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Are You Forced to Subsidize Low Wage Workers?

by Brian T. Lynch

According to the NY Times: “As in 2011, 46 percent, or nearly half of New Yorkers, were making less than 150 percent of the poverty threshold, a figure that describes people who are struggling to get by.

Even with fewer people unemployed, the poverty rate for working-age adults working full time reached 8 percent, by the city’s measure. Fully 17 percent of families with a full-time worker lived in poverty, and even among families with two full-time workers, the rate was 5.2 percent.”

NOTE: This means that 8% of adults working FULL-TIME are at or below the poverty line, while 46% percent of all EMPLOYED New Yorkers are struggling to get by. This reinforces my analysis that NEARLY HALF of all working families must rely on some form of PUBLIC ASSISTANCE to make ends meet. Government assistance to these fully employed families = a tax subsidy on labor costs for the companies that employee them.

Put another way, people who earn more are being made to subsidize the company’s low wage employees through their federal income tax withholding. Ordinary wages have been held hostage to the 1% for almost 40 years.

AMERICANS NEED A RAISE

In, “Making the Case for a LIVING WAGE” I discussed more fully why it must be the obligation of business to compensate their employees to a level of at least minimal self-sufficiency (a living wage).  Once all wage earners realize they shoulder the burden for low wage workers there will be more activism to at least raise the minimum wage. Ask yourself, “How much does my companies low wage policies cost me in income taxes?”

Here below is the link to the New York Times article which is about New York City, but could be about any city in America.

http://www.nytimes.com/2014/04/30/nyregion/nearly-half-of-new-yorkers-are-struggling-to-get-by-study-finds.html?_r=0

Forty-six percent of New Yorkers in 2012 were making less than 150 percent of the poverty threshold, and New York City’s share of poor people appears to have plateaued since the…
THE NEW YORK TIMES|BY SAM ROBERTS
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Hey Main Street, Meet Your Wall Street Landlords

by Brian T. Lynch, MSW

If you lost your home when Wall Street investment bankers made a hash of the home mortgage industry, you may be terrified to learn they want to become your landlord.

Up to now most single home rentals have been owned by local owners or regional companies. Private equity firms are taking advantage of loopholes in financial regulation and the depressed housing market to create national home rental corporations. They are scooping up foreclosed homes at fire sale prices all across the country and turning them into rentals. Their ultimate aim is to turn the equity in all those rental agreements into rent-backed securities that can be bought and sold on Wall Street. (Gentlemen, place your bets!)

Under this business model, the equity present in rental agreements will be aggregated into tranches based on confidence in the financial ability of the tenants pay their rent. The collateralized security instruments from these tranches will have various rates of return based on risk factors from the underlying leases. Should these rent-backed securities default, the security owners may even have an ownership stake in the properties to fall back on. If you haven’t heard about this before, you can read more in the Wall Street Journal, the Daily Finance or one of several good articles in Mother Jones.

The initial sale of rent-backed securities by these corporations will allow them to free up equity in these properties to purchase even more distressed homes. If the underlying financial structure of these plans sounds familiar, it should. Substitute mortgage equity for equity in these lease agreements and the securitized bonds are nearly identical to mortgage backed securities that inflated the housing bubble and crashed the economy in 2008. The only element missing so far are the “credit default swaps” inside investors bought to bet that the mortgage bonds would fail.

Hubris is the word that comes to mind when considering that the same class of players who foreclosed on the American Dream now want to be our landlord under these same self-serving schemes.

To be fair, the concept of private equity firms buying distressed houses to fix up and rent does has merit. Turning vacant houses into renovated rental properties has a positive patina best explained in theirpromotional videos.

Moreover, whenever investment money is applied directly to tangible projects that benefit ordinary families it is always a blessing. It brings jobs, boosts local economies, improves the quality of life and strengthens families.

If Wall Street investors could just be satisfied with the profound social benefits and ordinary financial returns on their investments it would be great. In fact, it is what Wall Street owes Main Street for all the pain they inflicted. But social benefits are not the things they value these days, and ordinary investment returns are never good enough. They must relentlessly drive to maximize profits.

