Mr. Potter is Winning, Still.

(My perennial Christmas Missive, loyal reader.  And yes, the Potters of the world are still ahead in the game of life.  One year after the election of George Barack Obama Bailey, with healthcare  reform delayed,  Wall Street reform dismissed and Obama’s agenda being fought in a scorched earth Republican retreat right out of Tolstoy,  the Potters are still holding firm.  Perhaps by Obama Christmas II the tides may turn. For now, let us at least raise a voice of prayer and a glass of cheer to the fact the Potters aren’t adding as much to their winning totals as they used to. Oh, and a PS:  for those of you who do not like IAWL because, in the end, old man Potter gets away with the Bailey cash, you are missing a major point of the movie.  For George to get his own life back and, in the process, save a piece of the life of his town,  Bedford Falls, is about as fantastic a victory as one should hope for.  Even Capra couldn’t bring himself to so schmaltz up his already delightfully schmaltzy show by pretending that Potter would ever see the inside of a jail cell.  If your waiting for the Potters of the world to be brought to justice please remember it is the Potters of the world that usually determine what justice is and how it will be applied.   Getting to the point where the Bailey’s can at least coexist and prosper with the Potters is about as good as life can get, even in fantasy. )

I watched the perennial holiday chestnut, “It’s a Wonderful Life,” the other day. There was George Bailey, as he is every year, struggling to keep the old Savings and Loan afloat. There was the malicious Mr. Potter, a truly covetous old sinner, trying to put Bailey out of business.  There was Clarence the angel showing, once again, that our world is a better place for the George Bailey’s amongst us.  It’s too bad that in today’s world the Potters are beating the Baileys, hands down.

Old man Potter dismissed the Bailey Savings and Loan as a kind of privatized social welfare program for dumb poor workers who couldn’t cut it on their own. “And what does that  get us,” he asked?  “A discontented, lazy rabble instead of a thrifty working class.  And all because a few starry eyed dreamers stir them up and fill their heads with a lot of impossible ideas? Don’t the  Rush Limbaughs or Tom Delays say the same thing today?  

Labor laws, social welfare, retirement benefits, guaranteed healthcare, workplace safety laws, consumer protection–all are dismissed by our modern Potters as so much misplaced sympathy offered to the undeserving by the foolishly starry eyed, thinking that is at best naïve and at worst dangerous.  Any mention of social welfare on AM radio is now associated with Bolshevik Socialism – want to give workers a guaranteed living wage or put any limits at all on the worst excesses of the market and you’re labeled as an advocate of Gulags and death camps.

George, of course, argued back.  “Just remember this, Mr. Potter,” he retorted, “that this rabble you’re talking about, they do most of the working and paying and living and dying in this community.  Well is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?”  Today he could add: is it too much to have them work and pay and live and die with decent healthcare, affordable housing, quality education for their kids and the sure knowledge that when old age comes, there will be some comforts to look forward to?

We don’t have that many George Bailey’s today. Few stand up to our Potters when they tell us workers can’t expect job security, no one is entitled to healthcare and decent pay is whatever the most desperate amongst us is willing to work for.  Even the Democrats, the party of dreams for the working stiff, have fallen in line with the rhetoric of balanced budgets and smaller government (except, of course, if deficits are required to provide tax cuts to the richest Americans) even if the cost are reduced programs to help the disadvantaged.

Can’t anyone makes the simple point George made that helping the least amongst us is not simple altruism, it is Capitalist self interest at it’s best? “Your all business men here,” he reminded the S&L board members thinking of supporting Potter, “don’t it make them better citizens? Doesn’t it make them better customers?”  Heck, wasn’t it that old socialist Henry Ford’s idea to raise worker pay, not because it was the moral thing to do but because it made them better participants in the Capitalist market place?   Like Old Man Potter, much of American corporate business has become warped and frustrated by ruthless competition and now sees its workers only as cattle to be milked for as long as possible before being sent to the layoff slaughterhouse. 

Frank Capra understood that the Potters amongst us seldom lose, though the more public-minded like old George could, on occasion, battle them to a draw. Notice that, while George Bailey ultimately survived his battle with Potter, the old man survived unscathed too, his own crime of theft of the Bailey’s deposits unpunished. There have always been the Potters amongst us, those who pursue personal gain at any cost, be they a grasping banker like fictitious  Potter or the greedy executives of a massive corporations like Enron or WorldCom. What’s regrettable is that there are fewer and fewer George Bailey’s speaking up for the little guy.

