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Sowell on What Makes Poor Folks Poor – Liberal Racism and Inferior Culture

by Brian T. Lynch, MSW

Thomas Sowell is a conservative “scholar” at the Hoover Institute and author of a new book, Intellectuals and Race. I haven’t read his book yet, but I did watch Sowell’s interview with Peter Robinson of the Wall Street Journal. I found Thomas Sowell’s interview disturbing in that it seems to boil down to an old conservative argument that the poor have no one to blame but themselves and the liberals who made them helpless. You can watch his WSJ interview on You Tube.

ThosasSowell

https://www.youtube.com/watch?v=H6ImP-gJvas

Several points stand out in Sowell’s arguments on the negative impact that ” liberal/progressive” intellectuals have had on our attitudes towards race vs. racism. First, he conflates liberalism with progressivism. These are two separate dynamics in their scholarly meaning. The opposite of progressive is conservative, but the opposite of liberal, in its classical meaning, is totalitarian. Within the actual social context of these two dynamics it is entirely possible to hold both liberal and conservative policy positions or progressive and totalitarian positions. For example, it would not have seemed inconsistent during the Progressive Era, in the early twentieth-century, to be for union rights but opposed to woman’s suffrage, Progressives then were not as liberal as most progressives are today. By treating these terms interchangeably, in their current colloquial sense, he maligns the liberal movement that seeks to empower today’s poor or marginalized people and make America more inclusive.

Secondly, he seems to conflate race with culture. These are also separate elements of sociology. The former is a largely subjective classification system based on superficial physical attributes associated with continent of origin. The latter is a complex set of rituals, customs, values, norms and shared history by loosely associated clans or social groups. There are as many different cultures within each race as there are among the races, even just within North America. Generalizations based on race as a culture are inherently flawed.

Thirdly, when distinguishing this amalgam of race based culture from “racism” he incorrectly identifies racism as primarily perceptual in nature. His concept of racism doesn’t incorporate the many physical racist acts that socially marginalized people endure every day. These foundational fallacies allow Sowell to make his larger points, the same ones often raised by other conservative thinkers. The first is that there are, and have always been, better and more adaptable cultures in the world. This is an accurate statement but he leaves it there, as if it were an immutable law. He offers no hint as to why this is so. He fails to mention our human capacity to alter social institutions in ways that improve the outcomes of individuals from variant cultures.

The other major point he raises is that marginalized people allow themselves to be defined by the racist perceptions against them by others. The “others”, he argues in his example, are liberal intellectuals, especially during the “progressive era”, who blamed the economic plight of African-Americans (among other groups) on broad social factors and government policies, rather than on the their mal-adaptive culture. This shift in the causal roots of their less successful living standards, according to Sowell, absolves the marginalized from responsibility for their own self-improvement and causes them to see themselves as helpless victims of a society organized against them.

The explicit argument here is that every person has within themselves the power to rise above all obstacles and prejudices set against them. It is the familiar argument of taking personal responsibility as the only condition for economic or personal success. The proof offered (as is so often the case) is the personal experiences of the writer and anecdotal examples of other success stories. The obvious logical fallacy is that these exceptions prove that everyone else can do what these few have done. Unfavorable social conditions are only controlling factors if individuals allow it to be so. The failing is theirs. It is their own fault. It is a weakness in their character or collective culture.

The empirical truth is that for the vast majority of those who are subjected to social or institutional discrimination, their chances for success in life are seriously harmed. All the physical racist acts they suffer cause immeasurable personal damage and have an accumulating effect on them as individuals. That there are rare exceptions who become successful doesn’t prove that the majority of marginalized people are flawed individuals. In fact, it proves the opposite, that the infrequency of exceptions is a measure of the extent of the damage discrimination causes.

If equal opportunity can’t produce equal personal outcomes under the best of circumstances, as most would agree, then why would unequal opportunity offer the same chances of success? And if policy  can benefit one group of individuals (as is certainly true), why is it an individual’s personal failing when policy choices disadvanges then. It makes no sense.

