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You know what the problem is with America?
The poor don’t get just how great they have it.

I’ve been hearing this a lot lately; the basic thrust of the discussion is that all those cars, TVs, DVD players, refrigerators, and stoves that have found their way into the homes of the economic underclass are proof there’s really no such thing as “poor” in America.

If they were truly poor, the argument goes, well…think recycled corn.

And if the poor want things to get better, let ‘em pull themselves up by their own bootstraps – and if they can’t, then let ‘em rot, because that’s the best thing for the economy.

But I don’t buy all that, and by the time we’re done today, I hope to have given you a whole new perspective on how jobs get created in this country.

There isn't a rich man in your vast city who doesn't perjure himself every year before the tax board. They are all caked with perjury, many layers thick. Iron-clad, so to speak. If there is one that isn't, I desire to acquire him for my museum, and will pay Dinosaur rates.

--From the letter "A Humane Word From Satan", by Sam Clemens

We must have completely misjudged how many Americans live here about 15 years ago, because everywhere I go I see vacant buildings.

Empty retail space, empty office buildings, empty factories, and all of it apparently just thrown up for no reason whatsoever.

But then I recently saw some historical pictures from the 1990s, and it turns out a lot of those buildings used to have businesses operating within their now-abandoned walls – businesses which have since gone away.

And that’s when I began to get confused.

You see I’ve always known, just as you have, that it’s all about capital; that’s why it’s only the very wealthiest people who can create jobs in this country.

And I’ve always known that they can only do that when they are 100% certain that nothing was going to hurt their current economic condition, and that any sacrifice on our part, no matter how large, was crucially important to keep this very special source of economic vitality full and happy and creating jobs for America’s future.

And when I look at the statistics, I know we’ve been doing our part: the wealthy have been getting wealthier, faster, over the past 30 years than at any time in memory…and yet, for some reason, all those businesses were closing down.

So many, in fact, that I began to question whether America actually understands how jobs get created. It even began to cross my mind that maybe we’ve been coddling the wrong people.

I mean, what if the actual job creators…are the people who no longer work in those empty buildings?

It makes sense, if you think about it.

The common argument is that those with capital make investments, which creates jobs.

But why would anyone invest capital unless there was perceived demand for a product, or a need to do research to meet perceived future demands?

That seems to suggest demand drives investment; a good way to “prove” the point would be to consider what happens to capital without demand: building factories and ships and warehouses does no good if there are no buyers at the store.

Of course, I’m not the first to think workers drive demand: Henry Ford famously paid his workers double the prevailing wage; part of the idea was to create demand for all those Model Ts he was cranking out in his new factories.

So now that we know who the job creators really are, and we established years ago that we have to do every single possible thing on the face of the Earth to keep the job creators happy, happy, happy…how do we get started?

Well, here’s an idea: the Fed willingly gave more than $1.5 trillion to banks for bailouts, mostly by simply “creating” money; now I’m proposing we do the same for homeowners.

If you have a loan backed by Fannie Mae or Freddy Mac, let’s allow you to apply for a one-time $200,000 markdown on your mortgage – and let’s allow the first “tranche” of any markdown to apply to any back-due loan payments.

The amount of “haircut” (fancy technical term) you might impose on each loan could vary, but $1.5 trillion would allow 7.5 million writedowns at $200,000 each; if you limited the haircut to 50% of the loan value many would be less than $200,000. (It’s estimated that 11 million homes in the USA from are underwater; $2.5 trillion or less would cover all underwater loans.)

Since Fannie and Freddy back $10 trillion or so in mortgages, and you probably won’t be able to write down every loan, how would you decide who gets writedowns?

One way would be to create a “triage score” that incorporates things like the odds an applicant/borrower can pay off a restructured loan and the amount of foreclosed or underwater homes in any given community; the 7.5 million highest (or lowest) scores get the writedowns.

(One caveat: many who are having trouble today with home loans are also laid off; unless we can find ways to keep those folks in homes until they can find work, we’ll still have a substantial foreclosure problem.)

Writing down mortgages does several things: it quickly applies a “moral hazard cost” to those who deliberately lent to unqualified borrowers, it turns millions of “underwater” loans into homes with equity, it turns millions of “nonperforming” loans into “performing” loans, keeping millions out of foreclosure, it gives communities a chance to either stabilize or recover from “mass foreclosure-itis”, and it finally breaks the deadlock between banks and regulators over who will blink first on loan “haircuts” versus bank recapitalizations.

