Financing Housing

While standing outside the hotel where the Mortgage Bankers Association was holding its annual meeting, I struck up a conversation with one of the attendees. He turned out to be a recognized expert on the way mortgages are financed both in the U.S. and in other countries. He gave me some useful information, and I followed up by doing my own research. His basic premise was that the key to fixing the housing problem is finding a way for people to refinance their mortgages.

Mortgage rates have declined over the past few years to an all-time low, somewhere around four percent for a thirty-year fixed-rate loan. Normally when rates decline, people who are paying higher interest rates on their old mortgages refinance at the lower rates. The result is that the people who refinance spend less money each month on their new mortgage payments, and when they get through paying off their loans, they find they have spent less for their homes overall, giving them greater gains when they sell the homes. In the short and long term, homeowners have more money in their pockets. Whether they save or spend this money, the economy is healthier. The benefits of low rates are also enjoyed by people who are buying homes for the first time, although there are a lot fewer of them than there are people who already have homes and could benefit from refinancing.

For the past several years, people have not been refinancing, mostly because they can't get loans. Why? 1) Because their homes are not worth as much as they used to be, so the homes don't qualify for mortgages that are large enough to pay off the original loans. 2) Because homeowners don't have the closing costs. 3) Because people are not employed, so they don't meet lenders' criteria for good risks. 4) Because banks are toughening their standards for lending money, so they don't get burned again.

Unable to refinance, some people lose their homes to foreclosure. What happens? The foreclosed homes are sold for low prices so lenders can get some of their money back. This depresses the value of nearby homes, because the pricing of homes is based on the sale price of similar homes. People feel poorer, so they cut their spending, slowing the economy. New homes aren't constructed. Lower property values cause local governments to increase their tax rates just to collect same amount of revenue they collected before.

What has to happen in order make refinancing easier? The banker I spoke with is arguing for technical adjustments to the way the mortgage lending market operates. But in order for these adjustments to be made, the investors who hold the mortgages (largely in the form of mortgage-backed securities) will either have to decide that it is in their best interest to change, or the government will have to force the change. So far, the investors are not convinced. They figure that even though refinancing would make it possible for more people to pay their mortgages, they make more money off the majority of people who continue to pay their existing high-interest mortgages than they would if mortgages were refinanced.

To date, the government has not forced any significant change, and I think things will have to get a lot worse before it does. The public still subscribes to the idea that people who made bad decisions and can't make their mortgage payments should suffer the consequences, and, having seen the banks get bailed out, people who are still able to make their mortgage payments are against seeing anyone else get a break. Most people are still focused on themselves and not on how their well-being depends upon the well-being of others. This gives politicians, who are still more responsive to the investors who financed their campaigns than to the masses of people who voted for them, very little reason to push for change.

During the first Great Depression, the government initially did nothing to fix the economy. Later it tried to make things better by making technical adjustments. It took years before the government instituted more radical changes. It will probably take even longer this time for the government to get serious. First, the regressives are going to have to finish their work of repealing the New Deal reforms. Then there will be a time of great suffering. Then, maybe, we will get to the point where we once again start thinking in terms that are big and bold enough to allow us to rebuild a society that provides for the general welfare.

Jobs News

The same day that the Senate defeated Obama's jobs bill, they passed his free trade agreement with South Korea, Colombia, and Panama. Like other recent free trade agreements, this one will probably cause a decline in the number of American manufacturing jobs. In fact, the bill anticipates this job loss. It provides for benefits for workers who lose their jobs. The supposedly good news is that the agreement may cause an increase in some farm employment here. Oh boy. Wasn't the shift from agricultural work to industrial work what created an economic expansion and improvement of living conditions – what is called the industrial revolution? How are we benefiting as a country by moving backward on the path of development?

The news the next day was that UAW members rejected a proposed contract, in large part because it continued the practice of paying newly hired workers about half as much as workers who have been on the job longer. The two-tier wage practice was not designed to compensate more skilled workers. It is just there because the automakers realized they can now hire people for less money than they used to pay them. If it seems to you that people in America are making less money these days, this explains why: they are making less money! Anyone who has ever worked in a factory or almost any other workplace knows that there is nothing more dispiriting than finding out you are being paid less than someone else to do the same work.

