, as he opposed the transfer of GM to the UAW, and Chrysler to Fiat. (11-9-11) As the debates dragged on, Romney often repeated his talking points that the government should not have loaned money to GM or Chrysler, and again insisted they should have been allowed to go bankrupt. (12-8-11)

It was only when Romney approached the Michigan primary that he started campaigning differently. Then he said: “No way would we allow the auto industry in America to totally implode and disappear.” (2-22-12). It’s interesting how he changed his tune so quickly. Santorum correctly pointed out Romney was not a principled person, because he favored the Wall Street bailout, but opposed any aid for the Detroit auto workers. (2-22-12)

The truth is Obama inherited an auto industry that was on the verge of bankruptcy, but he refused to let it die. Now, GM is once again the world’s number one automaker, Chrysler has grown, and Ford is investing billions in U.S. plants. The industry has now added 160,000 jobs, and Obama said we will soon be selling U.S. cars in Korea. (1-25-12)

Hopefully, Michigan, Ohio and Indiana will not forget the truth of where Romney stood in their hour of need. Obama deserves credit for saving not only two of our most important auto factories, but also their component part suppliers. And Romney, the next time you totally contradict yourself, which we have come to learn is on a fairly regular basis, please at least try to come up with a lie that is much more plausible. After all, the debates were videotaped.

05/30/2012

Jobs: Republicans Deserve No Credit

It always amusing when Republicans like Wisconsin Gov. Walker take credit for job increases, as if they personally interviewed the unemployed, one by one, and told them they were hired. While Democrats have historically helped those out of work by creating public sector jobs, Republicans don’t even budget enough money to meet the current government payroll, and they certainly are not entitled to take credit for any new government employment.

As to the private sector, governments can only indirectly stimulate economic activity through Fiscal Policies, which increase government spending. Since Republicans again routinely vote against job stimulus bills, they cannot legitimately take credit for any employment the government may trigger in the private sector.

When politicians like Republican Gov. Perry claim they added 1 million new jobs in Texas, they try to take credit for something they did not do, since they added no public sector jobs, and stimulated no private employment, through state budgeting.

While Gov. Romney argued jobs are established in the private sector, and not in Washington, he repeatedly failed to explain his theory that only those who understand “how the economy works” can create employment. The truth is merely understanding “how the economy works” is not a formula for job creation. Slogans like: “to create jobs, you have to have had one,” sound great, but insult our intelligence, since they explain nothing.

What is funny is when politicians like Romney, Perry, Huntsman, Bachmann, Ron Paul, Gingrich, and all the others, repeat the standard Republican talking points that jobs can be created by eliminating regulation, lowering taxes, and repealing Health Care.

Just how would the elimination of regulations create jobs? Have you ever thought about it? The right wing repeatedly makes this argument, but nobody pauses to think about what they are saying? If we repealed food safety rules made by the Food and Drug Administration, our health would be endangered for sure, but how would that create jobs, except perhaps in emergency rooms? If we eliminated air safety rules promulgated by the Federal Aviation Administration, we may have more plane crashes, but explain the job creation theory, because the connection is not at all obvious.

Lowering taxes to create jobs is another interesting theory. President George W. Bush tried it in a big way, as he dramatically cut taxes for the wealthy, and what happened? 4 million lost their jobs in 2008, in the six months before President Obama took office. Bush’s cuts sounded good to the wealthy, but if the policy had worked for all of us, the rich would have used their new wealth to invest in job creation, but they obviously did not do that.

How would the repeal of the new Health Care law increase jobs? If the nation will be adding health coverage for 40 million people, one need not be a rocket scientist to understand that a countless number of jobs will necessarily be created to take care of them. The right wing theory that repealing the law would somehow add jobs is totally baseless and illogical.

While Republicans pay lip service to unemployment, saying it is a tragedy that affects millions, they avoid direct solutions like public works hiring projects, and oppose government stimulus plans. Reducing taxes for the rich, eliminating unspecific regulations, and making other reforms not even remotely related to jobs, is no answer. The very least the right wingers and Republicans could do is avoid taking credit for jobs, since they certainly have no right to claim credit for them.

05/23/2012

Bank Bailouts: Were They Needed?

As the banks crashed in 2008, George Bush’s government took action to bail them out, and his emergency measures continued under President Obama in 2009, and beyond, as both parties, at least tacitly, approved of the efforts.

