Daily Archives: May 1, 2008

Wrong Lessons Learned = Relearning the Hard Way

This started as a comment inWhere have all the flowers gone?, but veered off into a bit of macro-economics, so it seemed diary-worthy.

I continue to be stunned at how easy it is to learn the wrong lessons from history. One of those lessons appears to be the lesson that the US was brought out of the depression in the 1930s by WWII.  This is ONLY true to the extent that weapons manufacture led to good paying manufacturing jobs here in the US (working in a weapons factory is how my grandfather managed to support his family).

However, giving all the credit to the war industry bypasses the primary impetuses for the recovery: the creation of a middle class through the policies of the New Deal; and fiscal policies that prevented bubble-style economic frenzies and crashes (formerly known as panics). Such panics were a regular element of the economy until the New Deal changed the rules, reducing the risks presented by market speculation.

Sadly, the clever folks elected since roughly 1980 have learned the incorrect “war is good for the economy” lesson (remember: it took most of the 1970s to climb out of the Vietnam debt hole), and unlearned the New Deal controls on speculation lesson. As a result, all of the growth that occurred since the policy reversals were implemented is in the process of unwinding.

Because of this wrong lesson, the “no taxes, no regulation” mantra’s success has essentially wiped out all segments of the economy.

The little bit of the economy that was propping everything else up, disguising the recession, was residential construction, which has now gone kerflooey. And, while the bobbleheads on TV try to claim we’ve hit bottom, don’t drink the Kool-aid. Look at all the other lies they’ve tried to sell us for the last decade and consider the following graph:

See what this chart means below the fold…

We are just about to hit the peak of subprime mortgage resets (paler green bars – the peak is in the next month or two – just in time for the spring market), THEN we get a reprieve in which the reset level drops to the same level as last summer (you know, when all this doo-doo started to hit the fan), from which we then slide into the Alt-A and Option ARM resets (orange and pale orange bars).

These Alt-A and Option ARM mortgages were packaged up and marketed as PRIME mortgages to bond funds and other supposedly “safe” “low-risk” investment options – the kinds of things our elderly parents’ IRAs and municipalities have invested in. (Think about that for a minute.)

Here’s the kicker: the majority of Alt-A and Option ARM loans are “stated income” loans, also known as “liar loans.”

These are loans made to people who said:

 “Um, yup, I earn, $x.”

And the bank said,

 “Ok, here’s a really big check.”

Unlike the subprimes, which are mostly non-investment loans to primary homeowners with less-than-stellar financial records, the Alt-A and Option ARM loans were largely taken out by investors – people who don’t live in the houses they bought.  These folks have far less incentive to try to keep the house, and are thus far more likely to “walk away,” leaving the properties to foreclosure.

As the Fed in Boston describes in “Subprime Outcomes: Risky Mortgages, Homeownership

Experiences, and Foreclosures,” a primary predictor of homes going to foreclosure is a drop in price:

… homeowners who have suffered a 20 percent or greater fall in house prices are about fourteen times more likely to default on a mortgage compared to homeowners who have enjoyed a 20 percent increase.

Due to the massive number of defaults already, the inventory in the market is also massive. In the law of supply and demand, extra supply leads to decreasing prices. Oddly enough, that’s what’s happening – prices are dropping.

The sub-prime mess will get worse, but the Alt-A and Option ARM mess will make the current crisis look like the “good old days.” Housing inventory is likely to skyrocket in just over a year, further yanking down prices in a market that will not yet have recovered from the sub-prime tumble.

The catastrophic house price bubble was possible because (a) New Deal regulatory policies on banks were rolled back, and because (b) the Bush administration has intentionally allowed the bubble to build (even encouraged it) by keeping interest rates artificially low – it was the only way they could think of to hide (in the economic statistics, but not from the people who are losing ground) the economic devastation brought about by their absurd economic policies.

In the mean time, the amount of $$ held in cash by US banks has slipped again. We’re now looking at something well into the negative billions. This is after the fed has pumped over $40 billion into the banks via the “discount window” and the idiotic Bear Stearns deal.

What this means is that, when you go to the bank and take money out of your checking account, you’re taking it out of the bank’s own virtual credit card, because there’s no actual money there. They had to borrow it to give it to you, because they pumped all the actual money into loans that are defaulting.

The implications of this for the economy as a whole are dire. And the band-aids being proposed legislatively will do nothing in the face of the republican train-wreck economy.

First L3C’s in Vermont and US are Incorporated

Before we get to the exciting news below the fold, here's a quick follow up on an unaswered question by SPS yesterday. 

