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Insuring the rich stay rich

Monday, August 13, 2007

Must reading by Dean Baker at Truthout (Welfare as We Know It Now):

In the days before welfare reform, single mothers could collect five or six hundred dollars a month without working. That was what welfare looked like before 1996. In the Internet Age, welfare is about having the government do everything it can to make the rich absolutely as rich as possible.

As F. Scott Fitzgerald said many years ago, the rich are not like you or me: They need the government’s assistance to get by. There are all sorts of ways in which the government helps those who have the most.

…

At the moment, many of the high-flying hedge fund boys and girls find themselves in trouble because they invested heavily in subprime mortgages and other risky assets. With the housing bubble starting to deflate, some of these assets are nearly worthless and many are worth far less than what the hedge funds paid.

Hedge funds make big returns by making highly leveraged investments, meaning they borrow heavily to multiply their gains. The flip side in this story is that when the hedge funds bet wrong, they can lose much of their capital very quickly.

The hedge fund crew is desperately hoping the Federal Reserve Board will swoop in to save the day. Most immediately, they need lower interest rates. The hedge funds can only hang onto their assets as long as they can pay interest on the money they borrow. If interest rates fall, then an important source of pressure will be relieved.

Next, they need some sucker on whom they can dump their bad mortgages. The best candidates are Fannie Mae and Freddie Mac. These government-backed firms created the secondary market in mortgage debt that allows banks to sell the mortgages they issue. It turns out the hedge funds have been big players in the secondary market, buying up hundreds of billions in mortgage debt that is going bad at a very rapid rate. The hedge fund boys will be lobbying Congress big-time to broaden the role of Fannie and Freddie so they can buy this bad debt and save them from large losses.

 With the Fed lowering interest rates and Fannie and Freddie buying up their junk bonds, the hedge fund managers may be able to make it through the housing market crash relatively unscathed. It might take a lot of help from the government to ensure their fortunes, but the rich are different from you and me.

This, by the way, is not an exclusively Republican response to the pain of the rich. When it comes to insuring that the rich stay rich, the Democrats are almost as zealous as the Republicans

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Nice work if you can get it

Monday, August 13, 2007

I don’t know the precise hole into which Karl Rove will now crawl, but one candidate, at least as a sideline, is the scam in which Linda Chavez, Reagan’s (and Bush’s proposed) Hispanic conservative is currently engaged. According to the Washington Post, she and her equally loathsome husband run three PACs, which have soaked over $24 million dollars from right wing nutjobs while spending approximately 1.5% of that in what could possibly be called political activities. The rest went into salaries for family members and more fundraising. Despite all the evidence, it appears that Chavez is not intentionally working for the Democrats.

“I guess you could call it the family business,” Chavez said in an interview.

And what a business. They needed to do something different, since they couldn’t seem to make honest work pay:

The family took a break from politics when Bill Clinton was elected president, briefly operating a Mexican restaurant in Gaithersburg called the Santa Fe Express, with Chavez taping television interviews on politics during the day and working the cash register at night. The restaurant went broke.

At that point, Chavez’s husband told the Post, they discovered the wonderful world of scamming right wing dupes. Well, he didn’t put it quite that way, but basically that’s what happened.

Considering the small amount of money actually spent productively, you might think that Chavez would at least know where it went, but…not so much:

The Latino Alliance, for instance, “did lots of telephone calls in the 2004 elections,” she said. “I believe we did some radio ads. We did outreach into the Latino communities to try and mobilize more pro-Republican votes.” (Emphasis added)

It would be wonderful if Karl decided to spend the next few years running his very own Chavez style PAC. Given his god like status with the GOP base, he could probably siphon off 10 times what Chavez is able to raise.

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Losing in Afghanistan

Sunday, August 12, 2007

Interesting article in the Times this morning about the failure in Afghanistan (you expected something else from these folks?). It contains the usual litany of failures, incompetence and faith based governance. Nothing new there.

I found two things interesting. One was the fact that almost all of the sources were on the record. Apparently the fear that the Bush machine inspired in the early going has dissipated. Bush may have the Democrats cowed, but no one else seems frightened.

The second thing that struck me was this:

Despite warnings about the Taliban’s resurgence from Mr. Neumann, Mr. Khalilzad and military officials, Ms. Rice said, “there was no doubt that people were surprised that the Taliban was able to regroup and come back in a large, well-organized force.”

