Economy

From the WSJ tomorrow (via MSNBC) an article that offers more evidence that much more pain is to come, and that we must find a way to keep people in their homes:

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults - the very misfortune that touched off the credit crisis last year.

The result of homeowners being "underwater" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

And having more homeowners underwater is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30 percent in some areas, roughly 12 million households, or 16 percent, owe more than their homes are worth, according to Moody's Economy.com.

The comparable figures were roughly 4 percent underwater in 2006 and 6 percent last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners underwater in this period than any time in our history."

From his column today:

The House will probably vote on Friday on the latest version of the $700 billion bailout plan - originally the Paulson plan, then the Paulson-Dodd-Frank plan, and now, I guess, the Paulson-Dodd-Frank-Pork plan (it's been larded up since the House rejected it on Monday). I hope that it passes, simply because we're in the middle of a financial panic, and another no vote would make the panic even worse. But that's just another way of saying that the economy is now hostage to the Treasury Department's blunders.

For the fact is that the plan on offer is a stinker - and inexcusably so. The financial system has been under severe stress for more than a year, and there should have been carefully thought-out contingency plans ready to roll out in case the markets melted down. Obviously, there weren't: the Paulson plan was clearly drawn up in haste and confusion. And Treasury officials have yet to offer any clear explanation of how the plan is supposed to work, probably because they themselves have no idea what they're doing.

As readers of this blog are aware NDN has been raising similar concerns about the plan - that it is not clear that it will work.  One thing that will have to be done, perhaps during the lameduck session in November, is the passage of a plan to keep people in their homes.  For as the new housing data shows housing prices continue to plummet, causing more foreclosures, which is then in turn bringing down home prices even more which is then doing to bring down the core assets whose drop is bringing down the financial house of cards on top of it all. 

Nothing in this now enormous bill will address this fundamental problem. which of course has been driving this entire crisis.  Our fear is that without it we are not doing all that we can to stabilize our wobbly financial markets, and do the right thing by the taxpayers who are footing the bill for this incredible bailout. 

This is running on their site now:

After nearly eight years of voting in virtual lock step with President Bush on everything from tax cuts to torture, House Republicans decided on Monday to break ranks on the survival of the nation's financial system.

The rejected bailout bill that was on the floor after a weekend of hard negotiating was objectionable in many ways, but it was a Republican-generated bill and was improved from the administration's original version. Sixty percent of House Democrats voted for the bill, enough to easily pass the measure if the Republicans had not decided to put on their display of pique and disarray.

The question now is whether the stock-market plunge that followed the House's failure to lead - and a renewed credit freeze - will be enough to get the 133 Republicans who voted against the measure to change their minds. And, more important, whether the damage that the no vote has inflicted is readily reversible.

Republican no votes were rooted less in analysis or principle than in political posturing and ideological rigidity. The House minority leader, John Boehner, conceded as much: "While we were able to move the bill drastically to the right, it wasn't good enough for our members."

It's not clear what would be good enough for the Republicans since there was very little talk of substance on Monday after the bill died on the floor of the House. Instead, the Republicans tried to blame a speech before the vote by House Speaker Nancy Pelosi, who connected the current crisis to the fiscal and economic mismanagement of the Bush years. It may not have been the perfect moment to say that, but it was true.

Republicans were also upset that serial bailouts represent a rejection of free-market principles. They do. That's because the free market in finance, unregulated and unsupervised, has failed. And, in its failure, it is inflicting greater damage on an already weak economy.

No amount of amendments to the bailout package will change the administration's disastrous economic record or erase the manifest failure of the Republicans' free-markets-above-all ideology.

Since last week, this page has urged Congress to take the time to get the bailout right. Over all, lawmakers have given too little consideration, in public at least, to alternatives to the Treasury's plan to buy up the bad assets from various financial firms.

In the bill rejected on Monday, the unlimited powers that the Treasury Department had initially sought were curbed, and Congressional oversight was added. But judicial review of Treasury's purchases was not adequately ensured. The courthouse door was not closed entirely; lawyers could still seek effective remedies for actions that violate the Constitution. But that's a much higher hurdle than the already formidable barriers in place to discourage lawsuits against the government.

Homeowners were also given short shrift with provisions that mainly urged lenders and the Treasury to do more to help them. That's unconscionable. The financial crisis is as much a problem for homeowners as for Wall Street investment bankers. Appeals to lenders' better natures have not worked to bring lasting relief to homeowners. If they are still not working in the coming months, Congress will have to revisit the issue.