In a related story the same day, Gap announced it is closing retail stores in the U.S. and opening stores in China. With the U.S. economy hurting, U.S. consumers are buying cheaper jeans at discount stores, not higher quality jeans at Gap.

While campaigning over the years, Obama has frequently said that if you are stuck in a hole, the first thing you do is stop digging. He also said that if your bus driver runs the bus into a ditch, fire the driver. Any day now we can expect him to issue retractions.

No Place for a Revolution

Having spent some time with the Occupy Chicago folks on three days, I have concluded that it is not the social revolution that they would like it to be. It is not a popular uprising. It is not any threat to the government or to business. It is just a bunch of well-meaning people peacefully and creatively demonstrating their dissatisfaction with the way things are. There is nothing wrong with that, and it is probably a good thing that they are there. They have pushed some of their opinions onto the news. They have reinvigorated their base. They have shown the average person who is suffering in this economy that there is an alternative to the hate-based Tea Party. But they haven't mobilized a lot of people yet, and they aren't likely to, standing on the corner of LaSalle and Jackson in front of the Board of Trade and the Federal Reserve.

The problem isn't the message that the protesters are voicing. A lot of the people on the street expressed agreement with the protesters. But people who are at LaSalle and Jackson are there because they are going somewhere, mostly in a great hurry. They aren't there to stroll, like they might be on Michigan Avenue. There are no sidewalk cafes or open-air markets, such as those that are found in other countries where we have seen mass protests. There is no plaza where people relax and discuss the issues of the day. The train stations are underground or indoors, several blocks away. People don't wait around a public square as they do elsewhere for day labor jobs. Millennium and Grant Parks are not even in sight. This is not Madison, Wisconsin, where the state capital grounds are right in the middle of town.

Like most of downtown Chicago, all that there is at the corner the protesters are occupying is a sidewalk which is just wide enough to accommodate the pedestrians and a few smokers who have been banished from their workplaces. Hardly anyone lives downtown, and it costs money to take a bus or train or taxi there, so there are no mobs of restless unemployed people just waiting for some rally to gather around. Other than a few tourists who seemed amused by the protest, the only people who are there are the ones with jobs. They might be sympathetic to the protesters, but they aren't about to give up those jobs in order to join a movement of people who are protesting that there aren't enough jobs.

If people get upset enough, they might go to the trouble of joining the occupation. Tens of thousands assembled in Chicago a couple of years ago to protest the wars and to rally for immigration reform. But either people aren't that upset about the economy yet, or else they just don't see this occupation as the event they want to bother going all the way downtown for. So for now, the occupation isn't bringing the system to its knees. It is barely bringing people out on a beautiful autumn day.

Letting Go of Money

I am normally a cautious person. I wait for the outline of the little man to turn from red to white before I cross the street at a crosswalk. I have never tried to open a beer bottle with my teeth. I wear a helmet when I ride my bicycle. But today I decided to take a risk. I decided to let go of some money.

The Republicans in Congress have been telling us how dangerous it is to let go of even a little bit of one's money. Their opposition to even modest tax increases on wealthy people is based on the idea that calamity could strike if people had to part with money. The entire economy could be destroyed. The national security could be devastated. Not only would jobs not be created, but vast numbers of people would be thrown out of work, as the capitalist system crumbled under the burden of fair distribution of wealth.

I don't generally subscribe to Republican economic theory, but their warnings about letting go of money have become so pervasive that, as I prepared for my experiment in letting go, I was scared. I didn't want to be responsible for the destruction of our American way of life.

And what of the personal consequences? We have all been warned that if we let go of any of our money, we might live out our lives in poverty, and people may stop caring about us. There is, sadly, ample evidence supporting that Republican warning.

With trepidation, I prepared for the experiment. I took all the precautions I could think of. I made sure my will was up-to-date. I paid the bills that were on my desk, so as not to be any more of a burden on my survivors than necessary. I told my wife I loved her.