In the real world the Bailey S&L would have been bought out by the 1980s by PotterCorp, a huge transnational Financial Services leviathan. A PotterCorp holding company would have bought out Bedford Fall’s chief industry, the plastic’s factory old Hee-Haw Sam Wainwright had built at George’s urging and shipped the jobs to Third World sweatshops. Downtown Bedford Falls would now be a ghost town with shops shuttered by a massive PotterMart selling cheap slave-labor produced products to the town’s poorly paid service employees.   Yes, least be there any doubt, in the world of today Mister Potter would have won.  And, least there be any doubt, Mr. Potter voted Republican.

What the DIckens?

So Citigroup repaid the Feds billions last week ahead  of schedule.  They did so to get out from under the cap on executive pay that came part and parcel with taking the greatest  taxpayer windfall bailout in human history.  Citigroup wanted to get out from under the pay cap so they could pay their executives the gazillions of dollars Wall Street says it must pay its senior executives   And when one  says “Wall Street” one really means the  senior executives  of Wall Street firms are saying that they, the senior executives , must receive gazillions of dollars in compensation otherwise they won’t work for they, the senior executives.   And, oh the sweet irony of it all, Citigroup raised the money to pay back the Feds by dumping its own stock sending its embarrassingly low OTC-quality share price  even  lower, thereby putting the shaft to its own stockholders.  And now, because Citigroup has so watered  down its share value that the Federal government is going to have to sit on the shares it still owns longer to keep from sending the stock down even further (necessitating another bailout in the TARP that never ends.)

OK, I watch the actions of Citigroup  have to put on my Columbo hat to ask the painfully dump, plain questions.  Excuse me, but aren’t the Wall Street senior executives who claim that Wall Street senior executives must be paid gazillions of dollars the same Wall Street  senior executives  who drove their Wall Street banks—and the rest of the nation—into the financial ditch last year?  And, let me get this right,  now these same Lords of Finance have tanked their own share price to pay them selves high-fiving bonuses of the sort they paid themselves while driving the economy into the ditch last time?  And aren’t this the same Wall Street executives who, after getting gazillions in bailouts and paying themselves gazillions in bonuses who are still sitting on their money and not loaning to consumers and small business?

And, I don’t want to be a bother about this but I’m just trying to get it straight– no-ones saying a peep about it?  Not one Citigroup executive has been dumped by the Board of Directors over this yet?  No Citigroup shareholders are filing the Mother of all shareholder lawsuits?   Not even one puny Citigroup VP has been lynched from a Central Park tree by a posse of homeless Citigroup shareholders?

Wow.

In the immortal cinematic masterpiece  “History of the World Part I” the Roman emperor is saluted by his centurions with the cry “F- the Poor.” Citigroup ought to change its letterhead to read “F- America.”  I mean, these cats really, really don’t care. 

At this festive time of the year I give my students several holiday-related extra credit writing opportunities.  (For instance,  “Were the Maccabees  freedom fighters or terrorists?”) One sterling classic question concerns  that immortal man of business, Ebenezer  Scrooge: “Was Scrooge a better capitalist before or after the visitation of the three Christmas spirits?”  I personally feel he was a much better capitalist after the visitation  when he spent more on his clerk and the poor than before when he miserly hoarded his money.  You see, the spirits taught Scrooge something about capitalism and money that he didn’t understand: putting a ton of cash into a handful of pockets is not capitalism—its feudalism by another name.

As Dolly Levi used to say, “Money is like manure—it’s not worth a thing unless it’s spread around.  Otherwise she might have added, its just a big, stinking pile of….well, of manure.   And my,  do those Citibank execs, sitting on their pile of bonus manure, smell like do-do or what?

So my final Columbo question of this yuletide is,  “And you me to tell me, after they screwed their government, screwed the American people and screwed their shareholders, Citigroup executives really think they are going to get an uninterrupted nights sleep this Christmas Eve, sans ghosts?

 If there are any spirits of Christmas past, present and future hanging around this year with nothing better to do, might I suggest they make a stop in at the Hamptons a remind a few Citigroup executives how truly replaceable they actually are, least they mend their evil ways?

Calling all ghosts.  Citigroup’s management  needs the Dickens scared out of them.

The Axman Cometh

Forgot pigeons.  The most foul municipal fowls in San Diego are rosters.  And they’ve come home to roost. 