Scratch the surface on their nationalized real estate plans and ominous consequences emerge. Ask yourself, what type of landlords will these national private equity firms become?

On April 15, 2014, the grass roots housing advocacy organization, Occupy Our Homes Atlanta (OOHA), published their “grassroots research” to answer that question. They looked at the earliest entrant into this field, the Blackstone Group, which owns Hilton Hotels, the Weather Channel, Sea World and Invitation Homes, a subsidiary that has purchased tens of thousands of homes across the country.

Here is some background on the Blackstone group. It is a private equity firm with global real estate holdings in the U.S., Parts of Europe and China. According to Jon Gray, the Head of Global Real Estate for Blackstone, their real estate holdings make up 60% of their assets, or around $80 billion dollars. It is already the largest landlord in the united states and it sees the distressed U.S. housing market as a growth opportunity.

According to an April 9th, 2014, interview Gray gave on the Fox News network “… distressed asset pricing is attractive,” with single family homes selling for less than half their pre-recession values in parts of Europe and the U.S. Blackstone has already purchased 47,000 foreclosure homes in 14 US cities, spending $8 billion dollars, or an average of $190,000 per home. Blackstone is betting on rising housing prices in part because depressed new home construction is a third of what it was before the recession.

What Blackstone doesn’t say can be found in the OOAH research report on how this nation’s biggest landlord has affected renters in Atlanta. Families who rent from Invitation Homes in the Atlanta area face higher rents, higher rental fees, less responsive property management service and some even face automatic rent increases as high as 20% per year. The OOAH report caught the attention of Congressman Mark Takano, who sent out a disturbing press release highlighting some of the findings ( appended below).

And there are other potentially negative consequences yet to follow. Tenancy laws and regulations are diverse across the states and local municipalities to reflect local and regional values. What impact might the power of national corporate landlords have in influencing those laws to suit their business interests?

The shame of it all is that most of the former home owners now renting from private equity landlords would still be in their own homes if it hadn’t been more profitable for banks to foreclose than to participate in the federal government’s HAMP, HARP, PRA or 2MP mortgage assistance programs. But then, if that happened, this private equity investment opportunity wouldn’t exist today, would it?

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FOR IMMEDIATE RELEASE

Wednesday, April 16, 2014

Contact: Brett Morrow

brett.morrow@mail.house.gov; (202) 225-2305

 

Rep. Mark Takano Statement on “Blackstone: Atlanta’s Newest Landlord” Report

Washington DC – Earlier today, the organization Occupy Our Homes Atlanta released its report titled “Blackstone: Atlanta’s Newest Landlord” showing that:

· Tenants wishing to stay in their homes can face automatic rent increases as much as 20% annually.

· Survey participants living in Invitation Homes pay nearly $300 more in rent than the Metro Atlanta median.

· 45% of survey participants pay more than 30% of their income on rent, by definition making the rent unaffordable.

· Tenants face high fees, including a $200 late fee for rental payments.

· 78% of the surveyed tenants do not have consistent or reliable access to the landlord or property manager.

After the report was released, Rep. Mark Takano issued the following statement:

“The report released today gives a snapshot of the experiences faced by Invitation Homes renters in the greater Atlanta area, and further shows the need for Congress and regulatory agencies to examine the growing phenomenon of large institutional investors owning rental properties. Local residents who rent from large institutional investors should not be subjected to unfair practices or poor service. I once again call on the House Financial Services committee to hold hearings on the issue, and request regulatory agencies begin looking at the emerging REO to rental market.”

Background Information:

In January, Rep. Takano released his Riverside” report examining the cause of rising rents in Riverside County, California. In the report, Takano discovered that one of the potential causes of rents increasing is the rise of large institutional investors purchasing single-family homes, renting them out.

Takano then sent a letter to House Financial Services Chairman Jeb Hensarling and Ranking Member Maxine Waters requesting Congressional hearings into single-family rental backed securities that are being developed by The Blackstone Group, Colony Capital, American Homes 4 Rent, and others.