Should Living Wage Minimums be Based on Individuals or Families?

by Brian T. Lynch, MSW

FDR

 
“No business which depends for existence on paying less than living wages to its workers has any right to continue in this country… By living wages, I mean more than a bare subsistence level — I mean the wages of a decent living.” (1933, Statement on National Industrial Recovery Act – Franklin Delano Roosevelt)
 

Question:  In looking at the Living Wage calculator, I see that $10.83 for a single adult in Morris County, New Jersey  where I live. This seems fair to me for a single person, but when you add one child to that scenario the rate jumps to $22.12 per hour. This raises a serious question.  Does the Living Wage Movement suggest that wages should be adjusted according to need? [ http://livingwage.mit.edu/ ]

Answer:  That’s a great question. I am not a spokesman for, or advocate of, the living wage movement as an organization. I do believe that living wages should be the minimum wage in this country.  Minimum living wages should be what we pay summer college help or student interns, not full-time employees. It might also be appropriate for part-time seasonal help. It shouldn’t be what we pay permanently hired employees.

To answer your question, I researched what a living wage is in the 130 cities that have living wage laws. It turns out that their wage base is for a single employee, not including any dependents. A living wage in Manchester CT equals $15.54/hour (the highest) while it is $8.50 in Orlando FL (the lowest).  It would appear that the Living Wage Movement is looking to index a minimum living wage minimum to local economies based on one adult with no dependents.

That said, the minimum wage in 1986 was $10.86/hour  as opposed to its current level of $7.25/hour.  If it had been indexed to inflation in 1986 the current minimum wage today would be $23.59/hour today. That clearly was intended to provide for a worker with a family. The current median family size is 2.54 persons per household. That inflation adjusted wage equals about $47,000 per year while the current median family wage is a little over $51,000 per year (and still declining, I might add).

Here’s the thing, we have only been talking about wage adjustments to keep pace with inflation. We have not been talking about raising wages to reward workers for our growing productivity. We have not been talking about sharing the wealth that workers help create so everyone keeps pace with America’s growing economy. Cost of living adjustment are important, but they shouldn’t be confused with a productivity, or merit raise.

America is $1.7 trillion richer today than it was in 1976. Our economy has doubled, yet the share of all that new wealth created by American workers in this same period of time is insignificant.

In the 1960’s my father was an appliance repairman at Sears. His salary was enough that my mother could stay home to raise my sister and me. Her role as mother to the next generation of citizens was valued. Today, a typical family of four making about $51,000  does so because both parents work. And they are only able to make ends meet because of easy access to credit to shift their financial burdens onto their future earnings.

When I speak about a living wage I am thinking about getting back to a point where one breadwinner can hold one full-time job and still raise a small family without needing government assistance to do it. That’s what we had, and that should be our goal as a country.

Minimum Wage is a Moral Question

by Brian T. Lynch, MSW

The White House put out a brief video on why we should raise the minimum wage to $10.10/hour. It is OK as far it goes, but it is still a little disappointing to me.

Click here to see the video. [ https://www.youtube.com/watch?v=PqtLQgkcUFM ]

Even the White House is looking at minimum wage law though the modern day pro-business bias that has infected all of civil government. Even though raising bottom wages creates an economic stimulus that would boost spending, increase demand for goods and services and create more jobs, this isn’t the most important aspect. The main reason to raise minimum wages is because it’s simply the right thing to do.

The question of minimum wage is actually a moral question. There is no good rationale for paying a full-time employee less than a self-sufficient wage. What is almost half of a human beings waking moments worth? What is the minimum compensation they should receive for devoting that time to enrich their employers? Why should it be less than what is required to survive with human dignity?

From a social perspective, should profitable businesses be held in high esteem as models of efficiency for paying wages so low that full-time employees require taxpayer subsidy to keep from becoming homeless or having their children taken away from them? Should we have to subsidize the labor force of wealthy corporations like Walmart? Should the federal income taxes of those who make more than minimum wage have to be used to supplement the other employees who takes out the trash at night or mow the lawn? Why should any healthy corporation be allowed to boost their profits at public expense through subsidized labor?

