United States District Court judge in New York, Jed S. Rakoff, scathingly condemned the Obama Securities and Exchange Commission for letting Bank of America skate away with what Rakoff called an immoral and unjust wrist tap to settle charges that it covered up $3.6 billion paid out in bonuses when it purchased Merrill Lynch. How is this S.E.C. a change from the Clinton-Bush S.E.C. that ignored all the red flags on Bernie Madoff?There's a reason Frank Rich earned his way into the Sunday Times column.
In the 1990's there was a lot of discussion about "The Third Way" -- something "between" the private and public sectors. I had an opportunity to study the thinking at the time both in undergraduate and graduate school with the preeminent thought-leaders at that time. Truly I now believe that idea was merely an attempt to appease the prevailing dogmatic anti-regulation thinking of the prior 25 years, before Reagan's "government IS the problem" mantra.
Now today, I don't think there's a "third" way. I think we have the private sector, the public sector, and the not-for-profit sector, the third being entities that are exempt from their profit-making mandate legally to serve a social purpose of some kind, but are mostly privately funded with untaxed dollars (deductible) -- all three sectors very well established. Those are the three main entities we need I think and that we can work very well within: public, private, not-for-profit.
So we have the three great pillars we need for the strongest and most competitive economy in the world. But I think since the 80's and before, the past 30 years for this nation now have clearly demonstrated to the world that we need government. We need effective regulation. It's no ideological. It's sound economics. Free markets require a level playing field, and that's where regulation plays a critical role in any great global economic power.
"Government" (such a ridiculously sweeping notion) is NOT "the problem." I began my professional career in business ethics and regulatory & policy consulting to the Fortune 500. We need regulation to function. Business ethics is not about boy scout economics. It's my sense that business ethics is best advanced through a) effective regulation to level the playing field (which politically is an expression of the body politic's shared value system, like the law itself in many ways), and b) as "concerted advocacy" for best practices that achieve the best earnings results from a long-term fundamentals perspective. I think historical case studies taught in business schools around the world about the Ford Pinto, Tylenol, Alcoa and others clearly illustrate these points.
Our firm strives to be a platform from which to launch a) the strictest compliance with both regulation and organizational (National Association of Realtors) code of ethics, and b) advocacy for much higher standards of business practice designed to reform how real estate is transacted in the great State of Texas. There is so much room for improvement, and we think in our private brokerage that we have found so many practices that aren't obvious and yet produce very solid earnings results.
Under-regulated industries, as we all have seen, inevitably fall into a "dive to the bottom," a phenomenon that a marginalized ideologically-driven economics view have unfortunately demonstrated in any number of areas both macro and micro in the last 30 years.
It's not about "The Third Way." It's about "A Better Way." And we can do that already with what we all have. America has the best markets in the world. If we put our minds to it both politically and in our own every day business practices, we will forge that better way. It's hopeful and exciting.And it's a reason why we absolutely love what we do.
Let’s say that I buy $1 million of bonds. In order to protect my downside, I buy $600,000 of credit protection: if the issuer goes bust, I get $600,000, and a healthy 60% recovery value. I don’t want the issuer to go bust — I’d much rather the bonds continued to perform, and to be worth $1 million. But at least I can’t lose more than $400,000 in the event of default.
The issuer then gets into serious difficulties, and the bonds start trading at 25 cents on the dollar: my $1 million of bonds are now worth just $250,000 on the open market. The distressed issuer then seeks to avoid bankruptcy by entering into negotiations with its bondholders. “If we default and are forced into bankruptcy,” they say, “then bondholders will end up collecting no more than 20 cents on the dollar in a liquidation. But if you agree to a restructuring which keeps us out of the bankruptcy court, we can get you a good 45 cents on the dollar in value.”
Normally, bondholders would be well disposed to such an offer. But in this case, I might think twice. If the restructuring doesn’t count as an event of default for the purposes of the CDS contract, then I might end up with just 45 cents on the dollar — $450,000 — if I agree to the company’s plan. If I just let it go bust, on the other hand, I get $600,000.* And so I have an incentive to opt for the more economically-destructive option.