Takano later sent letters to federal regulators, including the Department of Housing and Urban Development and the Federal Housing Finance Agency, requesting information about how institutional landlords can impact local housing markets and the tenant experience.

###

 

Brett Morrow

Communications Director | Congressman Mark Takano

1507 Longworth HOB, Washington, DC 20515

Office: (202) 225-2305 | Cell: 202-440-2268

 

Image Credits:

House Image : (World Law Directory) http://www.worldlawdirect.com/forum/law-wiki/12476-unlawful-detainer.html

Jon Gray Image: (Fox News Network) https://www.youtube.com/watch?v=d5pGbKGQtrU)

Wall Street: (Google Images) etruthseeker.co.uk/?p=54365

“Dark Pools” Caste a Shadow Over Stock Prices

We now know that the universe is filled with dark matter. This strange substance cannot be seen, heard, felt or touched, and doesn’t interact in any way with ordinary matter. Even so, its presence can be felt by its gravitational influence. It is the enormous amount of dark matter that causes galaxies to form and to spin as rapidly as they do.

While dark matter may ultimately be beneficial to the cosmos, “dark pools” in the financial markets doesn’t seem like a good idea. When large investors buy large blocks of stocks outside of public view, they do so to obtain a tactical advantage. The market effect of dark trading is that the real value of openly traded stocks is less certain. This is another example of how the playing field is tilted away from mom and pop investors and towards the rich and powerful.

http://www.reuters.com/article/2014/04/11/us-sec-darkmarkets-idUSBREA3A0CP20140411

 

 

WASHINGTON/NEW YORK (Reuters) – U.S. securities regulators are considering testing a proposed reform that could drive business to major…

REUTERS

Civil Service Pensions – A Marker for What We’ve Lost

by Brian T. Lynch, MSW

In New Jersey, as in many other states with conservative Republican Governors, the state civil service pension systems are under attack. A friend of mine, who has followed Governor Chris Christie’s rhetoric in the newspapers, commented about how reasonable this sounded since the system seems to be going broke. But the story of the pension system in New Jersey is more complicated that the current political sound bites. Let me tell you a true story about how civil service pensions came to be a target for public ridicule.

When I first went into civil service it was a calling to serve, not a career choice for the prospect of making lots of money. I was following the inspired words of John F. Kennedy and asking what I could do for my country. I was, and am still, an idealist. Money didn’t matter as much to me. I wanted to help people. I still feel that way now, which is why I blog.Back when I started with the state, everyone in the private sector had better health care and benefits, better defined pension benefits and they made a lot more money per hour or had higher salaries. Even the state cars we drove back then had no radios or air conditioning as that was considered too extravagant for state employees. That is the way it was, so working for the State came with low earnings expectations.

But things were changing in 1979 when I began my civil service career, even though I didn’t know it at the time. Big business had begun organizing politically and started spending big bucks on lobbying government for laws and regulations more favorable to business. Industry organizations were created to raise money and coordinate anti-union marketing campaigns. Ronald Reagan came into power in 1980 and set the tone for union bashing by crushing the air traffic controllers union. Private sector wages, which up to that time always rose in to proportion to increases in hourly GDP, were frozen and have remained frozen ever since. A fear campaign and actual business tactics based on globalization made jobs less secure. Private company pension systems were intentionally dismantled by big corporations to quarterly boost profits. Profit sharing arrangements took their place initially so workers had to invest in their company for their hope of retirement income. Then Wall Street saw all this money and wanted some action. They got congress to pass the IRA laws and all that pension money went to them.

Instead of real raises, businesses only offered cost of living adjustments, which keeps up with inflation but doesn’t share the extra wealth that the growing hourly GDP created for their employers. That extra wealth went to CEO’s and wealthy stockholders, beginning the cycle of great income disparity we have today. At the same time, Reagan cut the top marginal tax rate from 70% to 28%, a windfall for the rich and a huge loss of tax revenue that the rest of us had to bear.