If small businesses or start-up company need government subsidies or tax breaks to help pay their help, let these business owners apply for government assistance rather than make their employees feel inadequate by having to beg for government assistance. No man or woman who works hard all day long should have to apply for housing assistance or SNAP or KidCare or childcare assistance or HEAP or any other government subsidy. Let the business owners apply for government aid to help pay employees the self-sufficient wages all full-time workers should have. Let the means testing process for government subsidy programs fall to the employers. Let’s get it off the backs of the working poor and eliminate the social stigma they don’t deserve. Let the minimum cost of self-sufficient labor wages be part of the cost of doing business in America.

Profits for CEO’s and share holders should not come before self-sufficient wages for laborers. Exploiting workers and taxpayers to boost profits for investors and chief executives is immoral.

Inequality on a Global Scale (literally)

The cartoon below is from the great editorial cartoonist Stuart Carlson. It highlights with humor a very serious global economic condition, growing wealth inequality.

http://www.gocomics.com/stuartcarlson/2014/06/20#.U9Zns_ldXfJ (Go and enjoy his other cartoons.)

Allow me to breakdown the math for you. These figures work out to an average of $486 per poor person vs. $20 billion per rich person. This is not a measure of income but a measure of wealth, or capital.

Another important math fact from this illustration: If you have $20 billion in capital and earn an average return on investments of 4% a year, and if you lavishly spend $1 million per month on your lifestyle, at the end of 50 years you will still have $140 billion left for your children to inherit. That’s right, if you have seven children they would each get close to the 20 billion that you started out with.

This is the crisis of capital that we face. This fact is among the findings of economist Thomas Piketty in his recent book, Capital in the Twenty-First Century. Within just a few generations almost all the wealth on the planet will be handed down from parents to children. Almost no new fortunes will be made through the earnings of those who have to work for a living. We will effectively return to a feudal system even here in the United States and abroad. The phenomenon is global. The quicker national and global population stabilize or decline the faster wealth will concentrate among the wealthy.

All we have to do to return to a feudal society is… do nothing.

Someone on facebook asked me, “Is it really the zero-sum game that these breakdowns of wealth distribution always seem to imply?”  Good question! Is it the case that the growing wealth of the wealthy must come at the expense of growing poverty Or, doesn’t the growth of capital lift all ships?

When you look at national and global income-to-capital averages you see what looks like fairly stable ratios. Growing capital wealth and growth in income seem to balance. But look a littler closer and you see that more of the population falls into poverty as the value of capital grows at compounded rates. So yes, there is more national income, but there is an ever larger percentage of income coming from capital investments and going to the wealthy.  As capital becomes the main source of income, the real earnings of wage earners stretches and collapses at the lower end of the economic scale.  For the middle class, it is like being caught between the gravitational fields of two black holes… one created by poverty and  the other by capital wealth

De-Cantoring Big Business

by Brian T. Lynch, MSW

EricCantorWallst

The defeat of Eric Cantor in his primary, and the article below, is instructive because it illuminates the growing populist enmity towards politicians who serve business interests over voter interests. This is at the heart of the growing rift in the Republican party. The GOP establishment serves the interests of Big business over all else and almost mockingly manipulate ordinary voter segments and the small business owners they claim as their base.

The beltway seems baffled by this, but the trend has been clear for some time. Putting people first in politics will be key to winning over the real voter base of both parties going forward. And peeling off small business owners by promoting specific policies that support them and level their playing field against corporate abuses is an essential element for Democrats. Democrats should be the champions of small community business leaders and ordinary citizens. They should be resist the growing corporate influence over government and our lives (without being overtly hostile).

Campaign funding should also be as populist and grass roots as possible, or at least have that as a prominent feature. People should be able to contribute small donations to their candidate’s campaign on line using their pay pal accounts, or they should be able to text a contribution on their smart phone. This not only sets the right tone, it takes action against the influence of big money in politics even if particular  campaign must still rely on big donors..  But note that in this race Eric Cantor outspent Brat by a  40 to 1 ratio.  The strength of Brats message overcame this huge spending advantage.

As I tweeted earlier today in reference to Cantor: In drawing democrat-proof districts the GOP created congressional district that are toxic to traditional conservative Republicans as well. And traditional conservative Republicans are virtually all big business Republicans. So there is a clear message here for all Democratic candidates. Stop cozening up with corporations and start representing real people.