*Update: Hemant, in the comments, points out that I actually get $700,000, not $600,000: I get $600,000 from the hedged portion, and also another $100,000 (25% of $400,000) from the unhedged portion.
The first assumption to dispel is that our "Founding Fathers" were resolutely opposed to taxes, and that the Boston Tea Party was due to this opposition. This is true to a limited extent. Following the Glorious Revolution, parliament established a declaration or Bill of Rights. Among these rights was that reserving the ability to Tax for parliament alone. Since parliament was an elective and representative body, this implied that legitimate taxation was restricted to citizens with representation. This wouldn’t become an issue in the Americas for several decades. Following the French and Indian War, Britain was left with a standing army, something it had not really dealt with before. Because of a sense that it was necessary to continue to protect the colonies, as well as the benefits of maintaining an army to restrain French aggression, it was decided to maintain a large force in the Colonies.
This meant that funds had to be found to not only pay for the extremely expensive war that had just been fought, but also to pay for the standing army in the Colonies. Naturally, parliament decided that it only made sense to use taxation to pay for this, and it seemed to follow that since the colonies were benefiting from having an Army for their defense, as well as a war fought partially for their benefit, that they should pay for a large share of the expenses.
This presumption had two problems: first, it assumed that the colonists would perceive the troops as guarantors of security, rather than occupiers. Second, it violated the idea that taxes were linked to representation. In response, mutterings of anger began in the colonies. To be fair, much of the anger was simply due to the fact that taxes were going up to pay for troops that most people did not feel were necessary, especially since the colonies had voluntarily raised their own internal taxes for the war, and had never been fully reimbursed. As resentment strengthened, however, the colonists began to examine their conceptions of natural laws and rights. Ultimately they would realize that fundamentally, the new taxes violated their rights because they had no representation in parliament.
There would be ongoing protests in the future, many which would echo the mob violence of the Boston Tea Party. Curiously, due to a variety of factors, the Boston Tea Party would have no hint of simple anger at increased prices due to taxes. At this point in time, the East India Company had long been competing with Dutch smugglers for the tea imports market in the colonies. Recent acts of parliament had actually made it possible for the East India Company to import tea into the colonies for less than the smugglers were charging. Unhappily, there was a tax attached to these imports that the colonists refused to pay, even though the overall price was less. Due to opposition to the right to impose this tax, the colonists either forced the authorized resellers of tea to resign, or forced the ships importing the tea to return to England without offloading their cargo.
Finally, in Boston the Governor refused to let the ships bearing tea leave until they had paid the tax on the tea they carried. Since this would have forced the company to take a loss (paying the duty without selling the tea,) the ship captains refused to leave, although hostile colonists would not permit their cargo to be unloaded and sold. After a rowdy meeting led by Sam Adams, a large group of men raided the ships and dumped the tea overboard, declaring they would destroy the goods before they paid a tax on them.
Since price was not the issue, clearly the Boston Tea Party was not about paying extra money: it was almost exclusively about taxation without representation, combined with a dose of drunken mob violence. It still became a symbol of valiant resistance to tyranny, especially in American folklore, and would otherwise lose much of its meaning in terms of the specific grievances of the participants.
If more proof is needed that the founding fathers did not oppose taxation per se, but instead just taxation without representation, we can look at our most famous leader of the period: George Washington. In 1794, while Washington was president, an outraged group rebelled against what they perceived as an unfair tax on whiskey (meant to pay down debts from the Revolutionary War.) In response, Washington ordered the rebels appear in federal court, and summoned an army of militia of more than 12,000 men to suppress the rebellion. Whups! By today’s standards, conservatives would apparently be calling old Washington a fascist/socialist enemy of the United States. (Just for the record, Abe Lincoln also presided over tax increases. In fact, the first income tax was progressive and enacted during his administration. Such socialists, our best loved presidents!)So much for the founding fathers being anti-tax. ...
After long stagnation of relative pessimism, the gap is starting to narrow between those who believe the economy is worsening and those who believe the economy is getting better. Of course, no good analyst will confuse opinion polls with reality, but to the extent that optimism may reflect future spending patterns, this is really great news.
FYI, interestingly, the famous "right track/wrong track" number about the country's direction is continuing a sharp narrowing trend after a long wide gap that started a marked turn-around after the election last fall. It may reinforce or correlate with the above. Regardless, still great news.