So while the raises, salaries and benefits I received were always sub-par compared with the private sector during the first half of my career, declining private sector wages and benefits, rather than civil service raises or improved benefits, is the reason civil service looks so good today. In fact, civil service benefits have been steadily eroding for the last 15 years but this decline is slower than the collapse of private sector benefits. Civil service salaries also have barely budged in years and actually declined when you factor in inflation. But the assault on private sector salaries and benefits makes civil service look great by comparison only.

Know this, if corporate business interests had not conspired to suppress wages in America over the last 40 years the median income for a family of four today would be over $100,000/year. Instead it is shrinking and down to $51,000/year.

My point is that people in this country who work in the private sector have to fight back to regain a fair bite of the wealth they create for their employers. Workers need to re-organize and demand their fair share of our GDP. Rather than tearing away at civil servant pensions, people should be working to recreate what has been taken from them and use civil service as the framework and model to rebuild private sector retirement security.

There are particulars about why the pension system in New Jersey is in so much financial trouble.  It isn’t because it is too generous. It is in trouble because when New Jersey was flush with money during Governor Christie Whitman’s (R) term she stopped making payments. She said she did this because the stock market was booming at that time. She said the pension system was way over-funded and didn’t need more cash. By the time she finished bankrupting the state with massive tax cuts and increased credit spending, Governor James Florio (D) didn’t have the revenue to pay into the state pension system during his entire term in office. This default model became a habit with subsequent Governors. Nothing, or only fractional amounts, were paid into the retirement system for the last 20 years. Governor Chris Christie (R) refused to put money into the system a few year back, when he had the money to pay, saying he didn’t want to put money into a broken system. This is crazy talk since it was the Executive branch that broke the system in the first place by doing exactly what he was doing.

The New Jersey State Pension system is, to a lesser extent, also in trouble because it has been abused for years by politicians bumping up the salaries of their political cronies just before retirement so they get huge pensions that they didn’t deserve or contribute towards. Politician’s take advantage of the way pensions are calculated to reward their buddies.

In New Jersey, civil service pensions are based on the average salary for the last three years. Recently the Star Ledger newspaper criticized the Governor for bumping up the salary of a political friend such that his retirement income was around $120,000 per year when his base salary had been closer to $30,000 for most of his career. Politician’s have treated the state’s pension system like it was there private cookie jar.

So when the state’s pension system, or any states fixed pension system becomes a target for political destruction, let it be a reminder instead of just how much ground private sector workers have lost. Let state pension systems be the model on which the rest of the work force rebuilds what they once had.
Photo Credit: http://ivn.us/2012/07/11/california-ignores-growing-public-pension-crisis/

Coal Ash Disaster Turns Capitalists into Socialists (Again)

by Brian T. Lynch, MSW

Commentary:

Coal ash is what’s left after coal is burned. It’s a toxic stew containing heavy metals including arsenic, lead and mercury.  For many years Duke Energy has mixed coal ash with water and pumped this cocktail from coal fired power plants into huge open pits. In February, one of the sludge pits located in North Carolina began releasing millions of gallons of toxic coal ash into the Dan River, a source of public drinking water for thousands of people.

coal-ash-spill.jpeg3-1280x960

 Photo and article: http://www.salon.com/2014/02/26/north_carolina_might_finally_crack_down_on_duke_energy_after_disastrous_coal_ash_spill/

Duke Energy spent millions over the years to keep government from properly regulating their waste products.  For all those decades the stockholders and upper management of Duke energy have profited from this arrangement. Now that the inevitable has occurred, clean up effort will take years and cost a billion dollars. Millions more will have to be spent to correct the improper disposal problems that Duke Energy has practiced for decades.

Lynn Good CEO

Safely storing coal ash should have been a cost of doing business for Duke Energy all along, but they have deferred that cost to boost their profits. Now Duke Energy’s president and CEO, Lynn Good, thinks taxpayers should bear the cleanup costs. She said, “Ash pond closure has been a plan for very long time. And because that ash was created over decades for the generation of electricity, we do believe that ash pond disposal costs are ultimately a part of our cost structure.” She believes the burden of this clean up should be shared by everyone equally.  (Corporate socialism? Again?)