During the Republican primary debates in 2011 and 2012, all of the conservatives criticized the bank bailouts, including Congresswoman Bachmann who categorically opposed all government loans. Congressman Ron Paul said he would not give any assistance to any private firm. He mocked the bailouts saying: “They thought the world would end, if we did not bail out the banks.” He was concerned, because he said the Fed even sent five billion overseas to bail out foreign banks.

Gov. Huntsman opposed the bailouts, arguing we spent trillions, and have nothing to show for it. Sen. Santorum opposed the bank rescue, noting he would have done nothing about the meltdown. He said the financial institutions should have been allowed to go bankrupt. Why prop them up through government, he asked? Santorum asked Gov. Romney why he supported the Wall Street bank bailouts, if he believed in capitalism. Why not let destructive capitalism work, he asked?

Gov. Romney felt President Bush had to take action to keep all banks from closing, but characteristically contradicted himself, saying: “I didn’t want to save Wall Street banks.” Romney also said if Europe had a financial crisis, he wouldn’t give a blank check, or go over there to save their banks, but then he contradicted himself again, saying he would take action, if all of the economies of the entire world were collapsing, because we would need to prevent a contagion from affecting U.S. banks.

While the banks survived thanks to the bailouts, we have no way of knowing for sure what would have happened if the government had done nothing. At the very least, several major institutions would have closed their doors, and it is likely the entire economy would have sustained major seizures. Instead of 10% out of work, the country may have confronted a 25% unemployment rate, and people would have been asking why no intervention was taken.

In retrospect, the bank bailouts were appropriate to get the big institutions through their perilous moment, provided the loans extended by the government are now fully repaid, with interest.

Since the big banks were “too big to fail,” the government made the correct decision to save them, but now that the crisis has ended, it’s time to break them up, under new antitrust laws, so if we face a similar situations in the future, we will be able to let much smaller downsized institutions simply go under.

05/21/2012

Currency: No Return to Gold Standard

During the Republican debates, Congressman Ron Paul went off the deep end as to the currency, advocating a return to the “gold standard.” As Newt Gingrich suggested forming a commission to look into bringing it back, Herman Cain argued the nation needed to focus on the “sound money” virtues of gold and silver.

None of these Republicans however could possibly have been serious about the currency. While there are potential problems in the uncontrolled printing of money, based on nothing more than a faith in the strength of the Federal Reserve, returning to gold or silver to back up the currency, is certainly no answer.

The principle problem with gold and silver is their quantities are finite, and as the population grows faster than the metal supply, money becomes scarce, adversely affecting economic expansion.

During the Presidency of Andrew Jackson, the population grew at a rate far greater than the available precious metal supply, causing many to advocate paper money. Jackson, however, was hostile to the idea, and insisted on remaining with gold and silver. When he ordered federal agents to accept only gold or silver for the sale of public lands, banks were already down to only 1 gold dollar in reserve, for every 10 paper dollars, and his 1836 decree triggered an inflationary spike in prices and interest rates, and caused the value of the dollar to drop.

The inadequate supply of currency arose again when President Lincoln had to circulate paper Greenbacks to pay for the Civil War. Since the Treasury had been selling gold to anyone who wanted to buy it, by the time Grant took office in 1869, the money supply was depleted. When Congress proposed a bill to add a paper currency, Grant vetoed it, triggering the Panic of 1873. The Greenback Party (1874-89) emerged to push for a paper currency.

While President Hayes continued to allow the exchange of gold coins for the paper Greenbacks issued during the Civil War, he wanted more silver and paper money, but there was not enough gold to back it up, so he vetoed a bill that would have required the Treasury to coin certain quantities of silver each month.

The mint finally started increasing the supply of silver coins, under the Silver Act of 1893, signed into law by President Harrison. As the price for silver fell, currency manipulators quickly exchanged it for gold, and drained our gold reserves.

A Special Session of Congress was called to repeal the Silver Act as soon as President Cleveland took office in 1893, but he refused to abandon the gold standard, and gold reserves continued falling, leading to the Financial Panic of 1893, and a farm depression.

When William Jennings Bryant proposed the free coinage of silver, President William McKinley again played it safe by defending the gold standard. He signed the Gold Standard Act of 1900, strictly limiting paper money redemption to gold.