Cranky old misanthropes (like yours truly) have being saying ever since the great crisis of ’02 that the City of San Diego was only putting off its day of reckoning.  The pension crisis became business as usual once the Housing and Credit bubble hid the reality of how underfunded long term pension obligations remained.  Now that the bubbles have popped the pension fund has once again become a huge drain on general fund resources.  And, of course, when investment income streams dry up tax revenue streams are sure to follow.  

Think of the City’s current financial problems as being the same as California’s drought.  No snowpack, no water.  Sinking economy, no revenue, simple as that.  Yet, rather then move to shore up City finances during the good years (and, believe it or not, 2004-2008 were good years) the Mayor and Council took the low, easy road (just as previous Mayors and Councils did during the good years of the 1990s).  No significant moves were made to reign in pensions, trim city work forces or, more importantly, raise revenues to pay for all that “big government” that everybody seems to dislike—unless it’s cut, that is.  Then all those Tea partiers tend to whine about the lack of governmental lemon and sugar.

So now the Mayor and Council must make cuts.  First on the block,  some 200 jobs of mostly mid to lower level employees for a savings of some $20 million dollars.  Not bad.  Just $150 million to go.  The Mayor’s office also said today that most of those who lose these jobs will be able to transfer into currently vacant positions scheduled to be filled.  I’m trying to understand how this isn’t really a push and not a real cut (the net savings from the 200  cuts being offset by filling and paying salary on the 200 vacant positions).  In any event, the savings is but a pittance.  Other bombshell ideas – like pulling out all the fire rings at City beaches to save a few hundred grand – may be DOA as the Coastal Commission sets up hurdles and local residents rally to save their right to pass a Bota bag around the municipal camp fire.

Side note 1:  While 3400 people have signed up for the Facebook group “Save the San Diego Fire Pits”  I must ask how many have signed up for the Facebook group “Raise My Taxes To Save the San Diego Fire Pits”?  The answer, me thinkst, will be zero.   Which is symptomatic of the structural problem:  the Voters want.  They’ve been conned into thinking (by elected officials and the voters own venality) that they can have without paying,   They can’t.  At least forever.  And forever seems to be ending over the next two fiscal years. 

Side note 2:  If ACE parking can have dozens of unattended parking lots where drivers simply swipe a card or insert cash into a machine to get a little ticket saying they’ve rented a parking space for a set amount of time, why can’t the City do the same with fire rings?  Set up machines and charge an hourly rate that covers maintenance costs with a little profit (extra revenue) on top of it.  If people want to hang out at the rings let them pay for it.  And DON’T subcontract it out to ACE parking so they can take the profit.  Surely City employees are competent enough to manage the service.

I find myself incredulous that, increasingly, the only voice operating outside of fiscal fantasy at 202 C Street is Carl “Demonic” Demaio who keeps pointing out that one time fixes ain’t gonna fix this problem.  I differ with Demaio in terms of remedy – he wants to cut, cut, cut – though his proposed cuts alone aren’t going to fix this problem.   

The city needs to do three things to get out of this mess.  First, it needs to figure out a win-win strategy to restructure the pension fund that will cut down on yearly outward obligations without negatively impacting pension recipients.  How you do that, short of bankruptcy proceedings, I don’t know.  But the municipal unions are not going to hand back the benefits the city legally gave them.  Nor should they.  The people of San Diego benefited from their services and are bound to the agreed to compensation.  Maybe inkind compensation—like boosting medical or long term care provisions in exchange for cash-out offsets—can be considered.

Second, the City needs to pursue deficit-offset funding sources.  Unfortunately, most of these – State and, in particular, Federal—are outside the City’s control.  Some, though, may offer more flexibility.  I can’t believe I’m about to write this but, Keynesian economics wins out.  If the local economy is hurting the only way to generate a bigger revenue base in the future is to invest heavily in the infrastructure for such a base in the present.  That means, if ever there was a time to pursue the three big city infrastructure projects — new city hall, new main library and, gulp and heaven forgive me, new football stadium—this is the time.

Big concrete and steel projects mean big spending and payroll in the region over the next five plus years.  Which will help offset municipal deficits projected into that same period. Which will generate additional revenues (at least from the stadium and eventual ancillary development) in the out years.  With Obama banging on bankers to show more civic responsibility and do what bankers are supposed to do—lend!—the credit crunch may be coming to an end.  This can offer the city a tap of money to support these projects.  In addition,  getting these projects underway may open up taps of state and federal monies as well.  Indeed, perhaps the NFL and Chargers organization can be hit up for more up front monies now in exchange for an expedited stadium deal and public monies later.  While it would constitute another one of those lousy one-time money fixes, a patch in a sinking boat is still a patch.