Wait? What was that last one?

Banks are scared to death that if they write down all these loans they will have to find new capital to make up the losses – and they probably won’t be able to raise that new capital by charging a $5 fee to have a debit card.

That could mean a few things: it could mean big banks are going to have to more sneakily raise lots of other fees and sell things to raise capital, or, perhaps, the Feds ease back a bit on capital requirements.

Or…it may mean that the banks end up having to get smaller. Consider this scenario: a forced haircut of significant size, followed by regulators who stand firm on capital requirements, followed by a less-than-stellar round of stock offerings or asset sales; next thing you know, “too big to fail” becomes “we have to spin off some part of the retail business for reasons related to the rules governing capital requirements”.

This could happen without the passage of new regulations or legislation beyond the initial bailout authorization – and even that might be within the power of Federal regulators already, since Fannie and Freddy, as the owners of many of these loans, have the power to forgive some or all of that debt, and capital requirements are not set by legislation.

And where does all that leave you?

Well, you’d have 7.5 million families that could more easily afford to make house payments than before, and those folks will probably take that money and spend it on things they haven’t been buying for several years: home improvements, cars, appliances, and the travel and entertainment markets could all see substantial bumps in sales.

Many, if not most of those families, would immediately go from being “underwater” to having equity, which always helps turn reluctant consumers into willing consumers.

Cities could begin to recover as well, as the number of foreclosures bottoms out; once banks are forced to write those properties down from “2006 value” to today’s market value they’ll be looking to sell ‘em at bargain prices; that’ll help soak up today’s housing supply “overhang”. All of this is good for beleaguered new home builders, who are today in a holding pattern.

And here’s the best part: if you get a handle on foreclosures, and put some cash back in some pockets, and start selling stuff…well, that looks like a bit of a jobs program, even if Congress might not be willing to sign up for one just at the moment.

So how about that?

If we make an effort to give to the actual job creators the same level of incentives that we gave to the “demand responders” since November of ‘08, we could actually find ourselves creating actual jobs with our money – and doing it by the millions, just when we need ‘em.

Considering how fast we were able to find ways to create TARP, QE1, QE2, an alternative auto industry bailout, and anything else a banker could ask for, including, I’m sure, partridges in pear trees…well, we should be able to knock this out over a weekend, assuming we can either make a really convincing argument – or do like the banks do, and lay out a million a day for lobbyists until it gets convincing enough to get things done.

Of course, if we have to we could also start Occupying the Offices of reluctant Members of Congress to help make the point; as long as the end result is some serious pampering of the real job creators, I’m all good.

Originally posted to fake consultant on Tue Nov 08, 2011 at 02:52 AM PST.

Also republished by PacNW Kossacks, ClassWarfare Newsletter: WallStreet VS Working Class Global Occupy movement, and In Support of Labor and Unions.

Poll

if you had extra $$$, who would you help first?

12%2 votes
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| 16 votes | Vote | Results

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Comment Preferences

  •  Herman Cain's 5th accuser has just emerged? (9+ / 0-)

    Really?

    What's that mean?
    994 more to go?

    The mind reels...

    "...this election has never been about me. it's about you."--barack obama

    by fake consultant on Tue Nov 08, 2011 at 02:52:34 AM PST

  •  I've about reached my breaking point (5+ / 0-)

    There are three adult humans living in this house...
    We have no refrigerator.
    We have a stove, but you have to split wood to run it.
    Our car has almost 200,000 miles on it, leaks transmission fluid, and is 14 years old.
    We have a computer, but it was assembled from other peoples castoffs.
    OK, we do have a TV and DVD, but they were purchased back before I became ill.

    One of us has income of 1100/month. 950 of that goes to medicare supplement, and paying off credit cards (she won't declare bankruptcy).
    The MODIFIED mortgage and property taxes absorb 95% of our income.
    My health insurance (Mass-health) was calculated on Gross income... Was cancelled.
    I very much suspect I am no longer in remission, but will probably find out when I drop.
    I think we keep on going just from pure inertia.