The Commerce Department said the jump in housing starts to a seasonally adjusted annual rate of 583,000 units was the biggest percentage rise since January 1990.And the kicker? This is not what "the markets" had expected. Market analysts were expecting a smaller number.
That was also the first increase since April last year, when they advanced by 1.6 percent.
Analysts polled by Reuters had expected an annual rate of 450,000 units for February.The question now might be: with so many months of sinking new start numbers, is this just a natural uptick quirk within the larger trend, or is this a new inflection point that will reverse the trend?
U.S. producer prices rose by less than expected in February as the pace of energy price increases slowed, government data on Tuesday showed, but prices excluding food and energy came in a bit above forecast.
Site Selection said Houston clinched the top spot after scoring 179 corporate real estate deals in 2008, unseating three-year incumbent Chicago-Naperville-Joliet.There is no place in The United States that I would rather own real estate right now than in and around the Houston metro area and definitely in the rightfully proud great State of Texas. (That's why I do, of course.)
Dallas-Fort Worth-Arlington finished No. 2 with 156 projects, and Chicago came in third with 138.
Last year, Houston was No. 4 behind Cincinnati and St. Louis for cities with more than 1 million in population.
“Site Selection ’s award adds to the long and growing list of distinctions the Houston area is earning for our business recruitment, business retention, job creation and economic growth efforts,” Jeff Moseley, president and chief executive officer of the Greater Houston Partnership, said in a statement. “We will continue to show that the Houston region is the most attractive place to locate or expand your business in the United States.”
“WHEREVER you come near the human race, there’s layers and layers of nonsense,” says the Stage Manager in Thornton Wilder’s “Our Town.” Those words were first heard by New York audiences in February 1938, as America continued to reel from hard times. The Times’s front page told of 100,000 auto workers protesting layoffs in Detroit and of a Republican official attacking the New Deal as “fascist.” Though no one was buying cars, F.D.R. had the gall to endorse a mammoth transcontinental highway construction program to put men back to work.He continues to frame our current moment with references to Warren Buffet, AIG, and Bernie Madoff:
We’re still working our way through the aftershocks of the orgy of irresponsibility and greed that brought America to this nadir. In his recent letter to shareholders, a chastened Warren Buffett likened our financial institutions’ recklessness to venereal disease. Even the innocent were infected because “it’s not just whom you sleep with” but also “whom they” — unnamed huge financial institutions — “are sleeping with,” he wrote. Indeed, our government is in the morally untenable position of rewarding the most promiscuous carrier of them all, A.I.G., with as much as $180 billion in taxpayers’ cash transfusions (so far) precisely because it can’t be disentangled from all the careless (and unidentified) trading partners sharing its infection.
Buffett’s sermon coincided with the public soul searching of another national sage, Elie Wiesel, who joined a Portfolio magazine panel discussion on Bernie Madoff. Some $37 million of Wiesel’s charitable foundation and personal wealth vanished in Madoff’s Ponzi scheme. “We gave him everything,” Wiesel told the audience. “We thought he was God.”
The simplest explanation for why America’s reality got so distorted is the economic imbalance that Barack Obama now wants to remedy with policies that his critics deride as “socialist” (“fascist” can’t be far behind): the obscene widening of income inequality between the very rich and everyone else since the 1970s. “There is something wrong when we allow the playing field to be tilted so far in the favor of so few,” the president said in his budget message. He was calling for fundamental fairness, not class warfare. America hasn’t seen such gaping inequality since the Gilded Age and 1920s boom that preceded the Great Depression.
The chart shows the share of the richest 10 percent of the American population in total income – an indicator that closely tracks many other measures of economic inequality – over the past 90 years, as estimated by the economists Thomas Piketty and Emmanuel Saez. I’ve added labels indicating four key periods. These are:Penultimately and for fun here, Rich doesn't miss the opportunity to pile on to the emperor clothes of CNBC and the righteous skewering by Jon Stewart shown earlier on this site. What's troubling is that the clips Stewart assembled were presented in full context and told a broader tale of CNBC and Wall Street insiderism that has become all-too-apparent now, and which CNBC is terrified to have revealed broadly.The Long Gilded Age: Historians generally say that the Gilded Age gave way to the Progressive Era around 1900. In many important ways, though, the Gilded Age continued right through to the New Deal. As far as we can tell, income remained about as unequally distributed as it had been the late 19th century – or as it is today. Public policy did little to limit extremes of wealth and poverty, mainly because the political dominance of the elite remained intact; the politics of the era, in which working Americans were divided by racial, religious, and cultural issues, have recognizable parallels with modern politics.
