Subsidizing equity...for someone else

There’s a lot of talk these days about haves and have nots, about the growing economic divide between those who hold the bulk of the wealth (the 1%) and those who work for a paycheck (among the 99%). The 99% can be broken down into a few subgroups that we all know well.

• Those who work for a paycheck, pay taxes and can’t vote themselves a pay raise.
• Those who have worked for a paycheck for 30 years or more, paid taxes, and are now eligible to collect from the Social Security they supported through their taxes while working.
• Those unable to work because of a disabling condition (from birth, illness or injury; this includes disabled veterans). 

I’d like to point to another segment of the 99%, who unintentionally and often unwillingly subsidize the equity of others. They are the essential workforce in communities who are forced to commute long distances or live in substandard housing far from the services they support. They are teachers, nurses, first responders, public works employees, and others who maintain the infrastructure, safety and quality of life in communities. They are also baristas, food service workers, housekeepers, gardeners, farmers, and those who care for our children, disabled and elderly.

Every mile they must drive to work, every time they compromise on substandard housing or education for their children represents a forced subsidy to those who live in exclusive resort communities or high-value locations. And a resort community without a resident workforce is just a resort, an artificial playground for the wealthy.

Expectations

If you still don’t see a connection, think about our priorities in this country: we demand cheap food, good service, trash collection and toilets that flush every time; we expect firefighters to show up to fires, law enforcement to protect our lives and property, and first responders to show up within minutes when we have (or think we have) an emergency.

We also expect electricity and bandwidth to flow without interruption to our homes and businesses—even during freak winter storms or heat waves. We expect hospitals, hotels and convention centers that are clean and sanitary, and well-groomed parks and golf courses. We expect the freshest fruits, vegetables, meat and dairy, and we expect this food supply to be safe and healthy.

Some of us expect others to maintain our homes, raise our children, manicure our nails and ranchettes and buff our Hummers.

Values

Now consider how we value these workers in terms of compensation, job security and social standing. This compact involves an expectation of one-way loyalty and dependability. When any of these essential workers ask for better pay or working conditions, political leaders and conservatives insist we treat them like commie zombie terrorists threatening our very existence and way of life. Conservatives, funded by corporate puppet masters like the Koch brothers or Art Pope, attack collective bargaining and unions with a ferocity that would startle an acid-baked angry baboon.

Many in the 99% struggle with the basics of life: food and nutrition, shelter, health care, and (I would add) dignity, justice, and representation. For the 1%, these essentials aren’t an issue. Wealth ensures they have access the best housing; the best food; the best medical care; and all the ‘justice’ money can buy.

Although only marginally relevant to my point, Elizabeth Warren has made an often-quoted point about the role of the 99% in helping create the wealth of the 1%. I’ll go ahead and include it, since I’m not buying ink by the barrel:

There is nobody in this country who got rich on his own. Nobody. You built a factory out there — good for you!

But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea — God bless. Keep a big hunk of it.

But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

Even conservative pundits such as the National Review’s Reihan Salam acknowledge—if grudgingly—the role of a social contract, while casting Warren as the Devil Incarnate (nearly as big a threat as collective bargaining rights for teachers or firefighters!):

I think it is very, very true that no one in this country, and indeed no one in any country, managed to become rich on her own. Some people become rich by virtue of being born into the right family, or by owning valuable real estate or some other legal entitlement, like a patent or copyright, protected by the state. And then there are people who, in various ways, become rich by serving other people, creating new and distinctive products and processes, etc. 

Tax policy

The above paragraph brings up another issue. Think about the wealth of the classes M. Salam lists above: it is inherited; it is indexed to perceived/manipulated values of commodities like real estate or stocks; or created through patent or copyright (in the U.S., it’s the dreaded ‘big government’ that protects intellectual property, unlike in China). Beginning in the Nixon administration, with surges during the Reagan and Bush years, tax policies have shifted to partially or completely exempt the wealth created though all of the above sources. Think taxes on inheritance, dividends, etc.

