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Category Archives: Government
Bizarro Banking
If we've learned nothing else the last year or so it's that we can't count on the folks running our financial system to be, you know, wise. Check out this paragraph from an article in the Washington Post about the trouble Bank of America is having meeting the Obama administration's November deadline for modifying 125,000 home loans:
The company's effort has been hamstrung by a staff shortage and by adapting its computer systems and even fax machines to the scale of the program, which began in March. The company was also slow out of the box because it initially took a more conservative approach than some other banks, requiring that borrowers document their income and complete other paperwork before granting preliminary approval for a modification. In August, Bank of America softened the requirement and began authorizing some modifications without getting all the documents first. (Emphasis mine)
So a bank is struggling, in part, because it is doing what we'd normally expect a bank to do when it's loaning money to a consumer? Obviously they're doing this because they don't want to risk any more of their capital than they have to, right? Maybe not so much:
Under the Making Home Affordable program, lenders are paid with taxpayer funds to reduce borrowers' mortgage payments by lowering their interest rates, for example, or by extending the terms of their loans…
Bank of America and other lenders have a lot riding on the foreclosure prevention program. The company stands to collect about $6 billion — some of which will be passed on to investors — of the $75 billion the administration has set aside for the Making Home Affordable program.
Hey, it's easy to criticize the banks since they really and truly have earned condemnation on many fronts. It's also easy to laud a program that's set up to help people manage their mortgage expenses. It's damn near impossible to understand how this is going to end well.
Dell Hell, NC Version
A couple of years back Jeff Jarvis, author of What Would Google Do?, blogged about a very negative experience he had with Dell and he dubbed it Dell Hell. After yesterday's news that Dell is closing down their desktop plant here in Winston-Salem I'd say we're having our own version of Dell Hell.
Yesterday I wrote that Dell's move couldn't possibly have been a surprise to anyone who's been awake the last 18 months. Ed Cone quoted me on his blog and since at least one of his commenters suggested that it is a surprise to a lot of people I felt compelled to explain myself in the comments:
The reason I wrote that it shouldn't be a surprise was really an observation that given the overall economic environment of the last 18 months, the fact that the plant was built to produce desktops, that the market has been moving strongly towards laptops and Dell didn't seem to be interested in re-tooling the plant to produce laptops and that Dell has been reducing it's workforce at the plant, then it shouldn't really be seen as very surprising that this has happened. Abrupt? Sure, but these things tend to be.
As for Winston-Salem getting back its incentive money I heard an interview on WXII this morning in which the Dell rep said that the incentives were based on job creation and the Dell had met those conditions, so maybe Dell is planning on fighting the return of those incentive dollars.
In addition to my points in that comment I'd also like to put forward the following thoughts:
- I remain convinced that subsidies stink. I also remain convinced that if subsidies are a part of the economic development competition between states then state and local officials are pretty much forced to use them.
- Hopefully Mayor Joines is right when he says "The city, the county and the community will get reimbursed every dollar we put into the project." What worries me is that Dell might go to court to fight the reimbursements. Even if Dell is wrong they probably have less to lose in taking the issue to court and working for a settlement than they do in ponying up the reimbursements without a fight.
- Even if we get our money back we still have over 900 people being added to the unemployment rolls by January. That's a heck of a hit for an already overburdened unemployment system, not to mention a potentially chatastrophic impact on the employees.
- Some leaders have pointed out that the silver lining here is that we have a relatively new manufacturing facility that can now be marketed to another company. I guess that's a good long term view, but short term I wouldn't hold my breath. From the Fed's September 9 Beige Book report for the fifth district, which includes North Carolina:
"Vacancy rates climbed higher across office, industrial, and retail space in most District markets, while the amount of available office sublease space remained fairly steady since our last report. On the sales side, very little activity was reported in recent weeks."
Maybe we can re-purpose it as a fabulous new indoor soccer park.
- I've read some comments on other blogs and news stories that essentially say, "Hindsight is 20/20" or "It's easy to criticize the deal now, but no one could have known this was going to happen at the time the deal was struck." Those folks are right, and at this point I don't think it's appropriate to criticize the folks who put the deal together. I truly believe they were doing what they thought was best for the community and given that incentives are a tool that most state and local governments are using to attract business it's hard to criticize them for trying to compete. (We could argue that the price tag was too high, but that horse is out of the barn). What we should be focusing on is how we protect ourselves in the future. Winston-Salem is in the unfortunate position of having two deals (the downtown baseball stadium and Dell) go squirrelly on them in very short order and I think it's clear that we have to go into these deals with eyes wide open and assume that the worst can happen.