It was not until 1934, during the Great Depression, and the administration of Franklin Roosevelt, when we finally moved off the gold standard, by replacing it with the full faith and credit of the Federal Reserve Bank. The final nail in the gold standard coffin came in 1971, when Republican Richard Nixon completely cancelled the right to convert dollars to gold.

The gold standard is dead. It died 78 years ago. While there is a risk of printing too much paper money at the Federal Reserve, the solution is not to return to gold, the answer is to intelligently monitor the quantity of paper currency printed, and insure that the value of the Dollar is not diminished in the process.

05/18/2012

Underwater Mortgages: Need “Demand”

When the housing market crashed in 2008, somewhere between 25% and 53% of all homeowners in America, (depending on their geographic region), realized their homes were “underwater,” because they suddenly owed more to the banks on their mortgage balances, than their properties were worth.

The crash was in part caused by “adjustable rate mortgages” that increased to unsustainable levels, causing so many homeowners to default, they triggered a foreclosure crisis. Since the problem was blamed on “easy credit,” tighter rules were implemented, forcing lenders to accept only very creditworthy borrowers, who could start their mortgage schedules with much higher down payments.

As a consequence of resetting the deck, people who were formerly qualified to buy, could no longer do so. The led to a reduction in housing “demand,” at a time when the “supply” on the market was greater than ever, due to all the foreclosures. So we ended up with more houses for sale, but far fewer potential buyers.

In the years to come, underwater homeowners will not get back into the black, until the value of housing market increases to pre-crash levels. The value of homes will not rise, until the quantity of buyers becomes greater than the number of sellers. It is basic economics: “price” rises when “demand” exceeds “supply.”

Since the “supply” of available housing is fixed and finite, the variable that needs adjustment is “demand.” The government needs to trigger more “demand” to bring about a rising tide as to all home values. Today, there are millions who would love to own a home, and could make their monthly payments, but they lack a sufficient down payment, and do not qualify under the new rules.

While stimulating the building of new homes may put people back to work in the construction industry, it does nothing to lessen the oversupply of already existing homes, or to increase the existing weak demand for them.

Gov. Romney said slowing down the foreclosure process, buying up troubled homes, or giving thousands of dollars towards the purchase of a new home, won’t solve the problem. He predicted home prices won’t return, until the market works. His answer is for the government to do nothing, and just hope pre-crash values return, after a decade or so of relatively sluggish sales.

Congressman Paul basically advocated full speed ahead with the foreclosure process, as he said housing debts must be liquidated, as they are only prolonging the agony. If the bad paper had been auctioned and sold, it would have been cleansed by now, he said. As to the bailouts, Paul lamented, if money was to be given out, it should have gone to those who lost mortgages, not the banks.

Putting more money in the hands of buyers is what is needed, so more people can accumulate the down payments they need. This is how the housing market will return. But this can only happen through higher earnings. As long as Romney proposes nothing to help Middle Class people earn more, the housing market will remain flat, and the homes now underwater, will simply remain that way for a long time to come.

05/17/2012

Banking: How the System Evolved

With the Crash of 2008 and the melt down of our big financial institutions, questions have arisen as to how U.S. Banking evolved into what it is today.

While the Constitution did not expressly delegate the power to establish a federal bank, it clearly authorized Congress to coin money and to regulate its value. The Congress was also given the authority to make all laws “necessary and proper” to carry out those functions. In addition to a mint, George Washington opened the First Bank of the U.S. in 1791, which continued for 20 years, until their charter expired in 1811 due to non-renewal.

After the War of 1812, converting state bank notes into gold and silver became such a problem, Congress and James Madison were prompted into creating a 2nd Bank of the United States, in 1816. Andrew Jackson criticized it, saying it concentrated funds in the east, and limited local western banks from lending to farmers.

When Jackson became President, he was presented with a bill in 1832 to extend the charter of the 2nd U.S. Bank, but he vetoed it, arguing it was unconstitutional. He directed his Treasury Secretary to move all federal funds from the U.S. Bank into state banks, but his Treasury Secretary and his successor both refused, before the third in line finally carried out Jackson’s order.

As Jackson left office in 1837, newly-elected Martin Van Buren inherited the nation’s first serious depression. The crash came 36 days after he was sworn-in, as nearly every bank in the country closed. Van Buren tried to create a more stable system in 1840 by moving all federal funds from private banks into a U.S. Treasury.