    I was once a treehouse, I lived in a cake, but I never saw the way the orange slayed the rake... The Llama Song.

    by farmerchuck on Tue Nov 08, 2011 at 04:35:08 AM PST

    •  Sorry to hear about your situation... (4+ / 0-)

      unfortunately you are no longer a rarity.

      I know three families that were ruined by medical issues, and they (at least at the beginning) had insurance.

      This country is just plain pathetic when it comes to health, it's as if they WANT people to be unhealthy.

      They also WANT people to be uneducated and they WANT people to be afraid.

      Who is "they?"   The 1% of course (and the politicians they buy).

      "The right to be heard does not automatically include the right to be taken seriously." -- Hubert H. Humphrey

      by Candide08 on Tue Nov 08, 2011 at 05:27:33 AM PST

      [ Parent ]

      •  i'll see your comment... (2+ / 0-)
        Recommended by:
        Candide08, ocular sinister

        ...and i'll raise you one:

        medical bankrputcy is unheard of anywhere else.

        doesn't happen in a statistically significant way in canada, or the uk, or france, or germany, switzerland, israel, japan, singapore, iceland, finland...or anywhere-else land.

        just here.

        "...this election has never been about me. it's about you."--barack obama

        by fake consultant on Tue Nov 08, 2011 at 06:00:16 AM PST

        [ Parent ]

        •  I agree... (2+ / 0-)
          Recommended by:
          fake consultant, ocular sinister

          My wife is from Switzerland and receives an ex-pat magazine every month.

          A while back they had an article on medical care there and one sentence jumped out at me.  It said that in Switzerland  "it would be a scandal if someone were to lose their home or go bankrupt because of a medical issue"

          Maybe I am just dumb - but I just do not get the whole resistance to medical coverage.  Where's the "down side?"

          "The right to be heard does not automatically include the right to be taken seriously." -- Hubert H. Humphrey

          by Candide08 on Tue Nov 08, 2011 at 08:22:47 AM PST

          [ Parent ]

          •  tell you exactly where the downside is: (1+ / 0-)
            Recommended by:
            ocular sinister

            medicare manages to deliver care with about 3% going to administration.

            no private insurer operates at a figure below 20%, some are above 25%. for our purposes, call it a 20% difference. in that 20% is the money that funds ads and commissions and promotional events and trips and conventions...and profits.

            private insurers cover about 1/2 of our roughly $3T healthcare budget, and if all my math is right 20% of $1.5T is 300 billion downsides, every single year, that no health insurer wants to let go of.

            "...this election has never been about me. it's about you."--barack obama

            by fake consultant on Tue Nov 08, 2011 at 10:04:14 AM PST

            [ Parent ]

            •  I understand what you are saying... (1+ / 0-)
              Recommended by:
              fake consultant

              but do not think that is the whole picture.

              We have basically two scenarios, the current system where some people pay, and some do not and some get sick and go bankrupt.  Many people are removed from contributing to society and become a burden (a double whammy).  The Insurance companies no longer benefit from them, doctors and the rest of the medical industry no longer benefits from them, forcing them to raise prices.  Does not seem sustainable to me.

              With Health Care that covers everyone, as seen in many other countries, insurance companies still profit, doctors are still paid well, the medical industry as a whole employees many people and sick people are cured (generally) and allowed to remain active and productive members of society -- which benefits everyone.

              When I said I didn't see the downside - I meant for the BIG picture, everyone, the country.  

              Basically what we have now is a small number of greedy insurance company executives that profit on sick people, buy off politicians, while making many people suffer and  removing them from society while hurting the whole country and the national economy.

              As far as I can see we HAVE the downside now.

              "The right to be heard does not automatically include the right to be taken seriously." -- Hubert H. Humphrey

              by Candide08 on Tue Nov 08, 2011 at 04:20:39 PM PST

              [ Parent ]

              •  your "basically" paragraph... (1+ / 0-)
                Recommended by:
                Candide08

                ...lays out the problem exactly.

                now you would think insurers would want to fix this before the bubble burts; history, of course, suggests they won't, and i think that's because this isn't really about insurance for those folks who are betting money on your health.

                instead, i think stockholders and executives see insurance as being about guaranteeing certain "income streams" that were disrupted during the mortgage crisis; your health is not all that relevant, as long as it can be aggregated into a risk pool that, over time, will result in the insurer paying fewer benefits for every dollar of premium.