Poor Condi has a knack for pleading that the foreseeable is unforseeable. No one could have predicted that people would use planes as weapons, no one had any idea that the Niger weapons claims were overblown, and no one had any idea that the Taliban might regroup. Except the experts, but who listens to them?

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This and that from Vermont

Sunday, August 12, 2007

Internet access has been more sporadic than usual this year, accounting for the small number of posts I have inflicted on the world recently. The lack of access, combined with the fact that we haven’t been buying newspapers, means that I am blissfully unaware of the bad news that I am sure is filling the papers.

So I have nothing to say, but I do have a few pictures. First, from Pawlet, Vermont this picture of an artist’s studio. The last time we visited, it was adorned with Albert Einstein’s visage, which I believe I may have put up on my old blog. The artist told us that he changes the faces periodically. The have included, inter alia and in addition to Einstein, Bernie Sanders and Don Knotts. Next up, at least according to plan, is Hillary Clinton. He said he doesn’t necessarily support her, but she has an interesting face. At present, as you can see, it’s Willie Nelson

I would have preferred to show a bit of context, but there was a car parked right next to the studio that marred the view.

Here’s a typical Vermont scene.

And here’s a truism found at the entrance to Vermont’s finest book store, the Northshire in Manchester:

As I said, I haven’t been able to keep up with much, but I see from one of my widgets that the Red Sox are busily squandering their lead. The question now is whether they’ll still be in first place by the time I get home. Ah well, these things build character, which is why New England has so many characters.

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Bigger houses for flatter incomes

Friday, August 10, 2007

According to CNN, there is talk in Congress about bailing out the mortgage industry.

Of course, all the talk is about directing help toward the crooks and liars who created the crisis in the first place; the homeowners who were suckered into borrowing too much money will get nothing. What I found sort of unbelievable was this:

Fannie [Mae] and Freddie [Mac] have a Federal charter that requires them to provide liquidity and stability to the mortgage market. However, those organizations made it clear on Friday that any help will be limited.

…

Freddie has pledged to invest $20 billion in new subprime mortgage products. However those loans have to meet much stricter underwriting standards. (emphasis added)

I’m not an economist, so maybe I’m being simplistic. Still, it seems to me that there is no reason to have or encourage a subprime market, which by definition involves extensions of credit to people who are unlikely to be able to repay the money they are borrowing, all predicated on the belief that housing prices will rise indefinitely. For the most part these borrowers are not deadbeats, they are people who are borrowing more than they can’t afford to repay.

What would happen if these people could not get these ill-advised loans? If there are enough of them, then their withdrawal from the housing market would result in a lessening of demand for houses at the prices currently being asked. The laws of supply and demand (unless they’ve been repealed) would seem to indicate that existing home prices would fall until those same people, or many of them, could buy homes that they could afford. This would mean that a lot of people who currently own homes would not be able to realize huge capital gains when they sell, but they do not have a constitutional right to such gains, and in any event it is impossible to sustain ever rising home prices in the face of stagnant real income. If we want stable increases in home prices we need stable increases in median incomes, something we haven’t seen in a long time. As it is, the subprime lending market appears to function more as an artificial price support system for real property, than as a necessary lending mechanism for people with bad credit. This particular housing bubble has burst, and the inevitable damage is being done. The question is whether we want to allow a repetition, by allowing or encouraging subprime lending in the future.

It could be argued, possibly, that there is a natural floor for housing prices, which can’t go lower than the cost of building homes. Perhaps the cost of building a home would price the subprime borrower out of the market completely. I don’t know if that argument would have merit, but if it does it assumes that every house we build must be of the McMansion type that is now the norm. Perhaps if we imposed some sanity on credit markets it would have the salutary side effect of encouraging the building of reasonably sized and priced homes.This trend toward ever larger homes has taken a toll on Americans, who feel it necessary to keep up with their own perception of how rich they should be. This Sunday’s Times carried a Book Review of Falling Behind: How Rising Inequality Harms the Middle Class by Robert Frank, in which the reviewer notes:

… Between 1949 and 1979, the rising tide of the American economy lifted all boats more or less equally. In fact, the incomes of the bottom 80 percent grew more rapidly than the incomes of the top 1 percent, and those of the bottom 20 percent grew most rapidly of all. But since 1979, gains have flowed disproportionately to top earners. In an economy where the wealthy set the norms for consumption and people at every rung strain to maintain the consumption of those just above them, that spells trouble. In today’s arms race, the top 1 percent are armed to the teeth and everybody else is scavenging for ammunition. Between 1980 and 2001, Frank notes, the median size of new homes in the United States rose from 1,600 to 2,100 square feet, “despite the fact that the median family’s real income had changed little in the intervening years.” The end result? Frank methodically presents data showing that the typical American now works more, saves less, commutes longer and borrows more to maintain what he or she views as an appropriate standard of living.

The subprime borrower is, oftentimes, a person who would be perfectly prime if he or she were buying a home that was reasonably priced or reasonably sized (If not, then the individual is so far below prime they should not be buying a house). If Fannie Mae and Freddie Mac feel it is government policy to support the subprime market they are doing the subprime borrower no great favor, but they are enabling the scammers and contributing to an unhealthy spiral of rising home prices in a country with flat income growth.

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Truth in the Internet age

Thursday, August 9, 2007

While perusing the Boston Globe yesterday, I came across this article in the Business Section, about the latest doings at Fidelity Investments, in which, truth to tell, I have zero interest. Nonetheless, I was struck by this paragraph:

Ned Johnson, the visionary who built Fidelity Investments into the nation’s largest mutual fund company, has long been a believer in the Japanese workplace philosophy of “kaizen,” which emphasizes constant change as a way to improve efficiency. He is certainly familiar with this old Japanese proverb: The fish rots from the head down (Emphasis added)

Certainly the proverb is quite true, as Bush is proving about the American fish. However, the attribution of the proverb to the Japanese drew me up short, for I immediately and accurately recalled that Michael Dukakis has accurately observed that the Reagan-Bush Adminstration was demonstrating the proverb’s truth in 1988, yet he, as I again accurately recalled, attributed it to his Greek ancestors. A quick Google search revealed no attributions to the Japanese, but two attributions to the Russians, one by a self proclaimed Russian, and one by a presumed non-Russian. A seach for “fish rots from head down source” reveals this enticiing link, which appears to support Dukakis and appears to rely on an authoritative source (MacMillan Book of Proverbs, Maxims and Famous Phrases), but alas, when one clicks one finds that one must pay to read the entire article. Lastly, here we find a claim that it is an old Chinese proverb.

Where does the truth lie? My money’s on the Greeks, but that’s a mere guess. The Japanese do not appear to be in the running, so one must wonder what source the Globe reporter relied upon to make the assertion that he did. A minor matter, perhaps, but a bit troubling if, as one suspects, he shaped the facts to fit the storyline.

Of course, in this internet age, truth can sometimes be a rather slippery thing. Will the next person googling the phrase rely on the Globe article to conclude that the phrase indeed originated with the Japanese?

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Our media at work

Wednesday, August 8, 2007

In this morning’s Day we learn that John Edwards failed to score points with a union crowd in Chicago at a candidates debate. The debate took place before a large and raucous union crowd. How do we know that Edwards failed to score? Well, we don’t have to take the reporter’s (a labor reporter no less) word for it. Look at who confirmed his story line for him:

“I thought the candidates left the forum in exactly the same condition they came in,” said Marick Masters, professor of business administration with the Katz Business School at the University of Pittsburgh. “Clinton and Obama are still the front-runners. The race is still between them. I don’t think Edwards got in any major hits in this stadium.”

What’s that you say? You have your doubts about whether a professor of business administration necessarily talks for union members? Not to worry, there’s more:

Democratic analyst Donna Brazile said Clinton did a great impression of playing Muhammad Ali during the debate, dodging and weaving as her rivals threw punches.

“The other candidates are trying to take a piece of her but failed,” Brazile said. “She can avoid the punches and still land some blows. That speaks volumes on why she’s the front-runner.”

Still not impressed? A tad suspicious that Ms. Brazile might be a Clinton supporter, and that her analysis might be a tad slanted? Have no fear. A quick Google search fails to turn up a single instance in which she has expressed direct support for Hillary (this year). Please ignore the fact that she has been a member of the Clinton retinue for years.