Not wanting to take any unnecessary risks, I removed just a single dollar bill from my wallet. I held it over my head. I took a deep breath, and I let go. Time seemed to stand still as the dollar drifted down to the ground. I stood staring at it where it landed. The Earth did not open up. I look skyward. No dark clouds formed. Lightning did not strike me down. The birds continued to sing. I had survived, and the world was intact!

In the interests of scientific rigor, I acknowledge that one experiment is not sufficient. The experiment must be repeated by others, under other conditions. Most importantly, it must be performed by some rich people, even some millionaires and billionaires. But I feel I have done my part. I took the risk. And now I turn my findings over to others to see if they will get the same result

Insight

For several years, I have been puzzled about why some Jewish Americans were voting for certain conservative Republican candidates. They would say the candidates were “good for Israel.” It didn't make much sense to me, because the opposing candidates also seemed to be good for Israel, in that they supported Israel's right to exist, to have secure borders, to defend itself, and to conduct its affairs as it deemed best. Finally, today, I met a Jewish American who explained what he and his Republican friends considered to be “good for Israel.”

He said that George Bush was good for Israel because Bush thought that if he invaded Iraq and toppled Saddam Hussein, at some time in the future a democracy might be established in Iraq and this man figured that would be good for Israel. He explained that Bush's plan had only a one-percent chance of succeeding, but even that slight chance justified our invasion. He supports other candidates if they also are willing to take actions, such as going to war, if there is even the remotest chance that somehow Israel might benefit. In other words, he and his friends are concerned about one thing and one thing only: Israel. They are willing to have our government kill, torture,violate international law, displace people, and destroy property and the environment without limits, even if these efforts are almost certain to fail, all in the name of helping Israel.

Some people who are not familiar with Judaism might not be surprised at this man's views but most American Jews would be shocked. Judaism teaches peace and respect for all peoples. Over the centuries, a body of Jewish law has been developed which carefully protects and demands respect for enemies in war, competitors in business, and non-Jews in all circumstances. So I was puzzled to hear that this man, who is affiliated with an Orthodox community, seemed to have somehow jettisoned huge parts of the established Jewish religion which would be contrary to his extreme views that allegiance to the state of Israel justified violations of fundamental secular and religious laws. Fortunately, he explained that also.

He said that, in his and his friends' views, the more liberal branches of Judaism are no longer really Judaism, they are just secular liberalism. As examples, he pointed to reform Jews' acceptance of abortion and concern about the environment and social justice as beliefs that are just political and not really consistent with Judaism. I didn't argue with him. It was clear that he had selectively re-defined Judaism as supporting and justifying his personal fanaticism. As disturbing as it was for me to hear this, even more troubling was the thought that he was part of a community which seems to share his beliefs. But at least I now know why all the logical arguments and all the facts and evidence with which we have been trying to persuade the “good for Israel” voters has had so little effect. Now I know that these voters don't just mean “good for Israel,” they also mean “and to hell with everyone else.”

Certainly not all Jews agree with this man. But just as certainly, he is not alone in his views, and he and his friends have influence even in the broader Jewish community because of their relationships with rabbis and Jewish community organizations. When this man and his friends declare which candidates are good or bad for Israel, it can be nearly impossible to get a different viewpoint heard, let alone accepted. In fact, promoters of contrary viewpoints are frequently labeled as “anti-Semitic,” or if they are Jews themselves, as “self-hating Jews.”

My acquaintance and I had a very civil conversation, and I am grateful that he was honest about his beliefs. I have learned from him. But I am very much saddened by what I have learned. It portends possibly irreconcilable rifts within Judaism and potentially dangerous misunderstanding of Judaism from those of other faiths. Islam has suffered grievously from such divisions and distortions. Judaism may be headed down the same path.

Class Warfare

Progressives and regressives have been accusing each other of engaging in class warfare. It is not clear whether they are talking about the same thing. Apparently, some progressives think that by promoting tax policies which favor rich people and corporations over people with more average incomes, regressives are trying to establish and maintain domination and control by the rich over those who have less wealth. And some regressives seem to think that by advocating that rich people and corporations pay a larger share of taxes, the progressives are trying to dethrone the rich from their positions of power and privilege. If this is how the two sides perceive each other, I think they are both right.