I know I’ve railed against all three projects in the past but, as Keynes said, when times are hard having the government pay a man to dig a hole and fill it back up again is still better than having the man unemployed.  Ultimately a new Charger stadium may not be the best long term use of municipal monies but it may be one of the quicker ways to get money into the municipal treasury and the local pocket.   

Third and finally, the Mayor and council have to look at longer term fixes, such as true-costing future development projects to be sure that, when the next building boom and bubble comes, as it inevitably will, developers and buyers must pay the true public cost of their projects in terms of future city services and expenditures rather than just passing them off to the public trough.  

There is, ultimately, no such thing as a free lunch or fire ring. Time to roast some roosting rosters of fiscal foolishness and set the house in order.

Best of: The Road To Serfdom

I’m getting bogged down grading  papers again so I’m hitting you with my first “Best of Lunacy” post  to fill the void. (Heck, if the networks can already be putting shows into reruns until after the holidays, why can’t bloggers?!)  I published the piece below during the San Diego grocery workers  strike back in 2003.  The basic theme is pretty much apropo to much of the “who loses what” debate surrounding healtcare today.

The Road to Serfdom, American Style

I’ve lost count of the number of people around me condemning the striking grocery store workers.  “What are they complaining about?”  “They at least got health care – why should they mind chipping in a few bucks a month for it?”  “They make $35,000 a year – that’s too much already!”    And on it goes.

Let’s leave aside for the moment bemoaning paying grocery store employees $17 per hour after several decades of employment in a society where 18 year olds who can bounce a ball can make millions.  Or CEOs who make $3000 or more per hour.  What I find most disturbing of all this worker-bashing going on by other workers, blue and white collar, is what it says about the mindset of average American households. I see it as another sign of the creeping peasantization of the American mind.

I lived for a year in Russia a while back, lecturing on politics as a Fulbright scholar. While there, my students told me a classic Russian folk tale that has always stuck with me.

There are these two Russian serfs – Igor and Ivan.  One day Ivan goes out into the forest and finds a wood fairy.  The wood fairy tells Ivan she will grant him any one wish.  Ivan thinks for a moment.  “With my own goat, I can have milk for my family,” he thinks.  So he wishes for a goat and–poof – a goat appears.  Happy, Ivan goes back to the village where Igor, seeing Ivan and his new goat, becomes enraged.  “Now Ivan has a goat he will sell me the milk and take all my money,” Igor thinks.  “Where did you get the goat?” he yells at Ivan.  Ivan explains to Igor about the fairy and the goat and Igor storms off into the forest to find the fairy. When he does, the fairy tells Igor that she will grant him any one wish.  Without blinking an eye, Igor says, “Kill Ivan’s goat!”

Therein lies the essence of life as a peasant. To be a peasant is to live without any real hope of ever doing better.   Daddy was a dirt-poor peasant.  So was granddaddy – and great granddaddy and great-great granddaddy, and so will the kids and the grandkids.  There is no hope of social mobility, period – what you’ve got is all you’re going to get. In this mindset, if anyone gets more it had to come at someone else’s expense.  If your neighbor does well, you’re doing less well – life is a zero-sum game.

I grew up in the company of used-to-be peasants a generation or so removed–all of my grandparents were Sicilian immigrants.  I remember a basic attitude amongst the older members of this transplanted peasant society.  If any member of the family was doing well—say, got a new car—the old timers would publicly wish them the best but privately pray the car would break down.

The German’s call it Schadenfreude — taking delight in the misfortune of others.  But Schadenfreude begins with others having better fortune than you in the first place and a feeling of unfairness.  “Why them when I can’t have it?” The less likely one thinks it is that fortune will smile on them, the more delight one feels in seeing fortune frown on others.

That’s why the anti-grocery worker sentiment I keep hearing – which basically comes down to “why do they get it when I can’t”—is so disturbing to me.  I see it as another sign that, for many people, the dream that life will get better has simply faded away. Health-care, pensions and expanding wages–the stuff unions members fought (and, in many cases, died) for–are available today to a fraction of the American households that used to look upon such benefits as a standard part of working life.