One of the finest pieces of writing on this I’ve seen recently (Thanks to my home boy Tony for the tip this evening) is a Stieglitz article in the March 31^st issue of Vanity Fair. Check it out here. An excerpt should be the appetizer that preps you for the main course.

The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.

As a student of the French Revolution (B.A., French Lit.), I am appalled by the utter failure of America’s 1% (and their government) to grasp the cause and effect relationship between blatant economic injustice and revolution throughout history. Let them eat cake, or better yet, let them finance that cake through a payday loan. I fear it will take tumbrels rolling down Wall Street before anyone takes this seriously.

In Idaho, the real estate-dominated GOP legislature decided to tax speculative investors and developers as if they were agricultural property owners, meaning next to nothing. Meanwhile, the actions of these same spec investors in large part fueled the housing bubble that priced working families out of the very communities built by them and/or their ancestors. When investors had strip-mined the manufactured value from these landscapes and communities, remember who was left holding a very large bag of trouble and strife. By the late 90s and early 2000s, Idaho saw a property tax shift away from businesses to residential property owners, with homeowners shouldering 85% of the property tax burden.

Subsidizing community values and real-estate equity

Affordable and workforce housing stakeholders struggle in markets where land costs pose an impediment to affordability, and hence access to housing for many essential residents. Imagine life in a community with no access to health care, nail salons, coffee, wine bars or decent food, no police or fire service, no water, sewer, trash or utility service, and no one to hire when something needs to be repaired, refueled or serviced.

Your typical high-income household wouldn’t last a week; they would have their home on the market while they relocated to a community with the lifestyle (and its underlying infrastructure and services) they are accustomed to. Soon, supply would outstrip demand and the real estate market would crash. Only hard-core survivalists, off-the-grid types, or copper-seeking tweakers would have an interest in the vacant spaces.

An image often comes to mind as I hear the rationale for keeping workers from living near the communities they serve—assuming their workplace is home to mostly wealthy households. I picture a gated community in flames during the wee hours, and fire fighters arriving at the gates after an hour commute from their homes only to find the gate locked. Too bad, so sad...”let’s go out for wings and beers, boys.”

Despite the role played by the 99% in preserving community livability and market equity, realtors and developers fight tooth and nail against ‘inclusionary zoning’ or ‘in-lieu’ fees (aka ‘fair share’ or ‘workforce housing’ fees), which they claim are frivolous and unlawful. They accept connection fees and permits (although they don’t like them), but seem to assume that no one is needed to pick up the trash, treat their sewage, keep the lights on or sling their lattés. It’s like purchasing a car that runs on magickal energy and can only be fixed by magickal fairy mechanics. The idea of 'killing the goose that lays the golden egg' comes to mind.

Our default policy is to assume that these essential workers can be imported as needed and then disappeared ‘somewhere else,’ not unlike flushing waste down the toilet, or discarding the packaging from our latest hi-tech device and assuming the waste fairies will deal with it. We build more and bigger roads to accommodate the daily migration of our workforce to wherever they can afford to sleep. This in turn creates more air pollution, demands more oil and gas consumption, and increases traffic problems, including fatalities, emergency response teams and highway patrols. ‘Let them eat cake…but not here, for heaven’s sake!’

In the Vanity Fair piece, Stieglitz cites Alexis de Toqueville’s description of American pragmatism as “the peculiar genius of American society—something he called 'self-interest properly understood.'” Although I was turned on to the article only tonight as I tried to wrap this entry, I think this sums up the sense wanted to convey.

Stieglitz says it so concisely: “looking out for the other guy isn’t just good for the soul—it’s good for business.”

Here's to looking out for the other guy. http://avenuesforhope.org/

Home Equity First Aid

A self-funding tenant/caretaker model to increase stability for U.S. lenders, neighborhoods, households and economies.

Erik Kingston, PCED / Boise, Idaho / erik.kingston@gmail.com

Roots of the Housing and Economic Crisis


Note. This is a conceptual proposal for addressing current economic and housing challenges; it is meant as a starting point for discussion, and to be modified by and adapted to local conditions. It represents the opinions and observations of the author alone.

