Administrator – Page 26 – The Menace of Privilege

Avoiding foreclosure vs. getting ripped off

A significant post at Naked Capitalism asks “Why Are NACA’s Innovative Mortgage Modification Marathons Below the Radar?” Suppose a property bought for $300,000, with a $290,000 mortgage, has declined in value to only $200,000. If the borrower can’t keep up the payments, the lender could foreclose, but would net less than $200,000 after expenses, while the borrower would lose the property.

The rational solution is for the parties to agree to a reduction in principal, write the mortgage down to, say $200,000, with payments reduced commensurately. The lender is better off, the borrower is better off, and there’s no vacant foreclosed home for the neighbors to worry about.

But homeowners under financial stress tend to have a lot of difficulty dealing with their lenders. Lenders want to pretend that the mortgage is still worth $290,000 (otherwise they might have to liquidate or raise more capital), and/or hope to be bailed out by yet another federal program, and/or lack competent staff.

The NC post implies that NACA can be helpful in this situation. But, as one of the commenters there notes, thousands of other enterprises make similar promises, and many of these are predatory. How is the stressed homeowner to find someone who will help, rather than rip her off?

NACA provides some reason to be suspicious:

NACA – America’s Best Mortgage Program
The incredible NACA mortgage allows NACA Members to purchase or refinance homes with:

no down payment,

no closing costs,

no fees,

no requirement for perfect credit,

and at a below-market interest rate.

Everyone gets the same incredible terms, including the below-market interest rate, regardless of their credit score or other factors.

I can only answer by treating it like any other purchase of consumer services. You ask your friends, google around to see what other folks say about it, evaluate the explicit promises made on the provider’s web site…. and maybe you guess correctly, getting real help. [Hopefully you are not working three jobs trying to make ends meet, lacking time to do any real investigation.] There is no sure solution, only ways to improve the odds.

A better remedy, of course, would be a system that allows people to obtain decent housing in a decent neighborhood, without having to mortgage their futures for an “investment.” That would be one benefit of a land value tax. No, we wouldn’t expect our homes to appreciate in value, at least not beyond the general rate of inflation. But we would need much less debt to purchase them, and more easily build a reserve of real savings.

A warning about the NACA web site, btw: They seem beholden to Microsoft and will display an error message on many pages if you are not using genuine Internet Explorer. I think some other browsers allow you to pretend to be using IE, and possibly this will solve the problem.

Time to buy land?

Bloomberg reports that upscale homebuilder Toll Brothers is starting to buy land even tho it already has enough for 15 years of development at current rates. This is a change from the prior several quarters, when they disposed of most of the lots they had held. And Toll isn’t alone. “The 12 largest homebuilders by market value added 14,214 lots to their control over their two most recent quarters.”

It appears Toll spent $27 million in recent weeks to purchase land interests from a failed bank at “40 cents on the dollar,” presumably 40% of what somebody claimed the land was worth at one time. This is just part of a reported $250 million that Toll has spent to acquire land so far in 2010. Still, they seem to have over $1 billion in cash available for further purchases.

Securities analysts quoted by Bloomberg don’t appear impressed by this strategy, suggesting that the cash would be better used to buy back shares, or acquire one of their more down-market competitors. I dunno, somebody is gonna buy land at the bottom, maybe it’s Toll?

Who are putting their lives on the line for us?

A new report(pdf) from the U S Bureau of Labor Statistics provides 2009 data, pretty much consistent with earlier years, about fatality rates (per 100,000 equivalent full-time workers) in various occupations:

Fishers and related fishing workers 200.0
Aircraft pilots and flight engineers 57.1
Farmers and ranchers 38.5
Roofers 34.7
Refuse and recyclable material collectors 25.2
Driver/sales workers and truck drivers 18.3
Miscellaneous agricultural workers 16.7
First-line supervisors/managers of landscaping, lawn service, and groundskeeping workers 16.2
First-line supervisors/managers of construction trades and extraction workers 15.2
Grounds maintenance workers 15.0
Taxi drivers and chauffeurs 14.9
Police & sheriff’s patrol officers 13.1
All self-employed workers (included in the various occupational categories) 12.0
Firefighters 4.4

When I think about what occupations are really important to the maintenance of civilized life in my community, I definitely think of the farmers and the refuse collectors. And in an emergency, sometimes I have had to call on a taxi driver. Some of the other categories maybe are less essential. I like fish, but not enough to risk death.

Of course police and firefighters face dangerous situations, but they are trained, equipped, and staffed to deal with them. Maybe we need to give equal attention to some other essential occupations.

Getting it right on medical costs

Turns out that back in February, Kevin Carson wrote the article that needs to be written, analyzing how government regulation and protection makes medical services far more expensive (and less effective) than they could be. With a link to another article that more broadly exemplifies how government makes it impossible for the poor to support themselves.

Economic Recovery Prevention Commission

I must not have been paying attention, but apparently on June 24 Governor Quinn’s Economic Recovery Commission issued its report. If we’re lucky, this will be one of those that just sits on the shelf.

The whole report is at the link above, or get the pdf from the direct link here, provided by the Executive Service Corps. It seems that a summary would be: “Raise taxes and make them more complicated, then give more subsidies to favored interests.” Among the tax increases are higher individual and corporate income taxes, and a broadening of the sales tax to include more services.