Taxpayer protections are also iffy, such as a requirement that in five years, the president must give Congress a plan for recouping any losses from financial firms. What will happen then is anyone's guess. Lawmakers could decide at that point that taxpayers are the only pit bottomless enough to absorb those losses.

Still, the imperfections in this bill are the result of a democratic process that can be rethought, revisited and reworked. It is better than nothing, which is what some backward-looking House Republicans gave Americans on Monday.

As some of you may be aware our office is right across from the Treasury Building.  I can see Paulson from my front porch, so to speak.  

A few minutes ago a very loud protest began outside Treasury.  It is angry, loud, unnerving. 

For those in Congress looking to but a deal back together I hope they consider what has happened to the American middle class this decade.  The typical family is making less money today than when Bush took office.  Those in bankruptcy, with homes foreclosed upon, in poverty and without health insurance have risen.  Every day anger at the economy drove the GOP from office in 2006 and is driving the national debate today.  Given all this it was almost unbelievable that Congress would pass the 1st Bush Bailout Bill which had so little obvious benefit for those struggling harder and harder to make ends meet.  It is why the calls coming into Congressional offices are running big time - 30 to 1 in some offices - against the deal.  

The economic performance of the Bush era has been an epic failure.  A lower standard of living for the typical family.  Rising poverty and those without health insurance.  Out of control spending balanced with dramatic tax cuts for the wealthy creates a structural budget deficit and a huge increase in the national debt.  American support for global economic liberalization dramatically recedes, and the new global trading round - Doha - fails.  Needed investments in our kids, our skills, our infrastructure, the all important transition to a low carbon economy all put off.   Umployment rising.  Collapsing housing and financial markets. Bush's economic stewardship has been disasterous for America - why should we expect him to all of a sudden to get a major financial crisis right? 

Our advice to Congress - put real provisions to keep every day in their homes as part of the final deal or don't be suprized if the American people and very real voters spit the bit.  The American people are tired of a government more concerned with things other than their increasingly difficult struggle to get ahead.  This debate is a time - even this close to the election - where Congress and the President can acknowledge that the struggle of every day matters to them as much as the struggle of big banks.  This isn't that hard my friends.  Keeping people in their homes is both the right economic thing to do and the right moral and political one as well.  

If you are looking for a plan on how to do it give Hillary Clinton a call.  She has a good one.

As I get ready to hear from our President tonight, I am comforted by recalling that indeed he is our first President with an MBA. 

Perhaps, tonight, he can use that MBA to explain this statement from his Treasury Department earlier this week.  

Our friend Rob Dugger penned a powerful op-ed in the Washington Post today, A Prescription for Recovery.  It offers these five principles to help guide our next steps in putting our financial system back on track: 

· Put individual taxpayers first. The program needs to focus on keeping taxpayers in their homes, strengthening their local economies and protecting their savings. It has to help Americans broadly, not just a few, and certainly not the managers who got us into this mess.

· Minimize taxpayer costs over the long term. Short-term thinking created this crisis. Only long-term efforts will end it. The S&L crisis was limited to the financial sector. It was best addressed on an aggressive basis, bank by bank. This meant that least-cost resolutions were the way to go and that the RTC should buy and sell assets quickly, which it did. But the current situation is systemic. It involves our entire economy. This means the revitalization program should buy distressed assets early and plan to hold them for a long time. The goal is to make the economic adjustment as shallow as possible, to limit the injury to families, jobs, homes and savings.

· Avoid creating an interim program. This program must not be like the S&L "rescues" of the mid-1980s, which merely enabled the problems to grow. The program needs to have the capacity, flexibility and scope to address the vast size of the current crisis. Congress should put no dollar or time limit on our national commitment. Yes, markets will want dollar figures. If numbers must be given, let them be in statements about the program -- and let them be big. Do not shy away from saying that the United States is prepared to commit a trillion dollars over the next 10 years to halt this meltdown here and now.

· Remember global investors, whose confidence we must regain. This crisis is an economic heart attack, but not a fatal one. We must assure global investors that we are fully prepared to cover American losses. No one suggests that this will be easy. The budget choices being forced on us will be profoundly difficult. But we have the strongest democracy and the most durable legal and financial systems in the world. We have the capacity to absorb losses and the ability to reshape our economy. Foreign investors need evidence that we are committed to the changes necessary for recovery. When they see that, they will buy our private assets again.