- Any which way you slice it, this situation stinks.
Sen. Franken Does the Minnesota State Fair
Former (maybe current) comedian and current US Senator Al Franken of Minnesota has gotten some YouTube love from his recent visit to the Minnesota State Fair. Here he draws a map of the United States from memory:
And here he debates some folks about health reform and manages to actually have a novel thing called a conversation with them. Credit also goes to the crowd for treating him with respect.
Love him or hate him I don't think there's much doubt that the man is sharp.
Tax the Speculators
As part of a post about the economy Mark Cuban makes a very interesting point about differentiating between investors and traders/speculators:
Our government doesn’t know the difference between an investor and a speculator or trader. If we did, we would understand that we should tax the trader/speculator more heavily than the investor.
The investor allows entrepreneurs access to capital and allows them to work with it and build businesses, which in turn build employment and do great things for the economy. The trader/speculator pushes companies to make more money now rather than invest in doing the right thing for the company. The trader/speculator dominates the stock market today, which in turn puts pressure on public company CEOs to cut jobs and play games with their financials in order to give the appearance of stability in a far from stable market. The investor understands the bigger picture and is ok if profits fall for several quarters or even several years as long as the company will maximize its return over the long run.
The government should raises taxes significantly on profits from short term capital gains on the sale of public stocks, indexes, commodities, futures held for 24 hours or less and extend the length of time required to qualify for Long Term capital gains and reduce the tax rate on Long Term gains. This will discourage flash trading, ETFs that move markets purely on cash inflows rather than fundamentals and also reduce the amount of speculation on commodities. It will also reward companies that act in the financial interests of long term holders and their employers. I think the impact on the economy would be far fewer layoffs as CEOs find themselves with more shareholders who think long term rather than short term. Believe it or not, there are shareholders who are fine with companies not beating their numbers if the company is making progress towards a clearly defined goal. I don’t care if the P/E of the stocks I own is 14 or 20. I want the companies investing in being a great company rather than trying to make traders of their stock happy. Most CEOs give great lipservice to this approach, but they are so focused on marking to market their own personal stock portfolios, they emphasize stock performance over doing the right thing for the company. Taxation can change the focus on public companies and stock trading. That would be a great thing for the economy.
Logical Vacuum
North Carolina's "Tax Holiday" is this weekend and you can rest assured that lots of stores will be busy with back-to-school shoppers. That's all fine and good, but when you juxtapose this event with the other tax news coming out of Raleigh as the legislature tries to balance the state's budget, you begin to wonder what kind of weird logic is being used over there. To wit, here's the first paragraph from a story at WXII about the weekend:
State leaders said this weekend's sales tax holiday is a needed boost to help North Carolina families shop for back to school during a difficult economic time.
Now here's a paragraph from a Winston-Salem Journal article about the 2009-2010 NC budget that the legislature sent to the governor for approval:
By far the largest part of the tax package is a one-penny increase on the sales tax, bringing the sales tax rate in most counties to 7.75 percent from the current rate of 6.75 percent. That represents a 15 percent jump in what consumers will pay in sales tax.
I'm not going to go on a tax rant here, but I would like to know how giving me a two day holiday on a limited number of items and then raising my year-round tax rate by 15% is helping me? Believe me, I'd gladly give up my holiday in exchange for a 5% increase or no increase at all. Sheesh.
The Week That Was
This has been an interesting week. I spent a couple of days in Raleigh for the day job and had my first opportunity to get a first hand look at the NC legislature in action. Here's my takeaways from the experience:
- Compared to the US Capitol the state legislature is very casual. It's nothing special to bump into a state rep or senator and give them your two cents while walking to a meeting or getting on an elevator. Heck, it's expected.
- There's no security to speak of; no line to go through a metal detector and no one standing at the door to wand you. Of course there are security guards but I've seen tighter security at a day care center.
- With some exceptions their offices are tiny. I'm talking room for a desk and two chairs.
- The legislators, and their staffs, were very responsive. When I contacted them last week to try and schedule appointments I heard back from most in a matter of hours, which I found pretty impressive given the amount of work they're doing right now.