In the comment section in my prior L3C diary, Steve asked a great question about the investment structure.  After some research, here is a powerpoint slide showing a good example.  The full powerpoint is available at AmericansForCommunityDevelopment.com

Below the fold:  Announcing First Two L3Cs incorporated in Vermont and the United States!

First in line with L3C corporate filing forms is Robert Lang, L3C Advisors, L3C.  No surprise there.  He's the guy backed by the Manweiller Foundation who brought L3C bills to Vermont and North Carolina legislatures.  After all of his hard work, he's the leading L3C consultant in the country.

Second At Bat is none other than yours truly, Nate Freeman, Non-Profit Investors, L3C.

And the URL race is on!  Janice Lang, presumably Robert Lang's wife, now owns L3Cadvisors.com

For my part, I picked up the following:

NonProfitInvestors.com and .org

VermontL3C.com and .org

…as well of variations of the same.

Ok, I guess I'm bragging — my apology.  What I have been sending out to GMD readers in the last two days is a message of hope and opportunity in the creation of the L3C model.  Hope, because these are mission-driven businesses that can fulfill needs in between the non-profit and for-profit sectors.  Opportunity because we are the very beginning of a new era in a national economy which can now benefit from the financial resources and good will of investors, foundations, and corporations.

My hope is that here in Vermont, professional, legal, and financial advisors will quickly grow and brand our state as the home base for L3C consulting.  It's a clean, knowledge-driven business with minimal impact.

Since we are at the very beginning of the L3C movement, the first area of consulting will be in educating prospective business owners and investors in the capabilities and flexibilities of Low-Income Limited Liability Corporations.

Game on!

Nate

May day

 Mission Accomplished

White House press secretary Dana Perino said Wednesday. “And we have certainly paid a price for not being more specific on that banner. And I recognize that the media is going to play this up again tomorrow, as they do every single year.” She said what is important now is ”how the president would describe the fight today. It’s been a very tough month in Iraq, but we are taking the fight to the enemy.”

Bang head on wall once ,

..McCain and Clinton want to give us a gas tax holiday. It’s like buying drinks for a bar full of drunks with borrowed money.Bad from McCain ,inexcusable from Clinton

Bang head on wall twice

..Obama caught in and unable to extricate himself from media frenzy for two weeks involving flag pins ,weather underground and his ministers remarks

Bang head on wall thrice

..Gov.Jim Douglas

It’s not helping.

Mandela on Terrorist List

You have to hand it to Michael Chertoff.  He knows how to keep our country safe.  DHS has Nelson Mandela – I kid you not – on a terrorist watch list:

http://www.usatoday.com/news/w…

Sure, Mandela may be the world’s greatest living statesmen, winner of the Nobel Prize and leader of the peaceful end of apartheid (not to mention 80+ years old), but he is a serious threat to the national security of this country…

buy local

Remember a couple years ago the enormous “Buy Local” campaign in Brattleboro that greeted a new Home Depot?

Today’s news:

Press Release Source: The Home Depot

The Home Depot Updates Square Footage Growth Plans

Announces Plans to Close 15 U.S. Stores

The Home Depot will close 15 underperforming U.S. stores that do not meet the Company’s targeted returns.  The store locations are as follows:

                  — #4552 Brattleboro, Vermont

                          — #2015 East Fort Wayne, Indiana

                          — #2032 Marion, Indiana

                        — #2310 Frankfort, Kentucky

                        — #379 Opelousas, Louisiana

                     — #2819 Cottage Grove, Minnesota

                    — #6901 East Brunswick, New Jersey

                     — #6904 Saddle Brook, New Jersey

                          — #6171 Rome, New York

                      — #3702 Bismarck, North Dakota

                           — #3874 Findlay, Ohio

                            — #3865 Lima, Ohio

                       — #4552 Brattleboro, Vermont

                       — #4932 Beaver Dam, Wisconsin

                      — #4933 Fond du Lac, Wisconsin

                      — #4913 NW Milwaukee, Wisconsin

Source: The Home Depot

http://biz.yahoo.com/prnews/08…

Imagine the legislature you want. What would they do?

I’m just so fed up with this crap.  Between the legislature, the governor, the governor’s race, etc… I mean… just, argh…

So I propose we bypass reality.

Imagine the legislature you wanted.  What would their legislation look like?  What would it accomplish?

