As Prof. Stan J. Liebowitz of the University of Texas points out in his study, “Anatomy of a Train Wreck,” the foreclosure problems began in mid-2006 when the nation’s unemployment rate was holding steady at a mere 4.6 percent. What triggered the crisis were not layoffs but an end of the rise in home prices. By contrast, in the economic slowdown that began earlier in this decade, unemployment started rising in early 2001 and peaked at 6.3 percent in mid-2003 but resulted in only a modest uptick in foreclosures by today’s standards....
The data suggest that speculation was rampant among average Joes and Janes and not something primarily that high-end buyers or ‘yuppie flippers” engaged in (as a hilarious Saturday Night Live skit suggested a few weeks ago). Indeed, one thing that probably accounts for the large number of defaults in lower income and moderate income neighborhoods is that these buyers were most likely to engage in speculation, according to the data that Liebowitz has crunched. He found that speculative purchases during the current bubble were higher as a neighborhood’s average income decreased. In neighborhoods where household income was about $40,000, or about one-fifth below U.S. median family income, speculative mortgages accounted for one-third of all loans, while in census tracts where average income was nearly double the nation’s median, speculative loans accounted for well under 10 percent of all mortgages.
Wednesday, October 29
Monday, October 20
... a majority of the students whom colleges admit are grossly underprepared. Only 23 percent of the 1.3 million high-school graduates of 2007 who took the ACT examination were ready for college-level work in the core subjects of English, math, reading, and science.and even if they stick around, many of them don't learn anything
Perhaps more surprising, even those high-school students who are fully qualified to attend college are increasingly unlikely to derive enough benefit to justify the often six-figure cost and four to six years (or more) it takes to graduate. Research suggests that more than 40 percent of freshmen at four-year institutions do not graduate in six years. Colleges trumpet the statistic that, over their lifetimes, college graduates earn more than nongraduates, but that's terribly misleading. You could lock the collegebound in a closet for four years, and they'd still go on to earn more than the pool of non-collegebound — they're brighter, more motivated, and have better family connections.
A 2006 study supported by the Pew Charitable Trusts found that 50 percent of college seniors scored below "proficient" levels on a test that required them to do such basic tasks as understand the arguments of newspaper editorials or compare credit-card offers. Almost 20 percent of seniors had only basic quantitative skills. The students could not estimate if their car had enough gas to get to the gas station.
Unbelievably, according to the Spellings Report, which was released in 2006 by a federal commission that examined the future of American higher education, things are getting even worse: "Over the past decade, literacy among college graduates has actually declined. … According to the most recent National Assessment of Adult Literacy, for instance, the percentage of college graduates deemed proficient in prose literacy has actually declined from 40 to 31 percent in the past decade. … Employers report repeatedly that many new graduates they hire are not prepared to work, lacking the critical thinking, writing and problem-solving skills needed in today's workplaces."
Monday, October 13
The specter of fear is everywhere, not just on Wall Street. And the scale of the government’s reaction is no less than what it was after 9/11—that is what probably scares ordinary people the most. Yet no one who believes that the government exploited fears after 9/11 to strengthen its security powers is now saying that the government is exploiting financial crisis fears in order to justify taking control of credit markets. No one who thinks that government would use fear to curtail civil liberties seems to think that government would use fear to curtail economic liberties. Why not?
Saturday, October 11
[The] poor who died during the night were bundled up quickly and thrown into the pit. In the morning when a large number of bodies were found in the pit, they took some earth and shovelled it down on top of them; and later others were placed on top of them and then another layer of earth, just as one makes lasagne with layers of pasta and cheese.Marchionne di Coppo Stefani (ca. 1320-ca. 1385), on the Black Death.
Before the discovery of the New World, there was lasagne but no tomatoes. I'm just sayin'.
For what it's worth, I like the idea of a black president, believe that Obama is an admirable person in many ways.... Nonetheless, I fear that the conjunction of an Obama victory, a strongly Democratic Congress, and a major economic crisis will produce a massive and difficult to reverse expansion of government....
Wednesday, October 8
By scaring people about the tiny levels of radiation emitted during the normal operation of a nuclear plant, [William Tucker, author of “Terrestrial Energy”] says, greens have effectively encouraged the construction of coal plants that actually release more radiation because of the traces of uranium in coal dust.
Tuesday, October 7
There is a superficial attractiveness to policies that seem to promise an end to falling housing prices, but...these policies all have the common feature of getting the government further entrenched in the operation of the housing market, and this creates all sorts of long-term market problems. I would have thought that recent events at Fannie Mae and Freddie Mac, for example, would have made Americans recognize the costs of having government-sponsored enterprises play mortgage lender to the nation. I would have hoped that the history of public housing would have made us wary about spending huge amounts of tax dollars to get into the business of public property management.But we won't let them keep falling, I bet.