Observation
America’s greatest threat in modern times came not from foreign terrorists, but from Americans within our own borders. The unregulated greed of bad actors on Wall Street and the mortgage and real estate industries has led our country and economy to the brink of collapse and tarnished the reputations of these industries and our own government.

Wall street could never have created this problem without an underlying frenzy of speculative investment, low interest rates, appraisal fraud and a real estate industry that profits most when prices are highest. At the 2006 peak of the housing bubble, one in five mortgage issued in Ada County were held by out-of-state investors who didn’t distinguish between a home in Boise, a pork belly future, or shares in an equity fund.

Ripple effects of the meltdown are wreaking havoc in communities and households nationwide. Individuals and families that didn’t participate in the housing bubble have lost jobs, housing and security. They are paying a heavy subsidy for the profit-taking of others. A failure of confidence in banking, financial and housing industries is at the heart of this disaster, and trust must be restored before liquidity and prosperity return.

Patriotism comes in many forms. Lenders have an opportunity to show their patriotism and redeem themselves and their institutions. By setting aside a small handful of foreclosed properties, banks can re-house displaced families with the potential for successful tenancy, slow the hemorrhaging of equity in the housing market, and accomplish more than any public relations campaign ever could.

We can meet this challenge with bold, creative thinking that puts our collective future before private short-term interests. ‘Business as usual’ got us into this mess and will keep us from moving through it. We need businesses to ask not what America can do for them, but what they can do for America.

Home Equity First Aid Model

Goal
To provide self-funding housing market triage that reduces current home equity hemorrhaging, with multiple benefits for households, neighborhoods, cities, states, lenders and the nation’s economy.

Abstract
Lenders are currently wholesaling vacant foreclosures at pennies on the dollar, despite a general ‘buy and hold’ strategy among investors. This practice accelerates equity losses for banks, surrounding property owners and communities. Panic selling is not a sensible strategy, and undermines efforts to restore confidence in America’s economy.

The basic concept of this proposal is to connect displaced tenants or homeowners with vacant properties as quickly and efficiently as possible to stabilize affected households, equity/market prices and the surrounding economy. This requires an agreement between professional property managers (or other sponsor) and lenders to make vacant foreclosures available using short-term renewable leases to eligible tenant/caretakers. Rent collected from these properties would support modest management and maintenance fees, with the net retained for distribution to emergency shelter and transitional housing providers, and/or for use in homelessness prevention and temporary housing based on a ‘housing first’ model. The process would be self-sustaining and would require no public funding.

A portion of the proceeds could be placed in escrow to assist with rehabilitation or repairs. The concept is relatively simple, although details of the execution depend on a clear understanding of the process and benefits among everyone involved.

Need
The past several weeks, months and years have seen a dramatic escalation in the number of working poor who are either homeless or within days or weeks of being homeless. Layoffs, illness, divorce, abuse or abandonment are among the changes that destabilize housing. For the first time in ten years, regional emergency shelters and transitional housing providers have waiting lists—lists that are growing daily. Idaho currently has several thousand homes that are either currently bank owned or that are at some point in the pre-foreclosure process (estimates put this in the tens of thousands of units statewide).

The impact of vacant foreclosures is difficult to calculate precisely for each community, but available formulas are generally referenced in the current U.S. market, and vary for each affected stakeholder:

• Families and Individuals. Displaced households face numerous challenges, from job retention, school attendance, family stress and meeting basic needs. Homeless shelter and transitional housing providers are experiencing record waiting lists earlier than in any past year, while facing funding shortfalls from both public and private sources. The average cost to re-house a family (moving, storage, motel, move-in costs, application fees, etc.) is $3,500, not including intangible costs of stress that can increase rates of divorce, abandonment and abuse.

• Households and Neighborhoods. Vacant foreclosures have an immediate and cumulative negative impact on surrounding property values. Nearby homes lose an estimated 0.9% to 1.14% of their value each year foreclosures remain unoccupied. Property crime rates also increase. This devaluation ultimately reduces local tax revenues.