If Democrats messaging can thread this needle they may be able to pick up disaffected moderate Republican votes while making it harder for radical right-wing Republican’s to vote for GOP supporter of ever more crony capitalism.

Here is a snip of the Nation’s article by John Nicols:

from The Nation

Breaking news and analysis of politics, the economy and activism.

Eric Cantor Defeated by a Conservative Who Rips Crony Capitalism

John Nichols on June 11, 2014 – 12:21 AM ET

 

http://www.thenation.com/blog/180189/eric-cantor-defeated-conservative-who-rips-crony-capitalism#

The DC-insider storyline about this being a great year for the Republican establishment is undergoing a rapid rewrite. For the first time since the post was formally established in 1899, a House majority leader has been defeated in a bid for renomination. And as political prognosticators, Republican stalwarts and savvy Democrats search for explanations, they are being forced to consider complexities they had not previously entertained — including the prospect of conservatives who are ready and willing to criticize big business.

Eric Cantor, the face of the GOP establishment, one of the party’s most prodigious fundraisers and the odds-on favorite to become the next speaker of the House, lost his Virginia Republican primary Tuesday to a challenger who promised, “I will fight to end crony capitalist programs that benefit the rich and powerful.”

 

Dave Brat, who defeated the number-two Republican in the House by a 56-44 margin, tore into big business almost as frequently as he did the incumbent. “I am running against Cantor because he does not represent the citizens of the 7th District, but rather large corporations seeking insider deals, crony bailouts and a constant supply of low-wage workers,” declared the challenger.

 

Image credit: www.businessinsider.com

Our Chronic Wage Stagnation, Symptoms and Treatments

by Brian T. Lynch, MSW

Decades of frozen wages relative to our expanding wealth is the root cause of many economic problems. More people falling into poverty, a shrinking middle class, declining retirement savings, increased welfare spending, higher unemployment, more aid to working families, declining government tax revenues, diminished funding for Social Security and Medicare, a sluggish economy (despite a record high stock market), slow job growth and heighten social tensions along the traditional fault lines of race, ethnicity and gender are among the many issues influenced by decades of wage stagnation.

Beginning in the late1970’s most American workers received only cost of living adjustments in their paychecks while their real earnings gradually diminished each year. Employers increased hourly wages to keep pace with inflation, but they suddenly stopped raising wages to reward workers for their productivity. Earned income has declined for most Americans as a percentage of our gross domestic product (GDP) This amounts to a dramatic and intentional redistribution of new wealth over the last 40 years. Nearly all this new wealth has gone to the rich and powerful.

The visual evidence of wage stagnation relative to hourly GDP is apparent in one powerful graph (below). You may have this it before.

hourly GDP vs Wage graph

 

SYMPTOMS

The effects of wage stagnation on our economy have been gradual and cumulative. Its impacts don’t raise red flags from one year to the next, but the cumulative effects are obvious. The trending rise in income inequality, for example, was missed entirely for 25 years, and then it still took another decade for it to catch the public’s attention.

According to USDA data on the real historical GDP and growth rates[i], the U.S. economy grew by $368 trillion between 1976 and 2013. That is a 109.4% rise in national wealth, more than a doubling of the national economy. Almost none of that wealth was shared with wage earners. If hourly wages continued to grow in proportion to hourly GDP, as it had for decades prior to the mid-70’s, the current median family income today would be close to $100,000 a year instead of the current $51,017 per year.[ii]

Think about that for a moment, and about all the implications for wage based taxes and payroll deductions. For simplicity sake, let’s say wages would have double if the workforce received productivity raises. That would significantly reduce the number of families currently eligible for taxpayer subsidies such as SNAP (food stamps), housing assistance, daycare and the like. At the same time the workforce would be generating much more income tax revenue.

Consider next the impact wage stagnation has had on payroll deductions. Social Security and Medicare premiums have not financially benefited from the growing economy. Double current wages and you double current revenues for these programs as well. Moreover, the economy has grown at an annual rate of 2.9% since 1976. If Social Security and Medicare had benefited from this new annual wealth, the effect on current revenue projections would be profound. We would not be looking at a projected shortfall any time in the future.