Starting in the 1990s, the flood of cheap products from China kept global inflation low, allowing central banks to operate relatively loose monetary policies. But the flip side of China's export surplus was that China had a capital surplus, too. Chinese savings sloshed into asset markets 'round the world, driving up the price of everything from Florida condos to Latin American stocks.So let's bomb China, right? Guess again. Mallaby blames Alan Greenspan's Fed, which
chose to stand aside as asset prices rose; it preferred to deal with bubbles after they popped by cutting interest rates rather than by preventing those bubbles from inflating. After the dot-com bubble, this clean-up-later policy worked fine. With the real estate bubble, it has proved disastrous.
So the first cause of the crisis lies with the Fed, not with deregulation...
Of course, the financiers did create those piles of debt, and they certainly deserve some blame for today's crisis. But was the financiers' miscalculation caused by deregulation? Not really...
Who were the purchasers? They were by no means unregulated. U.S. investment banks, regulated by the Securities and Exchange Commission, bought piles of toxic waste. U.S. commercial banks, regulated by several agencies, including the Fed, also devoured large quantities. European banks, which faced a different and supposedly more up-to-date supervisory scheme, turn out to have been just as rash. By contrast, lightly regulated hedge funds resisted buying toxic waste for the most part -- though they are now vulnerable to the broader credit crunch because they operate with borrowed money...
If that doesn't convince you that deregulation is the wrong scapegoat, consider this: The appetite for toxic mortgages was fueled by Fannie Mae and Freddie Mac, the super-regulated housing finance companies.
Saturday, October 4
PALIN: One thing that Americans do at this time, also, though, is let's commit ourselves just every day American people, Joe Six Pack, hockey moms across the nation, I think we need to band together and say never again. Never will we be exploited and taken advantage of again by those who are managing our money and loaning us these dollars. We need to make sure that we demand from the federal government strict oversight of those entities in charge of our investments and our savings and we need also to not get ourselves in debt. Let's do what our parents told us before we probably even got that first credit card. Don't live outside of our means. We need to make sure that as individuals we're taking personal responsibility through all of this. It's not the American peoples fault that the economy is hurting like it is, but we have an opportunity to learn a heck of a lot of good lessons through this and say never again will we be taken advantage of.
Then after Palin responds to Ifill's question about McCain's health care plan, Biden, apparently stung by the "redistribution" charge, says,
IFILL: ....Sen. Biden, we want to talk about taxes, let's talk about taxes. You proposed raising taxes on people who earn over $250,000 a year. The question for you is, why is that not class warfare....BIDEN: Well Gwen, where I come from, it's called fairness, just simple fairness. The middle class is struggling. The middle class under John McCain's tax proposal, 100 million families, middle class families, households to be precise, they got not a single change, they got not a single break in taxes. No one making less than $250,000 under Barack Obama's plan will see one single penny of their tax raised whether it's their capital gains tax, their income tax, investment tax, any tax. And 95 percent of the people in the United States of America making less than $150,000 will get a tax break.
Now, that seems to me to be simple fairness. The economic engine of America is middle class. It's the people listening to this broadcast. When you do well, America does well. Even the wealthy do well. This is not punitive. John wants to add $300 million, billion in new tax cuts per year for corporate America and the very wealthy while giving virtually nothing to the middle class. We have a different value set. The middle class is the economic engine. It's fair. They deserve the tax breaks, not the super wealthy who are doing pretty well. They don't need any more tax breaks...
PALIN: I do take issue with some of the principle there with that redistribution of wealth principle that seems to be espoused by you. But when you talk about Barack's plan to tax increase affecting only those making $250,000 a year or more, you're forgetting millions of small businesses that are going to fit into that category. So they're going to be the ones paying higher taxes thus resulting in fewer jobs being created and less productivity.
Now you said recently that higher taxes or asking for higher taxes or paying higher taxes is patriotic. In the middle class of America which is where Todd and I have been all of our lives, that's not patriotic. Patriotic is saying, government, you know, you're not always the solution. In fact, too often you're the problem so, government, lessen the tax burden and on our families and get out of the way and let the private sector and our families grow and thrive and prosper. An increased tax formula that Barack Obama is proposing in addition to nearly a trillion dollars in new spending that he's proposing is the backwards way of trying to grow our economy.
BIDEN: Gwen, I don't know where to start. We don't call a redistribution in my neighborhood Scranton, Claymont, Wilmington, the places I grew up, to give the fair to say that not giving Exxon Mobil another $4 billion tax cut this year as John calls for and giving it to middle class people to be able to pay to get their kids to college, we don't call that redistribution. We call that fairness....Here's a little parable for Biden (from here):
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until on day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20."Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men --- the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings. "I only got a dollar out of the $20,"declared the sixth man. He pointed to the tenth man," but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too.
It's unfair that he got ten times more than I!"
"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up. The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!