Those of us with a sound understanding of economics will be shocked discouraged to find that there is no mention of increasing the taxes on land value as a way of encouraging development and easing taxes on productive activity.

I’m not likely to review the whole report in detail, and doubtless it contains a few sound recommendations. I’ll just mention two other things that struck me.

First, we all know about TIF’s which divert real estate taxes to private pockets, and there are quite a few TIF’s that divert sales taxes, but this is the first I’ve heard of a TIF that diverts state income tax:

The CenterPoint Intermodal Center in Joliet, a 3,900-acre state-of-the-art, integrated intermodal center, represents a $2 billion private investment. The center also will receive State investment under theIntermodal Facilities Promotion Act, signed last year. Designed to encourage business development along the freight rail systems of Illinois, the Act authorizes income taxes from jobs created at the facility to be placed in an Intermodal Facilities Promotion Fund. DCEO will administer the fund to reimburse CenterPoint for infrastructure improvements. DCEO will award an annual grant of up to $3 million in fiscal years 2010 to 2016.

Second, among the recommendations is an increase in the public employee retirement age to 72. I am no expert in retirement ages, and probably it’s appropriate to push the age up from 60 (which I believe it is now, and younger in many cases), but 72? No basis is given for choosing this age (other than the obvious fiscal benefits of more workers and fewer retirees. My guess is that nobody takes this recommendation seriously; had they recommended 65 or 67, there’d be a danger that the change might actually happen, but there are probably enough stories of senile 72-year-olds to prevent anything from being done.

Steve Keen on the financial crisis

Aussie economist Steve Keen, whom I have mentioned before in an investing context, has interesting recommendations for dealing with our economic meltdown. His analysis distinguishes between capitalists and financiers, recognizing the former as labor’s allies in the production of wealth, and the latter as parasites who crashed the economy. His immediate solution for rebooting the economy now is that about 2/3 of the debt needs to be written off, tho he recognizes that legitimate savers must be protected in this process.

But long term, how to prevent something like this from happening again? It seems that his key proposal is to restrict stock trading. Corporations could still issue stock, with voting and dividends as today. And the stock could be traded. However, as soon as a share of stock is traded, its “perpetual” life would be shortened to 30 years. He says that would prevent people from leveraging the purchase of stock, which represents a big part of the debt that got us in this mess. Certainly it would require investors to look more closely at what their money is actually being used for, and would tend to make corporate ownership more focused on the long-term future.

His second proposal seems to be a restriction on the amount of debt that can be secured by real estate, limiting it to 10 times the rental value. (However, the video is truncated before he can discuss this point.)

How Georgist is this?

In a geoist world, privilege would be eliminated or taxed, including public collection of essentially all economic rent. As a result, the value of stock could only represent real capital, which generally lasts less than 30 years. And of course, with rent publicly collected, investors would (we expect) realize that real estate leverage cannot be profitable. So I think Keen is proposing an alternative, more complicated way of achieving something similar to a Georgist reform.

There’s much more in the video, about his modeling work and the details of the mess we’re in. Probably the most interesting part is near the end, where he makes his 30-year-limit-on-stock proposal. The (New York) audience, probably people in the securities business, cannot accept this. “Who would trade stock if doing so reduced its value?” “If people didn’t trade stock, how would traders know what it was worth?” “If I didn’t buy Microsoft stock when it was first issued, how could I buy it?”

Just as with land, everybody assumes that they will get rich off the stock market. And that they should.

note: This link (repeated from above) takes you to Keen’s blog article, which includes links to an MP4 video of the presentation as well as a pptx file (pretty much readable by Impress) of his slides. There is also a paper (which I did not read).

Good news about people

MSM aren’t giving us all that garbage because we want it.

Eighty-seven percent (87%) of Americans feel the media pays too much attention to celebrities, according to a new Rasmussen Reports national telephone survey…Just one percent (1%) do not think media outlets cover celebs enough…

Probably that’s good news. Or perhaps folks just don’t want the interviewers to know how shallow we really are.

Martin Wolf wants to socialize land rent

As do pretty much all of us who understand economics from a geoist perspective. Wolf happens to be a columnist for the influential Financial Times, and in this column he endorses Fred Harrison‘s analysis of the fundamental cause of periodic economic meltdowns. (Since FT probably won’t leave this accessible for very long, here is the citation:

Financial Times:
Why we must halt the land cycle
By Martin Wolf
Published: July 8 2010 22:28)

But Wolf goes on

Socialising the full rental value of land would destroy the financial system and the wealth of a large part of the public.

As if the recent financial collapses did not very nearly do the same.

That is obviously impossible. But socialising any gain from here on would be far less so.

I believe this was proposed by John Stuart Mill, and evaluated by Henry George as “better than nothing.” Which it is, and had it been seriously and honestly enforced since George’s day we wouldn’t worry much about financial crashes now.

UK-based Wolf also infers that, with land price gains impossible, there might be less need for direct controls on what Americans call “sprawl.”

via Dave Wetzel

China collecting some rent

Bloomberg reports that China has imposed what appears to be a 5% severance fee for coal, oil, and gas in one western province, and will extend it to others. Revenue will be used to fund development projects in the area.

In principle, this is collecting the rent for the benefit of the community. How it will actually work out cannot be known.