But I don't think it is class warfare, because there is no war. War denotes violence, and to date, there is no violence in the so-called class war in America. There is, however, a question about what the division in this country is. Some say it is between classes. Some say it is between people in different economic situations. Some think there is a racial component. From what I see, the division is one of outlook.

There are wealthy people, such as Warren Buffett, who, surprising many, line up on the side of higher taxes on the wealthy. And there are a lot of people who are of much more modest means who would like to see their taxes reduced, but who are, again surprisingly, willing to be taxed more if the money will be spent for the good of the country. So, the division is not clearly demarcated by how much money one has or makes.

The division is similarly not clearly drawn between whether people work or are retired, whether they are black or white, whether they are professionals or non-professional workers, or whether they made their money or inherited it. The division seems to be most clearly drawn on the basis of one's personal philosophy. Right now, people who are concerned about other people are more likely to be willing to share the burden of funding an organized society than people who are concerned only or mostly with themselves.

This isn't to suggest that the people who are against taxes are inherently selfish. In better times, many of them would probably be more generous and socially responsible. But in these difficult economic times, they have let themselves be frightened into turning away from others. So, some doctors, for example, who might otherwise be showing compassion and acting charitably towards their patients, are grumbling that uninsured people are costing them money and protesting that they should not have to compensate people who are injured by incompetent doctors. And some parents, who would normally be praising their kids' teachers, are shouting that teachers' pay and benefits should be cut.

But these tough times are not evoking the same response from everyone. There are still some doctors who put their patients' interests first, some parents who support their schools, some rich people who are willing to pay their taxes, and some heirs who are willing to let go of a few of their pennies.

The struggle we are experiencing isn't between classes. It isn't between the haves and have nots. It is between the people who see themselves as part of society, and people who see only themselves.

Dold Lets Truth Slip Out

Republican Representative Bob Dold of Kenilworth faced an angry crowd at his town hall meeting in Wheeling. It was not clear whether the people who were angry were mostly Democrats or Republicans or even affiliated with a party. Dold's office, as usual, had not announced that the meeting would take place until the day before, so most of those in attendance probably were there because one group or another had notified them.

Some people said they were angry that Republicans in Congress have been standing in the way of efforts to get needed legislation passed, for purely political reasons. When Dold tried to escape blame, a man in the audience countered that Dold had run as a Republican and continued to affiliate with that party without criticizing his party's leadership.

Many people said they were angry about the economy. Dold spent a lot of time talking about imports and exports, taxes, and the national debt. He tried very hard to sound reasonable and moderate, but a lot of the people in the room showed they had been paying close attention to his record and pointed out that he was a lot more one-sided than he wanted them to think.

One revealing exchange came when a man criticized Dold for siding with one of the most extreme right-wing groups, the Americans for Tax Reform, which is headed by Grover Norquist. Dold squirmed as he admitted that he had taken Norquist's pledge to never raise any taxes, no matter how desperately the government would need the money. Norquist had used that pledge to pressure Republicans to refuse to support fiscal reform legislation, with the result that the country was recently brought to the brink of a government shut-down, for what most people in America saw as purely political purposes. Dold told the audience that although he had signed the pledge, he supported removing some tax subsidies, which some people consider to be raising taxes.

Several people, upon hearing Dold's attempt to defuse his critics and yet not disavow the pledge, asked him why he had signed it in the first place. Dold explained, rather sheepishly, “I signed the pledge back when I was running for office.”

And there you have it. Dold so desperately wanted to get elected that he signed a pledge that was specifically designed to lock him into a position on every single fiscal vote he took while in office, regardless of whether that position would turn out to be in the best interest of the country. He allowed the notorious Norquist to own his vote on all tax matters, so that he could get Norquist's money and support in his election bid.

Plenty of commentators decry the incivility of public discourse. I have been among them. But today, it wasn't until near the end of the meeting, when people's frustrations with Dold's attempts to avoid frankly answering their questions boiled up, that they started shouting questions at him. And that was when Dold, struggling to regain control of his audience, let a little bit of the truth slip out. Congratulations to the angry people.