• Communities. Households displaced through foreclosure/eviction present an immediate and substantial burden for local government and social service agencies. Local governments can also spend an average of $30,000 per year for each vacant property in code enforcement and public safety costs. These funds are diverted from other municipal priorities. Vacancies can also trigger commercial and other disinvestment in a community, which further limits potential revenue, job creation and revitalization.

• Lenders. Vacant foreclosed properties are liabilities, while occupied and maintained homes are assets. Lenders lose an average of 50% of a loan’s value through foreclosure. In a down housing market, lenders face higher losses on their distressed inventory. Foreign brokers had been purchasing bulk distressed properties at 35 cents on the dollar (or less) for much of 2008 as subprime losses accumulated. Things have only gotten worse with the start of 2009.

• Economy. Instability in the housing market is seen by many as the root cause of many problems facing the economy and financial markets.

• Housing Industry. As home prices decline, real estate and mortgage professionals (and others in the housing and construction industries) are struggling. The ripple effect of this in turn removes additional energy from the local economy, and further increases unemployment rates and the foreclosure/delinquency burden in the system, and the cycle begins again.

Incentives
Reducing vacant and abandoned properties would have immediate and lasting benefits for virtually everyone impacted by the current crisis. Every stakeholder has an interest in successful implementation of this concept in every U.S. community.

• Households that can afford modest rent and move-in costs can secure temporary housing that in turn allows them to remain employed or secure employment. Family stress is reduced.

• Neighborhoods and property owners see a stabilizing influence on local property values and crime rates with each vacancy that is re-occupied.

• Communities would see reduced code enforcement and crime-related costs, stabilized tax revenues and a more positive environment for commercial investment.

• Lenders would protect their portfolio’s value until housing prices stabilize and begin to rebound. They would save on repairs and maintenance as the property management is outsourced and covered through the rent stream. As values return, lenders would have the option to put properties back on the market and give tenants reasonable notice in the event of a sale. This also creates an opportunity for banks receiving taxpayer funds through the national ‘bailout’ to contribute tangible in-kind support to local and national economic recovery. It is PR gold.

• Political leaders would benefit from endorsing a program that creates accountability and opportunity, and that has the potential to address the root causes of the economic crisis in a very visible and presentable program.

• The housing industry realizes an immediate and long-term benefit in the stabilization of home prices. Once prices begin to show real stability, investment will increase and generate activity in all sectors of the industry.

Foreclosure landscape
Note. The Neighborhood Stabilization Program is currently limited to $19.6M for the state of Idaho. This breaks down to purchasing 200 units at an average investment of $98,000. The actual number of foreclosed properties is much higher than this, as shown in the table below (fine sample counties). Many feel that rural communities are underrepresented in conventional foreclosure estimates, which could translate into higher overall rates for Idaho. The American Reinvestment and Recovery Act (ARRA) contains another $2B that will be distributed on a competitive application basis.

Health Insurance: Idaho Style

I want to put in a plug for a common sense, universally acceptable health insurance option that has been overlooked for too long. I first encountered this proposal during a public meeting in 2009 coinciding with President Obama's Health Care Town Hall presentation.

The proposal is the product of Uwe Reischl, MD, PhD. This short bio gives a hint at his credentials in the Health Policy field:

"[Dr. Reischl]is a Professor of Health Sciences at Boise State University and a public health physician with a focus on public health policy and occupational health. Dr. Reischl has contributed to the assessment of global health conditions and has been involved in the evaluation of health care systems internationally. Dr. Reischl served as a science advisor to the Global Advisory Committee on Health Research of the World Health Orgainization (WHO) in Geneva, Switzerland."

So, a bit more qualified than your average politician, blogger or 99% of the folks expressing an opinion on the topic. In a nutshell, his idea is simple:

We already have a truly American model for a privately run, publicly accountable and equitable system: The Public Utility. Think about it...we all pay for the power, gas, or water that we use. They are more or less essential to our lifestyle, but in many cases are run by private corporations. In order to create some transparency and accountability for this essential service, we have a Public Utility Commission that offers customers and ratepayers a chance to oversee rates, costs and operations. The P.U.C. serves as a type of regulatory body to ensure that rate increases are both necessary and proportionate to the cost of service delivery, planned improvments, etc.