· Do not hesitate. Bill Seidman's greatest lesson was action. It is far better to deal with a few assets, even without knowing quite what to do, than to do nothing while trying to work out the details. Whoever is in charge of the revitalization program must not hesitate to buy the assets that institutions offer -- these will be what is burdening the institutions and clogging our credit system the most. There are many strategies for buying assets and infusing capital that can protect the program from paying too much and ensure that taxpayers benefit from price increases as recovery occurs. The key is to get the assets in-house quickly and learn how to manage them effectively.

Every year the United States takes a time out from September 15-October 15 to recognize the contributions of Hispanics in the United States as part of Hispanic Heritage Month. Hispanics are now recognized as the largest minority in the U.S. - the Census estimates that by 2042 one in four persons will be of Hispanic origin. As this year's Hispanic Heritage Month kicked off this week, it becomes clear that an unprecedented number of Latino voters could decide this year's election, Latinos are increasingly represented in government and industry, Latinos are a growing force in the media - as evidenced by the launch of shows like "Agenda" and "Al Punto" on Spanish language networks, and Hispanics are also becoming web and technology users in rapidly growing numbers.

For these reasons and more, the Pew Hispanic Center reported this week on a survey it conducted on the overall state of Latinos. The report reflects how Hispanics are bearing much of the current economic crisis, combined with suffering increased instances of discrimination.

Half (50%) of all Latinos overall (native and foreign born) say that the situation of Latinos in this country is worse now than it was a year ago, according to this nationwide survey of 2,015 Hispanic adults (higher than the average for non-latinos). Fully 63% of Latino immigrants say that the situation of Latinos has worsened over the past year. In 2007, just 42% of all adult Hispanic immigrants - and just 33% of all Hispanic adults - said the same thing. These increasingly downbeat assessments come at a time when the Hispanic community in this country--numbering approximately 46 million, or 15.4% of the total U.S. population--has been hit the hardest by rising unemployment.

Due mainly to the crisis in the housing and construction industry, the unemployment rate for Hispanics in the U.S. rose to 7.3% in the first quarter of 2008, well above the 4.7% rate for all non-Hispanics, and well above the 6.1% rate for Hispanics during the same period last year. As recently as the end of 2006, the gap between those two rates had shrunk to an historic low of 0.5 percentage points--4.9% for Latinos compared with 4.4% for non-Latinos, on a seasonally adjusted basis. The spike in Hispanic unemployment has hit immigrants especially hard. For the first time since 2003, the unemployment rate for Latinos not born in the United States was higher, at 7.5 percent, than the rate for native-born Latinos, at 6.9 percent, the report found. Latinos make up 14.2% of the U.S. labor force, or roughly 22 million people.

In addition to the economy, issues like immigration, access to health care, and discrimination continue to be of concern to Hispanics and to Hispanic voters. In the Pew survey, one-in-ten Hispanic adults - native-born U.S. citizens (8%) and immigrants (10%) alike - report that in the past year the police or other authorities have stopped them and asked them about their immigration status. Some Latinos are xperiencing other difficulties because of their ethnicity. One-in-seven(15%)say that they have had trouble in the past year finding or keeping a job because they are Latino. One-in-ten (10%) report the same about finding or keeping housing.

On the question of immigration enforcement, the Pew Center's research demonstrates the same data NDN found through our polling on immigration, released last week. Latinos disapprove of current enforcement-only measures - more than four-in-five Hispanics (81%) say that immigration enforcement should be left mainly to the federal authorities rather than the local police and 76% disapprove of workplace raids. Two-thirds (68%) of Latinos who worry a lot that they or someone close to them may be deported say that Latinos' situation in the country today is worse than it was a year ago, as do 63% of Latinos who have experienced job difficulties because of their ethnicity and 71% of Latinos who report housing difficulties because of their ethnicity.

Most Hispanics in the U.S. are native born, i.e., U.S. citizens legally not susceptible to deportation, therefore the fact that most Hispanics worry about raids, immigration, and even facing possible deportation reflects how the existing reckless "enforcement-only" policies are impacting not only foreign Hispanics, but U.S. citizens.