The Great Compression: The middle-class society I grew up in didn’t evolve gradually or automatically. It was created, in a remarkably short period of time, by FDR and the New Deal. As the chart shows, income inequality declined drastically from the late 1930s to the mid 1940s, with the rich losing ground while working Americans saw unprecedented gains. Economic historians call what happened the Great Compression, and it’s a seminal episode in American history.
Middle class America: That’s the country I grew up in. It was a society without extremes of wealth or poverty, a society of broadly shared prosperity, partly because strong unions, a high minimum wage, and a progressive tax system helped limit inequality. It was also a society in which political bipartisanship meant something: in spite of all the turmoil of Vietnam and the civil rights movement, in spite of the sinister machinations of Nixon and his henchmen, it was an era in which Democrats and Republicans agreed on basic values and could cooperate across party lines.
The great divergence: Since the late 1970s the America I knew has unraveled. We’re no longer a middle-class society, in which the benefits of economic growth are widely shared: between 1979 and 2005 the real income of the median household rose only 13 percent, but the income of the richest 0.1% of Americans rose 296 percent.
Last week Jon Stewart whipped up a well-earned frenzy with an eight-minute “Daily Show” takedown of the stars of CNBC, the business network that venerated our financial gods, plugged their stocks and hyped the bubble’s reckless delusions. (Just as it had in the dot-com bubble.) Stewart’s horrifying clip reel featured Jim Cramer reassuring viewers that Bear Stearns was “not in trouble” just six days before its March 2008 collapse; Charlie Gasparino lip-syncing A.I.G.’s claim that its subprime losses were “very manageable” in December 2007; and Larry Kudlow declaring last April that “the worst of this subprime business is over.” The coup de grâce was a CNBC interviewer fawning over the lordly Robert Allen Stanford. Stewart spoke for many when he concluded, “Between the two of them I can’t decide which one of those guys I’d rather see in jail.”
Led by Cramer and Kudlow, the CNBC carnival barkers are now, without any irony whatsoever, assailing the president as a radical saboteur of capitalism. It’s particularly rich to hear Cramer tar Obama (or anyone else) for “wealth destruction” when he followed up his bum steer to viewers on Bear Stearns with oleaginous on-camera salesmanship for Wachovia and its brilliant chief executive, a Cramer friend and former boss, just two weeks before it, too, collapsed. What should really terrify the White House is that Cramer last month gave a big thumbs-up to Timothy Geithner’s bank-rescue plan.
In one way, though, the remaining vestiges of the past decade’s excesses, whether they live on in the shouted sophistry of CNBC or in the ashes of Stanford’s castle, are useful. Seen in the cold light of our long hangover, they remind us that it was the America of the bubble that was aberrant and perverse, creating a new normal that wasn’t normal at all.
The true American faith endures in “Our Town.” The key word in its title is the collective “our,” just as “united” is the resonant note hit by the new president when saying the full name of the country. The notion that Americans must all rise and fall together is the ideal we still yearn to reclaim, and that a majority voted for in November. But how we get there from this economic graveyard is a challenge rapidly rivaling the one that faced Wilder’s audience in that dark late winter of 1938.
I love this explanation. Makes total sense to me!! n
Shortly after class, an economics student approaches his economics professor & says, "I don't understand this stimulus bill. Can you explain it to me?"
The professor replied, "I don't have any time to explain it at my office but if you come over to my house on Saturday & help me with my weekend project, I'll be glad to explain it to you." The student agreed.
At the agreed-upon time, the student showed up at the professor's house. The professor stated that the weekend project involved his backyard pool.
They both went out back to the pool & the professor handed the student a bucket. Demonstrating with his own bucket, the professor said, "First, go over to the deep end & fill your bucket with as much water as you can." The student did as he was instructed.