That was, standard back in the days when unions were strong and even respected and cutthroat business competition wasn’t the be all and end all of human existence. After a solid generation of stagnant household incomes for many Americans, those who have lost that past security increasingly seem to look with envy upon those who still cling to a little bit of past prosperity.   We wish, in other words, that their goat would die.

Fifty years ago, Friedrich von Hayek accurately wrote of how the rising socialist states of the Nazis and Communists would, through the abject mediocrity these systems propagated, take us all back down the road to serfdom.    How ironic, therefore, that, a generation into the take no prisoners free market laissez faire capitalism that dominates today’s business and political culture, so many members of the middle class are showing signs of a growing serfdom in their own outlook towards the future, and towards their fellow citizens.

Throwing Worse Money After Bad

This morning the Obama administration fessed up to what out side critics have been saying for some time:  its efforts to date to stem the mortgage foreclosure crisis hasn’t worked.  “Making Home Affordable” was a seventy-five billion dollar incentive to the financial industry to deal with the fact the a quarter or more  of Americans are now upside down in their homes and millions are facing potential foreclosure in no small part because of actions by the financial industry. 

The Great Double-Ought Bubble was the product of many blowing lips: the irrational monetary exuberance of the Greenspan Fed cutting interest rates to give-away rates; foolishly greedy homeowners and buyers looking to turn hearth and home into equity ATMs; rapacious realtors looking for the next commission come what may.  But the biggest lips blowing up the bubble were those of the financial industry which, from financing ridiculous rates for subprime mortgages complete with their own bubble clauses to the slicing, dicing and splicing of mortgage-backed securities spread the risks of their reckless realty practices far and wide.

So who’d a thunk that the same Wall Street suits sitting in Board Rooms and Fed meeting rooms who came up with the Foreclosure Fiasco would chose to not  sit on their hands—and the throats of homeowners—when it comes to cleaning up the festering mess?  The Obama Administration, of course.  Talk about the audacity of hope.  The “Making Home Affordable” plan relied on financial institutions to take up front risks and forego “lucrative fees”  to help out underwater  homeowners based on an appeal to do the right thing by the government.  So they didn’t, simple as that.   Who’d a thunk that? Oh, right.

Today the Administration now promises to get tough with financial firms by not paying them the cash incentives promised in exchange for modifying distressed mortgages until those mortgages be permanently de-distressed.   That would be the cash incentives that were not big enough to tempt financial institutions to modify a significant number of mortgages in the first place. 

Right.

Six or twelve  months and three or four million more home foreclosures from now, what will the Administration do?  Get really, really tough on the financial industry by halting all deliveries of cappuccinos to their walnut-paneled offices until more mortgages are modified?  That threat might actually work better. Unfortunately, by then, the country might well find itself deep in the second dip of the Great Recession and the Obama administration may find itself facing its own potential pink slip in 2012.

The real scary fact of this great meltdown  has been that, step by step, everyone involved in it, from consumers to businessmen to government officials, essentially took rational, intelligent actions in pursuing their own self interest under the system of the time.  The real scary fact of this great meltdown is that there is no one bad guy—no Enron or AIG or Michael Milken or even a good old Gordon Gecko to blame this all on.  The great meltdown has been the product of systemic failure which has resulted, amongst other things, in the tying of the mortgage industry into a Gordian knot of conflicting interests. 

Only the terrible swift sword of government action can cut through that not.

Relying on the private sector to sort out a housing crisis that it a) made; b) doesn’t fully understand; and c) has no short-term interests in fixing is taking audacious hope to the point of simple blind foolishness.  Government must use the  power of law to modify the very mortgages the financial industry refuses to do.  Without such bold, truly audacious action the  foreclosure crisis threatens to spike again, dragging the housing and financial sectors back down and dropping the entire economy back into the swirling porcelain bowl.

Last year I suggested the government pursue an aggressive National Fair Mortgage Act to, by the power of law,  reset mortgage principals back to pre-bubble assessed home values and structure these mortgages on a 30 year fixed, 4%-5% rate, with mortgage holders being compensated through tax breaks and direct government compensation for any losses.  (See the plan here.)  As foreclosures continue to soar, the economy continues to falter and the latest efforts by the Obama administration to get the banks to fix bad mortgages fail,  the powers that be might want to chew on  this idea a bit.

Continuing to try and get banks to fix loans they have no interest in fixing, however, remains throwing worse money after bad.