As to union members or leaders? Not a single one is quoted.

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Use it or lose it

Wednesday, August 8, 2007

More short sightedness from the Democrats, at least according to the LA Times:

Democrats are not winning the battle to force Atty. Gen. Alberto R. Gonzales from office, stymied by a legal system that gives the Bush administration wide discretion to block investigations of itself. And they are not getting the White House witnesses or records they have demanded in recent weeks.

But many Democrats are fine with that.

Although they may prove fruitless, the Democrats’ investigative efforts may help keep President Bush and his administration the center of attention in next year’s elections, even as the Republican Party chooses a new standard-bearer and tries to move on.

It’s all well and good that the Democrats may be able to use Gonzales as a political issue in 2008, but it comes at the cost of demonstrating Congressional (and by extension, Democratic) impotence in the face of an imperial president. We can’t for a moment believe that the lesson will be lost on the next Republican president. When you govern an alleged democracy in the interests of a plutocracy, you tend to look for ways to get around democratic institutions. Bush has done just that, with relish. Nor can we be sure that the electorate will respond as the Democrats expect-they may just stay away from the polls in disgust at a system that is clearly rotten.

The article goes on to give the standard patter about how the Congress lacks the power to enforce its subpoenas, dismissing the power of inherent contempt in a single paragraph:

A third option involves a proceeding known as inherent contempt, in which the House would hold a mini-trial along the lines of an impeachment. The last time that was tried: 1935.

Tried successfully, it might be added. If the Congress refuses to flex its muscles, those muscles will atrophy. The myth that only the executive can enforce Congressional subpoenas will harden into settled law unless Congress uses its powers now. Miers, Rove, et. al. might keep their mouths shut if they were put in prison. So be it. At least their imprisonment would serve as an object lesson that one must pay the price if one blows off Congress.

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Simpsons Redux

Wednesday, August 8, 2007

The Town of Springfield, Vermont is thinking of starting a museum commemorating its first in the nation showing of the Simpsons Movie. So reports the Eagle Times, Springfield’s local paper. You won’t, for some reason, find the story on the web. At least it’s not yet up. My search on the site for “Simpsons” revealed, as you might imagine, several stories about America’s favorite family, but not the one that’s in Sunday’s paper, which I read the old fashioned way:

The premiere brought national and international attention to Springfield, along with thousands of people looking to catch a glimpse of those involved in the show and movie. Simpsons lovers have continued to stop by not just to get a photograph with the town’s 13-foot landmark, but also to see the movie in the place where it was first shown.

As the movie continues to rake in millions at the box office, Springfield hopes to continue leveraging the exposure into longer term benefits.

The 13 foot landmark mentioned is the giant “Hand with Donut in Yellow and Pink” immortalized in these pages. Also slated for the museum is the couch on which the seated Simpsons watch the movie in the theater (also pictured on these pages). The question remains, how many people are dumb enough to go all the way to Springfield, Vermont just to see a movie where it was premiered or to see a bunch of Simpson’s kitsch?

One clue: We who live in the Mystic area know that tourists still line up to take their pictures in front of Mystic Pizza, the site at which the eponymous film was not filmed and which, at the time the movie was made, was a truly wretched pizza place. On the other hand, the town of Springfield, Vermont may find itself following its cartoon namesake into yet another failed community endeavor.

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Visiting Springfield

Monday, August 6, 2007

Neither we nor our visitors here in Vermont had seen the Simpsons Movie, and we all agreed that today, which started out rainy, would be the perfect day to see the movie in Springfield, Vermont, where it received its world premiere. We took in the matinee at the bargain price of $5.00 each. Here’s proof, consisting of a picture of yours truly in front of the historic Springfield Theater.

As further proof, of a sort, that we were on holy ground, I submit this picture of the back of the sculpture, where you can see the original artwork of Matt Groening and Mike Silverman. Click on the picture for a larger view.

I have no idea if all this stuff is at every theater, but inside the Simpsons themselves were watching the movie, with an extra seat on the couch for anyone who wanted to join them. Unfortunately, it was quite dark in the theater, so this picture is not the best. The lady rubbing Homer’s head is Lisa Shafer-Gill, who is visiting with us from Ohio.

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