Dr. Reischl proposes that this existing model could be a natural and home-grown answer to addressing one key piece of our health care puzzle: insurance. With insurance rates increasing 39% in some markets this month, fewer employers offering any type of coverage, and employees opting out of insurance altogether to focus on making their house payments, it's clearly a model that is unsustainable.

Check out the Health Insurance Public Utility Corporation proposal here.

Ode to Antisocialists

Socialism works for me.
There really is no doubt.
Each time I flush a toilet,
or take the garbage out.

It lets me get from here to there
By rail, air or highway
For each of them I pay a share
And get to travel my way

It’s no surprise there did arise
A Fox-created schism
To whip up lots o' fear and lies
'bout health care socialism

The bloviating haters rage
At Obama and Pelosi
They take their marching orders
From Insurance Mafiosi

I finally traced the origins
Of Obama-bashing Birthers
They are direct descendants of
Those fearful old Flat-Earthers

They think that threats and blackmail
Make them the best debaters
When this just makes them bullies
Like some wussy old dictators

They say they want the status quo
They like their health care private
If we cede these dolts our ship of state
Into a ‘berg they’ll drive it.

Modern Piracy - Same As It Ever Was

Stede Bonnet and Bernie Madoff, Gentlemen Pirates 

Some 'old-school' pirates use firepower as a means of plundering their victims. Nowadays though, that just seems so...uncivilized. Bernie Madoff had his own tools of choice: the naked greed and blind faith of his own victims, a list that grows longer by the day.

Like Stede Bonnet (aka 'The Gentleman Pirate'), Bernie was a rich guy with political connections. When Stede Bonnet showed a certain incompetence as a leader of pirates, his crew signed on with Edwards Teach (aka Blackbeard), and Bonnet traveled as a guest on Teach's Queen Anne's Revenge for awhile. In a bizarre move, he received a pardon from North Carolina's Governor Charles Eden, and was encouraged to become a privateer against Spanish merchant vessels, essentially becoming a state-sanctioned pirate. Bernie Madoff shares this in common with Bonnet...when several regulators and others on Wall Street realized Madoff was running a scam a few years ago, the SEC manufactured a sort of loophole to sanction his continued operation.

I found myself wondering whether Madoff was a psychopath or a sociopath, since his actions reflect a complete lack of conscience in the face of the enormous suffering and calamity he has wrought. Some are weighing in on sociopathy, but I'm no expert.What strikes me as really strange is that such a large number of Madoff's patsy were fellow Jews. Some have made comparisons between Madoff and the Nazis who pillaged the art and other property of Jews during the war, but I won't go there.

Madoff and the others involved in the pantheon of financial rape and pillage during the George W. Bush Free-Market Reign of Contempt represent an emerging Republican/Libertarian hero form that should sound alarms for human culture in general.

This culture has its own trickle-down effect that I've seen emerging lately. Most people I talk to on the housing hotline are in trouble because of either poor judgement or bad luck...often the latter made probable by an excess of the former. Recently, though, I've been hearing from renters who have lost their housing due to a failure of judgement and/or conscience on the part of their landlords. Here's how it plays out:

A family signs a lease to rent a home; they pay first month's rent, a security deposit and maybe a last month's rent on top of that. This can easily run over $2,000 in Idaho, a significant commitment for households in a shaky economy. Within weeks, or sometimes only days, of moving in, the renters open the door to a notice of eviction because the landlord is in foreclosure. The bank is seizing the property and wants everyone out.

This means the tenants have lost their move-in costs. They must find another rental, for which they will be charged more move-in costs, and they must now move all their stuff, again. For most folks I talk to, this could mean they wind up in a homeless shelter. They might lose their job, or fall behind on their car payments as they scramble for housing. Some wind up in motels paying by the week, which is a seriously expensive form of housing.