                now if all this should fall apart...well, that's what bailouts are for.

                if that fails, the stockholders will move capital to some other bubble; executives will appear to manage those assets.

                what i'm getting at here is that we have entirely different worldviews than the folks running this stuff, but not necessarily because of greed; it may simply be a carryover of people moving from a different "investment category" with their capital into this one.

                all of this together is why i'm most supportive of either a "medicare for all" solution from the feds, or a canada-style "provincial insurer" approach; both leave the current care delivery infrastructure more or less intact, where changing to a uk-style "government owns it all" approach would be highly disruptive to a lot of delivery systems in place today.

                one more thought about greed and bubbles: this problem we humans have doesn't just play out in business; it's also possible to make a pretty good argument that over the last 200,000 years or so, everywhere we've gone we quickly set about stripping the landscape of all we can get.

                that's included denuding entire continents of forest, "mountaintop removal", and fishing out one species after another. it may or may not also include the extinction of more or less every mammal larger than us.

                so when i see today's health insurance executives doing the same thing...is it greed, or an instinctive expression of our unfortunate human nature...or both?

                "...this election has never been about me. it's about you."--barack obama

                by fake consultant on Wed Nov 09, 2011 at 12:42:10 AM PST

                [ Parent ]

    •  just two comments: (2+ / 0-)
      Recommended by:
      farmerchuck, ocular sinister

      --inertia is something, and i don't think people realize just how strong a force it really can be, and i assume that's why the phrase "keep on keepin' on" has so much resonance for so many of us.

      --for a lot of folks bankruptcy has this huge stigma, but consider this: the very people to whom you owe money would probably never even give a second thought to declaring bankruptcy to get out of their debts - and many do it so they can bail out of the agreements they have with their employees and retirees.

      bankruptcy exists to save folks in exactly your predicament.

      your story is why we have the concept of bankrputcy in law; you have a protection available to keep you from literally being destitute, and, honestly, i think you can say with a clear conscience that you deserve this protection.

      you don't want to get in a situation where something like a sudden jump in the cost of heat makes you lose the house; filing now could save you from that last thing that puts you over the edge.

      now i'm far from being an attorney, but i have done a bit of reading on the subject, and it seems that if the debt that could be discharged is entirely credit card debt, and you have an income below $50,000, you have a pretty good chance of having a conversation with an attorney, and from that day forward you would have no more credit card payments.

      the odds are very good that 90 days later, the debt would be officially "discharged".

      there are exemptions that protect personal and real property from your creditors; that's an excellent reason to at least consult a professional.

      i read on one site that people have used the credit card payment they didn't make that month to pay the attorney fees (in addition to paying an attorney and a "counselor", the bankruptcy court has a filing fee you also have to pay, if i recall it's about $300, but you can make three monthly payments).

      now here's the thing: it has been forever taught to us that bankruptcy is the worst thing ever, that's it's what untrustworty people do...that it's unpatriotic, somehow.

      but i'll tell you what: you do not want to let that one more thing happen that makes you lose the house.

      prices rise, and over time, this is a losing game for you; it's possible that the smartest thing you can do is move past treading water and cut the cord on the credit card debt, which would actually save the house, as opposed to possibly making a tough situation tougher by not filing for bankruptcy.

      like i say, talk to a professional to make sure this is really good advice, but please, please, please, don't lose your house to save Citi or Chase or BofA.

      in the bigger picture, you are way more important than them, believe me.

      "...this election has never been about me. it's about you."--barack obama

      by fake consultant on Tue Nov 08, 2011 at 05:31:39 AM PST

      [ Parent ]

  •  Yes, the poor (and there are PLENTY of them) (3+ / 0-)

    have it so good.   They eat cake all day long.

    "The right to be heard does not automatically include the right to be taken seriously." -- Hubert H. Humphrey

    by Candide08 on Tue Nov 08, 2011 at 05:23:41 AM PST

    •  i was going to reference the... (1+ / 0-)
      Recommended by:
      ocular sinister

      ..."progression of luxury" in the story, but i'll just make a quick comment here:

      forks were once considered to be an extravagant luxury item; so much so that you would take your fork with you to dinner parties at the castle (or in amsterdam, when visiting other burghers).

      it was the 1800s before forks were something that the poor might have more than one of; that same "fork" mentality seems to be at work today with what most of us see as the basics of today's life.