The professor then continued. "Follow me over to the shallow end & then dump all the water from your bucket into it." The student was naturally confused but did as he was told. The professor then explained that they were going to do this many more times & began walking back to the deep end of the pool.
The confused student asked, "Excuse me, but why are we doing this?" The professor matter-of-factly stated that he was trying to make the shallow end much deeper. The student didn't think the economics professor was serious but figured he would find out the real story soon enough.
However after the sixth trip between the shallow end & the deep end, the student began to worry that his economics professor had gone mad. The student finally said, "All we're doing is wasting valuable time & effort on unproductive pursuits. Even worse, when this process is all over, everything will be at the same level it was before so all you'll really have accomplished is the destruction of what could have been truly productive action!"
The professor put down his bucket & replied with a smile, "Congratulations. You now understand the stimulus bill."
That's wholly inaccurate and makes no sense, FYI. It's more like the pool is full of shared drinking water, and there was a catastrophic leak and the pool is now only half full. Nobody wants to put water in the pool because nobody's sure if it's still leaking, and nobody's really sure what happened, so everyone is hoarding their own water, what little they have left, and they are damming up every little contributory stream near them, diverting it from the pool, which only exacerbates the problem as water continues not only to leak but to evaporate.
Now the government, in charge of the pool, can piddle around complaining about who caused the cracks and blaming enemies and getting the people with little water left to get angry at those who have more water and those with more water to blame and make fun of the people who depend on the pool for daily needs and nobody pays attention to what caused the catastrophic leak or even verifying if the damn thing is still leaking. Even if the leak has stopped, how do we get the level back up so everyone will stop being afraid and restore the flows? Should politicians ask everyone just to pour their water back in on a voluntary basis and in the meantime everyone just stick it out while people with little water run out, and even those with more start running out?
Should the government put a garden hose in the pool to try to overcome any remaining leaks and maybe start to fill it back up and just hope for the best? Is a trickle sufficient? Is a garden hose insufficient? Are there enough people and neighbors who are willing to divert their own water through their own private hoses to try to fill the thing back up while nobody's sure if it's still leaking?
What if the government is the only entity with a firehose capable of shifting water -- with the promise to repay -- from big neighbor's giant pools back into our pool until we can a) stop and fix the leak and b) restart the flow of contributing streams in the system from the citizens? Mind you, our pool is already the biggest of them all, and all our neighbors' pools have unexplained leaks too, and we're all facing the same problem.
Scared water doesn't flow.
Scared money doesn't spend.
$700 million eyed for toll projectsI have to side completely with TxDOT on this. Toll roads, whether you like them are not, are not the issue right now. But that's really the beef that Hall has, namely toll roads in general and not this specific application of funds which has a different purpose of employing people and getting funds flowing into the cash-starved economy. I can respect Hall's citizen activism.
Grand Parkway's among 21 Texas roads in allocation
By ROSANNA RUIZ Copyright 2009 Houston Chronicle
Feb. 27, 2009, 9:37PM
The Texas Department of Transportation has set aside more than $700 million in economic stimulus funds for toll road projects across the state, sparking criticism and questions about whether the pay-to-drive roads are an appropriate use of the federal dollars. ...
“It’s a total rip-off,” said Terri Hall, director of Texans Uniting for Reform and Freedom, a nonprofit opposed to toll roads. “That’s not how the money is supposed to be used.” ...
“I think it’s unfortunate that the discussion about these funds has eclipsed the broader discussion about the state’s transportation needs,” TxDOT spokesman Chris Lippincott said. ... [emphasis added]
U.S. Rep. Pete Olson, R-Sugar Land, who sits on the House Transportation and Infrastructure Committee, also questioned the use of stimulus funds on toll roads.And so where has Olson's opposition to Texas toll-roads been in the last decade as the state turned more and more to toll road construction financing to avoid "public spending" to improve highways and reduce congestion? Yeah, that's what I thought.