The impact of wage stagnation on consumer spending is perhaps the most insidious problem. While worker wages have stagnated, the production of goods and services has grown. How is that possible? Some of this production is sold in foreign markets, but domestic markets are still primary. And it is here where economic theories have done a disservice.

A generation of economists and business leaders have treated consumers and workers as if they were not one and the same. This has fractured how we look at the economy and given rise to the notion that labor is just another business commodity. It disguises the fact that labors wages fuel consumer spending. Wages help drive the whole economy while wage stagnation reduces consumption over time.

To overcome this effect we have seen the need for mother’s to enter the workforce in mass, and for banks to invent credit cards to bolster consumer spending. These and other creative measures can no longer forestall the decline in worker spending. So while the financial markets ride the tide of America’s growing wealth, the fortunes of those who have been cut off from that new wealth continue to slip beneath the waves.

As for social tensions among different racial, ethnic and gender groups, the effect of stagnant wages relative to the nation’s growing wealth creates a lifeboat mentality and zero sum thinking. For the first time in many generations parents are worried that their children will have less in life than they had. When the whole pie is shrinking a bigger slice by one person means a smaller piece for others. This thinking exists because for over 95% of wage earners the economic pie hasn’t grown in 40 years.

TREATMENTS

You may not be ready to accept chronic wage stagnation as “the syndrome” underlying our economic woes, but it’s also true from my experience that having solutions (or “treatment options”) at hand often makes it easier to identifying the problems they resolve. With that in mind, I want to offer some solutions to America’s low wage conundrum.

One direct approach to raising worker wages is the one currently being discussed in the public dialogue, raising the minimum wage. This benefits the lowest paid workers and also puts pressure on employers to increase pay for other lower wage earners. The current target of $10.10 per hour would still leave many families at or below the poverty line. Workers making the new minimum wage would still be eligible for some public assistance for the working poor. While passing a minimum wage law is at least possible, this option is not a systemic solution to wage stagnation. Even index the minimum wage to inflation would not compensate for declining wages relative to GDP growth.

Another direct approach to ending wage stagnation is to pass a living wage law. This would set the minimum wage at a level that would allow everyone working full-time to be financial independent from government assistance, including subsidized health care. A living wage law could be indexed to the local cost of living where a person is employed. This is idea because it takes into account local economic conditions which are determined by market forces rather than government edict. But passing a living wage law in the current political climate is unlikely.

There are other ways of encouraging wage growth that don’t involve direct wage regulation. One idea would require the federal government to recoup, through business income tax rebates, the cost of taxpayer supported aid to working families from profitable businesses that pay employees less than a living wage. Employee wages are easily identified through individual tax returns. Eligibility for taxpayer supported subsidies are relatively easy to estimate as well, so recouping public funding to support a company’s workforce is a practical possibility. A portion of the recovered money could be paid into Social Security and Medicare to make up for lost revenue due to substandard wages.

A welfare cost recovery plan could gain popular support given the growing public resentment towards taxpayer funded social programs. At least 40% of all full-time employees in America currently require some form of taxpayer assistance to financially survive. More importantly, this plan places the burden of supporting the workforce back on profitable businesses where the responsibility lies.

Another solution has been suggested by former US Labor Secretary, Robert Reich, and others. They support proposed legislation, SB 1372, that sets corporate taxes according to the ratio of CEO pay to the pay of the company’s typical worker. Corporations with low pay ratios get a tax break. Those with high ratios get a tax increase. This would effectively index worker wages to CEO compensation in a carrot and stick approach to corporate taxes. The details and merits of this approach is outlined elsewhere.[iii]

Do U.S. businesses have the financial capacity to offer higher wages to their workers? I would like to answer that question with another graph that you may also have seen before.

Credit: Blue Point Trading http://www.blue-point-trading.com/blue-point-trading-market-view-june-07-2012

There is a clock ticking somewhere in the background on this issue. There is a point somewhere in the future where it will be too late to fix wage stagnation through the normal democratic processes. History has proven this to be true. We are not at that point now, but we are past the point treating wage stagnation earnestly.