Maybe the landlord knew he or she was setting the tenants up, or maybe not. Maybe the landlord was gambling that the move-in costs would help catch up on the mortgage payment, and things would work out with no harm done. The landlord may or may not have purchased the property from an unethical and greedy mortgage broker, who bundled and sold the loan with other junk to a greedy and unethical lender, who put the loans into a virutal Cuisinart, then pumped the resulting foul slurry into the market.

What troubles me is that these landlords, and the chain of fools and 'gentlemen pirates' above them, are destroying the lives of others, seemingly without any conscience. During the Bush administration, America has seen a new financial terrorist/pirate role model emerge. People with lots of money and a glaring host of pathologies. These folks keep score using money, in the form of ill-gotten gains, golden (or brown) parachutes, obcene salaries, etc.

There are some essential approaches we take when dealing with our own needs relative to the needs of others:

• There is the 'Empath' approach, in which we take into account the impact of our actions on 'the other,' whether the other is nature, another person, species, class or culture. The personal return on investment is limited by our consideration and conscience. This is sometimes referred to as 'taking the high road.'
• Then there is the opposite approach. Think Enron, Bush, Cheney, Madoff, Isreal. Think insurance companies, the coal, oil and U.S. auto industry. The first and last question before an action is: how can I meet my needs at the expense of the 'other?' No amount of sacrifice on the part of others is too great to ensure my own personal enrichment or power.
  

The past few years have been a costly and demoralizing education about the indifference of the universe to human endeavors and good intention; it is in a sense a hologram of a larger reality of human culture that has flourished in the past eight years, give or take. It's something we need to change, somehow.

Cheers, me Hearties.

Huevos Nuevos

 

Vaya con Huevos en 2009.

The first egg of 2009 appeared around 11am MST. It's about 80% the size of the eggs so far, which could mean one of the veteran layers is slacking off; it could also mean Iris or Rose (one of the younger girls) has achieved henhood. Whichever, I'm arbitrarily assigning symbolism based on the potential of an egg and its association with creation and renewal.

I'm hoping for movement towards a more peaceful world, for good health, humor and progress on many fronts, and for resilience in the face of adversity. I hope to be a better person each day, and to give myself and others space to be imperfect along the way. I hope for more eggs.

I've discovered that a daily blog is not in the cards so long as I try to make each entry pithy, insightful and fully developed. So the alternative is an abbreviated thought or two for the day, and a few soft-boiled eggs. No promises, but I'll do my best. The absence of entries does not mean an absence of opinion.

My primary New Year's Resolution in 2009 is for...resolution. The most immediate hoped-for example involves our three-year quest for something resembling justice after the damage to our home by an incompetent boob of a contractor. I look forward to tying up all the loose ends left in his wake, forging ahead and not spending another nanounit of thought or energy on the experience.

On a lighter note, we were pleasantly surprised by a visit from local Sultan of Solar, Baron of Bikes and Prince of Poultry Jay Blackhurst, along with his wife artist Amy Westover and their darling baby Tesla June. Jay knew I'd want to see his new spankin'-new human-powered minivan, the bakfiets from Clever Cycles in Portland. Check it out below:

 

Jay with Amy and baby Tesla (under the hood) cruising the 'hood.

So here's wishing everyone a New Year of promise and delivery. A year of good intentions, and  remaining open to positive opportunities and outcomes. A year of healing and hope for rational leadership that maintains a focus on common sense, empathy and progress. A year (at least) of learning from the mistakes of the past and making intelligent decisions as we move forward. A year when we are in fact too smart, ethical and worthy to fail.

Cheers.

Cold Chicken

Poetry inspired by the season

first lay
nut-brown egg appears
miracle, or trickster prank?
tight-lipped chickens mum

year end
watching year wind down
like a drunken top wobbles
better spin again

friends
life is a test, wow!
we study then pass or fail
toast fellow students

made off
wall street pirate
smooth hands in other pockets
armani eye patch

office window
snow drifts unhurried
geese slip away between flakes
sleight-of-wing return

2008
another year gone
and drags my pension with it
forever we work