The other thing that made this week interesting was the hometown drama known as the downtown baseball stadium. While I could probably write dozens of pages of thoughts on the whole situation, I'd rather just ask the leaders of Winston-Salem some questions:
- What the heck were you thinking when you broke the multi-million dollar news on Friday and told the public they had a whole weekend to share their thoughts and give you their feedback before a probable vote at a special city council meeting on Monday night?
- Were you trying to make it look like you were railroading the thing?
- Were you trying to make people even more suspicious than they already were?
- In short, were you trying to be obtuse?
Seriously, the city's leadership couldn't have tried to make this deal look any worse. I'm really not sure what the motivation could have been to handle it this way, but whatever it was I can't imagine that it balances out the negative taste that this left in the public's mouth. Put it this way: Mayor Joines and the city council spent a whole lot of their political capital to get this done and while they were going to take a hit no matter how they handled this, I think they at least doubled the damage by handling it in the manner that they did. It will be interesting to see what happens with the next economic development deal that comes along.
Mayor Joines’ Status on Facebook
Winston-Salem's mayor Allen Joines, or someone on his staff, just posted this status on Facebook:
Allen Joines Doing what is responsible for our future Sometimes doing what is right is not the easiest or most popular course to take. But the plan we have come up with to get our baseball stadium completed is responsible and will not cost our taxpayers any additional money. For more discussion please go to my blog page at AllenJoinesForMayor.com – Thanks
He's referring to the story that broke today that the city is going to have to pony up a BIG loan to Billy Prim to get the downtown baseball stadium finished. They're giving citizens today and the weekend to share their comments with the mayor and the city council before a special meeting next Monday night. More on that later. Anyhoo, head on over to the mayor's site and give him an eareyeful.
BTW, props to the mayor for using Facebook. I can tell you that there are LOTS of constituents there, no matter what the Luddites and old codgers say. Not sure why he's only asking for comments on his website since Facebook is also an ideal environment for online discussion, but at this point let's just say that something's better than nothing.
City Academy
I just got an email announcing that registration is open for Greensboro's next City Academy class. This looks like a very cool idea and I wonder if Winston-Salem has one. If not I think it would be a very good idea. Here's a description from the Greensboro city website:
The mission of Government Works is to develop future leaders and build a better community through the efforts of well informed and civically engaged residents.
Classes use engaging hands-on activities to show how City government affects the quality of life in Greensboro. Class are held weekly from 5:45-9 pm from September 3 through November 12. Sessions include information on topics ranging from police to economic development to leadership.
Program components include:
- Preparation for service on a City board or commission
- Experiential learning and hands-on activities
- Thursday evening classes for 11 consecutive weeks at various locations throughout the City
- Free meals at each session beginning at 5:30 pm
- Graduation will be held on Tuesday, November 17, 2009 at the regularly scheduled City Council meeting at 5:30 pm
City Academy is free and open to any resident who lives within the corporate limits of City of Greensboro. Twenty-five people representing all council districts and various backgrounds will be selected for the academy. Other selection criteria include:
- 18 years of age or older
- Must attend 80 percent of classes
- Written statement of desire to participate
- Preference given to those willing to serve on a board or commission
Have Your Say in the $3 Trillion Spending Spree
The Boston Globe has an interview with Elizabeth Warren, the chair of the Congressional Oversight Panel that is overseeing the bailout of America's financial system (thanks to Lex for the pointer). It's a pretty quick read and if you're at all interested in what's going on with your trillions of dollars in taxpayer subsidies to the financial muckety-mucks then I suggest you read it. Here's the end of the interview, which I think gives you an idea of the stakes:
Q: Is there anything else that you would want people to understand?
A: I don't have a badge and a gun. The power of this panel is derived entirely from the voice of the American people. If they stay out of the policy debates, then Treasury can spend at will and reshape the American economy with no one in the room but insiders. If they are involved, the policies will look different.
It's the design of the rules going forward that will tell us or that will determine whether we are moving to a cyclical economy with high wealth, high risk, and crashes every 10 to 15 years. Or whether we will emerge, as we did following the new regulatory reforms in the Great Depression, with a more stable economic system that benefits people across the economic spectrum. It's an amazing moment in history.
Befuddled 