______________________________________________________

[i] Link: Real Historical Gross Domestic Product (GDP)

[ii] As of 2013 the median family income of $51,017 x GDP growth of 109.4% = $104,796 per year

[iii]  Link: Raising Taxes on Corporations that Pay Their CEOs Royally and Treat Their Workers Like Serfs

New Jersey’s Regressive Public School Funding

by Brian T. Lynch, MSW

New Jersey recently published the annual “Taxpayers Guide to Educational Spending”. The headline in the Star Ledger was that school spending is up 5% over last year. This is hardly news given that inflation alone accounted for 1.7% of the increase.

Much of the remaining 3.3% increase in school spending is structural by design. Consider that new teacher salaries start low and increase annually as they gain experience. We also compensate teachers as they obtain higher educational degrees as a means of improving the quality of our teachers. Add to this the fact that the total number of teachers gradually increase as student enrolled numbers creep up a little every year. Then there is the higher than inflation increases in fuel costs that drive up the cost of student transportation each year. The retirement of higher paid teachers and administrators don’t quite balance out these other factors.

What irks the public most about this 5% increase is really the story behind how we fund public education in New Jersey. It just seems unfair. And when you look under the hood, it really is unfair. Wealth based public school funding is regressive in nature. It favors the wealthy and disfavors the poor. What it costs to educate a child doesn’t vary that much between wealthy and poor school districts, but the value of property and therefore the tax base varies a lot. In today’s economy especially, the prosperity in wealthy school districts is growing rapidly relative to per pupil costs while property values in less prosperous school districts are in decline.

To understand the disparity of wealth based public education funding, let’s take affluent Morris County as an example (located in the central most area of the Northern half of the State). Morris County has many wealthy school districts, such as Harding where the average home sells for over a million dollars. It also has districts like Wharton where the average home sells for a quarter of that amount, or about $251,000. Property values in Dover are a bit higher, but the median family income in the Dover school district is just $59,000 compared with $160,000 per year in Mountain Lakes. (Fig.1 below)

One way to gain some perspective on property based school funding is to compare what it costs to educate a student with what it costs to buy a home in the same district. In the eleven wealthiest districts of Morris County, home prices are 30 to 50 times more than the educational cost per pupil. Home values are just 16 to 18 times more than per pupil costs in the 12 poorest districts. As a general rule, the higher a district’s property values, the lower the tax rates. The reverse is usually true in poorer districts. Districts with lower property values, and lower income levels, generally have higher tax rates. While the 11 wealthiest districts in Morris County pay a little more to educate children in their district, their property tax rates are about one-third less than in the 12 poorest districts. (Fig. 2 below)

The dramatic contrast between home values and per pupil costs is partially masked when just comparing tax rates because, in the suburbs, wealthier districts tend to have fewer households. Fewer household to share the tax burden mean higher tax rates to generate sufficient revenue. Despite this fact, tax rates in 8 or the 11 richest districts is among the lowest in Morris County. Only three of these wealthy districts have higher per pupil costs while three have among the lowest per pupil costs. This highlights the fact that education costs are similar across the county. The average district cost per pupil is $17,730, plus or minus $2,038. There are a few outliers in either direction.

Educational costs vary far less than home values from district to district, so families in wealthier districts have a far easier time affording public education than families at the lower end of the economic ladder. While New Jersey’s State School Aid formula is supposed to help balance school funding across all districts, it does little to correct the underlying inequality and unfairness of wealth based educational funding.

Sources

Taxpayers’ Guide to Educational Spending 2013: http://www.state.nj.us/education/guide/2013/

General Tax Rates : http://www.state.nj.us/treasury/taxation/pdf/lpt/gtr13mor.pdf

Average Home Sales : NJ Spotlight News @ http://www.njspotlight.com/stories/13/02/28/average-home-sales-prices/ For March 1, 2013

Median Income and # Households: http://www.njspotlight.com/stories/13/12/19/median-income/

Figure 1

Figure 2

 

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?