I’ve got several things on my mind right now:


  • introduce a real economic stimulus package, which means investing in jobs programs and training, preparing Vermont’s population for more locally based economies instead of offering us meaningless tax rebates and buzz words;

  • offer major incentives for companies that invest in renewable energy technologies that are based in Vermont;

  • a fully funded health care system that doesn’t require you to be without insurance for a year before you can participate;

  • more investment in locally produced arts & music;

  • double the funding for subsidized child care in Vermont;

  • ban all unsolicited robo-calls made for any purpose;

What’s on your list?

Messaging, Managing & Stimuli (Or: It’s Deja Vu all Over Again)

Remember last year? When Climate Change was not just going to be a issue, it was going to be THE issue? Combining economic opportunity with cutting Vermonters’ bills and drafting a narrative of Douglas as some sort of anti-science, GOP ideologue? It was his big vulnerability that could hammer him going into the election.

Ah, those were the days.

What’s the buzz coming out of the session now? Well – its all about an economic stimulus package, meaning – of course – whatever you want it to.

No, that’s not exactly right – it means whatever Jim Douglas wants it to. Douglas did what he always does – waited ’til the waning days of the session, when Democratic leaders have wound down whatever coordinated message assaults they started the session with in the face of the all-consuming slog to adjournment. Then, with days to go, he drops a big bomb into the middle of of the process – designed not to amount to anything in terms of policy – just to completely and utterly take control of the conversation. He did it last year with his “affordability agenda”, and for the first time lost control of the political narrative later that same year over climate change.

But he’s back now, and he’s done it again. And, as usual, he’s taken his lead from the national Republicans who did the same thing; dropped the term stimulus package into the arena, knowing full well that Dem legislators – who have serious issues with creativity, timing, confidence and nerve, would stumble all over themselves in their frantic me-too-ing.

Douglas, who has been phoning it in all year, didn’t even break a sweat over this one. He just copied Bush, tossing out his stimulus package – which seems to be something he cobbled together after the fact, probably over a donut break. Warmed-over old proposals, lots of debt, virtual no “stimulus” but with arbitrary pie-in-the-sky figures attached to it that have every economist in the state scratching their heads. Hell – look around the right wing websites in the state, and you won’t even find them supporting it, as they all know how ridiculous it is. They’re all staying quiet on the subject, hoping nobody will notice, focusing instead on how bad Peter Shumlin is for calling out IBM’s John O’Kane for his brazen misrepresentation of the Vermont Yankee decommissioning fund bill.

But we all fall in line – and its not just Dems. First to jump was Anthony Pollina with his stimulus package. Finally, bringing up the rear comes the Democratic stimulus package. The rhetoric game has been set and the rules laid out entirely by Jim Douglas, and it occurs to no one that that may be a reason in-and-of-itself not to – once again – play along.

Because not only has Douglas completely reset the communications agenda and debate parameters with an afterthought – he’s controlling its particulars as well, as the papers are only reporting on the competing stimili in terms of what part of Douglas’s proposals they leave out. Douglas’s non-ideas are, still, the standard on which all proposals are being judged. And that’s likely to be the narrative going into the campaign season.

Now its impossible not to have some sympathy for Dems. Douglas strikes when they are most vulnerable. Still, being understanding does not mean that we have to just live with it. The House Democratic Caucus pays someone to do communications work, after all – although its unclear to me what he’s doing (I’m not saying he’s not doing anything, I’m just saying its not apparent what he’s doing…). Of course, they had Bill Lofy on staff – a real pro who ran Paul Wellstone’s communications operation. But he’s gone now, and although you can never tell with these things, one wonders if he didn’t leave to go to a job where his expertise might be more heeded and appreciated.

Whatever the particulars, this is consistently Jim Douglas’s biggest advantage, and as superior as this session has been to the last one, its still a crucial advantage that his opponents have allowed him to use to (apparently) maximum effect, both in terms of policy and electioneering. For my part, I hold the unpopular opinion that one of the best things we could do to both improve the governing process, as well as neutralize the skewed balance of power towards the executive branch that so consistently works against the interest of Vermonters (yes, under Dean as well) would be to bite the bullet, cough up an extra $3.5 to $4 million a year, and professionalize the Senate into a full time, year-round job, giving each Senator a staffer. This way, bills and policies could be more fully fleshed out, rather than passed lickety-split and punted to the administration to work out the details. Oversight could actually begin to mean something, and keeping the bigger body (the House) as is would make for an interesting cross-dynamic and greater breadth of perspectives (not to mention keep it affordable).

It’s not gonna happen, but it should.