Corporation are legally obligated to maximize profits for their shareholders. This would be fine if they were also legally obligated to paid the full cost of doing business without cutting corners. Cleaning up toxic spills is far more expensive than preventing themand regulations to enforce safe disposal are less expensive in the long run. But asking the victims of their environmental crimes to pay for cleaning up their mess and fixing their problem should not be an option.

(See also: http://www.politicususa.com/2014/03/14/republican-hypocrites-force-nc-taxpayers-pay-duke-energys-toxic-coal-ash-dumping.html )

Graphic Truths about Debt and Deficits

NATIONAL DEBT?

Republican’s increase our public debt by lowering taxes on the wealthy, raising corporate welfare and starting wars. If you are surprised by this bar graph then you then you need to shop around for a more reliable news source.

Republican's increase our public debt by lowering taxes on the wealthy, raising corporate welfare and starting wars. If you are surprised by this bar graph then you then you need to shop around for a more reliable news source.

WAR SPENDING?

chart 1

CORPORATE WELFARE?

Corporate Welfare Grows to $154 Billion even in Midst of Major Government Cuts

 

The Embodiment of Corporate Welfare Himself - Mr. Moneybags

Editor’s Note: Even as the federal government executes major cutbacks, it’s giving huge subsidies in the form of tax breaks to industry, a fact legislators rarely acknowledge. The Boston Globe recently published a thorough and eye-popping report detailing the nature and extent of these breaks. We think it’s a must-read. 

By Pete Marovich

First published in the Boston Globe

WASHINGTON — Lobbying for special tax treatment produced a spectacular return for Whirlpool Corp., courtesy of Congress and those who pay the bills, the American taxpayers.

By investing just $1.8 million over two years in payments for Washington lobbyists, Whirlpool secured the renewal of lucrative energy tax credits for making high-efficiency appliances that it estimates will be worth a combined $120 million for 2012 and 2013. Such breaks have helped the company keep its total tax expenses below zero in recent years.

The return on that lobbying investment: about 6,700 percent.

These are the sort of returns that have attracted growing swarms of corporate tax lobbyists to the Capitol over the last decade — the sorts of payoffs typically reserved for gamblers and gold miners. Even as Congress says it is digging for every penny of savings, lobbyists are anything but sequestered; they are ratcheting up their efforts to protect and even increase their clients’ tax breaks. [snip] http://reclaimdemocracy.org/corporate-welfare-tax-breaks-subsidies/

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Here is how the rise of corporate welfare looks in my state of New Jersey, and note in particular how it has grown under Gov. Chris Christie:

Time for Workers to Re-Organize!

ORGANIZED LABOR? 

Regardless of what you have been lead to believe about the evils of unions, there is no question that organized labor is responsible for creatiing the middle class and the good life as we know it today. But all that is in decline as anti-union sentiment grew in response to organized business interests in the 1070’s. I say this because I don’t see anyone else point out these facts. Here is another graphic view of how middle class income has declined in lock step with union membership over the years. Also, you will see that the savings in employee wages have gone directlty to the top 1% creating the huge income and wealth disparity we have today. Check it out:

It is clear to me, at least, that the heart of our economic woes is due to 40 years of wage suppression. This results in a declining middle class, a growing number of people falling into poverty, a decline in federal income tax revenue and an added burden on government to support a growing number of poor, working poor and unemployed Americans. You can’t separate chronically lower wages from our declining consumer spending. Regardless of what the economists say, if people don’t have money to spend the economy slows down and jobs disappear. Stocks are doing so well because so much of our financial sector is based on even more depressed foreign labor, yes, but also on depressed wages here at home.

If corporations what to stimulate consumer spending here, and make America attractive to foreign investors, they need to raise wages. They won’t do that because they personally benefit, financially, by keeping labor costs down. Their corporations benefit from the artificially cheap US labor pool created by government aid to the working poor for housing assistance, WIC, food stamps, daycare, etc. And then these bastards making all the money have the nerve to pit us against each other by promoting the lie that the working poor are somehow less worthy, or that they are stealing from us. If corporate leaders don’t see the light then the only alternative is for the work force to re-organize itself and demand higher wages.