————————————————————–

 

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

Four Graphs on What Hurts the Working Class

We never hear any reference to the working class these days. The media and our politicians only speak of the “middle class” as if that covers everyone who isn’t either poor or wealth. Even references to the poor are scarce. The working class exists. They are sandwiched between the poor and the middle class and they are being squeezed into poverty. It is cruel to ignore them and the terrible pain they are suffering. What has happened to them, aside from being ignored can only be touched on by the four graphs that follow. These were presented in a conversation I had with conservative friend of mine who has forgotten the working class exists. There are many factors hurting the working class. This conversation was only about four factors, wage suppression, the upward redistribution of wealth, working class decent into poverty and declining upward mobility. Post this is my way of addressing what I believe is the most hurtful factor of  them all… public silence.

Q:  I always thought of the owners as the producers of the jobs that the workers have. You say that it is the workers who are the producers. Have you ever been employed by someone on welfare?

A:  Owners coordinate the workforce, but it the employees who do the work that makes the products or services. So in a real sense, the workers ARE the producers. And this has nothing to do with welfare at all.  Jobs are not a product. Stuff is a product. Things to sell or trade is a product. Workers are key to making stuff or offering stuff yet when they want a fair share of the value they create they are treated like thieves. Read this and you will know what I am talking about even if you don’t agree:

http://aseyeseesit.blogspot.com/…/fair-wage-for-days…

hourly GDP vs Wage graph

I also just ran across this table (below) that shows were all the Hourly GDP wealth has gone since the mid-’70’s.

CEO Compensation

Source:  https://scontent-a-lga.xx.fbcdn.net/hphotos-prn2/1480602_10200873563747333_1576469932_n.jpg

Q:  Why should it matter how much a C.E.O. makes if their workers remain on the job? It’s one of the great things about this country. You can work where ever and for whom ever you want.  Someone please explain to me why it is greed for C.E.O.’s to make deals to be paid as much as the market will bear but it is ok for workers to make deals to make as much as the market will bear.

 A:  It may not matter to you at all, but anyone who wonder why they can’t have collective barganing while the CEO is making 400 times their salary might have questions, especially since this is strictly a feature of the US economy and others around the world are paid better than we are relative to their economies.

Don’t forget, almost  40% of people who work full time are poor. I’m not sure what percentage of the poor they account for, but it is clear when we speak of the poor we are not speaking only of people who are disabled, elderly, retired or unemployed.

Working and Non working Poor bar graph

http://upload.wikimedia.org/wi…/en/7/74/Pov_crossnatl.jpeg

Note here that in the US, the number of working poor (blue bar in right hand column) is twice the number of non-working poor. So when you and I talk about the poor, you are defining it as welfare recipients while I broadly define it as everyone living below the poverty line, the majority of whom work full time. That’s partly why we have a disconnect on this topic. In my understanding, most poor people work.

Q:  I wonder how many of the poor who are now C.E.O.’s would agree with you? Or would they say : “Work hard towards your goal, as I did, and you can achieve anything.”.  Isn’t this what made our economy great?  Not people who wanted a wage so they could be comfortable in the position they have today?  Flipping burgers at McDonalds is not supposed to be a permanent career goal. Even the management at McDonalds wants people to move up. Or am I wrong about incentive and ambition?

A:   There are 17,000 companies with 500 employees or more. There are 43 million poor. If 20% of CEO’s started out as poor children that would mean there are only about 4,200 CEO openings for 43 million potential applicants. It’s a safe bet that far fewer than 20% of CEO’s come from poverty. In fact, less than 20% of children born to poorest families will make it into the middle class in their lifetime. Less than 8% will make over $140k/year, which is approximately the income line where the richest fifth starts. Of those at the top, only the smallest fraction will become a CEO. I believe that if you really understood the economic situation in America you, of all the folks I know, would be a big supporter of the working class.

Upward Mobility bar graph

source: http://www.pewtrusts.org/…/Eco…/PEW_Upward%20EM%2014.pdf

As for incentive and ambition, a good paying job that makes one economically self-sufficient is the highest motivator.  But a self-sufficient wage for a single earners is over  $30,000/year whereas the median wage for a single earners is less than $26,000/year. In other words, the incentives are less than optimal in today’s economy, and no amount of hard work or individual effort will make a difference for most people until even low wage workers receive a fair wage for a days work.