      "...this election has never been about me. it's about you."--barack obama

      by fake consultant on Tue Nov 08, 2011 at 05:42:07 AM PST

      [ Parent ]

      •  The idea is (2+ / 0-)
        Recommended by:
        fake consultant, ocular sinister

        that if you have anything at all, which includes shelter of your own, one set of clothing, and almost enough food to keep your family from dying of starvation, that you're doing pretty well, far better than you have any right to expect, even if you are working full-time just to maintain that pitiful level of existence. Because hey, in other countries people live in cardboard boxes located in garbage dumps and watch their kids waste away from eating food scavenged out of the trash and contaminated with God knows what. You're like, rich!

        It's like the new redefinition of rape they keep trying to hammer through. If it isn't "forcible", it's not really "rape", and if she doesn't fight back hard enough to be seriously injured or killed, then she must have wanted it.

  •  A friend asked me the other day (2+ / 0-)
    Recommended by:
    fake consultant, ocular sinister

    why the banks don't just work with people to keep them in their homes, or make the properties available for the homeless - or something...  Despite my appalling lack of expertise in all things financial, I found it easy to answer.  I told her that they do it because at the same time they were making all those crappy loans, they were betting against them, too.  There is no incentive to renegotiate a loan when you've put money on its failure.  

    It looks an awful lot to me like these folks were doing what has gotten more than one sports participant banned and/or in jail: they fixed the game and bet on it.

    -7.62, -7.28 "Hold fast to dreams, for if dreams die, life is a broken winged bird that cannot fly." -Langston Hughes

    by luckylizard on Tue Nov 08, 2011 at 06:49:14 AM PST

    •  i might say this: (2+ / 0-)
      Recommended by:
      luckylizard, ocular sinister

      if banks write down these loans, they have to raise cash, and that will probably be by selling (preferred) stock or selling assets; either one makes the executives and current stockholders weaker - and if i'm jamie dimond, the last thing i want is to look weaker than lloyd blankfein, with whom i've been personally playing a "big dick pissing game" since about 1994.

      "...this election has never been about me. it's about you."--barack obama

      by fake consultant on Tue Nov 08, 2011 at 07:36:06 AM PST

      [ Parent ]

      •  Of course, you're right, (2+ / 0-)
        Recommended by:
        fake consultant, ocular sinister

        but bigwigs and shareholders have gotten huge benefits from the crap they've done.  They've already had their reward.  Their expectations of returns have risen to unrealistic heights.  People used to make money in the markets by leaving their money there for decades, so that in the end, they made a reasonable profit.  Now, people expect to make a killing instantly.  Their expectations will need to be adjusted.  Whether that will happen is, of course, up for grabs.  I cannot see the market sustaining this casino-like atmosphere forever.  Of course, whoever is at the top at the time will take the heat.  Maybe it's time for Dimon to retire with his gazillions, and let someone else take the inevitable fall.

        -7.62, -7.28 "Hold fast to dreams, for if dreams die, life is a broken winged bird that cannot fly." -Langston Hughes

        by luckylizard on Tue Nov 08, 2011 at 07:49:10 AM PST

        [ Parent ]

        •  i have a theory... (2+ / 0-)
          Recommended by:
          ocular sinister, luckylizard

          ...and i blame razor blades.

          i don't know how closely you followed the first wave of '80s "merger mania", but one of the first companies to develop a product strategy that would drive stock prices was gilette.

          and you saw it in the progression of razor blades: Mach II begat Mach III, then 4, 5, and next we'll have battery-assisted alumdium q-36 explosive space razors; every step along the way gilette could raise prices on schedule by a known amount, and it wouldn't look like inflation.

          stock prices have responded; gilette is still considered a safe investment for the very same reason.

          know who else does it? apple (iPhone du jour), auto manufacturers, electronics sellers...and every bank in the world, in the form of "exciting new investment opportunities" that always seem to make the broker/banker more and more of your money.

          planned obsolescence was around before gilette, but planned "product creep" to bump the stock price really wasn't; now it's the business model for whole industries.

          "...this election has never been about me. it's about you."--barack obama

          by fake consultant on Tue Nov 08, 2011 at 10:21:35 AM PST

          [ Parent ]

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