As soon as President Tyler took over in 1841, he quickly reversed Van Buren’s policy, and vetoed two bills sponsored by Sen. Henry Clay to revive the U.S. Bank. President Polk, who followed Tyler in 1845, returned to Van Buren’s policy of keeping federal funds in the U.S. Treasury.

Before the Civil War, President Buchanan presided over an economic panic that witnessed the failure of several banks, and the volatility later continued, with additional panics under Grant in 1873, and Cleveland in 1893.

President Wilson signed the Federal Reserve Act in 1913, which created a new more stable system, by establishing 12 Federal Reserve Banks, charged with regulating the money supply, making loans to private banks, and by monitoring their reserves.

As President Franklin Roosevelt inherited the Great Depression, depositors started withdrawing their money from banks in 1933, triggering a panic that caused 5,000 of them to go out of business, the day before he was inaugurated. The new President promptly closed all banks, declared a Bank Holiday, and signed an Emergency Banking Act (1933) that established the Federal Deposit Insurance Corporation (FDIC) to make deposits safe by providing insurance for them. Congress also passed the Glass-Stiegel Act (1933) to take banks out of stock market speculation.

Ronald Reagan ushered in a new era of right-wing deregulation, during which he pushed the repeal of financial sector rules. As the conservatives beat the dumb louder and louder, they pressured moderates like Bill Clinton to repeal of the depression-era Glass-Stiegel Act. For eight years under George W. Bush, his minions looked the other way, as speculators took over the financial sector, and led us into the Crash of 2008.

To correct the problems caused by deregulation, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, as a first step in re-regulating the financial sector. That is how we got to where we are, but we are not there yet, and we have a ways to go to fully stabilize the system.

05/10/2012

Housing Crisis: “Easy Credit” Not Cause

While Republicans attributed the 2008 housing collapse to many factors during the 2011 and 2012 debates, including Fannie Mae and Freddie Mac, “easy credit,” and “loans to people who could not afford them,” they never really hit the nail on the head, because they never even mentioned “adjustable interest rates.”

Fannie Mae and Freddie Mac were not in and of themselves a problem. In the Great Depression, when housing crashed the first time, the Congress responded in 1938 by establishing “Fannie Mae,” the Federal National Mortgage Association (FNMA), which created a “secondary mortgage market” by accepting the assignment of mortgage notes from banks in consideration for cash, so banks could promptly turn around and make more loans. It was good public policy, because it effectively increased the sum of money available for lending, and increased the level of home ownership. There is no reason today to abolish that concept.

After Fannie proved useful, the Republicans in Congress made the mistake of converting it into a “mixed ownership corporation” in 1950, by allowing private investors to purchase its common stock. They also erred in 1968 by making Fannie 100% privately-owned, while maintaining their line of credit to the U.S. Treasury. Since Fannie wanted only lower risk private mortgages, Freddie Mac, the Federal Home Loan Mortgage Corporation (FHLMC), was created to accept the riskier notes, made by the FHA, VA, and FmHA. While the privatization of Fannie made it harder to monitor, that mistake did not cause the recent housing meltdown.

Some argued “easy credit” and relaxed lending standards contributed to the crisis, as borrowers were no longer required to put 20% down, or sufficiently prove a credit worthiness. As the crash hit and the values of many mortgages went underwater, many borrowers had little or nothing to lose, and simply walked away from their obligations. While this sounds like a possible cause, if the borrowers had stayed employed, and their interest rates remained unchanged, they would have continued making their monthly payments, and no defaults would have occurred. “Easy credit” allowing people to buy with small or non-existent down-payments had nothing to do with why they defaulted.

Mortgage Notes, containing “adjustable interest rates” which could escalate or balloon to unsustainable levels over time, were the real problem. Notes that allowed “interest only” payments, reduced no principle, and left borrowers in a perpetual state of debt, were also a menace. Once rates jumped upward for borrowers who had no extra cash, breaches were inevitable. Lenders like Countrywide should have been stopped from making such bad loans. President Obama said in his Jan. 25, 2012 speech, mortgages were sold to people who could not afford them, by lenders who knew it, and this is why regulations are needed to prevent financial fraud.

The way to get back to financial stability in the housing market is to outlaw “adjustable interest rates,” and permit only “fixed interest rates.” If borrowers had the certainly of knowing a monthly payment that could never change, defaults would have been limited to only those who lost their jobs, and the downturn in the housing market would have been relatively mild.