Reposted from my guest blog on Rooflines.
- In Dear Mom (Part I) I talked about the absolutely bizarre and vitriolic discussion around what role US federal housing policy played in the collapse of the global economy. Basically, it played a very minor role, in spite of lingering (or, should I say, malingering) opinions to the contrary. When even the industry publication American Banker weighs with a super geeky online commentary saying pretty much what I already said in my blog post, I think we can all put this bugbear to bed.
- In Dear Mom (Part II) I took a pretty heady Wall St Journal editorial by Republican dissenters to the Federal Crisis Inquiry Commission and broke down their top ten reasons for the economic collapse into plain English. I’m proud of this blog post, really. It works. And my mom says you should read it because it’s good for you.
Invest in Employment:
- One problem with our current employment system is that most publicly funded employment programs tend to focus on non-skilled or under-skilled workers – the very lowest income workers out there. While these folks definitely need work supports (which by the way should also include child care, paid sick leave and health benefits of some kind), we don’t have strong programs nationally that financially support the re-training of mid-career and older workers. With so many baby boomers pushing back their retirement dates, upgrading computer skills and teaching new technologies to make them more competitive is important to maintaining their economic stability. Nor do we have programs that can employ the millions of young, eager college graduates – many of whom would be interested in public service efforts. Expanding Peace Corps and AmeriCorps, and building programs that create incentives for hiring new workers (especially in targeted industries like green housing, medical technology and records, transit-oriented development, water treatment and delivery, education and childcare) are practicable and would make a big difference.
- We also need to beef up public and private lending programs to support small businesses. Many business owners are being denied credit, or simply choosing not to go after credit because the general economic outlook is so flat. Developing programs that make credit available cheaply and with a higher risk tolerance could help spur growth in this important submarket.
- Reform the bankruptcy code, allowing first home mortgages to be restructured by the courts. We should have done it when we had the chance, but at the time our national leaders were too worried about health care reform. We face a stark choice here: reform the bankruptcy code or continue with a broken system that encourages folks to default and walk away from their homes, leaving creditors in the lurch. That’s what’s mostly happening now. Ugh.
- Improve other alternatives to foreclosure, such as short sales, distressed mortgage note purchasing strategies, bridge loans to homeowners who have suffered reductions in income, leaseback programs and so on. Many of these programs have been tested in various markets, frequently with clear success, but none of them has been embraced as a panacea. They shouldn’t be. They are all niche solutions, and what we need is about 10-15 niche solutions, each of which can address 5-10% of the troubled housing stock. Aside from bankruptcy reform, there is no far reaching alternative other than convincing banks to start reducing principal because, you know, we think they should. That’s gonna happen when pigs fly, so we’d better start putting in the hard work of mucking our way out of this mess house by house. I’m serious. It’s gonna be this way for years, and the only question is whether or not we can make the process shorter be being more creative and aggressive with solutions now. I think we can, and we’re long overdue to invest seriously in that process.
- Reform executive compensation, particularly at the largest firms, where pay can equal $2,500 per hour. Check out this very nice summary published in 2007 by Wharton business school, which includes recommendations like exerting more control over board procedures for executive compensation, creating safeguards that limit CEO speculative behavior and inappropriate risk-taking, and eliminating golden parachutes.
- Reinstate the Glass-Steagall Act, particularly those aspects of the law that separate investment banking (the highly speculative part of banking which issues and purchases securities) from commercial banking (the boring part of banking which takes deposits and manages our checking accounts). The idea is that you don’t want bankers taking undue risks with capital from depositors (mostly us little folks with our checking and savings accounts, pensions and retirement funds). There are lots of other banking reforms under Dodd Frank that are being hashed out now as well (like disclosing credit default swaps and other hedge products through a regulated exchange). In general, there needs to be greater transparency and clearer lines about how much capital banks are allowed to put at risk in comparison to their equity. In other words, banks should have solid rainy day funds (because rainy days happen), and the multiplicity of regulators should be able to understand and oversee their business.
Limit bank lobbying. Why? Because bank lobbying ranks only behind the health care industry in terms of financial contributions and influence peddling, having spent an estimated $350 million last year, beating it’s previous year’s record for the sixth straight year (and out-lobbying the defense industry almost 4:1). As a matter of fact, limit all lobbying. Lobbying stinks. Really bad. It clearly privileges the wealthy and deeply compromises our political process by sacrificing fairness in favor of favors. Many knowledgeable and capable advocates (not to mention our plebeian selves) are effectively silenced by industry lobbies that can afford access we simply can’t. If Occupy Wall Street has one thing right (and I believe it has more than one thing right), then fairness is not possible in a democratic process so deeply influenced by financial perks and favoritism. Double ugh.