“It concerns me that state officials would prioritize toll projects that will hit already hard-pressed Texas drivers with additional fees,” he said... [emphasis added]
The economic stimulus bill does not address toll roads, only that proposed projects satisfy requirements to create jobs and promote economic growth, said Jim Berard, a spokesman for the U.S. House Transportation Committee.That's right. "[C]reate jobs and promote economic growth." Whether funds are used for immediate construction of schools, charter schools, highways, toll roads, government buildings -- public infrastructure regardless of how it's publicly financed is good stimulus. Now cannot be the time to piddle over the relative merits of various infrastructure projects. Is the project ready? Will it employ people? Will it create a public benefit when it's complete? That's all we need to know.
In addition to $181 million for the Grand Parkway, TxDOT’s list includes an additional $50 million for four new ramps connecting the Eastex Freeway and Beltway 8. ...The above ramps proposal will connect a key alternative to the free I-45 north corridor into downtown Houston to the 2nd outer loop around Houston in a free portion (it becomes toll as it circles toward the west). These toll roads are not sparsely used. From before 6AM in the mornings until after 9AM and again for a few hours in the evening, these "toll" roads are used by thousands and thousands of motorists seeking the most efficient route around the city. The flyovers onto the 2nd outer ring will create even more incentive for motorists to use the toll roads and will off-set public tax dollars required to maintain these highways. You might argue with the idea, but you can't argue about the merits of the project at this moment in time.
Harris County Commissioner Steve Radack, whose precinct includes Segment E of the Grand Parkway, said the segment satisfies the federal stimulus mandate as a “shovel-ready” project. ...Radack points out that activists' demands that funds be used for a free northwest corridor (a "spoke" from the hub, so to speak) are misinformed because the project they advocate does not meet the criteria of the stim funds: the money couldn't be spent immediately and would not create immediate jobs. Yes, sometimes this governing stuff is actually kind of complicated.
Radack [argued] that a planned overhaul of U.S. 290 is not at the appropriate stage for the stimulus funds. ...
The proposed Grand Parkway would span 180 miles, circling around the Houston area, at a projected cost of $4.8 billion. Segment E calls for a 15-mile, four-lane toll road that would connect the Katy Freeway and U.S. 290 at an estimated cost of $330 million, according to the Harris County Toll Road Authority. ...
Can he actually reduce the red ink from $1.75 trillion this year to less than a third as much in 2013? Yes, he can.
Right now the deficit is huge thanks to temporary factors (at least we hope they’re temporary): a severe economic slump is depressing revenues and large sums have to be allocated both to fiscal stimulus and to financial rescues.
But if and when the crisis passes, the budget picture should improve dramatically. Bear in mind that from 2005 to 2007, that is, in the three years before the crisis, the federal deficit averaged only $243 billion a year. Now, during those years, revenues were inflated, to some degree, by the housing bubble. But it’s also true that we were spending more than $100 billion a year in Iraq.
So if Mr. Obama gets us out of Iraq (without bogging us down in an equally expensive Afghan quagmire) and manages to engineer a solid economic recovery — two big ifs, to be sure — getting the deficit down to around $500 billion by 2013 shouldn’t be at all difficult.
But won’t the deficit be swollen by interest on the debt run-up over the next few years? Not as much as you might think. Interest rates on long-term government debt are less than 4 percent, so even a trillion dollars of additional debt adds less than $40 billion a year to future deficits. And those interest costs are fully reflected in the budget documents.
So we have good priorities and plausible projections. What’s not to like about this budget? Basically, the long run outlook remains worrying.
Supply Concerns Boost Mortgage Rates
... [M]ortgage rates rose slightly during the week. The reason is that concerns about the enormous supply of debt that the government will need to issue outweighed the other factors. [emphasis added]
...This week, the Obama administration proposed a $3.6 trillion budget plan, with an estimated deficit of $1.75 trillion, which is enormous by historical standards. The Treasury will need to issue debt to borrow money to fund all of this. As the government issues more debt, the interest rate offered generally must rise to attract additional investors. Interest rates on similar investments such as MBS then move higher as well to compete for funds from investors.
Reflecting their concerns about an increase in supply, investors required higher interest rates at the large Treasury auctions during the week. The auction results showed that demand from foreign investors remained strong, which was very good news. If foreign investors should ever reduce their purchases of US bonds, then interest rates in the US would be likely to rise. [all emphasis added]
