Reasons, Rule and Riots: Our Societal Panic – On the surface, what’s going on with tax policy in Washington right now seems crazy. A Democratic president whose enemies call him a socialist makes a deal with Republicans that sells out both his party and the very tax promises that won him the election, while Republicans leaders who say that debt is our overwhelming domestic problem insist on borrowing tens of billions of dollars to give tax savings to the richest among us. The polls, at the same time, show the public overwhelmingly favors ending tax cuts for high earners. What we are witnessing, however, is much more profound than political, economic, or fiscal insanity. And it goes much deeper than disputes over whether extending temporary tax cuts for two years and long-term jobless benefits for 13 months is politically or economically smart. Those are mere manifestations of a much more pervasive problem. America is in the grip of a full-blown societal panic. Crazy, irrational, contradictory ideas about tax policy are just the most obvious symptom.
Congress Threatens to Sow the Seeds of Our Next Banking Crisis – I wrote recently about the Bank of England sowing the seeds of their next banking crisis by deciding to reduce bank examinations. Spencer Bachus (R. Ala.), the incoming Chair of the House Financial Services Committee, told the Birmingham News: "In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks." Ron Paul (R. Tex.), asked to comment on Bachus’ statement, said: "I don’t think we need regulators. We need law and order. We need people to fulfill their contracts. The market is a great regulator, and we’ve lost understanding and confidence that the market is probably a much stricter regulator."These comments share several characteristics. First, they demonstrate that many people in positions of power have not only learned the necessary lessons from the ongoing crisis — they have learned the worst possible lessons. Second, the comments reprise disastrous approaches that allowed the crisis to occur. Third, the comments represent the continuing triumph of ideology over facts. Fourth, the comments rely on false dichotomies that are the enemy of reasoning and good policy.
Head, heart, guts and gonads: Getting down and dirty in the rhetoric war – It is pretty obvious that progressives will not fight for their beliefs. The very fact that we have jettisoned “liberal” in favor of “progressive” (because some people made fun of the former term) illustrates the point. But what is even more unfortunate is that, even when progressives fight, we cannot do so effectively. There are some crucial facts about what constitutes an effective rhetorical strategy that progressives seem not to be aware of, and that unawareness is deadly. There are four places in the body to which speakers can direct their case: the head, the heart, the guts, and the gonads. The left likes to argue to the head; conservatives know that the further down you go, the more persuasive you will be.
Economists are creating new methods for tracking prices – A shopping cart full of goods that help determine the Consumer Price Index.At some 23,000 retailers and businesses in 90 U.S. cities, hundreds of government workers find and mark down prices on very precise products. And I’m not kidding when I say "very precise." Say the relevant worker is finding the price for a motel room. She might write a report like this: Occupancy—two adults; Type of accommodation—deluxe room; Room classification/location—ocean view, room 306; Time of stay—weekend; Length of stay—one night; Bathroom facilities—one full bathroom; Kitchen facilities—none; Television—one, includes free movie channel; Telephone—one telephone, free local calls; Air-conditioned—yes; Meals included—breakfast; Parking—free self parking; Transportation—Transportation to airport, no charge; Recreation facilities—an indoor and an outdoor pool, a private beach, three tennis courts, and an exercise room. This mind-numbingly tedious process goes on for a dizzying panoply of items: wine, takeaway meals, bedroom furniture, surgical procedures, pet dogs, college tuition, cigarettes, haircuts, funerals. When all of the prices are marked down, the workers submit forms that are collated, checked, and input into massive spreadsheets.
Who Receives a Mortgage Modification? – SanFran Fed – Abstract: Loan modifications offer one strategy to prevent mortgage foreclosures by lowering interest rates, extending loan terms and/or reducing principal balance owed. Yet we know very little about who receives loan modifications and/or the terms of the modification. This paper uses data from a sample of subprime loans made in 2005 to examine the incidence of loan modifications among borrowers in California, Oregon and Washington. The results suggest although loan modifications remain a rarely used option among the servicers in these data, there is no evidence that minority borrowers are less likely to receive a modification or less aggressive modification than white borrowers. Most modifications involve reductions in the loan’s interest rate, and an increase in principal balance. We also find that modifications reduce the likelihood of subsequent default, particularly for minority borrowers.
Risky Mortgages and Mortgage Default Premiums – SanFran Fed – Mortgage lenders impose a default premium on the loans they originate to compensate for the possibility that borrowers won’t make payments. The housing boom of the 2000s was characterized by increasing riskiness of the borrowers approved for mortgages and the structures of the loans themselves. Despite these changes in risk, a pricing model can justify the spreads contained in mortgages made during this period based on what at the time seemed to be reasonable expectations for house price appreciation. Contrary to those expectations, prices fell dramatically.
The Year Washington Became "Business Friendly" -So the White House caved in on the Bush tax cuts for the wealthy, and is telling CEOs it will be on their side from now on. As the President recently told a group of CEOs, the choice “is not between Democrats and Republicans. It’s between America and our competitors around the world. We can win the competition.” There’s only one problem. America’s big businesses are less and less American. They’re going abroad for sales and employees. That’s one reason they’ve showed record-breaking profits in 2010 while creating almost no American jobs. Consider one of most popular Christmas products of all time – Apple’s iPhone. Researchers from the Asian Development Bank Institute have dissected an iPhone whose wholesale price is around $179.00 to determine where the money actually goes.Some shows up in Apple’s profits, which are soaring. About $61 of the $179 price goes to Japanese workers who make key iPhone components, $30 to German workers who supply other pieces, and $23 to South Korean workers who provide still others. Around $6 goes to the Chinese workers who assemble it. Most of the rest goes to workers elsewhere around the globe who make other bits. Only about $11 of that iPhone goes to American workers, mostly researchers and designers.
Some Right, Some Wrong in “60 Minutes” Story on State Budgets, CBPP: Last night’s CBS "60 Minutes" piece on state budgets made some important points but also — through some big mistakes and omissions — gave a deeply misleading impression of the state budget situation. Here’s what it got right:
- As correspondent Steve oft put it, “The ‘great recession’ wrecked [states’] economies and shriveled their income.” State revenues are about 12 percent below pre-recession levels, after adjusting for inflation, yet the cost of basic services like education and health care — the two largest areas of state and local spending — is rising.
- The real pain from states’ current fiscal problems has been visited on the most vulnerable people, from low-income families needing medical care in Arizona to recipients of mental-health assistance in Illinois. That’s because states are required to balance their budgets — they cannot borrow to cover operating expenses. States have responded to the loss of revenues, in part, by cutting health care services and payments to nonprofits that serve the needy.
- Fiscal year 2012 (which will begin next July 1 in most states) will be the most challenging year yet for state budgets. States have largely drawn down their reserves, revenues are still depressed, and emergency aid from the federal government is expiring.