NDN has a history writing and speaking about the Hispanic community as one of the great American demographic stories of the 21st century, recognizing that it will be hard for any political party to build a 21st century political majority without this fast-growing electorate. Hispanics have become one of the most volatile and contested swing voting blocs in American politics, and they are responding to this attention. As reported in Hispanics Rising II, an analysis of the Hispanic electorate and their motivation, Hispanic immigrants are becoming increasingly involved, as reflected by the data released this week by the Immigration Policy Center, demonstrating a spike in citizenship applications. Immigrants want to be U.S. citizens, they want to apply for citizenship, often having to overcome virtually impossible obstacles to be able to pay the obscenely high application filing fees.

Therefore, political candidates will do well to pay attention to the many challenges facing Hispanics today. At the onset of Hispanic Heritage Month this week, both Presidential candidates released statements praising Hispanics' contributions to American society and their military service. The difference between the two statements is that Barack Obama also called for comprehensive immigration reform. On the other hand, John McCain didn't mention it. This is curious because polling for the last 3 or 4 years, including the latest polls conducted by NDN, consistently shows that immigration is of top concern for Hispanic voters.

Staying true, never wavering. Rising above politics as usual. Taking on his own Party. He is his own man. Willing to do the hard stuff, like tackling climate change and immigration reform. A courageous maverick. The drumbeat from St. Paul is relentless.

But is it true?

While it may have been at one time, it can no longer be considered true. McCain fought the Bush economic strategy. He now embraces it. McCain opposed the Bush approach to use of torture. Today he supports it. He was a leader on the effort to fix our broken immigration system. Today he no longer supports his own bill. While he has been a leader on tackling elements of the climate change fight, as Jake writes below, it is no longer clear that he supports the positions he had a few months ago. He runs ads with wind turbines and solar panels but has helped kill the main government program supporting their growth. He fought the lobbyists and now his campaign is run by, and littered with, them. He says he is the experienced one, but is now on his 3rd campaign manager and his team wildly bungled the vetting of his VP, the most important decision he has made to date. He argues each day he will balance the budget but independent analysis all show that he will do the very opposite.

In order to win the nomination this year, John McCain embraced the very politics he fought so hard against for so many years. His story is not one of courage, of fortitude, of virtue but one of an old politician, seeing his last chance for the Presidency slip away, give in to a Party's and a President he had fought so long, sacrificing his integrity and his beliefs along the way. The McCain story is much more craven than courageous, more aging pol than heroic leader, more a man who has bragged repeatedly that he supported President Bush more than 90% of the time than an independent maverick.

It is not an inspiring story no matter how much they attempt to dress it up this week in Minnesota. Like so many, I admired the old McCain, but that man is not the man running for President of the United States this year. He disappeared forever sometime in 2007.

I want to share an interesting Gallup poll released today that helps shine some light on political tensions in Peru. Throughout the country, the people polled identified themselves as more socialist than capitalist in their personal beliefs (49%), while only 16% identified themselves as more capitalist in their beliefs. However, 45% of Peruvians believe their country is more capitalist than socialist. It's telling that only in the South of Peru did a majority of those polled identify themselves as socialist (57%) - this raises the question of whether there is a disconnect between the more rural South and the rest of the country's market economy. Click here for Gallup's analysis.

There can now be little doubt that Senator Obama's recent comments in San Francisco have become a major test for this candidacy. The ad Senator Clinton launched yesterday on the subject is one of the most powerful ads of this election cycle, and will require a sustained and significant response from the Obama campaign.

As Senator Obama demonstrated in the recent flap over Jeremiah Wright, every attack is an opportunity to offer a very public response. For the Obama campaign those words will never be able to be taken back, but what his campaign can do is to view this as a moment to better address the core of what is being discussed here - his understanding of the struggle of every day people, and to better clarify his plan to raise improve the lives of those facing increased struggle and hardship in an era when the standing of the middle class has deteriorated. As I have written many times, I have long felt this whole area has been a weakness for Senator Obama and his campaign. This moment is in essence an opportunity to correct a major structural weakness in his candidacy and thus if handled successfully could be a moment of great opportunity for the Senator.

Campaigns are a series of tests, some small, some big. For Senator Obama a few words spoken in private have begun to drown out the millions of words he has spoken throughout this long and grueling campaign. But that is politics, and this new test may be among the most consequential and important faced by Senator Obama so far.